We talk a lot about importance of inventories in class, and here is another example, this time coming from Tesla Motors. Their sales are up, to everybody’s cheer, but inventory numbers paint a bit of a dimmer story. Their days of supply inventory is growing steadily which could indicate slowing demand for their cars. The story speaks volumes about importance of inventory numbers (to ops folks and investors alike), and their breakdown – while growing finished goods inventory maybe alarming of slower demand, growing raw materials may suggest that company is betting on future growth. In the Tesla’s case it seems to be the finished goods inventory.
Letters ABC have a special relationship with retail. For instance, there is a chain of grocery stores called ABC Stores on the islands of Hawaii, that sells delicious chocolate covered macadamias. They are so widespread in Oahu, that some people say that “ABC” there stands for “all blocks covered”. They are also pretty often photographed, and for that reason for some people it stands for “always bring camera”.
Another meaning of “ABC” in retailing comes from inventory analysis – it is a classification system often used for products sold at a store – those that are “Type A” generate the most revenue, “Type B” generate some, and “Type C” – would be some obscure stuff kept on bottom shelves. And while those macadamias are surely Type A for the Hawaiian chain, the question is what are the type A products for a typical American grocery store?
Today is a big day for Apple, with a launch of the new iPad and possibly Apple TV. It is also a bonanza day for shippers. In anticipation of the launch Apple booked a large chunk of air cargo capacity to bring boxes from China into the States. According to this article the shipping rates over the last week went up by as much as 20% (hat tip to Zach Chahalis for the link).
Apple is certainly enjoying its status of a big boy in a sandbox here. For smaller companies though it means a struggle to get the goods from China. But there is also an opportunity. Since the cargo is flowing mostly into the States (and probably Europe as well), there must be excess capacity for shipping goods in the opposite direction. I wonder if anybody has decided to capitalize on this.
Managing this flow imbalance also presents a challenge for shippers. Of course with $100B in cash Apple probably paid them the return-ticket fare, but still looks like some money could be left on the table if they fly back completely empty.
Interesting information you can get from reading product labels. And I am not talking about food ingredients. What I am talking about is how long does it take from the moment a product is manufactured until it is sold? Or even, how long can a manufacturer afford this lead time to be? Lead times are tricky and rarely reported by firms. Longer lead times mean more working capital and pose challenges for forecasting, because firms have to decide how much to produce well in advance. In fact, in this paper I argue that retail sales forecasts (and inventory budgeting) for the next year are done 6 to 12 months before it starts. Anyways, because lead times are so tricky, I always welcome first hand data that documents them.
In this case the data comes from two product labels – one from Ikea and the other is CB2. Both related to furniture bought by me in the beginning of February. It turns out that Ikea manufactured that product (it was a chair) on May 26, 2011 in Mexico. Moreover the cover for that chair was made on the 16th week in 2011 (that is around Apr. 20). The chairs from CB2 were made in Taiwan by vendor Elegant Products and shipped from there on Aug. 4, 2011. Which gives almost 9 months lead time for Ikea and 6 months for CB2. Again these are the lead times after the product is manufactured. Actual decision about manufacturing them had to be done before that.
Give or take, it seems that Ikea’s lead times are about 50% more than CB2’s. And it makes sense, given that Ikea’s assortment rarely changes (aside from seasonal items) and CB2 tries to follow the contemporary trend.
Imagine an order fulfillment center for a big online retailer. How does it work? One can probably think about hordes of people running with order lists picking items and putting them in a bin: pick, bring, pack, ship. This looks like a labor intensive process and it is. In fact this labor intensity was one of the factors that led to demise of Webvan – online grocery store. Fortunately, people learn from mistakes and sometimes change such a mundane process as pick&pack in a bold way. This video explains how (hat tip to Benn Konsynski for posting the link).
It is quite astonishing. The company that provides this sort of solutions is Kiva Systems and apparently Staples uses it in their fulfillment center. What made me think though is the simulation of shelves moving on the warehouse floor. It looks like the system is actually self-organizing: the most popular items will naturally be situated closer to pick workers, just because they are frequently demanded and will not have much time to drift away. More over if demand changes over time, the system will reorganize itself. Perhaps it will still make sense to put Teddy bears out front for Valentine’s day, but if you forget about chocolates they will get there anyways.
One thing that is not shown in the video is how do you replenish inventory. A solution it seems would be to ‘decomission’ an empty shelf and replace it with a full one. Given that all pick operations are logged, it should be fairly easy to figure out when the shelf is about to empty and prepare a replenishment. What happens if there is more than one kind of items on the shelf? It’s inevitable that one SKU will be sold out before the other, but I imagine grouping complementary products can help.
So here we go again – car inventory at Ford is growing, specifically, new Focuses and Fiestas. WSJ reported on this recently and so did my colleagues at Kellogg. The graph of inventory is indeed telling, so I’ll repost it here.
We know what such inventory stockpiles usually leads to – lower prices. This time, though, it can be different.