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Integrated Inventory Management

- A Point of View

A B S T R A C T: A recent Cross Channel Brand Interaction survey on Customer

Preferences+ in the United States and the United Kingdom by Sterling Commerce

an IBM Company reveals the temperament of current day’s Customer , quiet can-

didly, is very exacting and how a small glitch in their Cross-Channel Retail experi-

ence can render dissatisfied Customer resulting in lost business and bad word-of-

mouth for the retailer. What makes it more challenging for a Retailer to meet the

consistent Multi-Channel/Cross-Channel experience is access to Smart Phones,

Tablets and Social Media portals like Twitter and Facebook and ability of the Cus-

tomer to see the promotion for an Item on FaceBook, place an Order via Tablet and

go to a Store to pick the item.

In this paper we discuss how mismanaged Inventory leads to out-of-stock customer

experience and how the retailers are losing business by virtue of it. We also pro-

pose an integrated and centralized way of inventory management that is Accurate,

Flat, Fast, and Direct .

Guruprasad Nagaraja is currently working with the Best Buy team as a Pro-

ject Manager/Technical Architect. He has been in Research and IT for over a

decade now and has worked with majority of retailers in the US and the UK

including Walmart, Target, Nordstrom, Sysco, Argos, Tesco, Frontline, John

Lewis Place and BestBuy.

He has worked mainly on Multi Channel/Cross Channel domain defining

Technical Architecture, Performance Engineering Multi-Channel Enterprise

applications.

His interests also lie in the area of Cloud Computing and he is working on

ways to enhance and Cloud-enable packaged applications.

About Author:

The question at hand is — How should a retailer

handle his Inventory? We must attempt this ques-

tion both from an operations standpoint that in-

volves customer satisfaction and from an applica-

tion design standpoint that too involves customer

satisfaction.

Most retailers have a Database serving as their

‘central’ inventory repositories. Of course, the Ap-

plication Architects are harnessing all the DB fea-

tures to slice-and-dice the inventory based on

channels such as stores, .com, distribution centers

and so on. However, most retailers seem to persist

multiple versions of inventory snapshots at a vari-

ety of places including the order taking and order

fulfilling applications. It almost always starts off by

the ‘central’ inventory repository sending periodic

partial and full inventory snapshots to these appli-

cations, usually hourly and daily respectively.

Inventory Management:

The Problem

“Most retailers

have a

Database

serving

as their

‘central’

inventory

repositories“

This approach has some serious disadvantages:

Firstly, from an Operations standpoint, the inac-

curacies of the snapshots at different applications

due to the time lag involved in propagating the

inventory updates all the way to customer facing

(or order taking) applications such as .COM, and

Customer Service applications.

Secondly, from a Technical standpoint, the up-

dates follow a water-fall model – central reposi-

tory updates OMS of the changes in the inventory

picture, OMS commits these changes in its own

DB and then updates .COM and so on.

Both the disadvantages significantly affect the

customer experience; Inaccuracies in the inven-

tory picture either causes over-selling or under-

selling resulting in delayed/out-of-stock orders

yielding upset customers. Whilst the inefficient

real-time queries not only feature bad application

design but also increase the response times on

‘proceed-to- checkout’ page causing the cus-

tomer to terminate the session and perhaps navi-

gate to a competitor’s site. In both cases it is lost

business.

It is therefore imperative to keep the Inventory

picture ACCURATE, to query the stock FASTER by

keeping your application architecture DIRECT

and FLAT. Please refer to the illustration that

depicts DIRECT interaction of different Business

But let us now quantify the impact – In 2009, unable to meet the demands resulted in 93BN$ loss+ for all the retailers in the US alone. In 2010

72% of the customers (online, in-store and mobile) wanted the retailer to locate and ship the item they want+ (regardless of whether the item

is available in a store a mile away or a warehouse half-way around the world); 33% of them bought the item at a competing retailer+. 29% will

avoid visiting the retailer once+; 13% will avoid twice+; 6% will avoid thrice or more number of times+. This inevitably translates to lost busi-

ness and bad word-of-mouth. For instance, if you are a retailer with 50BN$ turnover annually, your loss due to mismanaged inventory by only

6% of the customers who avoid thrice or more can amount to 300 million dollars!!!

Integrated Inventory Management:

The Solution

What should the Retailers do then to handle Inventory in a better way? Firstly, Retailers must stop thinking of their central inventory re-

positories as mere repositories and instead think of it as an application that maintains Multi-Channel Inventory – every SKU in every ware-

house, every store, from every supplier, and due to every item returned. This plies or the ACCURACY.

Secondly, access to the application must be simple which

can be accomplished by allowing enterprise’s messaging

tier such as an ESB to handle all the complexities related

to messaging type— Synchronous/Asynchronous, format

differences (XML, HTTP, ASCII). There by reducing the

hops to— from source app to ESB and from ESB to Inven-

tory App resulting in a FLATTER model.

Further, every application is DIRECTLY reaching one place

to query/update the inventory picture avoiding the need to

cache the inventory picture at multiple places and intro-

duce additional processes to maintain the accuracy of the

picture (that could result in over-selling or under-selling).

Further, this approach will also reduce the latency involved

making it FASTER since these calls aren’t hierarchical in

nature.

+ - Refers to Cross Channel Brand Interaction survey on Customer Preferences+ in the United States and the United Kingdom by Sterling Commerce an IBM Company.

if you are a 50BN$ retailer, your loss due to mismanaged Inventory

could cross well over 300 million dollars annually!!!