The importance of solving the retail inventory challenges around out-of-stocks and excessive markdowns is compounded by the recent announcement of Amazon’s plan to sweeten delivery perks for Prime members with 1-day free shipping. Retailers need to take advantage of the store portfolio in order to compete, but in doing so they also need to make sure they’re optimizing the use of their inventory. This means making smarter inventory decisions around buying, placement of inventory and where to fulfill online orders from. The good news? With the advanced technology available today, this challenge isn’t as daunting as you might think.
The problem is retailers have invested millions of dollars in their existing systems to run their businesses. Many of these, quite frankly, are really old. In some cases, even if the systems are relatively new, they likely don’t have the sophistication artificial intelligence (AI) or advanced analytics solutions offer to enhance existing processes.
This creates the dilemma of whether to rip and replace systems to take advantage of new AI solutions, or to augment existing systems with leading capabilities like AI. At Celect, we’ve found that augmenting your existing solutions with AI holds three distinct advantages:
Speed to value
The speed to value is often much quicker when you can plug into an existing system. For example, with Celect, AI is plugged into existing planning, allocation and order management systems to assist in making better inventory decisions. These decisions are based on prediction and optimization that considers multiple business objectives, unlike the rules-based decision process legacy execution systems traditionally use. An initiative to completely upend your entire system can take years, while a project where you augment existing systems (like with Celect) can take about three to six months—which provide a far shorter time to value.
The return on investment is much higher because a) it’s likely less expensive to augment over ripping/replacing and b) the time value is quicker. Additionally, your also enhancing exsiting capabilities, which typically result in better returns. With Celect, retailers who undertake fulfillment and allocation optimization projects often see a range of benefits, such as a 2-5% increase in full price sell-through, a 6-8% reduction in lost sales, 25-50% fewer markdowns, and 1-5% margin improvements.
One of the hurdles in using AI is adoption, and having a clear understanding of how it fits (or changes) existing business processes. When AI is plugged into an existing system, the adoption hurdle reduces tremendously. For example, with Celect, augmenting fulfillment and allocation decisions is the easiest because it is influencing the final decision point and fulfills a function the business users want. In this instance, it’s not possible for the business users to consider all the possible trade-offs for a fulfillment or allocation decision in the time-frame required because there are so many variables involved and require the assistance advanced analytics technology provides. In this instance, adoption rates are much higher because the solution is much more focused on a really specific pain point, and as a result, the business users readily adopt the help AI can lend.