Integrated Fulfillment: The Direct/Retail Balancing Act

Inventory flexibility is the best way to maximize sales in today’s economy. But many challenges prevent marketers with both direct fulfillment centers and retail stores from maximizing the inventory they have. E-commerce, catalog and retail have different planning methods and accuracy issues. It’s one thing to get the size distribution right for a region and store, but it’s another to plan for the way colors sell.

Many e-commerce sites will not take orders if the fulfillment center is out of stock or on back order. This gives customers the erroneous impression that the item isn’t available, even though it may be stocked in stores. And even if it is available, it may not be in a store nearby.

If your primary marketing channel is retail, you don’t want inventory riding around on trucks between stores or back to the fulfillment center to fill direct orders. At the same time, if you’re a store manager, you don’t want direct orders to strip your inventory of best-selling items if you don’t get credit for the sales. All channels — retail, web, catalog and wholesale — compete for best-sellers.

Many marketers are taking a very conservative approach into this year’s fall and holiday seasons. They’ll pass up sales rather than be significantly overstocked. Do you really want to lose a sale because you can’t get it to your customer conveniently?

8 Synergistic Strategies
Here are eight ideas to consider for achieving channel synergy to improve fill rates, customer service, sales and profitability.

1. Develop a nimble inventory strategy. Don’t let inventory get “frozen” in a channel.

2. Determine who in your merchandising or inventory control organization will make decisions about inventory planning by channel, and who will decide on purchases, planning assortments and the like.

3. Consider implementing customer remote order with store pickup. Improve merchandise planning by channel through an understanding of how items and categories sell differently.

4. Get marketing and merchandising planning forecasts in sync.

5. Put merchandise demand projections and receipt plans in line with marketing’s weekly projections.

6. Protect inventory availability for a channel until initial selling trends are apparent.

7. Extend vendor product offerings and reduce inventory levels through vendor drop-shipping.

8. Adopt retail store fulfillment of orders from e-commerce or catalog customers.

Direct Orders From Stores
Your first priority always should be to have optimal inventory available in the fulfillment center — it’s the lowest cost way to serve customers. If that fails, you’ll want to “save the sale” — and the idea of filling customer orders from retail stores isn’t anything new. What is new is the ability to automate store fill allocation of customer orders with a variety of user-defined business rules.

Systems that do this are either batch- or online-integrated to the retailer’s merchandising systems. Plus, they place affordable systems in stores for order fulfillment. Here are a few examples of retailers that have implemented somewhat different solutions from two vendors.

• Title Nine Sports uses MICROS-Retail’s cross-channel inventory broker, Locate. Each company can identify inventory in alternative channels and have those items reserved against demand. Those orders are shipped to the customer’s home, office or gift recipient, or set aside at the appropriate retail location for store pickup.
  Locate’s Order Broker module has system-controlled business rules that determine where a product can be picked and shipped from. Prior to Order Broker, a user had to manage all the decisions. Order Broker has decision rules for checking to see whether there’s a purchase order that’ll come in within days, which location has the most inventory and which stores aren’t available for picking, such as a new store.
• Jones Apparel Group, a conglomerate that operates the 800-store women’s apparel and shoe chains Jones New York, Nine West, Anne
  Klein, Bandolino and Easy Spirit, has successfully installed VendorNet’s StoreNet system. In developing StoreNet, Sharon Gardner, founder and president of Delray Beach, Fla.-based VendorNet, applied the concepts in her firm’s vendor drop-ship software to fulfillment of direct orders from stores.
  Jones Apparel has thrived using the system to maximize e-commerce sales through store fulfillment, without adverse effects on store operations and inventory.
• CompUSA is also live with StoreNet. Initially in two pilot stores, it will have 50 stores on the system when complete.
  The StoreNet order fulfillment process allocates orders and publishes them to stores based on user-defined rules such as inventory availability, safety stock levels, proximity to the customer and store preference setting.
  At the store, a salesperson prints pick tickets for all the allocated orders.
  Inventory is picked from the store and staged for packing and shipment. Picked inventory quantities are confirmed in StoreNet, which produces packing slips and shipping labels for confirmed items. When a carrier picks up the package, a ship confirmation triggers an update to the order management system for billing to the customer.
• JoS. A. Bank Clothiers, with more than 450 men’s apparel stores nationwide, was an early adopter of cross-channel order processing from MICROS-Retail, a unit of MICROS Systems. Store associates have access to the inventory positions of other retail locations via MICROS-Retail’s Tradewind Retail POS, or to its direct commerce operation using MICROS-Retail’s CWDirect order management system. Store associates can place an order against direct commerce inventory, and that order will seamlessly flow through the fulfillment process as if the order came directly from the customer.

Complex Business Rules
At the heart of store fulfillment systems like these are user-controlled sets of complex business rules that take into account saleable inventory quantities, safety stocks, overstocks, newly allocated orders, split shipment rules, proximity to the customer and more.

Such “save-the-sale” concepts can create a marked increase in customer retention and satisfaction while driving retailers’ top-line revenues. They allow you to maximize e-commerce sales through expanded product selection (and size and color availability), impacting the growth rate of e-commerce sales compared to store revenue (less foot traffic, more click traffic).

They also increase your ability to reach new customers with store merchandise, while making you more efficient at selling down corporatewide inventory — hopefully at full price. Efficiency is also increased through elimination of store-to-store calls and transfers, which reduces manual effort. Second-package shipment costs are offset by closer proximity to the customer.

With stores able to go on and off store fulfillment according to user-defined business rules — which are rules that also can give credit to the store salesperson for filling the order — turf battles over inventory are lessened.

At a time when inventory is lean, this approach can maximize sales and customer satisfaction with business rules that give you the flexibility you need.

Paul Sobota is a vice president of F. Curtis Barry & Co., a multichannel systems selection and implementation, inventory management, and fulfillment consulting firm (psobota@fcbco.com).