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Increase Return on Inventory

MONARCHFX

HOW AN INCREASINGLY EVOLVING
UNI-CHANNEL RETAILING MODEL IS IMPACTING
REPLENISHMENT OPERATIONS AND WHAT
RETAILERS NEED TO DO TO ADAPT

NANCY MARINO, SVP TOMPKINS

Controlling Costs In A Shifting Landscape

Shifts in consumer behavior and expectations have permanently changed the American landscape which has resulted in retailers and brands duplicating infrastructures by channel to enable consumers to interact when, where, and how they desired.

Sales and margin erosion was experienced as online businesses impacted retailers market share and set new parameters for customer expectations, as the cost to compete for two day shipping lead to multiple distribution strategies: ship from vendor, ship from store, click & collect, ship from warehouse, ship to store.

To compete investments were made in multi channel facilities as the fixed cost infrastructure of the physical store channel was joined by a variable cost-driven infrastructure to enable online sales.

Start By Asking Some Key Questions

The need to meet consumer demands while protecting profits has created a conundrum for retailers and brands. To address these issues it is recommended that retailers conduct a self assessment to create a sustainable and profitable model in this complex retail environment. Some considerations:

Organization structure to allow for collaborative work flow

Decide what channel capabilities will be valued by their customers

Prioritize decisions as to: free shipping and returns, price matching, direct to consumer, ship from vendor, dedicated fulfillment centers and inventory visibility for to optimize ROI by channel

Establish data and related insights to drive customer decisions

Ensure store, supply-chain and corporate office infrastructure costs are properly structured for profitability to serve stores and uni-channel customers

Rethink real estate decisions in light of channel sales and productivity issues

What Is Inventory Visibility?

Inventory visibility provides details about what is in stock and available to consumers and store associates at specific locations.

Inventory visibility is a key component of a uni-channel retail footprint. It allows customers to see what is in stock and where, with an extended view of distributors inventory for ship from factory direct.

Retailers should have inventory visibility that allow:

Location based stock visibility

Trickle or near time batch updates

Visibility threshold control

Inventory pooling ability

Supply chain/3rd party updating

Single View Of Inventory

Creating a single view of inventory is all about consolidating inventory pools by connecting cross-channel demand to supply, which ultimately improves sell through. The impact of decisions that have visibility of the movement through the supply chain enables the ability to respond as there are unforeseen events that impact the plan. The sooner an event can be identified that would have a future impact, adjustments can be made to take corrective action- being proactive verses reaction.

The ability to execute a single view of inventory is complex and requires integration across internal and external systems connecting:

Enterprise Resource Planning (ERP)

Merchandise Planning Systems

Supply Chain & Inventory Systems

Warehouse Management Systems

eCommerce Platforms

Third Party Marketplaces

Point of Sale (POS)

Ship From Store

How does Ship-From-Store Improve ROI?

Spreading out fulfillment across the store network positions inventory closer to the consumer.

Reduces warehouse inventory,

Leveraging stagnant store stock by fulfilling and shipping direct to consumer minimizes markdowns on slow moving styles and sizes.

This strategy forces inventory to retail locations without pertinent sales data which drives fulfillment to those stores that have sold the item, or to larger volume stores that have an improved chance of ultimately selling the item.

Smaller volume stores will ultimately have compounded inventory resulting in greater markdown risk.

Click & Collect

Offering consumers same-day Click & Collect leverages existing stock at the store allowing customers to purchase on line and pick up at store (BOPUS).

This strategy only works if the inventory is in the retail store of choice.

If inventory is not available then time is lost as selected SKU needs to be shipped to pick up location….hence not same day purchase.

Ship To Store

Leveraging stores as a collection point, enables inventory to be shipped to a store for customer convenience.

This strategy also improves inventory turn-over at the distribution centers as stock is added to pallets that have been destined by store and thus reduce shipping and freight costs.

