Omnichannel Inventory Management Challenge

As buying behaviors evolve, the relationship between a distributor’s physical outlets and its online presence has, by necessity, become stronger and stronger. Omnichannel Distribution is the deep integration between the physical flow of the product (through various managed operational segments) coupled with associated financial considerations at each segment. This applies across all channels and will optimally lead to a seamless experience for all stakeholders, external as well as internal.

Modern consumers are already familiar with omnichannel distribution through their own combination of retail purchase experiences: buy online, pick-up in store; buy online, drop-ship; in-store purchase, home delivery; ship from store; buy online, return in store; all with same day, or on-demand delivery.

As buyers become accustomed to the flexible nature the omnichannel experience provides, they will naturally seek the same conveniences from the packaged gas industry as well.

Omnichannel inventory management – the macro view

Externally, omnichannel distribution lies within the systems that enable customers to complete a purchase and determine their preferred delivery method. It encompasses not only the sale and delivery to customers, but also reverse distribution concepts since customers also return products. Within the packaged gas industry, not only the magnitude of cylinder returns are extraordinary, the return channel is also very dynamic – especially when a customer’s return quantity is more than the balance-forward record displays. It is because of these dynamics that the order tracking, delivery, reporting, and financial systems should all be deeply integrated and industry-specific rather than separated to multiple systems or platforms.

Omnichannel inventory management – the micro view

Internally – and especially for gas distributors filling their own cylinders – omnichannel distribution must respect the micro supply chain that includes gathering, sorting, refilling, redistribution, and restocking packaged gas products so that they are once again available to all sales channels: a distributor’s physical stores, delivery truck stock for milk-run sales, depot outlets, and the online store. From a micro supply chain viewpoint, operational stakeholders require clear insight into each segment of the cylinder collection and refill cycle. The refill cycle is labor intensive and expensive, so a misstep is not only costly, it could too easily have a negative impact on channel sales. It becomes imperative to have the ability to break down every operational segment: gathering and consolidating empty returns; fill-production planning that balances and satisfies demand; and redistribution of assets to the frontlines of the sales channel. Strict cylinder inventory is well beyond simply maintaining an accurate customer-site balance for the purpose of rental billing. Strict cylinder inventory will reveal gaps and opportunities for cost containment during the refill cycle. Since revenue is not generated during the refill cycle, having clear insight into each segment of inventory-asset activity is the only opportunity distributors have to contain costs and drive out waste.

Challenges to expanding omnichannel model

An omnichannel inventory management strategy is challenging because there are so many moving parts, especially when considering the volumetric and cyclical nature of gas cylinder activities. It becomes critical to understand how inventory data and inventory activity are continuously synchronized for the purpose of process improvement, which is why cylinder assets must be included in best practices for inventory management.

Supply Management – Systems need to provide a clear view of historical sales, open gas orders, and cylinder[1]asset locations so that all these variables may be organized and offered to the production, logistics, and re-stock stakeholders. Just as lead-times and inventory control practices are applied to consumables and hardgoods in the macro supply chain, the same practices should be applied to cylinder inventory as well. The benefits are two-fold: first, using strict inventory practices with a cylinder fleet begins the process of measuring (it’s difficult to improve anything that is not measured); and second, it is the gritty behind-the-scenes work that supports the foundation for successful front-end sales channels.

Inventory Visibility – Complete and accurate inventory visibility are cornerstones for an omnichannel strategy. Distributors should not allow any relative data to live outside the centralized software solution. Data integrity becomes vital to generating the accurate flow of information within channels – macro or micro – that produces improved insight toward supply and demand optimization. Gas distributors cannot afford to operate with fractured software solutions. The online/e-commerce portal, showroom, warehouse, truck stock, depots, and fill plant all need to share a single omnichannel inventory system. This is especially true when the cylinder tracking and billing/accounts receivable applications are active. If not, users will experience gaps that include lack of inventory visibility, as well as visibility to current balances for cylinders assets, cylinder use fees and invoices, and the combined accounts receivable for all consumables, rentals, leases and deposits the distributor offers.

Order Accuracy – About the time you believe all your inventory is under control, someone places an incorrect order – or an incorrect return in the case of cylinder exchanges. To obtain reliable order accuracy, all field transactions must be completed using smart devices that connect real-time to the main inventory system. Since fill plant and redistribution stakeholders work internal orders within the micro supply chain, they must be connected to the main order and inventory system as well. Consistent order accuracy can be the difference between a returning customer and a lost customer. An increase in inventory accuracy by as little as 1% becomes significant, not only for the customer, but also the stakeholders that support the sales channels, and are also tasked to research, correct and document the order mistakes. Without order accuracy, your omnichannel inventory model is doomed.

Getting started

Observing retail online buyer behaviors will provide gas distributors an accurate over-the-horizon view of customers’ future expectations. Maintaining an on-line presence has become the expected norm for all buyers, retail or commercial. As distributors build out their omnichannel offering, they will also need to evaluate their internal inventory, refill, ordering, and delivery systems since they are the systems that provision the sales channels. As sales channels evolve, robust and tightly integrated processes for inventory control and channel supply – specific to packaged gas distribution – are paramount for driving out costs and increasing revenue.

This article was originally published in gasworld US in October 2020. The writer, Doug Iversen, is the Director of Sales & Marketing at Computers Unlimited. 

Last updated January 12th, 2022.