Unified Commerce Is the Route to More Productive and Sustainable Inventory

Authors: Cara Smyth, Frank Zambrelli, Josh Mallett, Alexandria Lee, Jill Schrimpf

#retail #unifiedcommerce #sustainability #inventory #profitability #strategy #omnichannel ?

The past few years certainly haven’t been kind to retailers. Since the start of the pandemic, supply chain and inventory issues across the retail industry have been making headlines worldwide. Driving these issues is a confluence of geopolitical factors, climate issues, and dramatically shifting consumer demands with a more saturated market. Worse, the velocity at which change is happening continually increases, and change itself is becoming more unpredictable.?

To survive and thrive, retailers must start thinking about how to position themselves to be more flexible and agile in the face of adversity by bringing together all their channels in a model we call “unified commerce.” With a unified commerce approach, retailers marshal their capabilities to most effectively manage inventory to respond to challenges, threats, and changes in supply and demand.??

In doing so, they can minimize the lost revenue and lower margins from heavy discounts or unsold merchandise associated with excess inventory, and avoid missing out on sales because they don’t have enough of what customers want. In other words, they can flow inventory optimally across channels to match supply and demand.???

At the same time, unified commerce can help retailers address a wide range of social and environmental issues. Minimizing excess, unproductive inventory (i.e., products not getting to the right channels at the right time) reduces waste and emissions related to redistribution, packing and repacking, and disposal. It also mitigates the risk of unlawful human rights practices in the supply chain—for example, lack of clear communication of and adherence to production schedules stress suppliers’ staffing systems; whereas, smoother planned flows result in more consistent income and hours for suppliers and their workforce.??

Two Sets of Actions to Address Inventory Issues?

With retailers still navigating unprecedented, unpredictable times, they need to focus on building the infrastructure and processes to develop a unified commerce model that gives them the flexibility to manage inventory so they can mitigate negative financial, human rights, and sustainability impacts. To that end, retailers should consider two sets of actions.?

Resolution and Remediation?

The first set involves resolution and remediation—what to do when faced with inventory issues. One of the most basic ways retailers can get their inventory on the right track is to double-down on data- and AI-driven allocation. Powerful and affordable AI tools can enable a retailer to, based on real-time data, redistribute inventory to the channels that need it and can sell it. If something’s not selling in one store, it can be quickly moved to another store or the ecommerce channel where there’s demand for it.?

There are several other ways to resolve and remediate:??

1. Evaluate alternative liquidation methodologies to right-size inventory levels and spur an evolution in revenue sharing. This could mean that, instead of returning excess goods to the vendor, the retailer donates them to organizations that could use them or sells them to an off-price vendor to recoup some of its costs and keep the goods out of the landfill.?
2. Employ return-to-vendor brokering or reverse logistics to the selloff inventory from one vendor to an off-price retailer without taking ownership of the unsold inventory—ultimately, enabling a more seamless, productive flow of inventory.??
3. Sell excess capacity in warehouses and fulfillment operations (including trucking) as a service to other retailers that might need it to manage fluctuating demand without investing in their own capabilities.??
4. Consider unique logistics opportunities that have arisen as a result of the pandemic to move and distribute product more flexibly. One example is turning dark stores into fulfillment centers—especially locations in city centers whose proximity to a dense population can enable a retailer to offer same- or next-day delivery more cost-effectively (while generating fewer emissions).??

Prevention??

The second set of actions involves prevention—what to do to avoid inventory issues from occurring in the first place. Once again, here’s an opportunity for data and technology. Tools, systems, and innovations (like AI) can help retailers implement data-driven dynamic planning and forecasting to more closely match inventory to real-time demand. Sometimes, the solutions can be as simple as re-thinking purchase-order-level specifications to allow for more agile distribution. Doing so makes inventory more productive while reducing the social (working hours and conditions) and environmental (emissions from expedited air shipping and waste with excess inventory) risks associated with chase orders.?

But beyond looking at POs, retailers should think about how they can use AI to help more effectively plan channels of distribution. This would entail using algorithm models to search geographic sites for subtle shifts in sales, enabling a retailer to move distribution away from where sales are declining and to sites where sales are rising—and, consequently, improve inventory sell-through.?

Retailers also should explore opportunities to optimize fleets and routes to boost delivery efficiency—which, in addition to driving faster delivery, generates a raft of sustainability benefits. An obvious one is lower emissions from having fewer trucks on the road driving only the miles they need to. But there’s also the potential to leverage “empty miles” for other environmental impacts. For example, if a truck is returning to a warehouse after delivering a shipment to a store, could it be filled with returns, or even packaging that could be recycled or resold, instead of heading back hauling nothing but air????

A retailer also could collaborate across brands to share the same third-party logistics provider, distribution, or warehouse in a common geography to maximize the use of all assets. For instance, if two suits are going to two different stores in the same mall, it doesn’t make sense to make two trips to deliver the garments even though the stores are separate brands. An extension of this idea is to sell excess capacity to other companies outside the retailer’s umbrella—which not only optimizes the use of assets but also generates additional revenue.?

Another action retailers might consider is identifying potential sourcing efficiencies in Tiers 2-4 suppliers, which can create logistics and production efficiencies, cut lead times, and lower emissions and resource consumption. One approach could be conducting a geo-location exercise to pinpoint where suppliers are located and identify the flow of products among and across them. This could reveal significant opportunities to make product movement more efficient. For instance, a retailer might find a Tier 3 factory in one country is moving materials to a Tier 2 factory in another country, which then moves the materials back to the original country where the Tier 1 factory is located. Is it possible to create a more local network of suppliers to eliminate or minimize such movements? And once such tighter supply chain networks are identified, could the retailer leverage suppliers with more-progressive sustainable operations or incentivize them to adopt more-sustainable practices??

Finally, as they focus on prevention, retailers should be on the lookout for where sustainability and financial issues intersect—and quantify the impact. There are myriad scenarios in which operational inefficiencies can be addressed by pulling sustainability levers, and these solutions often have cost reductions associated with them. This kind of mindset is key to gaining visibility into how to navigate and mitigate hot spots going forward.?

Conclusion?

Being more agile and flexible is a goal most businesses are striving for today. Given how fast the world now changes, it’s truly critical to survival. This is especially true for retailers, which were hit hard by the disruptions unleashed by the pandemic and have struggle to keep pace ever since.?

That’s why the concept of unified commerce is so important—and, with the rapid maturity of AI, more possible to achieve than ever. To be effective, unified commerce requires tying together supply chain, planning, stores, production, and sourcing—something that’s incredibly difficult for a person or team to do given the cross-functional complexity involved. However, AI can provide the “arms, legs, and brains” to make this happen, at a cost, scale, and speed retailers need.?

The ability to move inventory from warehouse to warehouse, store to store, or channel to channel—quickly, seamlessly, and cost effectively—is a building block of the agility and flexibility retailers desire. And for many retailers, it could mean the difference between winning in a post-pandemic world and becoming a casualty.?

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