A guide to omnichannel inventory management.
What do we mean when we talk about omnichannel inventory management? Why is it so important for ecommerce businesses that want to stay competitive nowadays? This guide will walk you through the benefits of leveraging a unified platform for inventory management, highlighting how Commerce Layer’s headless approach can help you optimize and transform your business processes to get the most out of a real omnichannel strategy.
Why this guide
For any business that sells physical products, inventory is the single most important asset. Effective inventory management ensures that a business has the right items in stock, at the right time and place, and is able to fulfill orders on time for a profit.
But today’s inventory management is much more complex than simply checking backroom stock and pulling items.
In the digital age, shopping is as much about the purchase experience as it is about the item(s) purchased. Customers expect seamless and consistent experiences across channels they use to interact with brands. They want to know which items are in stock and where, they want multiple fulfillment options, they want to know when their items will be ready for pickup or delivery, and they want easy returns.
When retailers fail to meet these expectations, they risk losing a customer’s business — for good.
An AmericanExpress survey found that one-third of customers would end a brand-customer relationship after a single poor service experience. Two-thirds would leave after two or three poor service experiences. Meanwhile, IBM Research found that 81% of consumers choose their shopping outlet based on whether or not they could check if an item was in stock. Another 66% reported they would forego future trips to a store if their desired item could not be located nearby.
It’s clear that businesses no longer compete only on the quality of their product — but also the quality of the customer experience they can deliver. When it comes to online shopping, the stakes are even higher because customers can simply navigate to a different webpage and find an alternative vendor in seconds.
Businesses no longer compete only on the quality of their product, but also the quality of the customer experience they can deliver.
To win business and retain customers, your organization needs to meet customers where they are and provide a seamless shopping experience. This means developing the capacity for omnichannel inventory management to meet expansive consumer expectations.
What is omnichannel inventory management?
Omnichannel inventory management is the behind-the-scenes process used to manage complex supply chains and fulfill orders through multiple channels.
Omnichannel order management means providing the infrastructure for customers to shop in the manner that they choose including:
- In-store purchase
- In-store purchase for home delivery
- Purchase online for delivery
- Purchase online for pickup
- Purchase through mobile app or chatbot
Regardless of the chosen shopping method, the customer expects a consistent and seamless experience. Unfortunately, all of these different shopping channels and fulfillment options can make inventory management infinitely more complex and any number of things can go wrong before the order is delivered.
Challenges to omnichannel inventory management
To deliver items as expected, retailers need to pull the right stock items from the right warehouse location and use the most ideal shipping method or logistics partner. Retailers also need to track items from the top of the supply chain through delivery — and provide the customer with updates all along the way. And of course, payment must be made easy or there is a risk of empty shopping carts with unpurchased items. With split orders coming from multiple depot locations or up-chain vendors, accurate on-time delivery becomes even more difficult.
According to a Pitney Bowes global ecommerce study, some of the most common reasons for consumer disappointment with online shopping experiences are the following:
- Late shipments
- Lost items
- Inaccurate tracking
- Wrong items
- Poor packaging
As we noted earlier, once a customer has a negative experience with your brand, they may not return to your store. Therefore, it pays (literally) to get ahead of these issues and build a plan to manage the complexities of omnichannel inventory.
Below, we discuss some of the most common challenges to successful omnichannel inventory management.
Absence of inventory visibility
All of the points below can be considered to fall under the umbrella of inadequate inventory visibility. With numerous order channels and up-chain suppliers, accurately tracking inventory is difficult. A business’s total available inventory may include items stored at owned depots, inventory at on-demand fulfillment centers, and inventory in motion. Without a single platform to collect and organize data, accurate inventory visibility will likely be impossible.
Segmented supply chain processes
When a retailer fulfills an order from multiple depot locations or multiple vendors, a layer of complexity is added to inventory record keeping. Hence, with a segmented supply chain, a unified inventory management system becomes even more important. A best-fit inventory software solution will allow a business to track items across locations by SKU number, bin location, batch, serial number, order number, and more.
Safety stock is extra inventory a business holds to guard against the risk of shortages, stockouts, and missed sales. Safety stock is important to ensure your business can fulfill orders, but at the same time, more stock increases inventory holding costs and cuts into business profits. Without accurate inventory records, a business will struggle to hold the optimal level of safety stock and is at risk of missing reorder points.
