Visibility Example #2: Save the Sale

This was the second of a series of articles I wrote in 2010 on real-life examples of where supply chain visibility is used. In all of them, the goal was to describe them so that they can be understood without an advanced knowledge of supply chain management.

The Setup:

  • A retailer or producer handling higher-margin items: fashion, electronics, etc.
  • Multi-echelon inventory holding or upstream hubs

In this visibility example we’re going to look at a common driver for visibility initiatives, specifically the drive to translate more demand into completed sales. The business problem is straightforward:

The business problem:

A customer has asked for item XYZ, but that item is out of stock at the point of sale. The company has a very short period to satisfy the customer with an alternate arrangement or the sale will be lost.

Understanding the Business Problem Impact:

Naively, we could say that this business problem has an immediate impact of lowering revenue. But, beneath this effect, there are a few others. Retailers are notoriously ill-equipped to capture statistics on unsatisfied demand. That is to say, when this sales opportunity is lost the retailer probably also ends up with a distorted view of true customer demand because they won’t have recorded the lost sale. Next season, the retailer may choose the wrong product line-up, not realizing a best-seller had been sidetracked by product being in the wrong place. Revenue is important, but accurate demand insight is key for higher-margin products.

Common Visibility Solutions:

In order to “save the sale”, visibility practices will escalate the ability to identify, interrupt, divert, and commit inventory towards new demand. How visibility does this largely depends on the supply chain in question:

Multi-echelon inventory pools:

In supply chains where inventory is held in a series of tiered sites, the visibility solution is commonly a virtual-warehouse which wraps around the entire warehousing group. For example, the large consumables and service provider, Bunzle, holds its stock in a multi-echelon arrangement. To make this less technical, what we mean to say is that Bunzle operates a large, national warehouse which then feeds regional warehouses, which then feed small hubs serving single cities. These three warehouses are said to be tired, or multi-echelon, because the intended flow is from larger DC down to the smaller ones, and then on to the final customer.

Multi-echelons tend to then use a visibility solution to provide a wrapper around all the warehouses, so that if any warehouse has product ABC it is possible to see it as available for fulfilling customer orders. Without a visibility solution along these lines, when a single hub runs out of stock on item ABC then customer orders are refused or delayed until the item is back in stock, regardless of how many units could be shipped from all the other sites.

The visibility solutions also usually encompass inter-warehouse shipments so that the inventory picture is complete. From a usability perspective, these visibility solutions are accessed by customer representatives and probably do not directly initiate a diversion, a lock on inventory, etc. These visibility practices are purely to support making commitments to customers and as fuel for entering orders or requests in another system.

E-Commerce

During the rise of e-retailing it was common for sales to be supported out of a single, existing store. But, of course, the growth of web sales caused a migration to large-scale web fulfillment centers. These sites deal with orders in a production-line process, which improves labor efficiency. But, the current trend is for supply chain leaders to look more closely at inventory and demand-fulfillment when sales can only be processed by one or two web centers.

Visibility solutions for “save the sale” in e-commerce are focused on allowing orders to be fulfilled from alternate locations than the main processing centers when they would have to otherwise be refused. For example, if a customer is online and orders item ABC the shopping cart application first checks the inventory at the company’s main web fulfillment center. If the item is out of stock, the web cart does a look-up to find the item in other, less efficient locations. The rules for where it can look are part of this solution.

Unlike the multi-echelon example above, an e-commerce visibility solution to “save the sale” is going to be very, very fast. It doesn’t require a customer service staff member to put the customer on hold or tell them they’ll call back the next day. And unlike the multi-echelon example, the visibility solution is partly responsible for managing the ordering, inventory lock, or inventory diversion necessary. But the multi-echelon solution would include shipments in-transit, and most e-commerce solutions will not take into consideration inventory that is in a shipment which is inbound to one of the valid processing centers.

Multi-Channel:

Very similar in nature to e-commerce is the rise of multi-channel demand. Multi-channel demand is manifested when the customer is actively shopping through more than one point of sale. They may shop online and then buy in-store, browse in-store and order over the phone, or order online and arrange for pickup at a store, etc.

Visibility solutions that try to “save the sale” for multi-channel supply chains will offer transparency of inventory and availability for the customer. In the e-commerce example, the inventory visibility and procurement or diversion of stock is masked from the final customer. For example, when I order a pair of high-end shoes from a web site, the website isn’t going to make me read through its task of finding the right inventory and assigning a picking task. But, in a multi-channel solution, the real goal might be to demonstrate the multi-channel options to the customer during the sales process. As an example, when a customer is looking at renting a tuxedo the retailer will attempt to “save the sale” by having an improved inventory visibility for the customer to use directly. The customer can then see what styles and sizes are available via different channels, and (we hope) this results in a higher conversion rate. In multi-channel markets, the customer was already active in several points of sale. By using a supply chain visibility application to tie the points of sale together into one experience, the retailer delivers higher total service.

Visibility Example #2 Summary:

As in most my articles, I’ll wrap-up with some key points to be used immediately by supply chain leaders. From this example of visibility I’d suggest the following points:

  • This example discussed a very common business problem addressed by supply chain visibility: the desire to “save a sale” by having a more complete knowledge of what can and cannot be promised to the customer.
  • In addition to directly improved revenue and sell-through, overcoming this business problem leads to an improved understanding of true demand. This is because most retailers are not capable of capturing data or intelligence on lost sales opportunities, only successful ones.
  • The visibility solutions to this business problem depend on the supply chain in question. There is not a one-size-fits-all approach.

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