Front and Center

No longer willing to unload discontinued items at bargain basement prices to liquidators, Russell Athletic decided in 2005 the time had come to set up a direct sales channel targeted at corporate customers and merchants outside its traditional retail channels to maximize revenues on discontinued merchandise and gather better marketing data.

The centerpiece of the new sales channel was to be an order management system that allowed the manufacturer to perform the tricky task of tracking in real time inventory that will not be replenished in addition to delivering sales data that can be used to craft future promotions tailored to repeat customers based on their purchasing habits.

Order accuracy

Two months after launching its direct sales sites, Russell Corp. doubled the revenues it would normally earn on discontinued items with a minimal infusion of marketing dollars. The company basically sent an e-mail to prospective customers touting the new site.

The big gain, however, came from effective management of inventory so that buyers were always aware of how much stock was available, right up to the time they entered their billing information. That information helped prevent customer dissatisfaction with the site by ensuring order accuracy.

But what pleased the company most was opening of a lucrative new sales channel that delivered detailed purchasing behavior. “We could never have done this without a good order management system,” says Tony Iannuzzi, vice president of the Artwear brand of Atlanta-based Russell Athletic. “Selling over the Internet is a much more cost effective sales channel and it delivers a viable list of customers to which we can target future promotions.”

Russell Athletic’s experience with order management reflects the increasingly vital role order management systems are playing in the business of multi-channel Internet retailers. No longer can multi-channel retailers afford to rely on order management systems designed around single-channel retailing strategies. Instead they need order management systems that can be integrated across all sales channels.

Real-time inventory data

The increasing importance of order management systems is tied to the rise of the multi-channel shopper, which is typically a retailer’s best customer. Such shoppers expect merchants to pull inventory from one channel to complete a sale in another and to be up-to-the-minute on web site stock-outs.

They also want to receive merchandising suggestions that reflect their shopping preferences and which indicate that the retailer recognizes them when they enter through a different sales channel than the one they bought through previously.

At the same time, retailers are feeling pressure to manage their inventory more effectively on a real-time basis to reduce stocking costs, increase inventory turns, and heighten customer service and satisfaction.

To address these issues, multi-channel retailers are installing order management systems that can deliver real-time data to make inventory readily available across all sales channels, even sub-channels such as eBay.com, forecast inventory and create targeted merchandising strategies without requiring users to have an information technology degree.

The payoff from the new breed of order management systems is the opportunity for multi-channel retailers to lower their supply chain costs while increasing customer satisfaction levels.

“Maximizing existing inventory, rather than holding it in case there is unexpected demand is the big opportunity order management systems offer multi-channel retailers,” says Paula Rosenblum, vice president of retail research for Boston-based Aberdeen Group Inc. “The best order management systems can even look across the entire supply chain to see if a manufacturer is holding inventory for them.”

Reducing fulfillment costs

Multi-channel retailers readily admit that meeting customer purchasing and fulfillment expectations is a top priority. Knowing how merchandise moves through each sales channel and categorizing customer purchases by product type, size, color and other factors make it possible for retailers to recognize their customers’ buying preferences, regardless of the channel in which they are shopping.

Access to such data influences a retailer’s merchandising mix and how much of each item is stocked. Aerosoles.com, which also operates 123 retail locations and a catalog division, uses data from its order management system to prevent overstocking fashion items, despite its reputation among some consumers as a fashion retailer. “We don’t fully commit to fashion items, even though some customers see us as a fashion house,” says Andrew Scott, chief information officer for Aerosoles. “Core selling items are what we commit to based on data from our order management system.”

The Edison, N.J.-based shoe retailer also leverages data from its order management system to refine its merchandising strategy. Aerosoles knows whether a customer shops only during sales or immediately after seasonal or new merchandise arrives and tailors promotions to drive those customers into one of its sales channels. If a promotion is heavily skewed toward online shoppers, the company knows to stock inventory for its web site according to projected response rates. “Knowledge of customer purchases makes this possible,” adds Scott.

Knowing what items to stock and in what quantity can significantly reduce a retailer’s fulfillment costs, which for many multi-channel retailers is rising. In a recent survey by Aberdeen Group of multi-channel retailers, 46% of respondents said they expect fulfillment costs to increase through 2008, 29% saw no change, and 25% said fulfillment costs would decrease.

Re-assigning distribution

By knowing which items to stock and which customers to target promotions to, multi-channel retailers can contain fulfillment costs by moving away from assigning fulfillment from a warehouse closest to the customer’s shipping address toward fulfilling orders from the warehouse containing the necessary inventory. Doing so can reduce the risk of delaying customer orders and rushing to replenish inventory in the wrong locations, only to end up liquidating it, according to Rosenblum. “This creates less stress on allocating inventory to the right channel and allows future inventory forecasts to be aggregated more easily,” she says.

That’s a big plus for retailers who change their inventory mix every few weeks to create freshness of merchandise that keeps customers coming back, such as those specializing in apparel.

One trend emerging among multi-channel apparel retailers is reducing the number of in-store items that sell at a slower pace. Rather than stocking shelves with a full array of sizes and colors, retailers can shift much of the inventory to a distribution center that can ship it to the customer on demand, thus clearing shelf space for more popular items.