A number of factors influence demand forecasts including seasonal sales cycles, commodity prices, macroeconomic factors, and more. Accurate demand forecasts contribute to optimal levels of inventory and the dispatch of products to market at the most profitable price points. To use demand forecasts to your advantage, your business needs to collect and analyze historical data on sales, purchase orders, and inventory turnover. To do so, you’ll need an omnichannel order management system that integrates data from multiple business functions.
Order accuracy is key to customer satisfaction and profitability. An order with inaccurate items or orders sent to the wrong recipient will constitute a major corrective cost that will likely wipe out any profit margin. To bring greater accuracy to omnichannel order management, start to phase out manual and paper processes in favor of automation. This can include the use of barcoding technology, electronic data interchange (EDI), and automated hand-off notifications.
By now, it should be apparent that omnichannel inventory management will not be possible without the appropriate technology to support it. Without a connected system that facilitates the real-time sharing of data, your omnichannel inventory initiatives will never get off the ground. Consider what inventory challenges your business currently faces and seek out the digital solutions that can help remedy them.
Without a connected system that facilitates the real-time sharing of data, your omnichannel inventory initiatives will never get off the ground.
Real-world examples of omnichannel inventory management
While technology is needed to facilitate omnichannel inventory management, finding the right solutions is not always simple. Digital transformation and data migration can be costly and complex, and poor planning can lead to lost business.
This was the case in a now-infamous Hewlett and Packard (HP) migration to a centralized ERP solution in 2004. Unfortunately, during this massive migration project, a programming glitch resulted in up to 20% of incoming customer orders falling through the cracks. Making matters worse, order volume surpassed HP’s demand forecasts, resulting in a significant order backlog. To pick up the slack, HP had to rush a new factory online early and expedite shipping, increasing the cost of each order by 30 to 40 percent.
Although the IT issue was resolved in a matter of weeks, it cost HP $40 million in lost revenue and $160 million in total financial impact.
On the other end of the spectrum, a successful example comes from GM's effort to unify its expansive supply network with logistics, distribution and order fulfillment operations. GM’s 2014 GLIDE project set out to in-source logistics operations and bring all order management stakeholders back into the same management umbrella with a shared technology platform. According to GM’s Executive Director of Global Purchasing and Supply Chain Organisation, Jim Bovenzi, the goal was to establish end-to-end visibility in supply chain and logistics, from component suppliers through vehicle delivery to dealerships.
Instead of taking the all-encompassing one-and-done approach that resulted in failure for HP, GM’s GLIDE project was a multi-year business transformation project to improve IT systems and processes. By integrating logistics, supply chain, sales, and order management operations, GM was able to better plan and manage inventory. The company estimates that it was able to cut $1billion from its logistics budget in the years following the transformation.
These examples demonstrate that technology upgrades to manage omnichannel inventory operations should not be taken lightly. Even the most well-resourced companies can stumble with the wrong approach. But with careful planning and the right technology implementation, there are great benefits to be had.
Technology upgrades to manage omnichannel inventory operations should not be taken lightly, but with careful planning, reliable tools, and the right implementation, there are great benefits to be had.
The benefits of strong inventory management
By centralizing omnichannel inventory management processes, businesses can experience a number of benefits — starting with inventory visibility.
With true inventory visibility and real-time data on which items are in stock, your company is empowered to make better business decisions. This includes the ability to determine which locations to fulfill orders from, when to reorder certain items and when to offer promotions to move depreciating inventory. In addition, accurate inventory records serve as the basis for long-term inventory analysis for continuous improvement.
Improved supplier relationships
With a unified platform for inventory management, you can easily share relevant data with suppliers and leverage the platform to get automatic updates on incoming goods. In addition, with vendor and procurement information organized in a central location, you gain insights to prioritize your most advantageous vendor relationships or renegotiate contracts to trim costs.
Tracing and tracking
With a modern inventory management system, your business can track items in storage and in motion with great precision. For example, inventory software that has functionality for barcode scanning or EDI enables you to instantly check the location of items by SKU, serial number, batch, bin location, or order number. This precise location tracking ensures that you will be able to provide customers with live updates on their order status. It also takes away the burden that typically comes with tracking items through the reverse logistics chain for returns and recalls.
