How Inventory Management Software Propels Omnichannel Retail

Increasingly more customers prefer to interact with sellers via multiple offline and online channels, prompting businesses to shift towards an omnichannel retail approach. In 2022, 76.3% of retailers from the Top 500 offered their customers buy online pick up in store (BOPIS) services. This figure increased to 82.7% by 2023, according to the 2023 Omnichannel Report by Digital Commerce 360.

A robust omnichannel strategy can help a business significantly increase its sales and profits – the National Retail Federation considers omnichannel customers the most valuable retail segment. However, the omnichannel retail transformation can present certain challenges for businesses that have to deal with the growing inventory management complexity and cost. Consequently, many retail companies are using inventory management software to address these challenges.

This article provides three use cases illustrating how inventory management systems (IMS) help retailers establish more efficient omnichannel businesses.

1. Centralized inventory tracking and control

Tracking and distributing inventory across multiple sales channels can be too complex, especially for large retailers operating tens or hundreds of thousands of product items. An omnichannel retail business has to maintain optimal inventory levels in its physical stores and, at the same time, ensure timely delivery to online customers.

An inventory management system helps a merchant solve these challenges by consolidating inventory data from multiple sources, including 3PLs, stores, and warehouses, thus enabling employees to track inventory levels from one central location. A robust inventory management system can even update inventory data in real-time each time a customer purchases via this or that channel, resulting in improved inventory visibility.

2. More precise demand forecasting

Avoiding inventory shortages and overstocking is one of the critical aspects of a retail business, as both can negatively influence customer satisfaction and business performance. For example, according to the Retail Resilience Barometer report 2023 from ROI Hunter, 99% of UK-based retailers experience losses of at least £10,000 per quarter due to overstocking.

Apparently, accurate inventory optimization cannot be considered an easy task even for single-channel merchants, not to mention those involved in omnichannel retail. Fortunately, inventory management systems allow retailers to avoid inventory shortage and surplus, as they provide various tools for inventory optimization.

In a simple scenario, employees can use such a system to set maximum and minimum stock levels across the company’s warehouses or stores. If stock levels go beyond those specified thresholds, inventory management systems alert procurement team members so they can place orders accordingly.

Moreover, companies can take a more proactive and intelligent approach toward inventory optimization by implementing inventory management software with predictive analytics capabilities. Such an AI-powered inventory management system can predict demand fluctuations for each particular sales channel, which allows a retailer to manage safety stock more accurately and avoid stockouts.

An AI-powered system can use different machine learning and statistical algorithms to generate inventory demand forecasts based on various data sources. These sources may include internal data, such as sales history for the particular sales channel, as well as the data provided by third-party sources, such as news feeds, social media, and weather forecasts.

Employees can use such forecasts to plan inventory more accurately and predict future revenues across physical and online sales channels.

Amazon, a retailer serving more than 310 million customers across over 100 regions globally, uses multiple predictive analytics techniques to forecast demand for millions of product items across online and offline channels (besides online retail business, the company operates a chain of 43 convenience stores called Amazon Go). After introducing deep learning neural networks into its forecasting solution, the retailer increased forecast accuracy by 15 times.

3. Automated inventory replenishment

As discussed earlier, inventory management software can alert employees on any deviations in stock levels across a retailer’s facilities and warehouses. If equipped with eProcurement functionality, such a system can also help automate inventory replenishment when stock runs short, which can help an omnichannel retail business avoid out-of-stock and customer dissatisfaction.

For example, such a system can automatically generate a request for quote (RFQ) or request for proposal (RFP) documents based on predefined templates and send them to the supplier. That way, a retailer can ensure its warehouses and stores maintain the required stock levels to fulfill orders and meet customer demands.

Automated procurement can provide omnichannel retailers with numerous business advantages, as revealed by Keelvar’s research 2023: The Year of Autonomous Sourcing. 89% of the survey participants state procurement automation reduces time spent on manual tasks, 86% believe it helps execute increased numbers of strategic initiatives, and 63% say automation helps make more intelligent procurement decisions.

Final thoughts

The modern customer interacts with a retail business via various channels, including online, such as websites and social networks, and offline, such as brick-and-mortar stores. However, not all retailers are ready to switch to the omnichannel business model due to its logistics and inventory management complexity.

Adopting a robust inventory management system is one of the ways to streamline an omnichannel supply chain. Such a software system can centralize inventory management and tracking across all the company’s sales channels, as well as provide demand prediction and automated inventory replenishment capabilities.

Developing an inventory management system from scratch can be a challenging yet promising option: such systems support a retailer’s unique workflows and needs and offer superior interoperability. Companies can build IMS in-house or delegate development to third-party retail software experts who can effectively handle coding, testing, maintenance, and other development tasks.