Article

Aligning store labor and inventory leads to customer advocacy

Inability to integrate labor and inventory forecasts can drag down customer experience.

December 15, 2010

Foot traffic is often cited by retailers as a key performance indicator as to the success of their stores. However, in today's world of social media — with criticism and praise of the customer experience quickly disseminated to shoppers' friends — everyone's an instant influencer, and quantity of shoppers alone does not determine a retailer's financial success.

That's why managing customer relationships, and ultimately the customer experience is so important. The smart retailers know they have to have the systems in place to turn shoppers into customer advocates. Not only does their in-store experience have an impact on what the shoppers' friends think of the brand, it also has a tremendous effect on a key metric: profit per customer visit.

The best way to get the most profit per customer visit is to make sure that the product the customer is looking for is in stock, and that the store is staffed properly to provide the customer service that will turn those browsers into customer advocates. Yet too often retailers have not synchronized their inventory and labor systems to accomplish those two key goals.

Customer advocacy is no small task for any brand. As retailers are faced with tighter credit markets and price-conscious consumers, they will need to figure out how to drive the most profit per customer visit in 2011. Retailers must deliver exceptional customer service during every shopping experience, and that can only happen when inventory and labor work together in perfect harmony.

The inventory/labor disconnect

Retail technology vendors have created solutions that address some of retail's most difficult challenges associated with inventory and labor. From solutions that improve inventory forecast accuracy and visibility to labor scheduling that allocates employees for improved sales and scheduling efficiencies, the retail software market has enabled leaner and more optimized operations.

But despite these advances in retail technologies, a chasm exists because of the inability to integrate inventory and labor forecasts, ultimately causing a negative experience in the store for the customer. Out-of-stock scenarios, phantom inventory appearing in the system but not on the shelves, shipments arriving on time but no employees to replenish — the root cause of these issues can often be traced to a lack of integration between inventory and workforce management systems, leading to customer disappointments and lost sales.

In the out-of-stock scenario alone, 85 percent of out-of-stocks are caused by in-store issues, not upstream supply chain defaults. These retail mishaps are happening too frequently for retailers striving to create customer advocates through amplified customer service.

A synchronizing epiphany

With the sheer volume of forecasts and the time spent on data reconciliation, operational discrepancies are only compounded, creating a hurdle for retailers. Now, some solutions are becoming available to synchronize inventory and workforce management (WFM) technologies.

The epiphany to integrate products and people was based on a retail premise that was accepted in theory, but never in demand-planning practice because having the right inventory is only part of the equation. Without employees in the right place at the right time to facilitate a product's sale, customer needs are left unmet with current and future sales potentially lost.

With the synchronization of inventory and labor as the building blocks of exceptional customer service, the integrated demand stream must be built on a foundation of accuracy. And in the retail supply chain, there is no greater indicator of store-level demand than the store-level output that is obtained through point-of-sale (POS) data.

In the synchronization between inventory and labor, POS data serves as the trigger to inventory replenishment in the warehouse, while also enabling workforce scheduling to ensure employees are in place to replenish shelves, serve customers, and execute promotional tasks.

In addition to forecast accuracy, demand based on store level data can reduce inventory levels across the retail supply chain by more than 10 percent. These reduced carrying costs foster improved cash flow, and negate the impact of the inventory bull whip effect which often results when inventory levels are based on upstream predictions.

Customer satisfaction = customer advocates

Once a retailer has orchestrated the right people, products and tasks, they are ready to focus on increasing profit per customer visit and creating customer advocates.

Retail consumerism follows the same path of a standard sales cycle. A prospect costs money until that person is converted into a buyer. The cost of each shopper will vary according to the retailer, but one fact remains the same — the invigoration of new prospects into the sales funnel, and the ability to convert prospects into customers through an initial transaction, is crucial to a retailer's long-term solvency.

Once that first purchase is made, the buyer likely marks a profitable relationship for the retailer. But since retailers must now drive increased profitability on each visit, it is imperative for them to persuade customers to transform from shoppers to buyers, then to loyal buyers, and ultimately to customer advocates.

A loyal buyer is a frequent shopper who represents a high profit margin for the retailer based on the frequency of purchases. A customer advocate, on the other hand, is not only a loyal buyer, but also acts as a brand evangelist and encourages other consumers to enter the sales cycle of the retailer — the divide that separates retail stagnancy from growth.

Brand evangelists as retail critics

The impact of brand evangelists has reached unprecedented heights due to the proliferation of social media and online reviews. No longer are they just passing along their complaints and praises to those nearest and dearest to them — with social media they are now bona fide retail critics, just like critics writing about movies and restaurants. The double-edged sword of social media, where consumers can instantly plug or plague a retailer, can be a retailer's best friend, or its worst nightmare.

It is for this reason that retailers must remain committed to creating the ultimate customer experience on a consistent basis, enabled by the synchronization of inventory and labor. When retailers are successful in providing products and service that exceed expectations, customer advocates will utilize social media platforms to deliver engaged and authentic testimonials on the retailer's behalf.

These cost-free, viral marketing strategies shine a spotlight on retail achievements, and can essentially make or break brand awareness, foot traffic and profit margins for retailers of all sizes and specialties. But none of it means anything if the inventory and labor systems aren't synchronized to make the most out of your customers' shopping experiences.

Noel Goggin is the vice president of retail strategy for RedPrairie, which provides productivity solutions for retailers. He can be reached at noel.goggin@redprairie.com. (Photo by KOMUnews.)