Cross-Border Commerce: Managing Inventory and Fulfillment

Across the world, a few retail brands have built empires out of successfully leveraging both local and cross-border commerce transactions. It isn’t just luck that makes these global brands dominate. In fact, behind each of these successful brands is an intricate web of strategy, management and execution that delivers the right goods to consumers exactly when and where they’re in demand.

One of the key objectives for any retailer is to manage inventory effectively and efficiently across all outlets – regardless of how many time zones or channels this entails. Even if you put aside common challenges, such as language, currency and distance, cultural differences and brand perceptions can make inventory management extremely complicated.

Retailers that have navigated cross-border commerce seem to understand the complications of this dynamic better than others. They live by the rule that retailers must recognize their consumer demands holistically and geographically.

Regional Perceptions – Just One Part of the Picture

Just because a brand has a strong presence and perception in one part of the world, doesn’t mean that consumers in other parts of the world feel the same way.

For example, a retailer might build its empire in the U.S. based on quality name brand products delivered at lowest prices. Due to unanticipated distribution and competitive differences, however, the retailer can’t offer the lowest prices in another country. As a result, a significant part of its brand promise becomes dismissible.

In order to be successful globally, brands must develop strategies that support their overall brand promise (to the extent that is possible) while taking into account the challenges that the global market presents. This means that the brand may need to articulate a secondary brand promise or even modify its promise based on new markets.

Visibility and Real-Time Insights are Key

Visibility into inventory and strategic inventory management are much more challenging for cross-border operations than within regions due to customer preferences, cultural and geographical differences, weather and much more. Retail fulfillment cannot become a one-size-fits-all model, or the brand will fail, making real-time data crucial for inventory management.

For example, a recent SAP analysis of more than 175,000 social media mentions of summer fashion trends revealed real-time consumer preferences throughout the world for colors, materials, prints and footwear. Simple data, such as the fact that reds are preferred in the greater China region while metallics take precedence in the Middle East and Europe, can assist retailers in optimizing inventory to fit regional demands.

Retailers can also take advantage of technology solutions to help optimize merchandising, logistics and in-store processes. Lidl, a European retailer with roughly 10,000 stores throughout 26 countries, recently consolidated its operations to include a new centralized IT system. Because consumer demand changes rapidly, the company decided to implement a single platform to process large amounts of data in real time. Now, it is able to synthesize data and fine-tune supply management to better anticipate consumer preferences, ensuring product availability and faster profitability across borders.

Optimizing Inventory to Meet Demand

On the other hand, visibility into inventory is just one element of success. Beyond visibility is optimization. As I said earlier, a one-size-fits-all model doesn’t work in cross-channel commerce. So, how do brands optimize inventory so that similar products can sell effectively across multiple regions at price points that buyers will accept?

Size, color and style are all factors to be considered, and there are significant challenges – including when to use markdowns – when trying to leverage inventory across multiple regions.

One of the ways brands can optimize inventory is to continually refine product assortments based on consumer buying behavior in each region. To alleviate overstocks and price markdowns, inventory that doesn’t sell well can be moved to and promoted on the online channel. This improves the likelihood of a sale, even if it takes place outside the region where the inventory exists.

While this gives greater breadth for product sales and inventory optimization, it can be tricky when it comes to cross-border orders.

For example, a consumer in Minnesota orders a shirt that is only in-stock in Canada. The Canadian distribution center then ships it to the customer’s house or a local store for pickup. Because the shipment is crossing the border, however, the retailer needs to consider customs compliance requirements, including import and export documentation, and product classification.

Brands can automate solutions to expedite the clearance of goods through customs, mitigating the risk of noncompliance, and reducing the overall costs of cross-border trade. A solution like a customs management system enables companies to classify products in order to accurately calculate duties and taxes owed. It also provides pertinent import and export documentation to border authorities – helping to meet the strict standards without increasing customer wait time.

Streamline Payment Processes

When setting up global commerce, it’s important that retailers understand each country’s transaction taxes, and have a system in place to ensure they are providing consumers with a full understanding of all charges involved, including currency conversion, taxes and cross-border fees.

A multinational brand might avoid currency challenges by labeling prices in multiple currencies and languages, circumventing the re-labeling process when a product is shipped elsewhere and making it a best practice for mitigating cross-border commerce challenges.

Brands must evaluate their market position and goals when working toward international commerce and expansion. As we’ve seen, even retailers that have developed a strong presence in the U.S. may encounter significant challenges when expanding into international territory. To ensure success, brands must understand their local brand perceptions, implement solutions for visibility, optimize for sales and ensure compliance for cross-border transactions.

Lori Mitchell-Keller, global general manager, Consumer Industries, SAP

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