The Supply Chain Black Hole

For e-tailers that use their in-store inventory also as their online inventory, they are discovering a problem with the supply-chain blackhole: which products invisibly enter when they leave the shelf and don't re-emerge until they are paid for.

John Charleson runs the IT department for a Toronto grocery chain called the Longo Brothers Fruit Market and his people have been using online sales to add more efficiency into the sales cycle. By having both online and offline feed off of the same inventory, grocery items with a limited shelf-life have a much better chance of being sold in time.

But he's run into a recurring problem of retailers trying to have realtime inventory visibility. The scenario: an online customer wants to buy six widgets. The Web site?and/or the customer service employee on the phone?reports, "No problem. We have nine in stock." The purchases are made and the inventory is reduced to three.

The problem: at the time the Web customer was making the inquiry, the store didn?t really have nine widgets that were clear for sale. Six of those widgets had been caught in the (cue scary music) Supply Chain Black Hole.

The cause: The blackhole exists the moment products leave the shelf and continues as it rides around the store in the cart, continuing more as it sits in that cart in line and then finally emerges from the darkness when the purchase is scanned and paid for.

Is this a big deal? It depends on how many stores exist in the chain, the popularity of the item, the size and wiggle room of inventory and how busy those stores are during the hours involved.

This problem will eventually be addressed?in theory?with smartcarts and item-level tagging. Until then, however, a simpler workaround is to maintain separate inventories for online and offline.

This is particularly an issue with retailers trying to make shop-online-pickup-instore work. Without item-level tracking, the concept of a realtime inventory is almost impossible to deliver.

This problem is only going to get worse during the holiday onslaught, especially when online purchasers are trying to get the hottest and most popular gift. What are the chances that of the 12 that are reportedly in inventory now, 11 are probably in carts being rushed to checkout?

"The reality is that it becomes an issue, unless you can address those items quickly," said Charleson, the Longo IT director. "There's not much you can do unless you have that backroom inventory" to compensate the inventory.