Retailers delivering outstanding customer service understand what it takes to offer the products their customers demand – down to style, color and size – when and where they want it, and at the price they are willing to pay. Of course, this problem is easy to solve with unlimited inventory and a willingness to overlook the bottom line. However, this is not a realistic approach. Retailers need to solve this complex customer service problem while minimizing capital tied up in inventory and, at the same time, maximizing margins. Here are six simple strategies retailers can implement now to get customer service just right and improve their supply chain efficiency.
1. Formalize Your Supply Chain Process
Retailers that want to improve their level of customer service should start by assessing their end-to-end supply chain processes. Although customer service and supply chain don’t always seem to go hand-in-hand, they are, in fact, very closely linked. There is nothing more frustrating to a customer than when they invest time in going to a store and seeking a product only to discover that it’s unavailable in the color or size they need. A formalized process used consistently across the teams involved in predicting and fulfilling customer demand will go a long way toward ensuring consistent customer service delivery.
The physical realities of supply chains can be difficult and expensive to change. For instance, consider where your products are manufactured and the lead times to get them from factory to store. By analyzing current processes from supplier to end consumers, retailers can determine where there is room for improvement. Organizations should analyze top-down financial planning, how assortments are planned, how merchandise is allocated to store locations and how it is managed at the individual style, color and size levels in those locations. If this process is engrained in the organization, the merchandising and buying departments will collaborate more effectively to get the right products where they need to be at the right time and price. The journey toward outstanding customer service starts with a well-documented and fully-executed process that guides the entire organization.
2. Put Demand in the Driver’s Seat
Traditional push-based supply chains can’t keep up with today’s connected consumer. As a result, retailers need to apply their newfound understanding of supply chain processes to make the transition to a demand-driven supply chain – one that pulls product into the stores and channels based on actual consumer engagement data, rather than historical replenishment orders. By focusing on point of sale transactional and item movement data, retailers can remove variability from the supply chain and flow inventory to where it stands the best chance of selling for the highest possible price. Many retailers are still trying to forecast using spreadsheets that can’t handle the amount of data and intelligence required for true demand-driven forecasting. Forecasting down to the item and location level requires understanding the unique characteristics of each SKU and applying the right forecasting algorithm. Applying the best forecasting method to each SKU can dramatically improve forecast accuracy. Advanced forecasting algorithms can account for trends and seasonality, promotions and lost sales. Once you have consensus on the demand-driven forecast you can now move to the next strategy and focus on inventory.
3. Focus on Balancing Service Levels and Inventory
Having the right amount of product on hand is the foundation of good customer service. Yet, too often this concept is easier said than done. To ensure they always have product on-hand and available, many companies have historically made a practice of storing extra inventory, or safety stock. However, this is less than ideal because it unnecessarily ties up working capital in inventory and, secondly, marking down products to reduce excess inventory hurts margins and the bottom line. Retailers need to strive for a balance – having the right quantity of merchandise available to maximize sales, but not at the expense of working capital. Achieving this balancing act takes precision and attention to detail.
4. Postpone Committing Inventory
Retailers that want to drive up sales and service by improving cross-channel inventory availability should adopt a ‘hold-back’ or postponement strategy. They will then benefit from higher product availability while reducing excess inventory, improving service levels, lowering markdowns, increasing revenues and margins, and growing market share. To deploy a ‘hold-back’ inventory strategy, retailers must have accurate demand data and visibility across their organization. A week or two after the products start to sell, retailers will have some data on how well their original allocation strategy is working. Holding some inventory back instead of pushing it out to the market all at once allows retailers to adjust future allocations for that product, taking into account shifts in consumer-buying and store-selling behaviors. Replenishing product based on demand is critical as it’s too costly to try to move it between stores after it’s shipped. What’s more, once stock is in the wrong place, it’s more likely to be marked down while other locations lose out on sales. Understanding consumer demand can streamline how much inventory to position throughout the supply chain, forcing the organization to think about inventory from a holistic perspective.
5. Differentiate by Creating Personal Connections
Due to the product assortment, merchandise availability, and price transparency caused by online channels, mobile solutions, and social media, retailers need to work harder than ever before to differentiate their businesses from the competition. Retailers should create a level of intimacy where shoppers want to return because they can’t get that experience anywhere else. Apple is a prime example of a retailer that creates a one-on-one shopping experience. Between its Genius Bar that offers professional assistance with technology issues, mobile POS that keeps associates at the shopper’s side throughout the shopping experience, and an immersive retail space that allows shoppers to “test” all devices and educate themselves about technology, Apple has developed an effective formula for making their customers feel special. Lululemon Athletica has taken a similar approach by featuring free in-store yoga classes and personal shoppers to assist with choosing merchandise and catering to the fitting room experience. The end goal is to sell a product, but shoppers yearn for a pleasant shopping experience and a personal connection with their favorite retailers. Creating this level of connection requires an investment in getting to know your customers and understanding what will keep them coming back for more.
6. Measure, Measure Twice, and Measure Again
Without the right metrics in place, retailers have no way to determine how they are performing versus their plans. Among the metrics to analyze are inventory turnover, sales to stock ratio, forecast accuracy, overall sales, and even customer satisfaction levels. These also should be weighed against historical purchase patterns, sales uplift due to promotions, lost sales due to out of stocks, sales and business trends.
With this benchmark in place, retailers can more easily create a solid foundation to improve merchandising, inventory and fulfillment efforts – the keys to improving customer service. To remain relevant in today’s fast-paced digital world, retailers should invest in leading-edge technology solutions. While there are many options, the focus should be on those that deliver ease of use, smooth user adoption and a quick return on investment. At the top of the list should be open solutions that can be seamlessly integrated and allow multiple lines of business to share a common data set and end-to-end solutions.