Optimize Order Management for Omnichannel Success

Transcription

1 Optimize Order Management for Omnichannel Success Order management systems have long been a key bridge between the customer-facing and back-end areas of omnichannel operations. Today, with stores doubling as fulfillment locations and retailers seeking ways to maximize their entire enterprise s inventory investment, having a powerful, centralized order management engine is critical to the inventory availability knowledge that lies at the heart of any retailer s omnichannel strategy. Sophisticated order management systems are also essential for establishing and executing the business rules that balance competing internal interests while efficiently and cost-effectively meeting empowered customers requirements. SPONSORED BY

2 Omnichannel retailing is commonly said to consist of two broad areas. One part is the seamless crosschannel customer experience still just a goal for many retailers, but one that many have moved much closer to in recent years. The other major part consists of the back-end/internal systems that make omnichannel functionalities possible, including transactional and loyalty systems, CRM and marketing applications and the full range of supply chain and fulfillment solutions within the retail tech stack. A key bridging system between the customer-facing and back-end sides of omnichannel operations is order management. As the routes customers use to purchase products have multiplied to include online, mobile, social and in-store devices, the order management solutions these purchases feed into have themselves grown more powerful and sophisticated. Internally, order management has historically been closely integrated with a retailer s inventory, fulfillment and logistics systems. In this omnichannel era, with stores doubling as fulfillment locations and retailers seeking ways to maximize their entire enterprise s inventory investment, order management can and should be connected to store operations and workforce management systems, and also be capable of accepting input from a retailer s merchandising and marketing departments. Integrating order management solutions across channels remains very much a work in progress: only 34% of retailers have customer order management systems that are shared by their brick-and-mortar and online channels, according to the 2012 RIS/EKN Cross Channel Tech Trends Study. In contrast, 62% of surveyed retailers share fulfillment and inventory systems across their physical and digital channels. Having a powerful, centralized order management engine is critical to the inventory availability that lies at the heart of any retailer s omnichannel strategy. Without inventory availability and visibility, retailers only have a single channel-centric approach to the business, according to the Omni-Channel Retailing 2013 report by Aberdeen Group s Chris Cunnane. In the ever-evolving omnichannel environment, a single-channel approach is a recipe for failure. The May 2013 report notes that 62% of companies Aberdeen Group identifies as leaders share up-todate order management information across channels, compared with only 37% of followers. Half of leaders do the same with up-to-date product information, compared with 43% of followers. Cunnane notes that the sharing of order management information promotes a higher level of visibility in the order process, from the transaction through fulfillment. It also enables retailers to fulfill merchandise through the customer s channel of choice, and adjust the merchandise mix accordingly. (See Figure 2, page 6.) Following are five mileposts on the roadmap toward leveraging order management to promote omnichannel retailing success. RIS Roadmap Series: May

3 Milepost 1 Aggregate Distribution Center and Sourcing Supply Chain Inventories A critical first step for many retailers moving in an omnichannel direction is using order management solutions to bring together the inventories located in their warehouses and DCs. The goal is to turn these multiple inventories into a single, visible, and highly accessible inventory that will be capable of serving store, digital and other emerging sales channels. Some retailers still maintain discrete inventory streams, including separate DCs and IT systems, for their store and e-commerce channels. This approach made sense in an era when customer behavior and expectations differed significantly depending on whether they shopped in a brick-and-mortar store or via e-commerce. Today, however, when the distinctions between channels are blurred if not totally erased, maintaining multiple inventories creates significant drawbacks for a retailer. Even if inventory is earmarked for a specific channel and/or located in a separate facility, it s now to a retailer s advantage to consider all of its inventory as saleable through any channel. This can only be accomplished when a retailer has achieved visibility down to the item level throughout its entire network of DCs, and made this data available to a centralized order management solution. The same logic applies to a retailer s sourcing supply chain, consisting of vendors and other third parties as well as inventory in transit. Many retailers already take advantage of vendor drop-shipping for digital fulfillment. To keep this option viable, retailers need to make this inventory visible, and use systems that maintain that visibility on an ongoing basis. Having such alternative methods available to fulfill a customer order can mean the difference between a positive customer experience and a highly negative one. Five Mileposts toward Using Order Management for Omnichannel Success Aggregate Distribution Center and Sourcing Supply Chain Inventories Gain Real-Time, Item-Level Visibility into Store Inventories Define Business Rules around Omnichannel Sales Create and Implement Best Practices for Store-Based Fulfillment Optimize Omnichannel Sales by Democratizing Data Begin with achieving item-level, real-time visibility into DC and supplier network inventories. Granular, real-time inventory visibility down to the store shelf level is becoming a business basic. Use order management systems to define and enforce rules that balance the interests of stores, merchants and online sales. Choose stores that are best equipped for online fulfillment, but build in flexibility to deal with sales spikes and special orders. To maximize sales opportunities, provide real-time data on enterprise-wide inventory to shoppers and store associates via mobile devices. RIS Roadmap Series: May

