The Supply Chain Black Hole

 
 
By Evan Schuman  |  Posted 2007-08-23
 
 
 
John Charleson runs the IT department for a Toronto grocery chain called the Longo Brothers Fruit Market and his people have been using online sales to add more efficiency into the sales cycle. By having both online and offline feed off of the same inventory, grocery items with a limited shelf-life have a much better chance of being sold in time.

But hes run into the recurring problem of retailers trying to have real-time inventory visibility. Heres the scenario: an online customer wants to buy six widgets. The Web site—or the customer service employee on the phone—reports, "No problem. We have nine in stock." The purchases are made and the inventory is reduced to three.

And heres the problem: at the time the Web customer was making the inquiry, the store didnt really have nine widgets that were clear for sale. Six of those widgets had been caught in the (cue scary music) Supply Chain Black Hole.

The cause: The black hole exists the moment a product leaves the shelf. It continues as the item rides around the store in the shopping cart, persists as the customer waits in line and, finally, the product emerges from the darkness when the item is scanned and paid for.

Is this a big deal? It depends on how many stores exist in the chain, the popularity of the item, the size and wiggle room of inventory and how busy those stores are during the hours involved.

Read here about why online shoppers take longer to buy.

This problem will eventually be addressed—in theory—with SmartCarts and item-level tagging. Until then, however, a simpler workaround is to maintain separate inventories for online and offline.

This is particularly an issue with retailers that are trying to make shop-online-pickup-in-store systems work. Without item-level tracking, the concept of a real-time inventory is almost impossible to deliver.

This problem is only going to get worse during the holiday onslaught, especially when online purchasers are trying to get the hottest and most popular gift. What are the chances that, of the 12 items that are reportedly in inventory now, 11 are in carts being rushed to checkout?

"The reality is that it becomes an issue, unless you can address those items quickly," said Charleson, the Longo IT director. "Theres not much you can do unless you have that backroom inventory" to compensate the inventory.

Retail Center Editor Evan Schuman can be reached at Evan_Schuman@ziffdavis.com.

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