Give me the Goods Jan 1, 2008 12:00 PM
, BY CURT BARRY
JobZone
Search and post jobs for the Multichannel Merchant. Including jobs for brand & agency marketers, e-commerce, catalog marketers, ops & fulfillment, direct marketing and more.
With
all the complexities of planning and inventory control, how are
distribution centers accommodating the channels? When multichannel
marketing was in its infancy more than a decade ago, the prevalent
thinking was to have a single DC that would process both direct and
retail replenishment orders. There would be one pooled inventory, one
staff and one facility — end of discussion. But logistics thinking is
changing.
Looking
at the chart “How nine merchants manage distribution” on page 35, the
last column on the right shows whether a company dedicates one or more
DCs to direct, has separate retail DCs or uses shared facilities
between channels.
For
example, Companies B and C have multiple distribution centers dedicated
to direct orders, and other centers for stores. These two companies'
objectives are to shorten the delivery time to the customer and reduce
transportation costs to cover the entire country.
But
to accomplish this, they have the additional overhead of multiple
facilities and staffing, and their warehouse management and order
management must be capable of managing multiple inventories and
allocating and filling orders.
Adding
a second direct DC adds at least 40% more inventory, and sometimes goes
even higher. Plus, opening multiple DCs presents a management challenge
of transplanting your culture and company philosophy to a totally new
group of employees.
As
e-commerce in retail companies has grown substantially, logistics
management has come to realize that picking, packing, and shipping of
small orders is very different from full-carton replenishment to
stores. With large volumes it may prove to be more efficient to have
dedicated centers for direct.
Company
I is a manufacturer with 50 stores and an e-commerce and catalog
business unit. It also picks from stores where fast-selling products
can be allocated, and the stores ship. The downside to this is that
stores are begrudgingly giving up best-selling product. The company's
philosophy is to achieve high fulfillment of customer orders, to
leverage inventory and to maximize sales.
Another
of the real drivers behind this shift is the realization that without
having separate sales and stock plans, there is no accountability by
business units to make their sales plans. So if the first unit to
allocate inventory gets the stock, then there may not be inventory for
later drops of a catalog, e-mail campaigns, initial stocks to open
stores, etc.
Other
companies use a “virtual inventory” concept, not in the sense of
drop-shipping, but of the inventory system being able to keep planned
sales by product and SKU by channel, and being able to reserve
inventory for the channel business unit.
So
if quantity of a product is 5,000 and 3,000 is for retail, 1,000 for
Web and 1,000 for catalog, while the inventory is housed together in
the same bulk and forward allocations, the inventory system keeps each
channel's inventory protected. In this way business units are in
control of their sales and stock performance.
Importing's effect
Where
we source product is also changing how we can plan and manage it. Much
of the multichannel world relies on imported product. Even if you buy
from a domestic distributor, chances are that merchandise is imported.
The
initial markup, and hopefully the maintained gross margin, is
significantly higher to offset the negatives that are cropping up in
many businesses. The vendor minimums (often in thousands of pieces) are
forcing companies to plan to use product in multiple seasons, leading
to higher inventory investment and carrying costs. Long lead times
(some below 13 weeks, but most 18-23 weeks) mean that purchase orders
are placed long before the promotional planning is finalized, resulting
in too much or insufficient stock. Using new products that are imports
may lead to large overstocks if a product fails to sell as projected.
Additionally,
companies may not be looking at a fully loaded product cost including
agent's/broker's fees, demurrage, duty rate, product development costs,
and buyer's travel. Couple that with warehouse storage space
requirements for container size receipts and the inventory carrying
costs. All of this leads to higher inventory and carrying costs and
slower turnover.
What to do about it?
Use mixed container loading, where appropriate.
Weigh the increase in per unit cost to take smaller quantities.
Move the entire merchandise and creative planning calendar for promotions back and do each season earlier (no easy task).
Challenge
merchants to look Stateside to try to get the product with smaller
quantities, or to develop product in the U.S. and later roll it out
off-shore if it sells.
Tackle the issue of accounting for
all the product costs to be sure you have an accurate, fully loaded
cost and sufficient initial markup without being overstocked.
