t’s high noon. Does your Web site know where your inventory is? Most Web sites don’t, which often comes as a rude awakening to shoppers – many of whom assume that if an item is listed on a Web site, it’s available for them to buy.
Take Steve Katzman’s all-too-familiar tale of online-ordering woe. Katzman, the CEO of Decoratetoday.com Inc., went to the Web site of a well-known brick-and-mortar retail chain to order some Calvin Klein jeans. He found a pair, bought them and then got an e-mail confirming that the retailer had received his order and was going to ship it to him. But five days later, just about the time he was expecting his designer jeans to arrive, Katzman got another e-mail that said, “unfortunately, we had to cancel your order…for one of the following three reasons….”
Katzman reacted the same way any Web shopper would: “I’ll never go back there again,” he says.
This is just one of the thousands of horror stories that have e-business people around the world chanting the mantra “real-time inventory, real-time inventory.” Real-time inventory management capability lets a company constantly track every product it sells from when it’s manufactured, or when it arrives in its warehouse, to when it hits the buyer’s door.
The theory is that by integrating a Web site with a real-time inventory system, a company will never disappoint an online customer again. That’s because its Web site will list only products that are actually in the warehouse, ready to be picked, packed and shipped – and would reserve those products right when the customer places the order. If the product is unavailable, the Web site will also be able to tell customers that it is on back-order but will be available within a certain period of time.
But is real-time inventory on the Web a reality today? And is it really necessary for every Web business?
INCREASINGLY IMPORTANT
The answer to both of those questions is yes. While some Web sites have done the necessary back-end integration to be able to tell their customers the truth about whether a product is in stock, many have had to resort to workarounds that fall far short of offering real-time information. While those workarounds might be good enough for now, it is going to become increasingly important for companies to make the move to real-time in the future.
Customers clearly want it. According to a survey conducted by Jupiter Communications Inc. earlier this year, displaying inventory availability on a Web site is one of the leading features that makes customers more likely to buy from or revisit an online store.
And companies that don’t have real-time inventory capability will fall behind competitors that do, say analysts. “This capability will differentiate between those who thrive and those who don’t,” says Lora Cecere, research director for enterprise and supply chain management at the Gartner Group Inc. in Stamford, Conn. “When someone clicks on a Web site they don’t want to hear ‘next day.’ They want to hear ‘right now.'”
Right now, as in, “we’ll get it out the door today.” This type of immediacy is essential for Streamline.com, a Westwood, Mass.-based company that delivers groceries and household services to customers’ homes.
The dot-com would not be able to operate without checking inventory in real-time, says John Cagno, Streamline’s vice president of information technology. How does he know? Because Streamline’s Web site didn’t do that when it was first launched – and it cost the company customers.
In the past, Streamline did not check inventory until after a customer had placed an order. If it didn’t have what a customer had ordered, the crew member filling that order would guess what an appropriate substitution would be – say frozen strawberries if the order had called for fresh. As with all guesses, they were sometimes right and sometimes wrong – but they were never what the customer had ordered.
RIPPLE EFFECT
Of course, there’s “a huge ripple effect” from not being able to deliver what customers want, Cagno says. Fielding customer service complaints takes time, margins erode, and “customer retention ultimately would be hurt,” he says.
Today at Streamline, when customers complete an order they are actually reserving items that are either in the company’s warehouse or that a supplier has confirmed as existing and on their way to the warehouse. Streamline didn’t plunge headfirst into building real-time links between the Web site and the inventory system. It started by rolling out SAP financials, a four-month project, then decided to deploy SAP from end-to-end, which took another eight months.
It uses SAP’s warehouse management system, which links receiving, picking and other warehouse functions with the inventory control system, and SAP’s online store module, which interfaces with order management, accounting and inventory control.
While it’s clear that a company like Streamline – which deals with perishables subject to crop failures or spoilage, and has customers who are used to getting their groceries on the day they order them – needs real-time inventory, do businesses that sell non-perishables require it?
ABSOLUTELY ESSENTIAL
Definitely, says Bob Lewandowski, vice president of systems for ASAP Software, a Buffalo Grove, Ill.-based software reseller. “We’re in a low-margin business, so it is absolutely essential that we automate every function we can,” he says.
ASAP Software does about 25 per cent of its business via its Web site. Without such tight integration between the company’s Web site and its back-end systems, a clerk would have to print out every order and re-enter it – a horribly inefficient process.
Lewandowski thinks his business has more in common with Streamline than many people realize. The success of a perishable goods merchant lies in drawing lots of customers, so that it can turn inventory quickly. Likewise, in order to survive and even flourish, ASAP has to sell as many units as it can as quickly as it can.
“We are the grocery store of the software industry,” Lewandowski says. For ASAP, real-time inventory means being able to use fewer employees while still assuring greater customer satisfaction. It has lower overhead and can pass those savings online to customers, while at the same time giving them better service – thus making it more likely that customers will return or recommend the company to others.
Today’s real-time inventory started out in the 1980s as so-called “available to promise” technology, software that let order management representatives field inventory questions in call centres. It was a very basic tool, and could give only rough inventory availability information – such as whether a particular item was in stock or how many of that item had been ordered.
