Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
Solution
Consulting
TCS Consulting Services to Achieve Success in the Digital Era
Highlights
- Matching supply with demand is a challenge due to the dynamic and unpredictable nature of consumer preferences, market trends, and disruptions.
- When supply does not meet demand, the resulting stockouts can have significant negative impact on sales, profitability, and customer satisfaction.
- By integrating digital supply chain solutions with the core supply chain processes, retailers can increase real-time visibility in the value chain and maintain optimal product availability.
On this page
Product availability is at the core of the retail business
Product availability directly impacts customer satisfaction, loyalty, and ultimately, the retailer’s bottom line.
It is one of the key metrics in sales and operations planning. Having the right product in the right place at the right time means happier customers and top-line growth. On the other hand, stockouts can have a significant negative impact on sales, profitability, and customer satisfaction. The cost to retailers from inventory distortion—combined cost of overstocks, out-of-stocks, and supplier issues among others—is too big to ignore.
Why maintaining optimal product availability is not easy
Extraneous factors such as changing consumer preferences, market trends, and disruptions impact product availability.
Maintaining adequate stock to meet customer demand without tying up too much capital in inventory requires a fine balancing act. In addition to supply chain disruptions and rapidly changing consumer behavior, some of the key challenges retailers face include:
- Mismatch in supply and demand: In an increasingly volatile and complex marketplace, aligning supply with demand has become crucial and also difficult. Inaccurate demand forecasts can lead to excess safety stock, poorly timed promotions, and market-share loss. There are a host of factors that influence demand such as trends, seasonality, and unexpected events, and these factors are in constant change. A successful volume forecast must consider every relevant factor for each SKU at each unique location to identify how their interplay will affect demand. Taking a unified approach to omnichannel business operations across the product life cycle facilitates seamless customer journeys and helps meet customer expectations.
- Lack of inventory visibility: Customers want to know if their order has been processed, where it is at each step of the journey, and when it will arrive. Inventory visibility is a critical success factor supporting speed, communication, and personalization to meet and fulfill delivery expectations. Not having a clear picture of stock levels across channels and locations—distribution centers, in transit, or at retail locations—will most likely cause stockouts or excess inventory, reducing inventory turnover ratio and impacting the bottom line.
- Inconsistent flow of inventory: Omnichannel execution is all about a synchronized flow of inventory across channels. When the order and inventory data across channels is siloed and disparate, it is impossible to know the exact inventory balance across the organization, making purchasing decisions difficult. This may result in missing out on out-of-stock notifications to customers, order cancellations, and ultimately poor customer experience.
- Shrinkage: Shoplifting, vendor fraud, employee theft, and administrative error can significantly impact inventory levels and product availability. If you lose inventory through shrinkage, you cannot recover the cost of the merchandise because there is nothing to sell or return. This directly impacts your bottom line. Shrinkage is primarily driven by theft (both internal and external), including organized retail crime (ORC), and accounts for a majority of retailers’ shrink, resulting in significant loss of revenue. Other challenges include clear visibility around shrinkages, inability to track missing items throughout the supply chain, and shrink reports lacking data to present an integrated overview.
Digital supply chains to the rescue
Digital supply chains provide the agility, visibility, and efficiency needed to maintain optimal product availability.
Disruptions have forced retail supply chain leaders to pivot to cognitive supply chains for managing volatility and ensuring products are available to meet consumer demand. To increase flexibility, agility, and visibility, organizations of all sizes need to speed up their transformation initiatives for a more resilient supply chain. These include:
- AI-powered analytics and demand forecasting: Inventory optimization begins with accurate forecasts to ensure that just enough products are available to meet demand without overstocking and that capital is not tied up and is available to be invested in expanding other areas of the business. By leveraging artificial intelligence (AI), machine learning (ML), and advanced analytics, retailers can analyze historical and real-time data from various sources, such as sales records, market research, social media, and IoT sensors to create accurate demand forecasts. In addition to capturing complex patterns and relationships, advanced algorithms can adjust forecasts dynamically based on changing conditions and recommend the best action for each situation.
