The central aim of Omnichannel Order Management is to unify inventory across all storage and fulfillment locations, leveraging technology to create a common pool of product for customers. More inventory availability means more sales and fewer out-of-stock situations. Seems simple enough, right?
Unfortunately, creating this “common pool” and achieving inventory accuracy across channels is a lot easier said than done. A recent study from the ECR retailer-manufacturing working group found that about 60% of retailers’ inventory records were inaccurate.
Unifying inventory data is especially challenging because it is spread out across multiple distinct systems: Enterprise Resource Planning (ERP), Point of Sale (POS), Warehouse Management System (WMS), eCommerce, etc. None of these systems are designed to be the “master of inventory availability,” synchronizing inventory data across multiple locations. And because inventory levels at stores or on eCommerce sites change so rapidly, synchronization must be done right to avoid overselling or underselling products.
In this blog, we will discuss the dangers of unsynchronized inventory and key strategies to guide inventory synchronization for retailers implementing Omnichannel Order Management.
What happens when inventory is unsynchronized?
Let’s dive into how inventory data discrepancies impact sales across an organization.
In-store sales: When in-store sales happen, inventory levels are reduced in the POS system. However, if there is no inventory synchronization, a retailer’s eCommerce system will not be updated and can end up overselling stock.
Online sales: In the case of online sales, the converse problem can arise. eCommerce inventory is reduced when an online order comes in, but will not be synchronized in the POS.
For example, suppose a customer walks into an omnichannel retailer’s store looking for a blue T-shirt in size XL, only to find it is out of stock at all stores. Per their “endless aisles” strategy, a store associate places an order for this item at a nearby warehouse that has this item in stock. However, say the warehouse had only one item of this type and just received an online order for that product. The corresponding inventory level would be reduced in the eCommerce system, but not synchronized in the POS. As a result, store associates can end up taking orders for out-of-stock products.
Inventory variances in stores: If in-store products are defective, lost, or found, it's reported in POS. However, the eCommerce system is not informed of these variances without proper inventory synchronization. If inventory is missing or defective, eCommerce will assume the inventory is available in-store when in reality it's not, resulting in overselling. Conversely, when lost inventory is found, eCommerce will not be automatically notified and undersell as a result.
Receiving in-store: When stores receive inventory directly (inbound shipments or returns), inventory is increased in the POS system but not reflected in the eCommerce system. As a result, eCommerce will undersell.
Receiving in Warehouse: On the other hand, when warehouses or fulfillment centers receive purchase orders or returns, inventory is increased in the WMS. However, inventory is not synchronized in the POS and eCommerce systems, so eCommerce will undersell and stores will undersell on endless aisle orders.
The role of omnichannel order management in inventory synchronization
How can retailers avoid these discrepancies and ensure that ALL systems in their tech stack are communicating effectively in real-time? The job of an Omnichannel Order Management System is to:
Become a “master of inventory availability” by integrating with multiple systems that contain inventory data (POS, WMS, ERP, etc.) and tracking their inventory changes in real-time.
Synchronize inventory availability data across online and offline channels.
Allocate available inventory to orders in the most optimal fashion. This involves analyzing the priority of the order and brokering the order to the optimal fulfillment location based on the proximity and inventory availability. This process is also called order brokering and is a key capability of an Omnichannel Order Management System.
Communicate informative order updates to eCommerce shoppers.
Inventory synchronization strategies
Inventory synchronization can either be real-time (done after each transaction) or batch processed (done at frequent time intervals). When a real-time inventory synchronization approach is taken, deltas should be updated in your eCommerce system. When a batch process approach is taken, inventory should undergo a hard reset. Read on to hear our expert strategies for inventory management across your omnichannel strategy.
Inventory Availability Synchronization at the Start of the Day
At the start of each day, your Omnichannel Order Management System must have complete and accurate inventory availability data for all products at all locations. There are two main approaches that retailers can take to achieve this:
Get physical inventory numbers from your ERP: With this approach, the assumption is that the POS and WMS systems are integrated with your ERP. Your ERP receives “end-of-the-day” store sales data from the POS and receives all warehouse shipment information from the WMS. As a result, your ERP becomes the source of truth for all physical stock and provides a morning inventory feed across all locations that can be uploaded to the Omnichannel Order Management System. Note: The OMS must deduct inventory of all unfulfilled orders, those that were brokered to stores and warehouses but not yet fulfilled, from the physical stock data.
- Get inventory availability in two separate inventory feeds from SIM and WMS:
Here, the assumption is that the store has a SIM (Store Inventory Management) system measuring store inventory levels and a WMS tracking all inventory in warehouses. These systems provide two separate inventory feeds (one for stores and one for warehouses) that correspond to inventory availability as opposed to physical stock. But once both feeds are uploaded, the OMS has inventory availability of all the locations at the beginning of the day.
Before pushing the multi-location inventory availability data to eCommerce from your OMS, make sure to run the brokering engine and analyze any online orders captured by your eCommerce system but not yet brokered (all the orders that were placed after the last brokering run). When the engine runs, the orders will consume this inventory and reduce the stock available to sell. Once completed, the final inventory availability feed is ready to be pushed to eCommerce and the day’s sales can begin!
Store’s Inventory Synchronizations
For all items purchased in-store, inventory should be reduced at the POS. But how can inventory variances be effectively synchronized across OMS and eCommerce systems?
Reductions in inventory from in-store sales can be synchronized to the Omnichannel Order Management and eCommerce systems in real-time with delta synchronization. Sometimes, eCommerce platforms restrict the number of API calls, preventing retailers from updating inventory after each sale. In this scenario, bulk inventory updates in eCommerce can be made at frequent time intervals, such as every hour. Here, these inventory reductions will be hard reset rather than delta synchronization.
What about in-store inventory additions, from shipments and store returns? Should they be synchronized in real-time? The answer is a bit more complicated than you may think. If inventory is received and synchronized in real-time, then it's immediately made available to sell. However, if the item itself is not in place on the shelf or picking location, store associates will be unable to find the product at the time of fulfillment and may need to reject a store order.
To avoid increased rejections of in-store orders, store processes must be based on when the inventory should be available to sell online. Is there some inspection process that must be done? Depending on in-store operations, it may make sense to include a manual approval step from store managers before synchronizing the inventory on your OMS and eCommerce platform.
Warehouse’s Inventory Synchronizations
It’s a similar story in the warehouse. When shipments are received, one might think the inventory should be immediately synchronized so it's available to sell. However, there are several reasons why inventory received in the warehouse should not be available for sale immediately: inspections, put-away processes, separation between products for D2C and B2B channels, etc.
Thus, warehouse inventory additions should not be synchronized to the OMS and eCommerce immediately because this could increase the rejection rate. Getting daily morning inventory feed from the ERP/WMS systems is crucial so the OMS stores all new warehouse inventory data after shipments are received, inspected, put away, and available for sales.
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The ideas discussed in this blog are food for thought, and actual inventory management plans differ significantly on a case by case basis. However, this blog aims to outline key ideas and strategies that can serve as a starting point for retailers in the early stages of their omnichannel journey.
Building the right inventory synchronization strategy is a critical step in implementing a successful Omnichannel Order Management System. Ultimately, your system’s integration strategy and inventory accuracy depend on it. And as we all know, more inventory availability means more sales!
Request a consultation with the HotWax team of experts to learn more.