Since then, more sophisticated tools have been developed to allow supply chain optimization and intricate data analysis, such as being able to measure by product the speed that inventory turns over or the accuracy of inventory information. Other software, such as a combination of supply chain execution, optimization and visibility tools, can track the manufacture, movement, purchase and storage of goods, and integrate that information with an inventory system to give a view of what products are in the pipeline. “But the deployment has been slowed by back- and front-office integration [difficulties],” says Gartner’s Cecere.
The Internet – the very thing that has made it possible to extend live inventory information out to the customer – has also made real-time inventory harder to do, Cecere says. Companies now get orders in many different ways – phone, Web sites, e-mail, fax or in-person at brick-and-mortar stores – making it harder to ensure that inventory information is accurate.
Integrating transactions across all these channels is not just a matter of networking a bunch of computers, even if a company starts from scratch with brand-new technology and does not need to link a legacy database to a state-of-the-art system.
First, there’s the very non-virtual problem of how to tell the inventory system what items the warehouse has on hand in real-time. Typically that means physically scanning items as they enter the warehouse, with fixed or handheld scanners that communicate with the warehouse inventory system via radio frequency. The warehouse system, which monitors operations in that particular warehouse, then has to be linked to the master inventory system, which keeps track of inventory in all warehouses or from all suppliers.
Once that is done, the company has to address the question of latency. That is, how soon after information is entered into one part of the system does it get disseminated to other databases throughout the system and to the customer?
Let’s say, for example, there are just two widgets left in the warehouse and three people each order one within minutes of each other. Does the last person find out right then that all the widgets have been taken before they complete their order? Or do they not find out until the order doesn’t arrive? Also, the company must decide how to deal with “browsers,” – customers who put things into their shopping carts and then leave the site without completing the order. Should inventory be set aside for browsers when they put items in their shopping carts, or only when they actually pay?
At the same time, the company has to handle what are known as semantics issues. For example, what does something as simple as “one” mean in each step of the fulfilment process? When an item comes into the warehouse, one may mean one case or one gross, but by the time it gets to the ordering process it may mean one package or one item. Defining this correctly is the difference between shipping a customer one widget and shipping a customer 144 of them. While a lot of middleware on the market can handle this kind of translation, getting it up and running is usually a slow, difficult task.
The cost of developing a real-time inventory management system and linking it to a Web site depends on the complexity of the business’s operation. But Cecere says that even a basic system, which just provides middleware between a Web site and an existing inventory system, can cost between US$500,000 to $1 million for software and system integration services.
Money is not the only hurdle stopping companies from going real-time.
Decoratetoday.com, which sells wallpaper, blinds and other home decorations via an 800 number and a Web site, relies on other companies for manufacturing and distribution. This means that its Web site can only give customers information as good as the company gets from its suppliers and distributors – which typically don’t have real-time inventory capability.
So how has Decoratetoday.com managed to sell a selection of 300,000 products from 45 manufacturers, process more than 800,000 transactions and ship more than 2.5 million packages each year without real-time inventory?
Katzman says Decoratetoday.com “will not sell any product from any manufacturer that…cannot guarantee to us that it will be available to ship within 10 business days.” Its product database is updated several times a day, with some manufacturers faxing updates and others using e-mail. Those updates let the company know which items are in stock, which are back-ordered, and which are no longer available.
Doing things this way takes a lot of legalese and long hours. Decoratetoday.com has penalties written into its suppliers’ contracts if they fail to deliver on time. The company also puts a lot of effort into confirming and checking customers’ orders both electronically and, with suppliers who aren’t tied into the net, by phone or fax. Katzman believes this process has been successful at keeping customers happy, given that 60 per cent of business is from repeat customers and 25 percent is from referrals.
This process is both extremely labor-intensive and costly however. And analysts and vendors say that when deciding whether it pays to offer real-time inventory information on the Web, it’s important to consider the costs – and the potential savings from improved integration. ASAP’s Lewandowski says on-line orders take about 20 per cent less time to process than offline orders, and that online orders also result in a five per cent savings in direct labor cost.
Despite the potential savings, many observers believe competition will be what gets most companies to adopt real-time inventory. When one company in an e-commerce sector adopts it, other companies have to adopt it so that they aren’t at a competitive disadvantage or they can get a competitive edge.
The need for real-time varies somewhat by industry, however. The financial industry has had to be on the leading edge of real-time architectures – both because an hour can make a huge difference in their bottom line, and because moving data around electronically is their business.
Companies dealing with manufactured goods and retail sales have had more leeway when it comes to implementing real-time inventory systems. However, according to a Jupiter Communications survey of e-commerce executives earlier this year, 40 per cent of those surveyed plan to integrate their Web sites with their inventory systems within the next 12-18 months. Roughly the same number say they plan to integrate their Web sites with their fulfilment and other back-end systems.
Beyond just “keeping up with the Joneses,” companies will be compelled to roll out real-time inventory capability to improve customer satisfaction. A company’s Web site is where many customers have their first contact with the business, so everything about how the site operates – from a link not working to an order for a pair of blue jeans not being fulfilled – reflects on the company. Everything is exposed online for the customer to see, and there’s no sales rep to act as a filter. Or, as Lewandowski puts it, “Our kimono is now wide open to the customer.”
(Constantine von Hoffman is a Boston-based freelance writer)
Text box: “This capability will differentiate between those who thrive and those who don’t,” – Lora Cecere, research director for enterprise and supply chain management at the Gartner Group Inc. in Stamford, Connecticut.