How Real-Time, Item-Level Inventory Visibility Drives Retail to Efficiency
In the fast-paced world of modern retail, the competition is fierce, customer expectations are higher than ever, and technology continues to reshape the landscape. For retailers, maintaining margin integrity and ensuring efficient operations in an omnichannel fulfillment environment has become an imperative. While organizations have spent the last several years investing in technology to see, ship and optimize their inventory and margin integrity, many are missing a critical factor in the equation: visibility into inventory at rest. It’s just as important to have visibility into your inventory at rest as it is to have visibility to the inventory when it’s in motion. By doing so, retailers can not only safeguard their margins, but also optimize store associate time by keeping them on the store floor, where they can provide exceptional customer service.
The Retail Challenge
Omnichannel retailing represents the frictionless integration of physical stores, online shopping, and mobile commerce, offering consumers a consistent, cohesive brand experience across all channels. While this approach brings numerous benefits, it also introduces a set of challenges, particularly around inventory management.
In an omnichannel fulfillment environment, inventory is spread across various locations, including warehouses, distribution centers, physical stores, and even third-party suppliers. It has now become the norm for customers to buy items online and return in a store, and vice versa. This dispersion of inventory makes it crucial for retailers to have clear visibility into their stock at rest, ensuring that they can meet customer demands.
The Technology Challenge
In the last 30 years many investments have been made in warehouse management systems (WMS), transportation management systems (TMS), order management systems (OMS), and point-of-sale (POS) systems. And although much progress has been made, those systems continue to struggle to realize their full potential value as retail has become so much more complex. The main cause is that these systems are missing information provided by item-level visibility, particularly in the world of omnichannel returns management. Order management needs to see that a full-price item that was purchased online is now available as part of a specific store inventory. It should be able to return that item immediately back into the available inventory to sell at the highest margin possible before it winds up on the 75 percent off rack because no one knew it was there. You also want to avoid disappointing the consumer who was ready to buy that item at full price only to find it “out of stock” when they search for it online.
Inventory Visibility Comes to the Rescue
Visibility has quickly become a key tool to manage the increased risk supply chains are facing. Recently there has been an increasing focus on inventory at rest, in warehouses and in retail stores.
According to CSCMP’s Annual State of Logistics Report, in 2022, the U.S. business logistics cost went up as much as 19.6 percent, the largest increase to date — of which 52 percent was due to an increase in inventory carrying costs. Filling shelves and miscalculating demand can have catastrophic effects in this economic climate and, ultimately, a negative impact on customer experience.
The global culture is increasingly one of on-demand, single-day delivery, and all of it for free. This has driven the creation of a new category which is called real-time, item-level visibility (RTILV).
Item-level tracking, enabled by technologies like 2D barcodes, RFID (Radio-Frequency Identification), IoT (Internet of Things), and advanced inventory management software, provides precise, real-time information on each item as it moves through the supply chain. This granular, yet harmonized data is crucial in improving decision making, optimizing inventory levels, and reducing waste. Understanding the movement of individual items helps in creating more accurate demand forecasts. It allows organizations to analyze trends on a micro-scale, considering variables such as location-specific demands, seasonal trends, and consumer preferences, which can lead to better production planning and inventory management.
Companies have implemented RTILV solutions at a number of high-visibility retailers, helping them exceed some very demanding key performance indicators, including inventory accuracy above 99 percent, shipping and receiving process accuracy at 100 percent, and search and pick time reductions exceeding 70 percent.
For restaurant and grocery retail there exists the additional use case around food safety. Traceability ensures easy item identification and authentication. For instance, in case of a product recall, item-level tracking can prove invaluable. By tracking each item, companies can quickly identify and isolate affected products, minimizing the scope of the recall and reducing associated costs and risks. With legislation around traceability becoming more stringent, it's important to have access to full end-to-end visibility across all parts of the supply chain, whether the inventory is in motion or at rest.
Consumers are increasingly demanding transparency and authenticity. Item-level tracking allows for the seamless sharing of information with consumers regarding the sourcing, production and distribution of products. This not only enhances brand reputation, but can also provide an advantage in the market.
How Visibility Impacts Margin Integrity
Maintaining margin integrity in retail is about safeguarding profitability, which can be easily eroded by increased inventories, operational inefficiencies, excessive markdowns, and stockouts. According to an extensive study by the ECR Retail Loss Group, correcting inventory inaccuracies lead to approximately 4 percent to 8 percent of increased sales in the participating retailers. Visibility into inventory at rest can help improve profitability. It helps to reduce overstock as overstocked items tie up capital and warehouse space. By having a clear view of what's in stock and where, retailers can avoid overordering and reduce carrying costs. It helps retailers to predict and prevent stockouts, ensuring that they have the right products available when customers want them. This avoids lost sales and the need for markdowns on overstocked items to compensate for unsold goods. Inventory visibility also improves inventory turnover.
By understanding which products move quickly and which are slow to sell allows for better inventory management. This can lead to higher inventory turnover rates and improved cash flow. Visibility into inventory levels also enables dynamic pricing strategies based on demand and availability. Retailers can adjust prices to optimize profit margins on high-demand or overstocked items. Lastly, enhanced visibility can help identify discrepancies between actual inventory and recorded stock. This can deter theft and inaccuracies, preserving margin. Item-level visibility ensures that an OMS can fulfill with the highest level of margin integrity for the retailer.
Efficient Store Associate Management
Beyond margin integrity, inventory visibility impacts the day-to-day operations of retail stores, particularly in optimizing the time spent by store associates. When employees spend less time searching for products and more time selling with customers on the sales floor, retailers can provide a superior shopping experience while increasing profits. When associates have instant access to the location of products in stock, they no longer need to hunt through backrooms and storage areas. This means more time on the shop floor assisting customers.
When associates are readily available on the floor, they can provide immediate assistance, answer questions, make recommendations, and guide customers through the buying process. This level of service can significantly impact sales and customer satisfaction.
With real-time inventory visibility, associates can also verify product availability for customers, which reduces frustration and ensures accurate fulfillment of orders. By freeing up associates to focus on customer service and sales, retailers can see increased conversion rates and potentially higher average transaction values.
And importantly, sales associates often prefer to be engaged with customers rather than performing tedious inventory searches. Happy employees are more likely to provide better service, sell more, and stay longer with the company. Retailers that are able to harness this competitive advantage will emerge as leaders in the next phase of retail growth and expansion.
In the retail industry, visibility into inventory at rest is not merely a luxury but a necessity. It serves as a critical tool for maintaining margin integrity, reducing operational inefficiencies, and ensuring the optimal utilization of store associates.
In this highly competitive environment, the retailers that leverage technology to gain full visibility into their inventory position will not only protect their bottom line but also elevate the shopping experience for their customers, ensuring long-term success in an ever-evolving industry.
Bart De Muynck is a strategic advisor at Mojix, a provider of enterprise SaaS solutions for the automation and digitization of operations and supply chains in the luxury, retail, food, and industrial markets.
Bart De Muynck is an industry thought leader with over 30 years of supply chain and logistics experience. He has worked for major international companies, including EY, GE Capital, Penske Logistics and PepsiCo, as well as several tech companies. He also spent eight years as a vice president of research at Gartner and, most recently, served as chief industry officer at project44. He is a member of the Forbes Technology Council and CSCMP’s Executive Inner Circle.