Posted in eCommerce, Inventory, Logistics, outsourcing, tagged Amazon, eCommerce, Inventory, Logistics, outsourcing, Retailing on May 12, 2014 |
1 Comment »
Shop on Amazon.com and you will find a lot of items sold by lots of different sellers. For many of those sellers, Amazon isn’t just handling acting as a store front; it is also handling the logistics of order fulfillment. Now suppose that Amazon has a particular product which both it and several third parties are selling out its warehouses. How should Amazon physically manage the inventory? Should it keep the inventory it is selling physically separate from that offered by third-party sellers? In many instances, Amazon chooses to do just the opposite, allowing for “stickerless, commingled inventory.” Here is an Amazon video explaining just what that means.
And here is how the Wall Street Journal explains the benefits of the program (Do You Know What’s Going in Your Amazon Shopping Cart?, May 11).
The system has enabled Amazon to make better use of its warehouse space and keep a wide variety of items in stock around the country. The idea is to give Amazon flexibility to ship certain products based on their proximity to customers, speeding delivery times. For third-party sellers, it saves them the trouble of having to label individual items sent to the Amazon warehouse.
Read Full Post »
Posted in Apparel, eCommerce, Operations Strategy, Retail, Supply Chain, tagged Apparel, eCommerce, Inventory, Operations Strategy, Retailing on April 10, 2014 |
4 Comments »
One of my favorite topics to teach is the newsvendor problem, an inventory model for very short-lived products like newspapers and fashion goods. One of the points that gets made in that class is that variability is costly. Having to commit resources before knowing what will sell means risk and risk may be a reason not to be in the business. But that risk also suggests an opportunity: If one can find a way to reverse the order of things and commit resources only after knowing what will be demanded, then an otherwise unprofitable business can be a profitable one.
That is essentially the idea behind Gustin, a maker of high-end jeans. It initially sold its jeans trough boutiques, which bought jeans at a wholesale price near $80 but then marked them up to around $200. Gustin had to front all the cost of production and then wait for stuff to sell. Now, they have reversed the order of things and take orders directly from customers ahead of production. As the founders tell it on Marketplace, they have positioned themselves as a totally crowdsourced fashion company (Burning down the house that Levi’s built, Apr 8). You can hear the story here:
Read Full Post »
The weather in Chicagoland over the last week has been miserable. I have shoveled the walks way too many times and it now feels like we’ve been transported to Hoth. That has gotten me thinking about road salt. That and a New Yorker article on the Atlantic Salt’s operations on Staten Island (The Mountain, Dec 23). The mountain referenced in the article’s title is a giant pile of salt — a third of a mile long and four stories high. It’s big enough to see on Google Earth. Check out the multicolored tarps.
In any event, managing the inventory of road salt is an interesting challenge. (more…)
Read Full Post »
Posted in global operations, Operations Strategy, Pooling, Supply Chain, tagged global operations, Inventory, Lego, pooling, product variety, Supply Chain on December 19, 2013 |
Leave a Comment »
Have you finished your Christmas shopping yet? You apparently are not alone in procrastinating. Shoppers are buying later and that is causing problems for firms trying to make sure they can get the right items to the right markets. Take, for example, toy maker Lego (Predicting Holiday Sales Poses Issues for Lego, Dec 13, Wall Street Journal).
The Christmas shopping season is getting trickier to navigate as buyers are waiting longer to purchase holiday gifts, Lego’s chief financial officer said Friday, and the trend is creating a need to get more immediate buying data from retailers, particularly in the U.S. …
In a telephone interview, John Goodwin said “this year is going to be the greatest stress test we have ever had.” While a late Thanksgiving contributes to the stress, “people are pushing off their gift buying later and later into their calendars.” …
[A]ccurately tracking buying patterns during the December shopping rush is of critical importance to a company such as Lego, which holds out as long as possible to package its bricks for shipping to individual markets. Many of Lego’s basic bricks are the same, but buyer tastes rapidly change, Mr. Goodwin said. So the company waits to decide what volumes of specific play sets to assemble.
“It increases the importance of getting very good data, so we can supply the retailers with the right products at the right time. We have to be as close to the ultimate purchase as possible in order to respond…nobody wants a disappointed child on Christmas.”
Read Full Post »
It is late October and on my to-do list is wading through Open Enrollment options. That inevitably brings up the question of how much money to put into our Flexible Spending Account (FSA). Given that a lot of people face that question at this time of year, I thought I would recycle a post (from Dec 2011) on how to think of funding an FSA as an inventory problem:
FSAs allow US tax payers to set aside pre-tax dollars to pay for authorized expenses. One can have separate accounts for healthcare related expenses (think office-visit co-pays or dental work beyond what your insurance covers) and dependent care. Let’s focus on the medical one. Here is how a Forbes blog explained the pros and cons of the program (A Tax Break For Driving To Wal-Mart!, Dec 2).
