Understanding Inventory Profitability in the Omni-Channel Commerce Universe

Overview

While the advent of digital channels creates new opportunities for brands to reach customers and generate sales, seizing those opportunities requires retailers to make significant changes to traditional business models. Those retailers that address these challenges and adapt their growth strategies accordingly will position their business for success in the Omnichannel world.

C-suite executives and their teams face high stakes during strategy execution. The inability to translate strategic goals and objectives into actionable operational initiatives that can be measured and reported, particularly at the cost-center level, are critical to an organization’s success.

7thonline’s management team understands that in order to continue to grow, a retailer must evolve with changing cultural circumstances and economic conditions. With this in mind, the current focus of 7thonline is to enhance the execution of the planning process, focusing on…

• Inventory Management -?Employ advanced forecasting algorithms to provide actionable recommendations to improve inventory consumption and reduce unnecessary liquidation
• Advanced Analytics –?Utilize Artificial Intelligence and Machine Learning to help increase inventory turnover, stock balancing, quick reorder recommendations and optimal replenishment demand to improve cash flow projections
• Media Interpretation & Execution –?Expand the concept of planning to determine why consumers placed orders, analyzing social media platforms and third-party data to better predict consumer preferences

The Dilemma

Omnichannel commerce is a term that is everywhere today - but what does it really mean? It's not just about giving your customers multiple ways to buy from you, or using a myriad of marketing channels. Instead, it's a fully integrated approach across both offline and online that unifies everything, from merchandising to fulfillment, marketing, and marketplaces.

Omnichannel Commerce (also known as Multi-Channel e-commerce) is the future of e-commerce, and it is here today. The term “e-commerce” is too simple, failing to describe the real landscape of selling physical products in our digitized marketplace. Even if you are not a large company, you are competing in an Omnichannel environment, otherwise known as a multi-channel market. This can become a very dynamic landscape with lots of moving parts. In simple terms, Omnichannel refers to the combination of “sales channels” that include (but are not limited to): e-commerce websites; marketplaces (eBay, Amazon, Buy.com, Google shopping, Facebook etc.); physical storefronts (POS); phone/direct; mobile point-of-sale; affiliate selling / sales reps; and so forth. Omnichannel Commerce is the landscape of sales channels, fulfillment channels, and all the bits of data in between. A savvy Omnichannel retailer or wholesaler must strategize wisely to find the most unified system or systems to handle all these sub-systems.

What is apparent with today’s retailers is that their IT systems are not designed to incorporate customer insight across multiple channels and integrate inventory and order management to optimize the profitability of the retailer. This is not the retailers’ fault as legacy systems are not designed nor are they flexible enough to keep pace in this new digital environment.

The Solution

At 7thonline, we have collaborated, researched and worked with our Tier One clients to understand and design an integrated Inventory Management and Demand Planning solution to address this paradigm shift in consumer behavior.

7thonline acknowledges and has embraced the Omnichannel Commerce strategy by designing a solution that interprets consumer behavior within all potential channels of demand and determines the most desirable Inventory position to fulfill that demand.?

The 7thonline solution analyzes the decisions made by retailers concerning Media exposure, product placement, consumer reaction and preferences and assist retailers in determining the optimal distribution channels (i.e. Facebook, TikTok, Twitter, Instagram, etc.), inventory quantity and delivery flow to maximize profitability. Retailers are given visibility to and are presented the importance of metrics such as Impressions, Circulation, Cost of Materials, Contribution Margins, GMROI, Sales per 1,000 Impressions / Circulated, etc. From here the Retailer can determine and approve the optimal inventory supply and flow based on demand and lead time parameters.

7thonline will then execute these recommendations and generate a Purchase Order to the applicable supplier or manufacturer while simultaneously allocating the inventory to the appropriate shipping locations to maximize inventory profitability based on projected forecasted demand.

7thonline achieves this through its proprietary adaptive forecasting engine known as the 7thonline Lab? . Adaptive forecasting is a term used to describe several different methods of determining the likelihood of events occurring based on statistical data and variable analysis. These forecasting methods are adaptive because they allow a company or financial institution to plug in a variety of different variables to gauge the potential outcomes of a single course of action from multiple angles.

Adaptive Forecasting:

• Reduces forecasting times
• Improves accuracy
• Accelerates productivity???

The results of the 7thonline Lab? are impressive as described below in a project with a multi-billion-dollar fashion apparel manufacturer and retailer.

• The forecast was exact to sales in about 90% of the instances, 4% under forecasting, and 6% over forecasting
• The door-level and style-level performance allowed the machine to learn that the deviation from forecast is larger for top doors and top styles due to unbalanced inventory levels across the chain
• The sales gap was analyzed over the days of the week and it was discovered that the gap is larger towards the end of the week/weekend?

These insights that the 7thonline Lab? uncovered and communicated to the retailer changed how they approached their business from design to manufacturing to allocation and fulfillment strategies.?

Summary

The pace of change in the post-pandemic environment will force retailers to continually reassess their strategies. This approach requires more real-time insights on customers as well as a new agile operating model to harness these insights and put them into action.

7thonline is positioned to bring this new agile operating model to retailers looking to grow their business by providing a truly unified experience for their customers.

About 7thonline

For over 20 years, 7thonline has been a leading SaaS solution provider of cross-channel merchandise and assortment solutions to Tier One retailers. Developed completely in-house, natively in the cloud, 7thonline solutions enable more effective planning, demand forecasting, and inventory optimization for fast-growing, omni-channel, leading brands. With embedded business intelligence and rich analytics, the company's solutions offer complete demand visibility and planning capabilities for wholesale, retail, and e-commerce—enabling increased sales, reduced markdowns, improved margins, and enhanced profitability. Customers include Patagonia, Calvin Klein, Michael Kors, Nautica, PVH, and VF, among others. 7thonline is headquartered in New York, NY and has global offices in Shanghai.?

7thOnline, Inc.?is an American company founded in 1999 and is headquartered in New York City. 7thOnline, Inc.?provides cross channel merchandise and assortment management solutions. The Company offers retail solutions such as line, merchandise, assortment, store, and visual planning. 7thOnline serves customers worldwide.

Advisory Board

• Richard Marcus?-?Former CEO of Neiman Marcus
• Howard Socol?-?Former CEO of Barneys New York
• Peter Solomon?-?Founder of Peter J. Solomon Company
• Steven Richard Walton?-?Executive Director of Wing Tai