One of the biggest problems for ecommerce has always been what happens when customers want to mix your online and brick and mortar storefronts. What if a customer buys an item online but wants to return it to a physical store? Or wants an item that they see online but isn’t in stock in their nearest store?
This isn’t a new issue. I remember teaching ecommerce intro classes at various Interops around the world back in 1998 and having to address the problem then. In one of my classes, we had the developers from the US Postal Service that were trying to figure out how they could manage their stamp inventories and not end up selling stamps that they no longer had in stock.
But today it is become more of an issue, especially as the growth in online sales continues to rise. And while supply chain management gets a lot of attention, what should drive a company is how demand for its products are tracked.
I spent some time this week at the Teradata Partner User conference and got to hear first-hand from Wade Latham, the Director of Business Process at Macy’s. Macy’s has three physical store chains totaling 800 stores and two online business units. They have operated independently but recently have begun to manage their demand chains more carefully.
Latham said, “We wanted our customers to buy anywhere and be able to fulfill the order from anywhere.” The problem was that their original processes were mostly manual or used Excel spreadsheets to track demands. “We couldn’t recognize seasonal or climate differences among our stores, and couldn’t really accurately forecast inventory levels. We also wanted to collaborate and share information both internally with our merchants and externally with our vendors for better planning, so they would have the product to ship us when we need it.”
The problem for Macy’s is that they buy stuff six to nine months before any of the items are on their shelves. But they wanted to start forecasting their demands when they made the purchase, so they could plan in advance. One of their biggest decisions is when to buy two of something. You would think that a chain of department stores would be purchasing things in greater lots than two, but because they sell about a tenth of each SKU each week, this can be an issue. Some of their departments sell things faster than others, and some stores – such as their flagship store on Herald Square in Manhattan – sell a lot of stuff even faster still.
The goal of demand chain management is bottom-up forecasting. You collect a lot of assumptions and dial in things such as the type of ethnic population that visits your store: having more Asian-American shoppers means you will sell more smaller sized merchandize, which makes sense.
Macy’s switched to Aprimo’s Demand Chain Management software, and used several of its retail-specific modules for intelligent stock item introduction monitoring and to track clusters of item profiles. “We focused on the opportunities surrounding replenishment of our stock, because they have higher profit margins,” he said. “Now we account for seasonality and can rank our stock items by location and know exactly what inventory we have on hand.” About 40% of Macy’s stock has been entered into the new system, which took about 18 months to build from start to finish. Latham says Macy’s is seeing a seven percent sales increase and more frequent inventory turns as a result, and a lot more satisfied customer base too.
All this means that the omnichannel is here to stay, especially for retailers who are trying to manage multiple demand chains.