4 INDUSTRY INSIGHT Centralized Order Management: The Brains of Omnichannel Operations Brian Kinsella, Vice President, Order Management, Manhattan Associates Q: Retailers face any number of challenges as they move toward a more omnichannel operating model. Why is order management a smart place for them to put their focus? BRIAN KINSELLA: When you re talking about the direct customer impact elements of omnichannel operations such as meeting customer service levels, determining where a product can be fulfilled from and how the retailer gets it to the customer order management is the brains of that operation. Whether you re talking about a customer on a website, in a store or calling in to a call center, the chances are good that whatever they will do during that transaction will either impact order management, or order management will impact them. Certainly you could say that as a tech vendor providing an order management system we have a biased point of view. However, our observation is that more and more retail transactions are looking like an order that you would have seen in an e-commerce or catalog business, as opposed to the traditional store transaction. With an increasing number of transactions, there s at least some sort of flexible fulfillment involved. It s all part of the move of digital channels and selling assets making their way into the brick-and-mortar store environment. In fact, we re seeing that no matter what kind of selling system is being used e-commerce, mobile, a kiosk retailers are trying to make those applications do as little work as possible around inventory visibility and product availability. They are being set up simply to ask questions: Can I get this item that a customer wants? Is it available here in the store, or across town? Order management handles that, and also uses business rules, so it s not just Can I sell this product to you; it s Should I sell it to you from a particular location? It s about setting expectations. Q: Granular, enterprise-wide levels of inventory visibility seem to be a prerequisite for successful omnichannel order management. Are retailers making good progress toward this goal? KINSELLA: Seeing any item on any shelf in any store is a key element, and it s a level of visibility that many retailers have been chasing. Partly it s a technical problem to solve building the pipes to get When retailers start to loop the store into the order management and fulfillment processes, the store merchants both need and deserve a seat at the table. They are trying to keep the store stocked at a certain level, not just to sell product but because of the customer experience and the store s appearance, so they need to have controls around how many units they are willing to let flow up and out of the store to other channels. Brian Kinsella, Vice President, Order Management, Manhattan Associates transaction flow into a centralized engine such as order management. It s true that many retailers can t yet do this, but we re seeing leading retailers already moving beyond visibility and getting to availability. The phrase I use to make the distinction between these two is, Just because the product is there doesn t mean you should sell it. This is especially true with a pick up in-store or a ship from store situation. If it s the last unit in the store and it s sold out from under a brick-andmortar customer, the chances for disappointment are high. Q: How does an order management solution help balance these competing interests within a retail organization? KINSELLA: When retailers start to loop the store into the order management and fulfillment processes, the store merchants both need and deserve a seat at the table. They are trying to keep the store stocked at a certain level, not just to sell product but because of the RIS Roadmap Series: May

5 INDUSTRY INSIGHT customer experience and the store s appearance, so they need to have controls around how many units they are willing to let flow up and out of the store to other channels. For one brand, they might let 25% of the units be available to digital channels; for another brand, they might be willing to let 50% be available to other stores for save-thesale situations. These are the types of business rules that can be built into a centralized order management solution. Store operations are also heavily impacted by omnichannel order fulfillment. Running stores used to mean receiving inventory in the back door, having customers pay for it and walk out the front door with the items. Now there are these other sources of demand that require the store manager to get items off the shelf, box them up and have them ready for the UPS guy to pick up. Just the labor required to get orders out the door is not insignificant, and it can have a meaningful impact on both the top and bottom lines. Q: What about decisions at the enterprise level? KINSELLA: Different stores capacities to fulfill orders need to be built into a centralized order management engine. Not all stores are created equal, and a retailer s A stores, with larger footprints and higher staffing levels, are likely to lend themselves better to packing and shipping out cartons than a B or C store. Retailers also need to balance workloads in real time, so they might institute a rule that says they never send more than 50 orders to any store on a given day. They can also smooth out and balance orders across different stores. This raises the probability that all the orders will go out that day, as opposed to piling up if they re all trying to be fulfilled from a single location. The order management engine has to consider all these elements: availability of product and of people; are there enough units in the store to safely take some of them off the shelf; and the logistical considerations of shipping to meet customer service level expectations. The most progressive retailers are trying to use omnichannel selling as a strategic advantage. For example, if they have inventory in stores that is performing below their sales plan, they can use order management to seek out these trapped or distressed units in order to sell them in other channels. Brian Kinsella, Vice President, Order Management, Manhattan Associates Q: It sounds like quite a set of challenges. What are the benefits? KINSELLA: The most progressive retailers are trying to use omnichannel selling as a strategic advantage. For example, if they have inventory in stores that is performing below their sales plan, they can use order management to seek out these trapped or distressed units in order to sell them in other channels. I d say the best-performing retailers see omnichannel selling this way, but I m not sure anyone has it working as a finely tuned machine. We re still early in the cycle of using store inventory to fulfill digital orders, and there s still more optimization that needs to be done but that optimization lives in the order management system, because it s the infrastructure that connects all the selling channels. RIS Roadmap Series: May

