Finally, a retailer pools inventory

August 24, 2010

When Amazon became a real threat to Barnes and Noble (and other brick and mortar retailers) in the late 90s, the natural prediction was that the B&Ns of the world would integrate their online and store inventories to provide customers with a better experience that an online only provider couldn’t match.  But that never really happened. However, the NY Times reports today that Nordstroms has taken a big step in that direction (8/24/2010).  Apparently, when you shop Nordstroms.com you have access not only to their online warehouse’s inventory, but also to the inventory across all of their 115 full-line stores.

What’s the big deal? Well, while this might seem easy to do, it’s not. A huge difference between inventory in a store and inventory in a warehouse is that the warehouse inventory is in a much more controlled environment. Store inventory sits around consumers and consumers have a way of moving things around and not putting them back. Store employees are focused on making sales and quick check outs, so they don’t always keep proper records of what is actually in the store. In other words, to make the Nordstrom system work, the company needs to know with a high degree of precision exactly how many units it has in each store. Even in the day of barcodes and RFID tags, that is not easy.

And then there is the cost. If you sell an online customer a handbag that is sitting in a store, you are selling a bag that was needlessly shipped to the store and you are shipping it from a facility that is not designed to ship packages efficiently.

But the big upside is increased service – if it works, customers will love it – which should lead to higher sales, which leads to higher inventory turns, which leads to fewer markdowns, which means better gross margins.

So should B&N try to implement a system like this? Probably not. I suspect this works for Nordstrom because they are selling expensive items that can more easily be tracked. If you are selling a handbag for $850, then you have plenty of margin and incentive to keep an accurate record of your in-store inventory. If you are selling a $12.50 book, the economics are not nearly as attractive to provide sufficient motivation for accurate inventory tracking. But there are plenty of product categories where I suspect the economics make sense, such as appliances, electronics, high margin sporting equipment (golf clubs, not basketballs), etc.


Medical errors that shouldn’t happen

August 21, 2010

Summer activities have kept me away from blogging and I have a backlog of potential posts, but this one motivated me to finally break my inaction inertia:

http://www.nytimes.com/2010/08/21/health/policy/21tubes.html

The article is about medical errors in which patients are severely injured (or die) when the wrong tube is connected to them. For example, a blood pressure tube (which carries pressurized air) is accidentally attached to an intravenous line. There are two points to emphasize: (1) like many challenging quality problems, these errors are rare but not rare enough, especially if you are a victim of one and (2) the solution seems painfully obviously and surprisingly hard to implement.  Consider the frequency of this error. Nurses know that switching tubes can caused big problems and so they are very careful nearly all of the time. But given the number of patients each day that are at risk of a tube mismatch, errors will occur even if six-sigma quality is in place. The obvious solution is to eliminate this potential error by making the tubes incompatible – if the blood pressure tube can’t fit into the intravenous line, then even if the nurse attempts this connection, the error will be avoided.  The problem with this solution is that it requires coordination across numerous government agencies (within the U.S. and across countries) and many more companies. Nevertheless, failure to do something to do something seems negligent at best.

The article mentions another area in which the problem apparently has been solved – fuel filling stations. The idea is that you shouldn’t be able to put a gasoline nozzle into a diesel car and vice-versa. Of course, the number of fuels is much smaller than the number of tubes that can be stuck into a body, so you would think that at least this problem has been solved. But from personal experience I know that it was not solved (at least about 5 years ago) because I managed to fill my rental mini-van in France with 120 euros of petrol only to discover about 2 kilometers down the road that I had rented a diesel mini-van. (On a positive note, the white cloud that appeared behind our vehicle did amuse the kids in the car.) Nobody was injured but the engine needed (I was told) very costly repairs. Avis didn’t make a lot of money on that rental and I wonder why they don’t train their employees to mention to their customers that they really should pay attention to the fact that they are renting a diesel mini-van and not a gasoline mini-van. It is simply an important “safety tip”, like “don’t cross the beams” (for those of you who remember Ghostbusters).