This strategy often puts a strain on warehouse operations that have been built on bulk replenishment not fulfillment by SKU.

E-Commerce Sales & Inventory Metrics

Detailed sales and inventory data can provide a granular and highly accurate view of sales and at the commencement of the sale, the process of identifying slow-moving, and aged inventory is critical. By taking a proactive approach to targeting problem merchandise, retailers can increase overall sell-through and reduce markdowns.

Metrics to focus on include:

Website traffic

Sales transaction metrics: average order size, orders per month, units per order, conversion rates, profit margins

Drop ship sales to owned inventory sales ratio

Inventory turnover and weeks of supply analysis by SKU

Return and charge back rates

Fulfillment rates

Abandonment rates

Social listening

Digital Inventory Planning

The key to uni-channel profitability is understanding local shoppers and with channel clustering you can mine point-of- sale data to define real-world consumer preference patterns across stores. Planning by channel and geography and segmenting similar stores into clusters defines strategies that develop profitable, targeted micro-merchandising assortment and category plans.

Predicting demand is hard work. And with shorter product lifecycles, expanding assortments, multiple channels and frequent promotions, you might wish you had a crystal ball to figure out today’s savvy shoppers. An integrated demand planning framework that supports multiple forecasting methods at the category level enables a synchronized view of demand.

Digital Demand Planning

Features

Benefits

Multi-level, multi-channel forecast management

Improved forecasting accuracy and planning cycle time

Demand by classification and statistical forecasting algorithms

Increased customer satisfaction through improved inventory availability

Promotion and event intelligence

Increased effectiveness of pricing and promotions

Analytic insights to reveal trends and opportunities

Improved revenues and margins via localized strategies

Web-based planning for collaboration with external trading partners

Increased visibility of the supply chain

Omni-channel intelligence to deliver merchandise in the right place, in the right time

Targeted, consumer centric assortments

 

 

Digital Disruption

It’s no secret that retailers are struggling to earn a profit in today’s uni-channel business. But profitability doesn’t happen by accident. You have to strategically manage every execution activity with your top- level financial goals in mind — from vendor selection through inventory clearance. Enterprise planning leverages consumer demand to create sales and inventory goals that maximize profitability, optimize inventory and minimize financial risk across every channel and key product area.

There is a fundamental difference in planning due to the disruption caused by the shift of sales by channel impacting forecasting from utilizing history as the bases for planning since, history is changing every day. This has caused the need to begin the planning process with merchandising financial plans (MFP) – to customer insights - to product lifestyle management (PLM) – to inventory – to planning – to optimization – to allocation, but it is not a push process but rather a fulfillment demand - a pull process as the customer is telling you what they want to buy and where.

Forecasting by Channel

Features

Benefits

Logical store groupings based upon shopper preferences, geography and other attributes

Effective foundation for planning, yielding consumer centricity and minimized markdown risk

Exception managed planning paradigm to maximize planner productivity and focus

Increased margins and inventory productivity

Uni-channel intelligence, enabling accurate planning by channel specifics and shared inventory

Alignment of inventory with pre and post customer demand across channels

Synchronization of execution with financial goals

Inventory plans by channel aligned with financial goals, and profit margins

Factual basis for targeted assortments and merchandising strategies

Reduced inventory and improved assortment planning to meet ROI goals

Ability to identify consumer regional preferences

Increased shopper satisfaction and loyalty

 

 

Moving Merchandise In a Digital World

Borderless Retail has created the need for the retailer and/or brand to develop a long term strategy in line with their customers drive for a unified buying experience. Rather than a retailer or brand creating a hybrid model to improve inventory turn, there is a need for a better understanding of how inventory is planned, to meet the demands of their customers.

The ultimate solution is to become a strategic partner with a distribution platform that can supplement your current fulfillment strategy:

Deliver small orders direct to consumer or to retail store

Provide inventory visibility for improved transactions

Generate greater ROI as inventory remains at the retailer/brands distribution center until need is forecasted, thus improving turn and minimizing markdown risk.

