Effective inventory management is crucial for maintaining customer satisfaction, minimizing costs, and ensuring smooth operations in any retail environment. With the rise of omnichannel retailing, accurate inventory tracking has become even more critical.
When retailers implement an omnichannel retailing strategy, the tech teams face two major challenges: determining inventory availability across all channels and deciding where this inventory “Available to Promise” should reside as a single source of truth (SSoT).
In this blog, we will analyze the strategies for choosing the right system that should have the responsibility of maintaining the Single Source of Truth (SSoT) for your inventory availability data—whether it should be your eCommerce platform or an Order Management System (OMS). We will delve into the importance of having a single system serving as the SSoT for inventory availability data and performing order routing to streamline omnichannel retail operations and minimize complications.
By examining detailed examples and real-life scenarios, we aim to provide a comprehensive guide to help you determine the best approach for your retail business.
Understanding Inventory Availability and the Single Source of Truth
What is Inventory Availability?
Inventory availability refers to the portion of your total inventory that is Available to Promise (ATP) after accounting for safety stock, thresholds, orders in the queue awaiting inventory allocation, and inventory at non-participating facilities.
What Does a Single Source of Truth Mean for Inventory Availability?
In the context of inventory management, SSoT means having one primary system that accurately reflects inventory availability across all sales channels. This system ensures that all inventory data is consistent, reliable, and up-to-date, preventing discrepancies and enabling efficient order fulfillment.
Retailers often have multiple systems in their tech stack, including POS, eCommerce, and ERP systems, each managing different aspects of inventory. Here, determining which system should take the responsibility of being the SSoT for inventory availability remains a critical decision.
Which System Should be the Single Source of Truth for Inventory Availability?
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Keeping the eCommerce Platform as the SSoT for Inventory Availability: In some cases, eCommerce platforms are used as the Single Source of Truth for inventory availability. This approach is based on the logic that the platform responsible for selling should also manage inventory availability. However, this can lead to several challenges, particularly in complex omnichannel environments where ordered items can be fulfilled from multiple locations.
If your eCommerce platform is robust enough and also handles order routing, it can serve as the SSoT for inventory availability. However, if your business requires sophisticated order routing capabilities, relying on the eCommerce platform for SSoT can lead to discrepancies and issues when the OMS performs order routing. Ideally, the SSoT for inventory availability and order routing should reside in one system.
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Keeping the OMS as the SSoT for Inventory Availability: Mature retailers who want to implement omnichannel fulfillment strategies like Buy Online Pick from Store, Ship from Store, deploy OMS.
When deploying an OMS, it’s always a good approach to assign the responsibility of calculating inventory availability to the OMS. By doing so, the OMS becomes the master of calculating ATP inventory, providing a single source of truth for inventory availability data. The OMS is then responsible for communicating this data to the eCommerce platform and performing sophisticated order routing.
This approach is considered best practice because it centralizes inventory management and routing decisions in one system, ensuring accuracy and efficiency.
Why Should OMS be Responsible for Calculating Inventory Availability?
An OMS is specifically designed to accurately calculate inventory availability and manage inventory levels across multiple locations and sales channels. This capability is crucial for preventing overcommitting inventory on eCommerce platforms.
Most of our customers leverage Shopify as the eCommerce platform with HotWax Commerce as their OMS, so in this blog, we will understand how calculation of inventory availability and order routing occur when Shopify is used as the eCommerce platform and HotWax Commerce as the OMS.
HotWax Commerce integrates with systems like ERP, POS, and WMS to create a unified pool of inventory. It synchronizes inventory data from these systems, calculates the "Online ATP" — which represents the inventory availability— and synchronizes this data to Shopify.
Synchronizing Inventory Availability to the eCommerce Platform
HotWax Commerce syncs the inventory availability of all products to a default location in Shopify.
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Shopify, as an eCommerce platform, only requires the total available inventory of a product to accept online orders. This simplified approach means that Shopify does not need to manage multiple locations. Instead, all the inventory details are consolidated into a single default location.
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When an order is placed on Shopify, it is captured and then downloaded by HotWax Commerce. The responsibility of routing the order to the optimal fulfillment location lies with the OMS. Therefore, the default location in Shopify serves as an aggregate of all inventory, while the actual inventory management and allocation occur within HotWax Commerce.
This ensures that Shopify can focus on what it does best—managing the online storefront and processing sales—while HotWax Commerce handles the complexities of inventory management and order fulfillment.
Ideal Inventory Synchronization Workflow
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Order Capture in Shopify: When orders are captured in Shopify, it automatically reduces the inventory count from the default location.
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Inventory Adjustment by HotWax Commerce: HotWax Commerce downloads the order from Shopify and performs order routing.
Once routed to the optimal fulfillment location, its inventory count at that location is automatically adjusted in HotWax Commerce.
