Profit Margin Erosion and Online Fulfillment: How OMS, RFID & More Can Help
Customers in the digital age expect fulfillment and delivery options that fit around their busy schedules. However, for partners to meet these increasing demands, they risk eroding the profit margin, as the cost to meet these demands is significant. The good news is that technology solutions have matured to the extent that they can now provide viable ways to mitigate the increasing costs of online fulfillment. Below we have a look at some of the options available.
Implementing an Order Management System (OMS)
An OMS allows a you to funnel orders through your website, and route orders automatically to a location where there’s inventory available. This type of process automation allows you to operate at scale and send orders efficiently to the location where they get picked. A decentralized, in-store picking model is more cost effective, and whilst it is possible to do this manually (by emailing the order to the relevant store for example), issues arise when you want to operate at scale. Going the manual route is also not a great use of human resource either, and there is a larger chance of errors being made. An OMS manages the flow of orders against a visible level of inventory, and automatically reroutes orders to the warehouse or to another store if there is not enough stock in the first location.
Another advantage of process automation is splitting of orders. Depending on the specific set of business rules, the OMS will take into account the customer’s preferred option and work out the most cost effective method of distribution based on the expectations. Also, an OMS can enable a ‘platinum status’ customer to have different business rules for service and for access to inventory than a lower tier one, and customers with a lower propensity to return product can get priority for products that are in high demand.
Lastly, an OMS makes the in-store fulfillment process “fault tolerant”, meaning that the process will continue to work, even if actual inventory on hand data is not perfect. In a retail store this is important, as traditional in-store customers buy product throughout the trading day, consequently the data held on inventory on hand in each store cannot be 100% accurate. The OMS can automatically re-route in-store online picking requests to the central picking warehouse if the in-store stock turns out to be insufficient in a way that is invisible to the customer.
Implementing an in-store picking solution
Looking like a tablet and wielded by a shop assistant, this tool allows retailers to pick product accurately in store. This method has evolved over the years, and is now a much more robust solution, showing the retail sales assistant the details of the order but also a picture of the item in order speed up the picking process – thus making time and labor cost savings. In-store picking solutions will typically tell the retail sales assistant which fixture to go to (and some retailers have gone as far as numbering the plinths in their stores), as well as providing a visual aid to help find the correct item. As mentioned earlier, a paper-based solution in the store doesn’t allow much accuracy, compared to an OMS connected to an in-store pick system, which can validate the barcode of the product. Doing as much picking locally ultimately results in less margin erosion.
Implementing Radio Frequency Identification (RFID)
Implementing an RFID solution offers stock visibility in store much more accurately than manually counting does. Counting stock typically once every three weeks is not sufficient for accurate data. This is especially pertinent when combined with inaccurate counts caused by human error. Moreover, after a few days manual stock counts are effectively ‘out of date’ because of the normal operation in busy retail stores. Retail assistant regularly have to deal with product with damaged barcodes or even missing labels, and whilst they will key in the prices accurately so that they can make the sale, the ‘manager correction’ till transactions can undermine the accuracy of the in-store inventory. These inaccuracies are further increased when one factors in returns, and especially returns without labels.
In theory, checking stock every three weeks should be OK. However, as we can see, it isn’t. RFID allows you to scan all your stock every day, cheaply using a matrix of receivers, typically located in the store roof. Not only does this save time in labor costs, it’s also better for customers. Why? Because that level of accuracy ensures clothes ranges are complete – which also drives offline sales uplift. RFID isn’t perfect though, as products made principally of metal aren’t compatible, for instance. However, tag designers are constantly working on ways to put the tags in a wider variety of general merchandise products.
As online continues to grow, it is clear that the most cost effective model is picking products in store. Since this growth is estimated to continue, retailers need to come up with scalable solutions that allow this model to be operated cost effectively. These will include OMS to route the orders automatically and at scale, coupled with an accurate tablet-based in-store picking solution, and underpinned by RFID tagging at a product level to give the retailer accurate in-store inventory. An additional benefit of this improved accuracy is better replenishment of the store and therefore better product availability – leading to an uplift in traditional in-store sales.
To read more about reducing margin erosion in online fulfillment, please see our recent Point of View piece: Omnichannel fulfillment: Avoiding the margin squeeze.
Steve Wilson is VP of Capgemini Consulting.