No trifecta for the New York Times this Sunday, but they manage a quinella. First an article about Amazon that discusses how they have broadened their selection into a wide variety of goods (Can Amazon Be Wal-Mart of the Web?). The fun fact is that Amazon is on track to have media products (CDs, DVDs and books) be less than half of its worldwide sales this year (this is already true in North America). A non-trivial part of this is their ability to manage inventory and distribution. According to the article:
The company sells such a large volume of merchandise, and can predict customer demand so accurately, that it generally sells products within 65 days, before it has to pay suppliers for them.
That, in turn, leads to the money quote of the article:
They don’t have to incur huge inventory carrying costs and can add product categories almost ad infinitum,” said Jeffrey Lindsay, an analyst at Sanford C. Bernstein. “Amazon has an almost magical business model in terms of inventory management.”
The other half of the quinella is an article about T-Mobile implementing a charge for customers receiving paper bills (What if People Don’t Take the Bait to Go Paperless?). This might seem like not that big a deal. But the company sends out well over 16 million invoices per month. Even if it is just 25¢ a pop to process and mail the invoice, that gets to be $4 million per month. The firm consequently imposed a $1.50 charge per month to receive a paper statement and the number of customers signing for paperless bills jumped from 1,000 per day to 33,000 per day. If that were sustainable, it would allow T-Mobile to convert all of its customers to paperless in 15 months. Of course, it may not sustainable as some customers are already suing.
Now the real question here is why this article appeals to an ops professor. The answer is that it highlights one of the challenges of services and why services are different from manufacturing. Such a change would be a non-issue in manufacturing. If a firm finds a better machining sequence for making brake rotors, the brake rotors don’t get to express an opinion. The change just happens. For service firms, life is simply harder. Given an established process (we mail you a statement), changes must be if not acceptable to the customer at least accepted by the customer. This brings up possibilities of penalties and rewards. You might find T-Mobile’s approach heavy handed but they opted for using a stick only after carrots and voluntary systems rewards failed to move the needle.