- Integrated and centralized inventory management: True inventory visibility starts with accurate inbound advanced shipping notices (ASNs) to support inbound receipts, capture correct physical stock received, and update the warehouse management system (WMS) accordingly. Incorrect determination of stock balance can prove costly for retailers. To mitigate the risk of running out of inventory and get true visibility into order status and stock movement, data on stock availability across all sales channels and locations must be stored in an integrated inventory management system. In addition, the warehouse inventory team should investigate inventory issues continually, perform physical count of inventory, and reconcile the actual stock count with the system. RFID, computer vision, inventory visibility software, and self-scan inventory counting solutions can improve inventory accuracy at the store level. This can support an efficient order fulfillment process, meeting customer expectations on accurate product availability information and fast fulfillment.
- Inventory policy: With clear inventory visibility and accuracy comes flexibility and you can start managing optimum stock quantity based on long-term replenishment strategies and short-term customer demand spikes. Hence, readiness and preparation to act on different demand scenarios is critical to fulfill customer orders and not to push demand spikes upstream. End-to-end visibility and a clear understanding of where inventory sits real-time (also in transit) will help manage deliveries and meet customer expectations. Cognitive supply chains leverage data analytics to provide actionable insights to decision makers. With greater insights, you can make more informed and timely decisions on your inventory policy and safety stock, keep track on cost-to-serve and profit margins, and take the right call on when to move stock from one node (over stock) to another node (under stock) to absorb shockwaves in demand and fulfill customer deliveries on time.
- Shrinkage management: To minimize shrinkage, retailers are devoting considerable resources and measures that can detect, deter, prevent, or mitigate loss. Almost one-third of the retailers have also established a dedicated ORC team to mitigate and manage the increasing shrink challenge. Key solutions include an increase of third-party security personnel, development of end-to-end shrinkage visibility, ML-powered shrink prediction and prevention, and shrinkage KPI reporting. Retailers are implementing a variety of technological solutions, from AI-based video analytics at points of sale and self-checkouts to self-service locking cases, autonomous security robots, and license plate recognition to prevent shrinkage.
- Digital twin and what-if simulations: A digital twin is an essential component of a resilient supply chain. It allows retailers to stress-test and simulate various supply chain scenarios to assess the impact on product availability. They can create contingency plans, assess stock availability and determine where to allocate it based on demand, and identify alternative transportation and logistics routes. It is possible to simulate how the supply chain will respond to peaks in demand and test operations in a virtual environment before the go-live, thus saving cost.
Figure 1
Key aspects and must-have solutions that will determine product availability for retailers
Figure 1
Sustainability is key
Balancing product availability and sustainability is key to enhancing customer experience and achieving net zero goals.
For a high delivery in full, on time (DIFOT) score and to provide excellent customer experience (CX), consistent product availability is key. By investing in cognitive supply chain solutions, robust inventory management systems, leveraging an integrated ecosystem of partners, and building transparency and collaboration, retailers can overcome the challenges in demand forecasting and optimize order fulfillment and CX.
Given the pressure of global challenges such as decarbonization, it is imperative that optimized product availability is achieved by reducing the carbon footprint in the supply chain. Retailers will need to focus on sustainable supply chain management by balancing product availability and sustainability.
Retailers should focus on integrating sustainability across the value chain and partnering with suppliers who share the same vision. Close collaboration and evaluation of existing suppliers and supply chain providers are necessary to establish a baseline and for the measurement of key criteria. Visualization of the supply chain network, and data collection from direct and sub-suppliers and logistics providers are also necessary to enable environmental, social, and governance (ESG)-reporting and for measuring success.
By integrating digital supply chain solutions, retailers can make supply chains more resilient and withstand future disruptions.
