April 18, 2008

The business of the future: home inventory management systems

One of the great accomplishments of the business world in recent decades has been to make the supply chain leaner, whether Toyota's just-in-time parts delivery system or Wal-Mart's minimization of inventory.

Retailers, in particular, have become vastly more efficient, greatly lowering the mark-up. If you pay $100 to a manufacturer on January 1, but the merchandise sits around in various warehouses until you sell it on July 1, and if your cost of capital is, say, 10%, the financing costs alone added 5% or $5. But, if you can sell it by February 1, you've saved over 4%.

And yet, much of what retailers like Costco are doing is handing the problem of inventory management off to customers. Costco is operating on a just-in-time inventory system, but you aren't. If you buy a giant jar containing a six month's supply of pickels, instead of a one month supply, you've handed Costco five months worth of your money.

And, of course, your Corolla isn't big enough to haul around a full shopping trip worth of giant products from Costco, so you trade it in for an SUV.

And then, you stick your giant jar of pickels in your refrigerator and after a few months, while it's still half full, you bring home some other giant jar and you have to throw something old out of the refrigerator to squeeze the latest Deal of the Century in. So, you look around, decide you're sick of pickels, and who knows if they are still good? They are pickels, so they should last a long time, but it's hard to remember when you got them it was so long ago. And they don't look very appetizing. So, out they go, half-consumed.

Eventually, it occurs to you that you're wasting money throwing out old food to squeeze in new food, so the only solution is to get one of those enormous Viking refrigerators. But to do that you'll have to enlarge your kitchen and, while you are at it, put in granite countertops. Fortunately, everybody knows that home prices will go up forever, so you just take out a new mortgage on your house, with one of these adjustable rate mortgages with a super low rate for the first two years.

What could possibly go wrong?

And that's not all, because most consumers have only the most rudimentary inventory management skills.

Products come in such large quantities now that you can't get in an old-fashioned rhythm like "Buy a one pound can of X every week." That's easy to remember, whereas remembering to "Buy a three kilo vat of X every month and a half" is hopeless.

They have so much stuff around the house that they can't find the thing they are look for, so they go buy another one, which only makes finding stuff even worse.

And there's no easy way to keep track of what you need, so you tend to overbuy some products and forget to buy others.

The good news is that the basic technology businesses to track inventory, such as UPC scanners, Radio Frequency Identification tags to find goods you've already bought, wi-fi networks, the Internet, PCs and printers to generate shopping lists are mature.

On the downside, it's a giant systems integration problem, and there are lot of chicken and egg problems involved.

For example, better supply chain management could include home delivery of groceries triggered automatically by analysis of consumption rates and supply on hand. Home delivery based on customers laboriously picking from menus has been tried ever since the mid-1990s, but if you have the time to hang around the house waiting for the deliveryman to show up so you can put your food away in the refrigerator before it spoils, you probably have time to go shopping yourself. What you would need is indoor-outdoor access to a refrigerator, like old-fashioned coal bins had an outside door for the deliveryman and an inside door for the resident so deliveries could be made even when nobody was home. But nobody is going to rebuild their house for that purpose until all the other parts are in place, but will all the other parts be profitable to put into place until all the parts are in place?

So, I assume most businesses who invest in these systems will lose money for the next decade or two, but a generation from now, I expect that millions of American homes will be equipped with sophisticated inventory management systems.

My published articles are archived at iSteve.com -- Steve Sailer

27 comments:

testing99 said...

Steve, you obviously have not watched Home and Garden Television. I suggest you do. It's stuff "Whiter People like."

And it explains the whole redo your kitchen mentality. Which is rich yuppies (or would bes) competing in STATUS with others.

Costco and Wal Mart offer big buys for entrepreneurs (cheap office supplies/food/coffee) and people who will diligently eat through that pickle because they are on a budget. These people don't have money to redo their kitchen or the desire to do so just to compete with their neighbors.

[Interestingly, the remodel market is almost entirely driven by women it seems if Home and Garden TV is any indication.]

ricpic said...

So it turns out that food shopping every day or every other day for a one or two day supply of food is best after all. Whodathunkit.

Ryan said...

This inventory management idea is great for a polygamous sect or a large illegal alien family living in a studio apartment. One person in the extended family can be the dedicated data analyst, running SQL queries to determine if the toilet paper count is accurate.

Most people don't buy the same stuff consistently enough to warrant a database--too many substitutions for your snacking "needs," for example--and for necessities like razors, a simple mental list will suffice, or a written list for aging bloggers who used to be marketing executives. Just teasing! :)

Anonymous said...

I think that this will be handled by Costco too. So, along with the law degree and whatever else you pick up from costco, they will be monitoring your own home inventory for you and automatically charging for new stuff, based on use by dates and a Costco diet of 10,000 calories a day, or whatever it is the ideal Costco shopper consumes.

