Having the right products your customers need for their home improvement projects is the first step to delivering a positive customer experience and boosting loyalty. AI and machine learning move beyond historical data and into predictive insights and prescriptive action.
The home improvement retailer whose supply chain is optimized is the retailer who wins.
Most customers know this terrible feeling… You need to finish a necessary home repair project, such as a faucet replacement. You head to your nearby home improvement store only to find the one item you need to complete the project is out of stock. Replenishment solutions not only consider the demand for individual SKUs but also how those SKUs fit into the broader customer need. That means stocking X quantity of faucets also means stocking X quantity of plumber’s tape, wrenches, washers, and even buckets. Having the entire set of items that customers need is the difference between passionate customer loyalty or frustration.
Delivering a positive customer experience encompasses numerous areas, but having the products your customers want in stock is foundational. The customer’s sense of urgency compounds the need for home improvement retailers to get this right.
What Drives Revenue?
Improving the bottom line comes in many ways. The foundation of a positive customer experience is having product fulfillment ready at the demand location. That means your customer may shop in your brick and mortar store or choose one of the many ways of online order and fulfillment. These include BOPIS (Buy Online, Pick Up in Store), BOPAC (Buy Online, Pick Up at Curb), ship to home, and ship to locker. No matter which outlet a customer chooses to shop, having the items they need at the fulfillment location is essential to fostering a good customer experience.
Shopper behavior has evolved in 2020. Shoppers who would have never imagined buying light bulbs, appliances, or lawnmowers online just a year ago now do that on a regular basis. Yet, imagine the customer in a home improvement store who has a repair in progress. That customer doesn’t want to hear the needed item is out of stock but can be ordered online and delivered in two days. This results in a lost sale on all items for that project, not just the item that was out of stock.
Where AI Fits in the Supply Chain
The home improvement retailer whose supply chain is optimized is the retailer who wins. All retailers have been challenged in 2020 to get their supply chain in shape. AI and machine learning (ML) can optimize every SKU for every location in the home improvement chain. That optimization works in the supply chain from beginning to end.
It starts by understanding your current product line. Which DCs should house various SKUs, and how many of each? How often should each SKU in the DC be replenished? After knowing that, home improvement retailers need a demand planning solution that understands shopper behavior—not just historical data, but predictive insights and prescriptive data. There are common groups of items purchased for home improvement projects. A painting project often includes the obvious: paint, paint brushes, rollers, and drop cloths. Machine learning algorithms can also reveal the percentage of paint-related purchases that also included extension cords, ladders, and candy bars. These anticipate demand and give the retailer actionable information for buying. Home improvement retailers can maximize profit by allowing AI and ML to show what customers will want.
Another key point in the supply chain is omni replenishment. When built on AI and ML, it informs the retailer of which SKUs to stock in each DC and store, and how often each SKU needs to be replenished for maximum profit based on anticipated fulfillment needs. Next, optimizing the supply chain includes an assortment optimization and seasonal allocation solution. For example, more snow shovels are sold in the north vs. the south, and more window air conditioners are sold in the south vs, the north. AI and ML determine which SKUs to stock, how many of each SKU belongs on the shelves in each store, when they should be stocked, and how many different brands are required for each SKU to sell, ultimately eliminating stranded inventory while ensuring customer satisfaction. Optimizing all areas of the supply chain is vital to delivering a positive customer experience.
In the past, retailers have used a mix of software and human decision-making. The best AI and ML supply chain solutions don’t disregard human experts. Instead, the right supply chain technology better informs the expert to make profitable decisions, then automates the tedious, time-consuming actions so the experts can spend time on higher priorities.
Your Supply Chain Needs Improvement
The most common pitfall retailers do is overstock every SKU. It’s often viewed as insurance against lost sales. This is never a good long-term inventory strategy. Some overstocked SKUs that don’t sell well are taking up valuable shelf space for items that could fly off the shelves and drive higher profits. How can home improvement retailers have all the right products available without overstocking?
Using ML and AI can tell you what decisions to make to increase revenue and profit. That includes knowing how many of each SKU is in every store, which brands, which sizes, and more. Using consumer pattern analysis, AI can also tell you which brands, items, and SKUs you don’t currently carry but would sell well if you did carry them. Even more, it can reveal the right demand substitutability: when the desired SKU is out of stock, what is the likelihood the customer will buy a similar product in a different brand?
Simplifying Your Job
While much of this can sound overwhelming, the good news is that supply chain technology can cut the tedious work from your day and empower you to make better decisions. Think of it as a chainsaw instead of a handsaw. Even better, 4R is available to help you so you don’t have to climb a ladder and cut that tree down yourself. We are ready to help all home improvement retailers improve and optimize their supply chains.