Role of Inventory Explainability in Omnichannel Inventory Management

Omnichannel Inventory management is the cornerstone of any successful omnichannel retail operation. However, in today’s complex retail landscape, omnichannel inventory management is even more challenging.

To effectively manage enterprise inventory, there are three cardinal elements: accuracy, visibility, and explainability. 

Accuracy and visibility are somewhat self-explanatory, but what exactly is explainability? Inventory explainability is the need for transparency in understanding how the Available-to-Promise (ATP) inventory is calculated in omnichannel retail, ensuring retailers know precisely how the system arrives at this critical figure.

So, how can explainability be used by omnichannel retailers to leverage inventory insights? 

Inventory Explainability: Beyond Simple Numbers

In the dynamic world of omnichannel inventory management in retail, it's not as straightforward as merely putting all available inventory up for sale. The process revolves around determining the Available-to-Promise (ATP) inventory that can be reliably offered to customers on the eCommerce platform. ATP is a complex calculation, taking into account factors such as safety stock, thresholds, the status of fulfillment centers or stores participating in online order fulfillment, and temporary non-participation.

In omnichannel scenarios, where multiple locations and sales channels are involved, inventory explainability faces additional challenges. Coordinating stock across various locations while maintaining a clear and holistic view is essential. It involves ensuring that different teams, such as retail store managers, e-commerce teams, and warehouse teams, can efficiently check the inventory and understand the rules applied for ATP (Available to Promise) calculation.

This is where the concept of inventory explainability comes into play. Inventory explainability is the demand for transparency and comprehensibility in the ATP calculation process. Retailers require the system to elucidate the method by which it arrives at the ATP figure. In essence, inventory explainability is the quest for a clear and intelligible account of how the ATP number is determined, providing retailers with the assurance of precision and reliability in their eCommerce operations.

Explainability serves as the foundation for trust, ensuring that all stakeholders, from product managers to different business units, can confidently rely on the omnichannel inventory management system. Understanding the detailed calculations behind inventory numbers aids in addressing issues efficiently. 

Here are a few scenarios that illustrate the importance of inventory explainability for retailers:

Scenario 1: Imagine a situation where a product is marked "out of stock" online, but there is ample stock available in-store or in the warehouse. Inventory explainability can uncover the underlying reasons, which may include a store manager setting higher safety stock levels than necessary or orders that have been received but are awaiting fulfillment.

Scenario 2: Product's online Available-to-Promise (ATP) can significantly decrease if a store temporarily suspends fulfillment due to operational constraints like limited staff, location damage, or high in-store traffic. Without inventory explainability, the procurement team may purchase more inventory from the vendor observing ATP getting reduced, leading to potential overstock when stores resume online order fulfillment.

Scenario 3: Retailers might notice that a product is out of stock in their physical locations, yet it's still being sold online. Inventory explainability allows retailers to also see upcoming inventory through Purchase Order ATP, helping them identify units that will become physically available soon for online order fulfillment.

In essence, inventory explainability isn't just about problem identification; it's a vital tool for implementing solutions that enhance operational efficiency.

The Importance of Trust in Omnichannel Inventory Management

Building trust among internal teams and stakeholders is paramount in the realm of omnichannel inventory management. Here are key points highlighting the importance of trust in omnichannel inventory management:

1. Accurate Decision-Making: Trust in inventory numbers enables accurate decision-making at all levels of the organization. When teams and stakeholders have confidence in the data, they can make informed choices regarding stock levels, purchasing, and order fulfillment.

2. Effective Collaboration: Trust serves as a solid foundation for effective collaboration across various teams and departments, ensuring that information flows smoothly, from procurement and warehousing to sales and customer service, reducing misunderstandings and operational roadblocks.

3. Operational Efficiency: Reliable inventory numbers streamline operations. Teams can work more efficiently when they don't have to double-check or second-guess the data, reducing the likelihood of errors and delays.

4. Cost Reduction: Accurate inventory data reduces unnecessary costs. Trustworthy numbers help in avoiding overstocking, which leads to holding costs, or understocking, which results in lost sales. 