6 Milepost 2 Gain Real-Time, Item-Level Visibility into Store Inventories Retailers can work toward this milepost at the same time as they are aggregating their DC and supplier inventories, but achieving both is critical to successful omnichannel retailing. Knowing which products are where throughout the entire retail enterprise at any given time, along with the ability to provide that data to e-commerce shoppers, store associates and others, is rapidly becoming a business basic in the industry. For increasingly popular buy online/pick up in store functionalities, retailers must be able to know with certainty that the item a customer ordered online or via a mobile device is in-stock and readily available in the designated pickup store. If the item is in short supply at this store, the retailer must also build in systems that will prevent the item s being sold to a brick-and-mortar customer when it has already been reserved for a digital shopper. Not finding an item you re looking for when you re just browsing in a store may be disappointing to a customer, but when a retailer isn t able to produce an item that has been promised and paid for, the damage to the customer experience, and their opinion of the retailer s capabilities, is much more severe, says Joe Skorupa, group editor-in-chief, RIS News. Technologies such as RFID can help retailers maintain granular visibility into in-stock inventory levels, even with fast-moving products. RFID solutions ability to streamline cycle counts, along with their help Figure 2 Omni-Product Visibility Capabilities 100% Best in Class All Others 62% 54% 37% 38% Order management information shared across channels 0% Ability to ship online orders from the store Retailing leaders outpace followers in their ability to share order management data across channels and to leverage their stores as online order fulfillment centers. Source: Aberdeen Group, May 2013 RIS Roadmap Series: May

7 in locating products within a store s four walls (i.e. on a shelf, in a back room, on a loading dock) are also making it not just possible but practical for retailers to achieve true real-time item-level inventory visibility. Milepost 3 Define Business Rules around Omnichannel Sales Once a retailer knows what inventory is available for sale, the next big decisions involve who to sell it to and how those orders will be fulfilled. These choices were relatively simple in the days when sales channels were more rigidly defined, each with its own inventory stream. The downside, however, for both customer and retailer, was the difficulty in connecting willing purchasers with products, i.e. being out-of-stock in a store while being overstocked in an e-commerce channel and vice versa. However, with the enterprise s entire inventory now visible and potentially available, it becomes the task of the order management system to implement business rules around availability and fulfillment. Retailers will need to balance competing internal interests particularly if they move to store-based fulfillment systems that affect on-shelf product availability and make claims on a store s manpower, time and resources. Store merchandisers, for example, will want to ensure that shelves are consistently stocked with enough product to display a sufficient variety of colors, styles and sizes both for the ability to make sales in the physical space and also for the store s overall appearance. Too many bare shelves sends a message to shoppers that they may not find the items they are looking for in the store. These merchants will want to establish parameters around what percentage of a store s stock can safely be allotted toward digital fulfillment. It might be 30% of the store s total for one item and 60% for another, depending on in-store sales prospects and/or the availability of similar items within the same store department. A centralized order management system can have these parameters built in, and also be capable of changing them as purchase patterns and business conditions change. For example, if the time is approaching when an item is about to move from full price to initial markdown, merchants can increase the percentage of allowable non-store sales as a means to sell through more items at full price. Milepost 4 Create and Implement Best Practices for Store-Based Fulfillment Industry leaders including Macy s, Walmart, Gap and Urban Outfitters are using their store networks as fulfillment locations. These initiatives not only extend these retailers abilities to meet customer requirements, they are also aligned with maximizing their entire inventory. These retailers are seeking the double benefit of increasing sales while lowering their overall inventory investment, and some say they are achieving these goals. However, store-based fulfillment is not easy to execute, and many retailers may never adopt it. Those that do may find challenges in scaling it up and in dealing with unexpected sales spikes or a flurry of rush orders. RIS Roadmap Series: May

