The Supply Chain Black Hole

Written by Evan Schuman
August 23rd, 2007

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.


2 Comments | Read The Supply Chain Black Hole

  1. Warren Love Says:


    You touched on an important
    cause of supply chain black hole syndrome. In addition to hot seasonal products languishing in shopping cart limbo, vendor sponsored and other TPR promotions can create a run on items that wipe out shelf stock before corporate merchandisers know what hit them. Any thoughts on the role demand elasticity plays in forecasting how quickly product managers should be replenishing their shelves. Clearly I have a few suggestions in a pinch but would like to hear your perspective.


    Warren Love
    Director of Sales – Grocery and SCM
    Retalix USA

  2. Sean Connolly Says:

    Evan: Good article. However there are a couple of other wrinkles to the story which make the black hole somewhat bigger:

    1. Who says the recorded inventory balance on the inventory control system is correct? Manufacturing and retail companies have struggled for years to get inventory “correct” and it’s still not fixed, even with perpetual inventory and regular auditing.

    2. Even item-level tagging will not be a complete fix. The problem is that the inventory in the shopping card is still (legally) owned by the retailer until the buyer has paid for the goods AND has also taken physical possession of the goods. So the inventory system needs to have at least three inventory balances for each item: 1 “In stock”; 2 “Reserved” for items in shopping carts; and 3 “Paid but not collected” for items bought by a customer in another store who will collect the item at some point in the future. Note that problem number one applies to the inventory system balances for all three statuses!!!

    Regards from Charlotte, NC.

    Sean Connolly


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