Let’s understand this with the help of an example. Consider a product with the following initial inventory levels:
Now suppose an order is captured by Shopify with 5 units, so Shopify reduces the default location inventory by 5 units:
HotWax Commerce allocates the order to the optimal location, Central Warehouse, reducing its inventory count by 5 units:
This approach helps maintain accurate inventory counts in both HotWax Commerce and Shopify as well as ensures optimal order routing.
What if Inventory Availability Calculation and Order Routing is Managed in Shopify?
When Shopify is the SSoT for inventory availability data and also performs order routing as well as HotWax Commerce performs order routing, several issues can arise. Let’s see how inventory calculations look like:
Inventory Availability Calculation
Shopify calculates available inventory but lacks the ability to incorporate various parameters necessary for calculating ATP inventory, such as setting thresholds, excluding inventory for certain products from selected locations, or excluding non participating facilities.
Order Routing Duplication Efforts
When retailers use Shopify as a single source of truth and also uses its routing engine, it automatically allocates orders based on its logic and reduces inventory at the selected location before HotWax Commerce can perform optimal routing. This premature reduction can lead to significant complications. Let’s understand this with an example:
Inventory Allocation with Multiple Locations
Suppose a customer places a same-day delivery order for 10 units of a product. Shopify has two locations: Times Square (20 units) and Central Warehouse (40 units).
Initial Inventory Levels:
Order Allocation by Shopify
Shopify allocates the order to the Central Warehouse, reducing its inventory to 30 units. The updated inventory levels are:
Shopify then syncs these updates to HotWax Commerce, which now reflects the same inventory counts:
Order Routing by HotWax Commerce
HotWax Commerce, based on its sophisticated routing rules, determines that the order should be fulfilled from Times Square to minimize delivery time and cost. It allocates the order to Times Square, reducing its inventory by 10 units. The updated inventory levels in HotWax Commerce are:
However, due to the initial reduction by Shopify, HotWax Commerce's routing decision was based on incorrect inventory data. When more and more orders are routed on incorrect inventory data, the routing process becomes less efficient.
HotWax Commerce syncs its allocation details to Shopify. Shopify reads these details and updates its fulfillment record, which increases the inventory at the previous location and reduces the inventory at the new fulfillment location:
Finally, Shopify sends another inventory update to HotWax Commerce to ensure both systems are synchronized:
Having both HotWax Commerce and Shopify performing routing creates complications and inaccuracies. Inventory discrepancies continue to grow with each order processed, leading to a complex and error-prone routing.
In our example we talked about the inventory sync process for a single product, however, updating the inventory for numerous products simultaneously becomes excessively complex and leads to routing mistakes and delays.
What Else Can Go Wrong?
Inventory Depletion and Order Routing Conflicts
When Shopify prematurely reduces inventory at a location, it can lead to significant routing conflicts and inefficiencies. For example, if Shopify allocates an order with 10 units to a location with only 10 units of inventory available, reducing its inventory to 0, HotWax Commerce will also reflect this inventory depletion. Consequently, HotWax Commerce won't consider this location for future orders, even if it's the optimal fulfillment location based on routing rules.
Continuous Inventory Adjustments
The continuous back-and-forth inventory adjustments between Shopify and HotWax Commerce can create a chaotic and error-prone environment. Each time Shopify updates inventory levels prematurely, it triggers a series of unnecessary adjustments in HotWax Commerce. This constant synchronization can lead to:
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Inventory Discrepancies: Frequent updates increase the risk of inventory mismatches between systems.
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Increased Operational Costs: Inefficient routing and inventory adjustments can lead to higher operational costs, including increased shipping expenses and labor costs.
To avoid these complications and ensure seamless inventory management, it is crucial to have a SSoT for inventory availability data and order routing to reside in one system.
Leverage Shopify for Simple Order Routing
Retailers that have one or two fulfillment locations and have straightforward routing needs, using Shopify for managing SSoT for inventory availability data and simple order routing is a good approach.
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As demonstrated in the examples discussed above, relying on the eCommerce platform for inventory availability while using the Order Management System for order routing can introduce complexities and inconsistencies. Therefore, choosing an OMS like HotWax Commerce as the SSoT for both inventory availability and order routing ensures streamlined operations and enhances overall efficiency in omnichannel retailing.
HotWax Commerce allows retailers to create order fulfillment strategies best suited for their business through configurable routing rules. These rules help optimize fulfillment cost, inventory, and workload and lets retailers make real-time revisions to routing parameters without external support.
While Shopify as the eCommerce platform can serve as the SSoT for inventory availability and order routing for retailers with straightforward fulfillment needs, HotWax Commerce OMS excels in handling sophisticated order routing scenarios. By ensuring real-time, accurate inventory tracking and optimal order allocation, HotWax Commerce helps retailers streamline their omnichannel retail operations, reduce costs, and improve customer satisfaction.
To get started with HotWax Commerce, contact an expert today!