Nick McLean, CEO, OrderDynamics
Online shoppers today have nearly unlimited access to information about the products they buy before making a purchase. From robust product descriptions to peer reviews and price comparisons, consumers can be confident whatever they buy will meet their expectations. To take ownership of this evaluation process, retailers have made significant efforts to make their e-commerce product pages a one-stop shop. Today, just about every detail a customer would consider before making a decision goes onto these
pages.
In a twist of irony, however, there are also situations in which a retailer is better off limiting the availability of not only information in the e-commerce storefront, but product availability, too. Ultimately, not every retailer is well-served selling its entire inventory to any shopper worldwide, nationwide, or even regionally. As with anything, there is a cost and a benefit to expanding a market by selling online. To address this, retailers must take steps toward this nuanced approach to retail. It involves using a new capability called dynamic inventory visibility.
What is dynamic inventory visibility?
Dynamic inventory visibility can be thought of as a view of stock levels that can be set to change based on certain criteria. Criteria can include geographic boundaries or promotional timings, or any other limiting factor.
In other words, it establishes the ability to create inventory pools. Inventory pools are a virtual concept. Ultimately, the products in the pool can be sourced from any and all of a retail chain’s inventory at all locations. It includes distributions centers, store inventory, pop-up stores, 3PLs [third-party logistics providers], drop shippers and inbound inventory. For example, it allows a retailer to pool all high-margin inventory together. This way different regions can either offer all inventory, or only high-margin inventory.
What dynamic inventory visibility does is change inventory status from a binary universal asset—in stock or out-of-stock, organization-wide—to one that adapts based on set parameters. This can be set up such that each product delivers maximum revenue based on purchase point, shipping distance, pickup options and many other parameters. It opens a whole host of opportunities for retailers in terms of where, when and how to sell merchandise. In fact, this is an extension of the concept behind reserving certain amounts of inventory as safety stock.
Applying dynamic inventory visibility
In practice, dynamic inventory visibility has numerous important applications. For example, let’s review the case of geography. Retailers can configure specific regions or groups, and then apply specific stock thresholds to those virtual stock groupings. This means that while the retailer may not be sold out of an item as an organization, it can set automatic triggers to halt the availability of an item in a particular location.
Let’s consider an example of a retailer with a large presence on the West Coast. While it may wish to still sell in Eastern regions, there are natural logistical challenges around inventory distribution. Selling outside your home territory provides a larger brand presence, and an opportunity for more sales. However, the retailer would not want to sell its low-cost, low-margin products to customers beyond a certain shipping distance. Practically, the retailer needs to consider that as the shipping distance grows, the cost to ship orders to customers grows as well. Selling many low-margin items that trigger the ‘Free Shipping’ threshold when shipping costs are high only ends up hurting the bottom line.
The solution for this retailer is inventory pooling. When a customer is browsing a merchant’s site, observe the geographical location of the incoming IP address. This is an initial criterion for the virtual inventory to determine which pool to apply for this viewer. If the shopper resides outside of a certain distance threshold or geographic boundary, then present the shopper with only a certain selection of products. This way the shopper’s purchases are higher-margin items which are more likely to cover the additional shipping cost. For our example, even orders shipped to the East Coast from West Coast locations stand a chance of being profitable for the merchant.
Whether the retailer chooses to establish these rules to prioritize products with higher margin, higher price or lower cost to supply is of less importance. What is important is the flexibility to establish whatever setup, pool and rule makes sense for the business. This allows the retailer to remove those products from the entire reality of a customer outside its preference zone. It’s far superior to do this than have a customer explore the website, select a product and then be told at checkout that they’re too far away. It is also better than today’s practice of informing a customer on the product page that it’s not available in your area. Customers won’t be disappointed that a product is out of reach for them if they don’t know it’s available in the first place.
Dynamic inventory visibility can be particularly important when selling internationally. Certain products may be restricted, be difficult to transport, or include expensive tariffs for different countries. Dynamic inventory visibility gives you control of your sales. It lets you as a retailer choose to whom, when and how you want to show your merchandise.
Where do we go from here?
A recent OrderDynamics research study of 1,000 global retailers (320 of which are U.S. retailers) found that only 68.4% of retailers provide even a basic in-stock indicator on their e-commerce site. Some avoid doing so as a competitive strategy so that other retailers can’t gain insight into their merchandising strategies. However, this hurts your relationship with customers far more. Allowing visibility into inventory levels is key to providing a full-service and frustration-free experience.
Taking it a step further, dynamic inventory visibility allows any retailer, of any size, to provide a great experience to its customers—while striking the right balance between adding market reach and protecting margins. It is simply a more intelligent way of retailing.
OrderDynamics provides order management software for omnichannel retailers.
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