A few years ago, there was a buzz word introduced to the Supply Chain industry. That buzz word was “Omni-channel”. Retailers, Wholesalers, and Distributors rushed to beat their competition to the market by spending millions of dollars implementing Omni-channel strategies. For those companies that have implemented Omni-channel capabilities, I have heard a similar message about what is next; Network Analysis and Inventory Optimization.
Now don’t get me wrong – Omni-channel capabilities definitely create a competitive advantage. Many companies today still don’t have these capabilities and are quickly falling behind the rest of the market. However, even the companies that have successfully implemented Omni-channel are still seeing issues with delivering to their customers. Below are some of the concerns I’ve heard recently, and the steps to take to address them.
Where does my customer base lie today?
Understanding customer demand is arguably more important than being able to deliver through multiple channels. Once you have an idea of where demand is generated from, you can better decide where to hold inventory to fulfill that demand. A more detailed analysis at a SKU level will help determine where to hold inventory and safety stock to meet customer demand.
Am I holding the right amount of inventory in the right locations to reach my customers?
Once you understand your customer demand, you can start to make educated, data-driven, inventory decisions. This includes both the location of your customer demand as well as the volume. It sounds simple enough, but to capture this at a SKU level can be tricky, especially with the nature of certain SKUs. If SKUs are regional or seasonal, there can be additional complexity added to your inventory decisions.
Our company is growing at a fast rate and our fulfillment network of today will not be able to handle the demand two years from now. How should we model our network for the future?
Growth is a great thing for a company, but can be catastrophic to a supply chain that isn’t ready for it. After understanding customer demand and where to hold the right amount of inventory, the next step is coming up with a plan to scale. The current network setup and inventory placement may be great for today’s customer demand, but you need to be able to address tomorrow’s customer demand as well. This not only includes overall growth, but also planning for certain SKU’s demand patterns as well.
I can only hold “X” amount of inventory in my stores. How does that affect my fulfillment strategy?
When you are scaling your inventory network, there are inevitably going to be constraints to deal with. These can be physical constraints like the square footage of a DC or back room, or other constraints such as the number of a product you are able to sell in a given time period. These all need to be taken into account when understanding where to place inventory and how to properly scale to meet future customer demand.
I want to be able to serve 85% of my customer base in 2 days. How can I accomplish that?
The “Amazon Effect” is one of the biggest reasons for a Network Analysis or Inventory Optimization initiative. Almost every retailer is trying to meet or exceed the service levels that Amazon is providing customers today. Do you want to reach 85% of your customers in 2 days? 75% in one day? These are important questions to ask when doing a Network Analysis as they will drive a lot of decisions for opening new locations or strategically holding inventory in certain locations.
Does the cost of opening an additional distribution center for my network outweigh the current inventory carrying costs?
All of the above parameters are crucial to a Network Analysis, however cost dictates the final decision. If your ultimate decision is to open a new distribution center in a strategic location to meet the future customer demand and service levels, you need to understand the costs involved. These costs can include real estate, labor costs, transportation costs, inventory carrying costs, and many more. All of these need to be taken into account when developing a business case for what tomorrow’s fulfillment network should look like.
Now you know some of the factors that go into a Network Analysis or Inventory Optimization decision. All of these are needed to understand your customer’s demand and model your fulfillment network to best serve those customers. Contact our team at Bricz to learn more about Network Analysis and Inventory Optimization!
Contributor: Kevin Quigley