8 min

How the Order Management System optimises inventory & reduces costs

Optimised inventory management is more critical than ever for retailers, especially for omnichannel players. According to a OneStock study, 62% of shoppers will turn to a competitor when met with product stockouts. This doesn’t just have financial and logistical consequences – marketing teams have their work cut out for them when trying to win back a lost customer in a highly competitive market.

However, merchants can now rely on the Order Management System (OMS) to optimise inventory and prevent product unavailability problems in the first place.

So, how can retailers make the most of it?

Key challenges in inventory management & costs

Modern commerce presents a significant challenge for retailers, who need to handle multiple sales channels, omnichannel operations, returns, unsold items, international orders and much more. Not to mention consumer expectations for services like Click and Collect or same-day delivery, which further complicate logistics flows. In this market, a stock error can be costly on all fronts.

Significant financial challenges

Firstly, there are the costs associated with stockouts. When one or more products are unavailable, it results in lost sales for the company. During peak periods like Christmas, the missed revenue can be substantial, especially for seasonally driven businesses. Additionally, there are usually costs associated with compensating affected orders. In such cases, the merchant may need to reimburse orders or offer discounts to make amends with customers.

Another potential issue is overstock. Poor product management ties up capital and occupies storage space, resulting in additional operational expenses.

Customer satisfaction at stake

The consequences of poor inventory management are also indirect. A customer unable to purchase when desired or not receiving an order as expected is unlikely to give the merchant a second chance. Our omnichannel study revealed that when met with a product stockout, 44% of online shoppers would abandon their entire shopping cart. Moreover, unhappy customers tend to express their dissatisfaction through negative reviews, which can be highly detrimental, as 77% of customers read product reviews before making a purchase (Source).

A matter of brand image

In many industries, brand equity is essential for gaining customer trust. Taking Amazon as an example, beyond pricing, it’s operational excellence that contributes to the e-commerce giant’s success. Stock and logistics issues can tarnish a company’s image, requiring significant time and resources to restore its reputation.

Why an Order Management System is an essential ally for inventory management

A tool to unify all stock

Stock unification is the cornerstone of an OMS. Its integration into the company’s information system provides a unified view of all available stock frin warehouses, stores, branches, franchises, corners, drop-shippers, suppliers and more. This unified stock is subsequently made available on all of a merchant’s sales channels, including e-commerce websites, physical stores, marketplaces, and so on. This mode of operation harnesses the full potential of an omnichannel strategy with several advantages:

– Improved inventory flow (fewer stockouts or overstock)

– Comprehensive and accurate stock level visibility

– Operational flexibility

– Enhanced customer satisfaction

Order orchestration: An agile inventory management method

Order orchestration refers to the automated and optimised process of handling and fulfilling a customer order, considering various parameters such as stock location, customer proximity, delivery costs and shipping times. The goal is to ensure a smooth and efficient customer experience while optimising costs and resources for the retailer.

In an environment where companies often operate across multiple sales channels with geographically dispersed stock, the OMS, with its orchestration principle, can make real-time, informed decisions. For example, for an online order, the OMS can decide (according to rules predefined by the retailer) to ship the product from a nearby physical store rather than from the central warehouse.

An effective solution against overstock

Overstock is a challenging issue for many retailers. It ties up capital, incurs storage costs and requires businesses to find ways to sell through stock, such as private sales of outlet stores. These parallel channels consume a company’s resources and are not always profitable. The OMS, with its unified and real-time view of stock and orders, enables better stock clearance by opening up the entire product catalogue to all sales channels. In short, less overstock means more sales, margins and organisational simplicity.

Better sales forecasting

One of the main strengths of an OMS is its ability to perform in-depth data analysis. It doesn’t just track current stock levels but also examines sales trends, demand forecasts and even customer buying behaviours. This information is crucial for anticipating future needs and adjusting stock levels accordingly.

With such a tool, companies are no longer in the dark. Thanks to the wide range of real-time data collected (in-store traffic, stock levels, parcel counts, etc.), the OMS can anticipate demand spikes and ensure that stock levels are sufficient to meet customer needs. The result: fewer stockouts during peak demand periods and less overstock during slow periods.

Harnessing the full potential of boutique stock with Ship from Store

Ship from Store is an innovative ‘phygital’ logistics strategy that transforms physical stores into mini-distribution centres. It involves using the available stock in the physical store network to directly ship online orders. In practice, the online order is assigned to a group of stores based on predefined allocation rules. Once accepted by one of the stores, the order is no longer visible to other outlets.

Ship from Store reduces delivery times, optimises stock levels and minimises costs associated with stockouts or overstock. The Imperial group generated over €145,000 in additional revenue by implementing this tool. (See case study.)

Furthermore, by bypassing central warehouses, this method can also reduce logistics costs and the carbon footprint associated with deliveries. For customers, this translates into an improved shopping experience, with shorter delivery times and better product availability.

Optimised order & replenishment management

Anything from an unexpected demand spike to poor timing of order processing or a simple stock error, can lead to stockouts, especially when managing numerous product references. The OMS prevents this problem by constantly monitoring stock levels and triggering automatic replenishments when levels fall below a certain threshold. With this proactive management, the OMS ensures that products are always available when customers need them.

In conclusion

In a hyper-competitive industry with increasingly demanding customers, it is imperative for retailers to adapt and innovate. The Order Management System (OMS) emerges as an essential solution to address these challenges. By centralising and optimising inventory and order management, this omnichannel system guarantees an impeccable customer experience while controlling costs. It’s more than just inventory management software; it’s a strategic partner that helps retailers navigate the turbulent waters of modern commerce.

Further reading