Would Wal-Mart Do Away With Inventory?

from the strategies...-strategies... dept

While most of this NY Times article on Wal-Mart focuses on what Wal-Mart does with your data (which goes well beyond what others do) the more interesting element may be what Wal-Mart does with all that data. Beyond just the expected data mining for better product selection (the example given says Wal-Mart discovered that approaching hurricanes in Florida drive sales of PopTarts and beer), it looks like Wal-Mart may go even further in leveraging the technology to improve their bottom line. There is the speculation that Wal-Mart may use their data tracking to do away with inventory on their books. What would happen is that suppliers would technically “own” the product until it was bought — basically making Wal-Mart something like the largest consignment store in the world. Vendors may not be thrilled, but Wal-Mart still holds so much clout that suppliers will be swept along. While it would wipe a lot of inventory off the books for Wal-Mart, it would do exactly the opposite for their suppliers. Of course, what happens when you take this even further, and suppliers refuse to take inventory of products from their own suppliers, and you have virtual suppliers upon virtual suppliers? To some extent, it’s all a mirage, since it’s just a question of how the accounting falls out, and the actual practice of producing, distributing and selling the goods remains the same.

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Comments on “Would Wal-Mart Do Away With Inventory?”

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Costas (user link) says:

Dell kinda does this already

If you read this recent FastCompany article, it mentions that Dell already does this in their own way by receiving parts only after they physically enter their manufacturing plants –which keeps the parts off their books and forces their poor suppliers to hold stock in near-by warehouses.
As a supply-chain consultant, I think Wal-Mart may eventually move to a no-inventory policy, but probably only for very low profit-margin items. The problem is that the current Wal-Mart/Dell model pushes the inefficiencies out of the Wal-Mart supply-chain into the chains of their suppliers. If they do go to zero-inventory their suppliers will be forced to minimize their own inefficiencies: good news for the consumer and shoppers everywhere, bad news for Wal-Mart as their own competitive advantage will be reduced: with Wal-Mart no more than a gathering place for consumers suppliers may choose to set up shop on their own or go to the next retailer.

Anonymous Coward says:

Re: Dell kinda does this already

So do other electronic component manufacturers.

I was taking a tour of a modem mnufacturer back in the late 90s. They required their suppliers (mainly semiconductor guys) to have “cages” right next to their assembly line. The inventory belonged to the suppliers until it was taken out of the cage to be used on the assembly line (a worker grabbed a tray of chips and logged it into a computer, at which point they were “sold” to the manufacturer).

This sort of thing still goes on today. I imagine it is expanded to other industries, such as automotive, but I can’t vouch for that personally.

The model you are suggesting is taking this practice to the retail market. It is interesting, and not too different that what OEMs are doing.

Bill Bennett says:

Re: Re: Re: Dell kinda does this already

Actually, a lot of retailers push their unsaleables back onto the vendor. My company makes OTC medical devices, which carry an expiration date. The following premises apply:

Nobody is shipped short dated product.

The customer is involved in demand forecasting.

In theory, because of the above stated premises, nothing should sit on the customer’s shelves until expiry, and if it does, it is the customer’s fault (most of the time). Yet, we still have unsaleables come back. Wal-Mart rarely returns anything, though, unless it is a misshipment (our fault).

I guess that the moral is that Wal-Mart is cutting their costs in one of the few ways that is left. Wouldn’t the suppliers do this if they had the same leverage?


Anonymous Coward says:

No Subject Given

To some extent, it’s all a mirage, since it’s just a question of how the accounting falls out, and the actual practice of producing, distributing and selling the goods remains the same.

Dead wrong. Think about the risk (shrink, spoil, declining value) inherent in inventory and think about who holds that risk for what points in time. This will be VERY different.

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