The Role of an Omnichannel OMS in Inventory Explainability

OMS are specifically crafted to tackle the complexities associated with omnichannel inventory management and the calculation of inventory. These functions are crucial for Inventory accuracy, Inventory Visibility and Inventory Explainability. Here’s how OMS helps in Inventory Explainability:

• Comprehensive Inventory Visibility Across Locations

An Omnichannel OMS, through its seamless integrations with various systems, including Warehouse Management Systems (WMS), Enterprise Resource Planning (ERP) systems, and Point of Sale (POS) systems, offers a comprehensive view of inventory levels across diverse locations, including brick-and-mortar stores, warehouses, and third-party fulfillment centers. This interconnected network ensures that retailers have access to real-time stock information across the entire organization. Moreover, due to these integrations, the OMS provides near real-time updates on inventory changes, reflecting sales and new inventory arrivals across these locations. This dynamic inventory visibility is fundamental for accurate ATP calculation and enables retailers to make reliable product promises to customers based on the latest available inventory.

• Sellable Inventory Computation

An Omnichannel OMS ensures precise sellable inventory (aka “available to promise” inventory) calculation by considering several essential factors. In omnichannel retailing, not all stores choose to participate in the Ship from Store program due to fulfillment constraints such as limited staff, high in-store traffic. In such cases, OMS grants store managers the ability to remove their stores from the list of participants, allowing OMS to then exclude and reduce the inventory of these non-participating stores.

The system also excludes inventory already promised to customers for orders awaiting fulfillment from the overall sellable inventory count. Store Managers can also reserve safety stock at individual locations, ensuring in-store customers are not affected by online order fulfillment. Additionally, merchandisers prefer to have inventory thresholds at company levels to reduce the risk of stockouts and overselling. The inventory reserved under safety stocks and threshold is excluded from the sellable inventory synced to e-commerce websites for online sales. Let’s take an example of how ATP is calculated in an OMS:

For Brand ABC's "Black Shirt" there's a Quantity on Hand (QOH) of 100 units, with 10 units already ordered and 5 units already allocated for sales orders. The retailer has set an inventory threshold of 10 units for this product. In addition, we have two retail stores, one in Brooklyn and another in Times Square. The Brooklyn store is not fulfilling online orders, while the Times Square location has reserved 5 units as safety stock.

To determine the Online Available-to-Promise (ATP) inventory, we can utilize the following formula:

Online ATP = QOH - (Reserved quantities + Safety stock + Threshold + Orders in brokering queue + Excluded facilities’ ATP)

Given:

Hence,

Online ATP  = 100 - (5 + 5 + 10 + 5 + 30)
                     = 100 - 55
                     = 45

Therefore, 45 units should be available as sellable inventory for online orders.

• Dashboard for Inventory Explainability

The Omnichannel OMS offers a comprehensive dashboard view that provides internal teams with valuable insights into inventory explainability. This dashboard includes critical details such as Quantity on hand, Online ATP, Purchase Order ATP, excluded ATP and orders in brokering or unfillable queues awaiting inventory allocations for the product. This wealth of information empowers internal teams to gain a clear and holistic view of inventory dynamics. By having immediate access to these details, teams can understand the factors influencing inventory availability and allocations, making it easier to explain inventory fluctuations and order fulfillment processes.

HotWax Commerce simplifies complex omnichannel inventory management with seamless integrations across various systems, including WMS ,ERP and POS systems to offer real-time visibility into inventory levels across a multitude of locations. This forms the foundation for precise Available to Promise (ATP) calculations, ensuring dependable promises to customers based on the latest inventory. HotWax Commerce further enhances inventory explainability by allowing control over sellable inventory and a dashboard view for internal teams to check the inventory computation.

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HotWax Commerce offers an Omnichannel Order Management System integrated with Shopify and Shopify POS. It simplifies omnichannel inventory management processes, from receiving to store fulfillment, ensuring transparency and accuracy. To understand how HotWax Commerce can enhance your omnichannel inventory management, contact our team today.