There is an interesting article about Netflix in today’s Chicago Tribune (“How Netflix gets your movies to your mailbox so fast“, Aug 4th). The article brings two interesting points about Netflix: its location (or the fact that Netflix is doing its best not to disclose the exact locations of its warehouses) and its inventory management system.
I will follow the structure of my previous postings (which is also the structure of the tribune article) and start with a sensational quote before moving to discussing the more interesting (read: operationally relevant) point of the article.
1. Location: Apparently Netflix is not interested that we know the exact location of its warehouses.
“Unmarked trucks roll up, then roll out. Employees (called “associates,” in Netflix-ese) enter through a less-than-obvious door. Indeed, one of the few things about the building that suggested it was not a meth lab was that, at sunrise, the parking lot was full — shifts begin at 3 a.m.”
Neflix claims that this is done in order to avoid having people bring their DVD and dropping them there. Even employees are requested to mail their DVD.
2. Inventory Management: Netflix has 58 warehouses throughout the US and the article focuses on the one near Chicago. Neflix is a good example of, what we refer to as, virtual inventory pooling. Virtual pooling basically means that you manage your inventory as if it in one pile even though things might be “sitting” in different places. This allows firms to reduce stock-out risks (or maintain quick response) while reducing shipping costs (since most products, if available, are shipped from the closest location).
The way Neflix manages its warehouse is fairly interesting: it is done through constant sorting of the inventory. Traditional inventory management requires locating different items carried on shelves and shipping them to the customer. There are no proper shelves in Netflix. Every day all items are sorted into two groups: “ship today” and “scan tomorrow” (See “90,000 DVDs. No Shelves.”)
The tribune article claims that this is done in order to notify other stores of the inventory location, but I find it hard to believe that you need to scan an item everyday for that purpose. The Fast Company article states that this is done since “It’s a lot faster than a traditional shelving system where you have to run around and marry up orders”. (None of the articles mention, but DVDs that are not being rented at high frequency – find their way to San-Jone, the main hub).