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Global Logistics Focus Sept.21, 2015

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22A THE JOURNAL OF COMMERCE SEPTEMBER 21.2015 SPECIAL REPORT GLOBAL LOGISTICS FOCUS 2015 IF YOU'RE AN omnichannel retailer with multiple stores, product lines and prod- uct types, it's impossible to guess where to put stock-keeping units to ensure they're in the right stores or facilities, at the right time and at the lowest cost. Indeed, inventory positioning is a tricky task, and data-driven analysis must be utilized to ensure inventory is available and optimally positioned for customers anxious to receive their orders. Inventory precision and position- ing involves accurate product allocation across shelves and channels, improved velocity, safety stock evaluation and reduction of supply and demand vari- ability. It also requires that retailers be dedicated to enhancing the customer experience through every channel. Exe- cuted properly, inventory optimization reduces the incidence of out-of-stock products, minimizes carrying costs, increases fulfillment speeds and pre - serves gross profit margins. With multiple stores, cha nnels and products, where do retailers begin when it comes to inventory optimiza - tion? There are three key components that must be kept in mind throughout the optimization process. Ensure allocation and personnel functions are in line. Retailers need to define how to leverage inventory throughout the supply chain and how that inventory affects employees. Consider from where volume will move: the store, distribution center or warehouse. It likely will be a combination. But along with a strategy that leverages allocation from multiple locations comes the requirement that people working in each facility are trained and able to fulfill orders. Established duties will take prece- dence sometimes, so retailers must know how much time is available for orders to be packaged and shipped. During busy times — such as weekends and holidays — store associates will be busy with in-store customers and will typically not have much or any time to fulfill online orders. A retailer's order management sys- tem must be f lexible enough to adapt to certain parameters to ensure the maximum number of orders per day are dropped at a given store. The OMS should allow for programming to vary based on the number of associates in a store and the time of day, week or season. Many retailers will employ the 80-20 model, with 80 percent of orders being sourced from the DC and 20 percent from the store. Those numbers fluctuate during the busy holiday season, however. Consider the types of inventory you have when positioning inventory. When optimizing inventory position- ing, the type of products you sell come into play. For apparel retailers, in-store fulfillment levels are dramatically lower than retailers that sell other products, because most apparel stores only carry one or a couple of units of a given item in each size and color. As a result, stores can more easily fail to fulfill online orders, even though inventory is allocated with the assumption of complete accuracy. For apparel retailers especially, products should first be allocated to DCs, then to stores, in order to help avoid costly — and often inconvenient — order splits. T rend s i n dem a nd shou ld b e reviewed to ensure the best inventory positioning to meet your customers' needs. Look at the category of product, how its sales are doing in-store, and the price point. Retailers also should con- sider increasing the volume of products featured in promotions or sales. A co- efficient variance, or CV, analysis can be performed to understand how pro - motions and independent variables can impact inventory. The CV measures the predictability of an SKU's behavior. Identify where time is being wasted and compress it. Time can make or break a retailer's business when it comes to shipping times and the time it takes associates to fulfill orders (whether in- store or DC). Retailers must understand where they are wasting time during the fulfillment and shipping process in order to compress fulfillment times. Retailers should map out their supply chains from vendor to store in order to understand lead times and lead time variability. This should be calculated for every ven- dor. Document lead times for all carrier modes, by carrier and by lane, and docu- ment the lead-time variability within your own DC as well as the returns pro- cess from store to DC. Retailers, remember, there is no one- size-fits-all model. Not all SKUs are the same, not all orders are the same, and not all vendors are the same. To opti- mize inventory, you must start by asking not only what you need to achieve with working capital (cash) on hand, but also what is most important to your particu- lar customer. Is it product availability, price, free shipping or ample shipping options? The answers to these questions will transform your strategy and lead you toward an optimal omnichannel retail fulfillment path. By standardizing efforts when possible to gain efficiencies, you can optimize inventory in a way that sets up your organization for sales success and increased customer satisfaction. JOC Jim Barnes (@LogisticsOracle) is president and CEO of Indianapolis-based supply chain consulting and IT services firm enVista. By Jim Barnes THREE KEYS TO INVENTORY OPTIMIZATION

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