Where's Callahan?

News reports last week of the President's visit to California told of their celebrity Governor talking up supply chain effectiveness. Wow - since when was supply chain pushed to the front page? Decidedly one of the most un-sexy business disciplines, supply chain being bandied about in the press is kind of like Marion the Librarian catching the attention of the flashy band leader. Seventy-six trombones indeed!

Of course there was little fuss about his remarks (could be I'm one of the few bloggers so wonky as to think this is exciting stuff...) because the generally received opinion is unchanged. It's all dry, boring stuff, right?. Sprint has a commercial imagining what it would look like if logistics ran the world: frankly it's kind of frightening to see the dragnet tightening around the poor 'Callahan' kid that routes him to detention. Hmm, boring AND scary. What a combination. What business wouldn't put their money down on that? Instead, let's talk about widgets and social networking. They're certainly more catchy, and the barrier to entry is really low. Well ... isn't that the problem? If just anyone can do it, is it worth doing?

Okay - I'm not going to argue that supply chain is important because it's hard, or because it's naturally (and frustratingly) exclusive. It's important because it matters: synchronizing the chain eliminates waste. Waste is destructive -- to wealth, to production, to the environment, to markets. But, it's hard, and (some would argue) boring. Isn't it all about trucking? Spreadsheets? EDI? Yawn. That's so 80s. What would it look like if it weren't outdated?

UK scientists have recently announced their findings (similar to a recent US study) that goods purchased online produce less carbon to deliver to the consumer's home than if the consumer purchased them in-store (the study is “Carbon Auditing the ‘Last Mile’: Modelling the Environmental Impacts of Conventional and Online Non-food Shopping,” J.B. Edwards, A.C. McKinnon and S.L. Cullinane of the Logistics Research Centre at the School of Management and Languages of Heriot-Watt University in Edinburgh, Scotland.) When I first read this, I felt up-ended. Surely centralized distribution (to the consumer) is more efficient! But then I considered - what about the waste inherent in this model? As a retailer, I'm filling up a single truck with lots of stuff and sending it to one store. Consumers drive less than 10 miles from their home to store and back. Most of the length of the trip from the manufacturer to the consumer has been consolidated for all those purchases. But... not all of those goods will be purchased. Some unsold goods will be written off, some will be returned. The consumer hopes that each trip is fruitful and results in a purchase; however if you're buying furniture, how many stores do you visit before you make up your mind? How many times do you re-visit the store where you purchase, in deciding to close the deal or pick up the goods? And, are you taking public transport on all those trips? I don't think so. Alternatively, if you shop for that new home office online, you can visit lots of stores, over and over again, and only use up the energy in your laptop battery (some day, your cell phone battery -- even less). The seller is only shipping what is purchased. No energy is used in warehousing the items in a distribution center.

We really should be thinking about this supply chain model. The challenge has always been how to know more about future customer demand, in very specific terms. Historically, supply chains used the retailer to aggregate market knowledge. Retailers, reasonably limited in their ability to capture and synthesize market knowledge, invest in inventories to offset their imperfect knowledge of future demand. If no one wants to own unsold inventory (and that's the point of supply chain, is it not?), how do you know enough so that you don't have to carry excess stock and still meet customer need with immediacy? I've been thinking about supply chain to a physical retailer, who aggregates data about the customers who are tangible and present in the store -- with whom the retailer engages and learns from using narrative instead of click patterns. If the stores go away, and the retailer only has virtual knowledge of customers, how do we prevent an offsetting increase in inventories to hedge against the lack of knowledge?