Inventory carrying cost, or the cost to hold goods in storage, typically accounts for 20 to 30 percent of total inventory value. This represents a major supply chain expenditure that directly impacts the cost of goods sold, thereby eating into profits. A bird’s eye view of stock levels combined with business insights allows companies to pursue leaner inventory operations by adjusting stock levels, reorder points, and fulfillment arrangements. The result is reduced inventory management costs with higher order-to-fill rates, without sacrificing profit margin.
These operational benefits of inventory management have the potential to translate into business benefits including:
- Up to 10% increase in sales
- Up to 50% reduction in lead times
- Decreased inventory write-offs and write-downs
- Increased inventory turnover
- Faster time to delivery
- Greater employee efficiency
- Greater customer loyalty
Headless commerce for operational efficiency and superior customer experience
Both large enterprises and smaller businesses can benefit from a headless approach to ecommerce. In particular, when it comes to transforming their omnichannel order management processes, they won't need to plan — unlike GM and HP — a years‑long multi‑million dollar effort. Of course, agile, digital‑first businesses will be able to reap the benefits of headless commerce for their online store even more easily and with much lower barriers to entry.
What is headless commerce?
Headless commerce is a strategy of using APIs (application programming interfaces) to decouple the frontend and backend of an online store.
The frontend of the store becomes a presentation layer that can be easily edited, changed, or manipulated without requiring advanced coding skills, and without tampering with the ecommerce solution on the backend. By using this method, site administrators can adjust the available products, iterate the user experience, and run experiments without taking the entire site offline for backend development.
What are the benefits of headless commerce?
The most salient upside of headless commerce is the ability to improve the customer shopping experience without reprogramming the backend. By embracing headless commerce, your business can benefit from:
- Seamless and consistent customer experiences
Headless commerce helps to simplify omnichannel inventory management by removing barriers to creating consistent user experiences across devices. Normally, developers would be required to build shopping applications for each browser and each device from scratch, requiring weeks or months of development work. With headless commerce APIs, low-code optimizations can be made for each endpoint.
- Simplified integrations
Instead of spending time stitching together applications and building customizations, headless commerce empowers your business to integrate social media platforms, blog content, and payment platforms with ease. By integrating payment options like Google Pay, Apple Pay, and PayPal (or any other payment gateway) you can ensure customers can pay by the option of their choice and reduce the percentage of abandoned carts in your online store.
- Unlimited creativity and customizability
In a traditional commerce store where every frontend change constitutes a backend change and it’s difficult to customize the user experience beyond a few standardized templates. Headless commerce eliminates this problem by allowing frontend iterations independent of the backend. This allows for agile design to keep up with customer preferences.
- Robust security
When it comes to online shopping, protecting customer data is key. A data leak can result not only in regulatory penalties but also in the erosion of public trust and permanent loss of business. With headless commerce, site administrators can roll out security updates quickly to block threats. Payment Card Industry (PCI) compliance is also simplified thanks to built-in security for processing, transmitting, and storing credit card information. In addition, store owners have the ability to implement more rigorous fraud and threat prevention mechanisms.
- Easy scalability
As consumer preferences shift and businesses make changes to stay competitive, you will need to continually improve your technology, integrate new applications, and optimize the user experience. If a site rebuild is required for every improvement, business will suffer. To avoid this, use headless commerce technology to swiftly respond to market needs and customer expectations.
Omnichannel inventory management with Commerce Layer
With Commerce Layer businesses can add user-friendly shopping experiences to any website, mobile app, chatbot, or IoT device. On top of that, our headless commerce approach empowers developers to effortlessly unify omnichannel inventory management.
Our APIs feature over 300 endpoints so that you can build a customer-centric experience for your online store across channels. As a purely transactional engine, Commerce Layer integrates with the content management system of your choosing so there is no need to build up your store from scratch or launch a massive migration effort.
Commerce Layer can also sync with third-party systems like ERP, CRM, PIM so that your business can seamlessly transfer information across business functions and leverage the data insights it takes to stay competitive in today’s marketplace.
With a unified inventory management hub powered by Commerce Layer, your business can easily manage multiple markets with localized rules for:
In the competitive ecommerce space, your business must be able to adjust to market demands and have the ability to consistently deliver delightful customer experiences across channels.
If you are ready to design your business for agility and efficiency to carve out a competitive advantage, consider the benefits of headless commerce for your online store.