For example, a female shopper might see a dress that she likes in the store of a multi-channel retailer, but which is not available in her size. The customer can ask the store associate to check availability of the item. The clerk accesses the full inventory of the item across all sales channels, finds the desired item and arranges to have the item shipped to the customer. The same process can work in reverse—retailers can direct online shoppers to a local store to expedite pickup.

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“By giving sales representatives full access to inventory across all sales channels, retailers are less apt to lose sales on items that may not be in stock in one channel, but which are available in another,” explains Jane Cannon, COO of Datavantage Corp.’s CommercialWare division. “Full visibility of inventory lets retailers save on stocking costs by consolidating inventory in locations where it costs less to ship to the customer.”

CommercialWare, which provides order management systems, was recently acquired by Datavantage, a store technology developer and subsidiary of MICROS Systems Inc., for $13.2 million in cash. The deal is expected to provide CommercialWare’s and Datavantage’s retailer clients a 360-degree view of their customers. As part of the acquisition, CommercialWare spun out its OrderMotion division, which offers order management systems on a web-services basis.

The new direction

Using order management systems to broaden the retailer’s view of the customer is the direction in which many order management vendors are heading. Russell Athletic, for example, plans to create marketing promotions around the types of items a customer has purchased so it can quickly sell related items as they are moved out of the current product line.

“Someone who bought a fleece sweatshirt is going to be interested in other types of fleece wear,” says Russell Athletic’s Iannuzzi. “The same is true for customers buying shirts that are embroidered with a corporate logo. It also creates the opportunity for us to rotate in new products and see what kind of interest they generate, since there are going to be direct ties between what is bought through the site and through our other channels.”

Cognizant of creating a potential conflict with its retailers, Russell is confining its site primarily to corporate customers, such as restaurants, financial institutions, and companies that want the apparel to distribute to employees or consumers as promotional items. Eventually, Iannuzzi envisions Russell expanding the offerings on the site to include sports equipment, such as basketballs and shoes. The company says it will even consider expanding direct sales to consumers in the future, but has no timetable for doing so. Russell Athletic currently offers a limited inventory on its consumer site.

“Retailers and manufacturers that sell direct are using order management to create more ways to make their full inventory available to shoppers, while carrying less of it in their stores,” explains Bob LaGarde, CEO of LaGarde Inc., an Olathe, Kan.-based supplier of e-commerce solutions. The company provides an order management system to Russell Athletic. “Order management is having a big impact on operating efficiencies and creates a more dynamic, flexible, and extensible shopping environment. It helps retailers and direct sellers better define their business objectives across multiple sales channels.”

Sub channels

The operating efficiencies gained from order management systems also extend to sub sales channels such as eBay.com and Yahoo Shopping, that do not necessarily utilize the retailer’s primary brand. Managing inventory across these channels can be difficult since each sub channel has its own data formats and business rules. Amazon.com, for example, allows retailers to communicate directly with its operating platform, while eBay requires retailers to send data through a subsidiary system within its main operating platform, according to order management experts.

As a result, retailers venturing into sub channel sales need an order management system that can manage communication of real-time transaction data and inventory in the format designated by the sub channel partner, then convert that information back into the format used internally across its other sales channels in real time.

“Retailers that sell through sub channels not only need real-time communications with those channels and their other channels to ensure customer satisfaction, but a single application that can follow the business rules of each sub channel,” says Robert Coon, president of DydaComp Development Corp., a Totowa N.J.-based provider of order management systems. “It is costly to have a single order management system for each channel.”

It also requires a system that is easily integrated across the retailer’s operating platform and that is user friendly. Order management vendors are responding with systems that allow retailers to break down the technology silos between sales channels.

Full integration

“Retailers that want order management systems with long-term viability need fully integrated systems,” says Larry A. Maher, vice president of sales and marketing for Data Management Associates Inc., a Cincinnati-based supplier of order management systems.

The first step to fully integrating order management systems is to link the system to the retailer’s database and set the business rules for each sales channel. As data flows through the order management application to the database, the database follows the designated business rules, such as not to lower inventory counts until the actual sale is completed rather than when an item is placed in the shopping cart.

Once a decrement is made, the database immediately updates inventory across all sales channels. Customers purchasing more items than available can be asked if they will accept the available amount, want to back order the item or start over. The latter is a perfect time to send a marketing message based on the shopper’s purchasing behavior to encourage the purchase of another item.

After integrating the database to the order management system vendors typically provide hands-on training with key staff, and in some cases, a handful of top executives, to provide the retailer with a top-to-bottom understanding of the system’s workings. Once the system goes live, business rules can be changed based on the retailer’s preferences.

Simple to use

“The key is to make the system so simple to use, that even the newest employee can figure out how to navigate it and see that the transaction gets completed, not dropped,” adds Maher.

Looking ahead, order management systems are expected to provide retailers with more transaction data that can be used to further improve operating efficiencies, reduce stocking costs and create more targeted marketing and merchandising campaigns.

“There is going to be more of a convergence between e-commerce and the physical point-of-sale and that will create pressure to deliver order management systems that get retailers the transaction data they need to better service their customers,” says LaGarde.

Peter Lucas is a Highland Park, Ill.-based freelance business writer.

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