Reducing Lost Sales and Fulfilling Omni-Channel Demand at a Low Cost
Today’s omni-channel customers expect seamless and frictionless shopping experiences across all physical and digital touchpoints. They want speed and convenience and they won’t settle for anything less.
When a customer walks into a store intending to purchase an item, they expect to be able to walk away with it right away. There’s nothing more frustrating than walking into a store only to find out that the size, color or model they wanted is out of stock. They will be disappointed – and chances are, they will head to another chain or brand and spend their money with them instead. So how can a retailer avoid the risk of sending their customers away empty-handed and losing the sale?
Don’t lose your customers (and equivalently reduce lost margin dollars)
In the new world of retail, omni-channel customers feel the experience of the supply chain more than ever. Every retailer knows that any breakage in the supply chain not only undermines customer experience but can also result in a lost sale. Rethinking the role of the stores and improving omnichannel fulfillment performance help retailers to use their inventory more efficiently, provide a superior customer experience, and reduce lost sales.
A global footwear retailer from Europe is a great example of that. As a part of its omni-channel strategy, the retailer started a project involving fulfillment from stores. Using the iPads at the stores, the retailer offered its omni-channel customers to explore the company’s full assortment. Even if an item wasn’t available at the store, customers could still place orders online.
According to the Harvard Business Review Study when these customers are presented with the iPads at a size stock-out situation at the stores, 30% of them would place orders using the iPads and get the product delivered to a convenient physical location of their choice. Even though 70% of them didn’t accept the omni-fulfillment offer, the retailer still managed to reduce lost sales by setting out an integrated approach for delivering customer experience excellence.
The new world of retail is complex, but through it all, the omni-channel customer is your guide
For many retailers, the omni-channel world creates new complexities that makes it even more challenging to optimally manage inventory and know how to calculate and reduce the cost of lost sales. Traditional systems based on the service-level frameworks to manage store inventories fail to handle the omni-channel complexity successfully.
These systems fail to generate forecasts for customers’ online vs store preferences and inventory decisions from a holistic omni-channel perspective. As such, inventory managers struggle to understand and predict demand for different fulfillment options and make informed decisions on inventory levels that could reduce lost sales at customer level.
Currently, retailers make one of the two mistakes oversimplifications:
- They focus on service levels at store level which lacks the holistic network perspective
- They ignore the store inventory metrics assuming that omni-channel capabilities solve customer lost-sales problem completely (as we see in the example in the Harvard Business Review case study article, it only solves 30% of the lost-sales problem).
This new world of retail is challenging, but the omni-channel customer is the ultimate guide through it all. Knowing what omni-channel customers want, where they want it, and how fast they want is essential for any retailers’ future success.
Getting rid of the “Conflicting KPIs Problem”
At Invent Analytics, we put omni-channel customers at the heart of what we do. We use a financial optimization model to help retailers reconfigure their supply chain and inventory to reduce lost sales at a low cost.
The financial optimization model goes way beyond the traditional inventory approach, which revolves around conflicting KPIs for millions of product-location combinations. The model shows retailers the precise impact on margin and profit, so that they don’t waste time with endless turn vs. in-stock debates.
Leveraging AI and advanced analytics to maximize sales and retain customers
By leveraging AI-driven advanced analytics, we estimate the impact of restricting some sales options to the customer - the most critical customer satisfaction and central financial metric for a retailer. We characterize the impact of stockouts and slow-delivery as omni-lost sales.
By applying our optimization models based on this financial framework to a retailer’s entire inventory, we minimize the sum of lost revenue, inventory carry costs, and fulfillment costs. This way, they can maximize sales and retain customers while boosting profitability.
An integrated inventory management system to win in an omni-channel future
To succeed in the future, retailers need to have a plan. They also need a revolutionized system that calculates expected lost sales for any decision-making process and minimizes the probability of losing a sale.
By orchestrating and modernizing the entire supply chain with innovative solutions such as Omni-AI, retailers can reduce lost sales and cultivate stronger relationships with the new omni-channel customers, through 2021 and beyond.
Get in touch with our team of retail supply chain experts today and find out more about how Invent Analytics demand forecasting, allocation and replenishment solutions can help you reduce lost sales and maximize profits.
For a demonstration of our Omni-AI solution suite, request a demo here.
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