The way you save with an FSA is this: If you divert $5,000 from taxable salary to pay for braces and your combined federal/state income tax rate is 40%, you save $2,000. You can use the money you stash in the account for medical, dental and vision expenses for yourself, your spouse or your kids. …
If you don’t spend your FSA money within the plan year (or a 2.5 month grace period in some cases), you lose it. The fear of forfeiture leads folks to underfund these accounts. Not paying attention to how expansive the list of eligible expenses is leads folks into forfeiting money. The average amount employees set aside into a healthcare flexible spending account is $1,500, and about half of participants lose an average of $75 at year-end, according to WageWorks. But even these employees who forfeit $75 are still better off with the FSA, says Dietel. Since the average election is just under $1,500, the employee has saved 25% to 40% of that, or $375 to $600, so they are still $300 to $525 ahead of where they would have been without a healthcare FSA.
So here’s the question: Do people, in fact, underfund these accounts? (more…)
Read Full Post »
We have given considerable coverage to the attempts made by Macy’s and Nordstrom to virtually pool their inventory. The idea is that while these firms need to carry inventory in a decentralized manner, in their brick and mortar stores as well as their main warehouses, they can still manage the inventory in a centralized manner. So, if an order is made online and the item is stocked out at the main warehouse, it can be sent to the customer from the nearby stores. The same idea applies when a customer places an order at a brick and mortar store that does not have a sufficient quantity.
During our penultimate class in the operations management course, I was discussing the benefits of such inventory pooling, and illustrating them using our recent posts. One of the students, Ryan Orr (h/t) mentioned that he recently placed an order at the Macy’s stores in Oakbrook for 10 identical ties for an important event. The store had only a limited number of ties, and agreed to order the rest of the quantity from nearby stores, and ship them directly to Ryan. As you see in the photo, Ryan got 10 ties, with 4 different patterns from 6 different stores (all in the Midwest). We blurred the receipt’s, but confirmed that all ties had the same UPC code, which means that this was not a mistake of the store in Oakbrook, the employee or the stores that the delivered the product. They all thought that they deliver the product that Ryan wanted.
Several explanations are possible:
(1) This is not a fast selling item (sorry Ryan), so over time the UPC number has transitioned from one pattern to another. Some stores carried the newer item, while other still carried the older one.
(2) It is possible that some of these stores were not originally Macy’s stores. It is possible that some of these were Marshal Field’s stores, for example, and still carried UPCs that were based on their legacy systems. We could not confirm this explanation.
(3) Loose quality control on Macy’s side. It is possible that someone accepted a shipment from a supplier to Macy’s without confirming that the shipment indeed included the right pattern. All of these are green ties, but is it possible that someone did not notice the difference in patterns. Unlikely (?)
If anyone at Macy’s is reading and has a better (and maybe the right) explanation, we will be happy to post it.
Read Full Post »
Posted in Fast Food, Network, Operations Strategy, Restaurants, Services, tagged Inventory, Operations Strategy, pooling, Restaurants, Services on March 13, 2013 |
1 Comment »
How do you grow a service business when growing means adding locations? That’s always been one of my favorite topics in service operations. It poses interesting challenges on what must be standardized and where flexibility should be maintained. The Globe and Mail has an interesting profile of Toronto entrepreneur who has had to grapple with these issues as he has expanded his takeout restaurant from one location to four (Restaurateur creates winning recipe to manage multiple locations, Mar 8). They’ve gone the emphasize-standardization route.
Over the next seven years, Mr. Ross opened up three more Veda locations, two in buildings on the main University of Toronto campus, in 2007 and 2009, and one this past summer at University and Dundas, close to a group of hospitals. To manage across these locations, he pays close attention to as much standardizing as possible.
Since Mr. Ross believes food consistency to be critical, all the cooking is done in a central location. This means not only that food in all of Veda restaurants is cooked using the same recipes, but that it all comes from the same batch. The cooking takes place in the original, flagship Yorkville location and is distributed to the other locations each morning.
To ensure that the right food is at the right place at the right time, Mr. Ross needs to be able to estimate demand at each location on each day of the week. He has systems in place that allow him to predict that, and to tweak the prediction if there are events, such as large conferences, in the area. As well, he has a driver on call at all times who can deliver food to a location within 10 minutes if there is unexpected demand and something is running out.
Read Full Post »