8 As with the sales themselves, order management solutions can establish and impose business rules that help make store-based fulfillment streamlined and cost-efficient. Retailers should start by designating which of their stores are best suited for the processes around fulfilling online orders. A retailer s A stores are more likely to have the combination of product stock, physical space and staffing levels required to handle fulfillment tasks. These include getting ordered items off the store shelf or out of the back room, dealing with the store s part of the transaction, and boxing and shipping the items to their destinations another store or directly to the customer. However, the order management system will need to be flexible enough to look beyond these larger locations if they don t have the particular item that a customer wants when she wants it. For buy online/pick up in store capabilities, order management systems will need to have the flexibility to take customer preferences into account. According to the 2012 Cross Channel Tech Trends Study, more than one-third (35%) of items ordered online are picked up in the store of a customer s choice. (See Figure 3.) Retailers will also need to set up business rules around order fulfillment volume. Even the largest stores will feel the strain if they need to fulfill 50-plus orders in one day not only in terms of depleting store stocks but in the time and labor involved. Order management solutions can limit the number of orders any one store is required to fill on any day, and to spread additional orders on busy days to other store locations, distribution centers or to vendor-based fulfillment. While it s beyond the purview of an order management system, retailers are likely to want to provide some of the credit for these sales to the store and its staff, or to offer incentives for performing services that are outside the store s traditional sales mission. The order management system will be useful in tracking and reporting which stores fulfilled which orders and what their actual contribution to the final sale was. Figure 3 Where are Items Purchased Online Picked Up? 41% Do not currently offer 35% Store of customer choice 2% Retailer designated store 10% Distribution center 12% Fulfillment center Just over one-third of online orders are picked up at the store a customer chooses, so order management solutions need to build in high levels of flexibility. Source: RIS/EKN 2012 Cross Channel Tech Trends Study RIS Roadmap Series: May

9 Milepost 5 Optimize Omnichannel Sales by Democratizing Data Retailers seeking ways to maximize their inventory investment are starting to see omnichannel retailing as less of a burden and more of an opportunity. By providing real-time information to both e-commerce shoppers and store associates about all items that are available, retailers increase their opportunities to not just save sales but to increase sales. This does require an investment in systems capable of keeping track of inventory enterprise-wide and of disseminating this data down to the store associate level. The proliferation of mobile tablet devices, however, provides a perfect vehicle for associates to check on product availability in a store or DC located across town, across the state or across the country. Retailers will also want to empower these associates with visibility into customers orders, very much including those that originated in another channel, in order to offer seamless customer service. Functions such as order cancellations, exchanges, returns, appeasements, order edits, or redirect/rerouting of orders should be made simple for associates to perform in the aisle or at a POS station. Shoppers own mobile devices can also be recruited. Retailers can target customer segments with text message or offers about items they are likely to be interested in, based on a customer s past purchase history or profile similarities to others that have purchased such products. Retailers can also be proactive: if a particular store is overstocked with a slow-moving item, a promotion can be targeted to those in the store s geographic area. Location-based solutions can target those currently in the store s vicinity or within the store itself. Conclusion Powerful, centralized order management solutions are a critical element of omnichannel operations and a seamless customer experience. These systems not only touch multiple parts of the shopper transaction and key back-end systems involved in fulfillment; they are also strongly aligned with retailers efforts to gain a complete view of their inventory, whether it s within their own enterprise or held by a supplier. Making that inventory available for sale through any and every channel, potentially lowering their inventory investment while increasing sales and margins, represents a truly valuable set of omnichannel opportunities. RIS Roadmap Series: May

10 About Manhattan Associates Manhattan Associates, with a 23-year heritage in developing best-in-class supply chain software, provides omni-channel solutions to leading retailers around the world. These solutions, which bring sales and fulfillment across e-commerce and store channels together to create seamless brand experiences, include: Enterprise Order Management acts as the operating system for omni-channel retail, driving increased sales and better customer experiences through intelligent order orchestration, network inventory availability and distributed selling capabilities. The solution also serves as a central repository for customer transactions from across sales channels, providing a single view of customer interactions throughout the enterprise. Store Inventory & Fulfillment provides powerful, end-to-end omni-channel capabilities at the store level entirely on a mobile device. The solution enables store associates to quickly execute order fulfillment requests and improve inventory accuracy for increased revenue and margins. For more information, please visit RIS Roadmap Series: May