The Reward of Omnichannel System Integration
Over the past decade, leading retailers have become increasingly more focused on their customers’ desire to see available store inventory online. A 2015 Forrester Research report quantifies it, showing that an overwhelming 89 percent of consumers expect this visibility when purchasing on a retailer's website. This functionality is critical to both drive foot traffic to the store, and specifically to enable buy online, pickup in-store (BOPIS) order fulfillment flows.
To facilitate the cross-channel sale, retailers have responded in the last five years with heavy investments of money and human capital to update their order management systems to track order creation from the digital channel to the ultimate fulfillment by stores, but there's still work to be done from a technology and process standpoint for many retailers just starting to enable their omnichannel strategy.
The Case for a More Integrated Omnichannel System Landscape
The critical integrations and functionality needed for store inventory management (SIM) and point-of-sale (POS) systems to feed the order management system (OMS) an accurate view of network inventory are often rigid and not easily changed by an organization’s IT team. Brian Kilcourse and Paula Rosenblum of Retail Systems Research (RSR), in its 2015 Omnichannel Benchmark report, note that:
“Retail winners are much more keenly aware that the IT portfolio in general was not designed with the customer dimension in mind (most legacy retail software is overtly product oriented), and that store systems in particular will be too difficult to adapt to an omnichannel mode of operation.”
The RSR report mentions specifically that 43 percent of retailers surveyed deemed “winners” still say that their store systems are "too difficult to change and adapt to an omnichannel strategy," while 40 percent "don’t feel their inventory and order management systems integrate well across all channels."
Why it’s Historically Been Hard to Integrate
During my career designing and implementing omnichannel solutions, one of the main issues that my clients experienced was the requirement to increase the frequency of the POS feeds to the OMS via the SIM system. Most of my customers had decade-old POS technology which only synchronized the day's transactions (sales, receipts and returns) to external systems once a day. The issue this causes is that the inventory picture, leveraged by the OMS to make decisions around order fulfillment, is stale and doesn't reflect real-time inventory positions in the stores.
To counteract this, OMS providers have allowed retailers to interface or configure a "safety stock" level for each SKU-store combination to protect the allocation decision against changes in inventory due to sales and inventory shrinkage. However, this is a double-edged sword for most retailers. The reason is that it precludes the sale of the protected inventory, while at the same time protecting the company against scenarios where inventory was said to be committed to a customer, but in reality it couldn't be located or serviced in-store.
The balance of protection is a hard lesson to learn for many retailers. The complexity arises because each company has their own requirements based on their store format, frequency of store replenishments and SKU assortment, all of which vary by concept and geography of their stores.
The second primary reason is that legacy SIM systems being integrated to an OMS do not track store inventory by location. This has led to increased fulfillment cost for omnichannel strategies because orders get sent to a store for inventory that cannot be sold to the customer (e.g., damaged inventory not classified as “unsellable” and accessories/mannequin inventory shows as “able to sell”). Leading software providers now offer a framework for retailers to track inventory between the back room and the sales floor, but because the initiating system views all inventory in one bucket, the functionality cannot be leveraged to give an optimized pick-path approach.
The Need for More Tightly Integrated Systems
As retailers assess their upgrade options for a new OMS to deliver a single view of inventory, it will be equally important to consider how store inventory systems track and update that inventory picture. Without synergy between the two systems, the OMS could be making a less-than-optimal decision based on outdated data, and the repercussions affect the bottom line and, more importantly, the customer experience by negatively reflecting on the brand’s ability to honor committed inventory. With so much on the line, retailers will definitely need to focus on this critical area to enable their successful omnichannel initiatives.
Zach Zalowitz is the omnichannel practice lead, supply chain services, at SCApath, a consulting firm that specializes in designing and implementing supply chain solutions that enable omnichannel commerce.