Supply Planning Capabilities

Synchronizing demand and supply across a dynamic global supply chain requires the ability to manage the disparate needs of multiple retail channels, seasonal demand, fashion changes, assortment structure for fashion and continuous products and restrictive capacity constraints, all with different parallel demand streams, inventory processes and business logic.

Some key capabilities for supply chain planning include:

Determining the assortment at the item level, channel and store level to include demand planning with attribute based plans.

Operational planning in season for rapid replenishment and inventory based fulfillment utilizing current sales providing safety or buffer stock.

Margin optimization through demand planning for inventory placement by channel to avoid stock outs and overstocks.

Scalable modeling is critical for multiple channel planning through inventory optimization to build the right mix of inventory to serve distributed networks. It helps to deliver high in-season service levels to reduce markdowns.

New Operating Paradigm – Supply Network

Inventory visibility is a key component of the uni-channel solution. Utilizing key metric analytics to drive transparency to improve channel planning as timely and accurate order fulfillment is a key component of success. To achieve improvement to ROI it is critical that all digital strategies are matched to the business objectives as “one size does not fit all”?.

A supply network , as opposed to a supply chain, includes multiple channels and multiple ways to distribute. It’s the oblivion of the need to run one’s own system of warehouses and the ability to sell beyond two channels. Utilizing MonarchFx as a supply network:

Enables the retailer to focus on their business and brand as the supply network serves as the digital distribution platform providing a single view of inventory supported by advanced technology tools.

The MonarchFx supply network provides competitive pricing as the logistic resources are aggregated to capture maximum final mile density and are designed to be used in conjunction with the existing retailer fulfillment centers to become an operating expense verses a cost center.

Value Proposition of Supply Networks

The majority of customers conduct research online and in order to insure consumer confidence you need to show customers that you have inventory of the products they want, when they want it and where to find it.

A Supply Network links all points of contact to enable the retailer to provide a single unified inventory view broken down by location and status, that can be either allocated or reserved by setting thresholds on the products that you want to show online.

Using a Supply Network a retailer can achieve higher inventory turns, a reduction of markdowns resulting in improved margin results. The core features of a Supply Network are:

Unified Inventory View

Pooled Safety Stock Thresholds

Returns Inventory Management

Inbound Inventory Visibility

Inventory Value/Status: On hand, Reserved, Available to Promise

A Supply Network Solution – MonarchFx

Inventory visibility is a key component of the uni-channel solution. Utilizing key metric analytics to drive transparency to improve channel planning as timely and accurate order fulfillment is a key component of success. To achieve improvement to ROI it is critical that all digital strategies are matched to the business objectives as “one size does not fit all”?.

It is the forward planning of where the inventory is positioned to service the customer that is paramount, as it needs to be in proximity to the customer, and distributed within a shortened window to lesson the markdown risk.

It is the ability to establish a strategy to position the distribution points to maximize inventory to achieve inventory plan turns and markdown ratios to meet the ROI goals. This could be a combination of:

Ship from store

Pick up in store

Ship from Vendor

Click & Collect

Ship from fulfillment center

Why MonarchFx? – Smarter Logistics

MonarchFx is a complete supply network solution offering a full range of services to meet the needs and demands of uni-channel business, as it is designed to be complimentary to existing the retailer/brand’s wholly owned distribution and fulfillment centers.

MonarchFx reporting and data is proprietary to the retailer/brand

MonarchFx facilities are positioned within the retailers consumer geographic locations, where they do not have existing coverage.

MonarchFx is supported on a robust cloud based technology platform that is fully integrated to its partners – only one integration point for the retailer/brand providing real time visibility

MonarchFx facilites have state of the art automation technology

MonarchFx’s delivery costs are highly competitive

MonarchFx offers efficient delivery and based upon geographic location

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