All the consumer will have to do is follow their suggested consumption patterns, pay the bills, pick up and consume the stuff.

Desmond Jones said...

If you buy a giant jar containing a six month's supply of pickels, instead of a one month supply, you've handed Costco five months worth of your money.

Yeah, but the giant jar at Costco is usually less, sometimes much less, than a much smaller quanity bought at A&P. The different thing about Costco is that you have to buy the stuff when it's there. If you don't get your lawn fertilzer within a certain window, too bad. It doesn't comeback until next year.

Anonymous said...

This business of the future is one that will not make any money because those willing to invest the capital required for merchant and distributer integration will find themselves competing against some dude who reverse engineered it into an open source give away.

Then they'll waste more money trying to defeat those darn kids, lose, repeat a few dozen times and the industry is dead as a profit generator even if widely used.

If you want to control something like this, you don't need the killer app. You need the killer "thing that requires some decent capital to compete against you". And then, even with that, Google (or the Google of the age) might just decide to take the capital hit and give it away for free so that they can buy some goodwill.

Or something like that. Excuse me, I now have to go watch a show that has been conveniently recorded and recut without commercials that my computer has automatically downloaded.

SKT said...

One thing that I've found interesting is that in the last couple of months, every single liquid laundry detergent's size has been cut in half because they have new "concentrated" formulas.

It makes you wonder if in 2007 there was some miraculous breakthrough in soap technology, or if for years they've just swindled people by selling them large jugs of watered down detergent.

William said...

And, of course, your Corolla isn't big enough to haul around a full shopping trip worth of giant products from Costco, so you trade it in for an SUV.

Do people really do this - buy bigger cars to accomodate shopping trips to Costco? I find that laughable.

They are pickels, so they should last a long time, but it's hard to remember when you got them it was so long ago.

We invented that technology some time ago: it's called a Sharpie. Open a jar of spaghetti sauce and write the date you opened it on front.

My guess is that home inventory management, especially in the pantry, is going to be more about better designed shelvesd and storage space than computer technology.

Vercingetorix said...

Steve, Steve-- the giant jars of pickles come from Wal*Mart. Costco just sells you 6 regular jars of pickles shrinkwrapped together, so at least you open them one at a time and get a chance to finish each jar before it gets all cloudy and slimy.

Anyway, the innovation of the future is to bring back the separate pantry. New houses have a lot more square-feet than houses of a generation or two back, yet the space is going to grand-entrance staircases and fourth bathrooms. Kitchens have shrunk as people eat more prepared food so kitchen-cabinet space has shrunk too.

If you're gonna store Costco's inventory in your house, you're gonna need to slim down that staircase and give yourself a big pantry with shelves all around floor to ceiling.

Anonymous said...

Home and Garden TV also had a television show which was pure "Things Men Like". It showed a Nebraska farmer moving his 45 foot tall barn on a tractor trailer 36 miles to use for a second home. "Men moving barns" - what a red state theme.

Danindc said...

Hey William- you show me one guy that writes the date on pickles or spaghetti sauce and I will show you Andrew Sullivan.

Steve - great points all- I did not need that Viking range nor Fridge but I bought one 3 years ago. Now I have to send my kids to a public school bc. of the mortgage fiasco. Thank God I don't have girls.

Bill said...

Seems you've got excess on the mind. SUVs, Costco, etc. Yeah, that's all going to end. Home inventory systems, lol. People will be stocking up on cordwood in ten years at the rate oil prices are rising.

Here in the US we had a good thing going for quite a while with our excess of natural resources, but that's starting to run out. Fortunately, we still have a very productive country with a lot of fertile land, and that will count for a lot in the fairly near future.

Maybe buckets of pickles are superfluous, but barrels of grain and beans aren't such a bad idea. I buy those huge cans of oatmeal and you'd be surprised how fast my kids go through them. I'd be surprised too if I didn't have to change their diapers.

You know, they're already starting to talk about demolition as a solution to the housing crisis. I'm not so sure demolition is quite the right term. I think salvaging might be the operative concept. We're going to have to salvage a lot of the material that's gone into poorly-planned projects.

If you want to invest, think about the companies that will convert recent wasteful projects (e.g. unnecessary asphalt parking lots and suburban expansions) into useful products or energy.

William said...

Hey William- you show me one guy that writes the date on pickles or spaghetti sauce and I will show you Andrew Sullivan.

Well I don't buy pickles that often, and I eat spaghetti like 4 times a week, so I don't need to write the date on the jar. Well, maybe I did once. Or twice.

Actually, I have a friend who's a marketing manager for Sanford, the company that makes Sharpie, so I'm just helping her push the product.

William said...

This inventory management idea is great for a polygamous sect or a large illegal alien family living in a studio apartment. One person in the extended family can be the dedicated data analyst, running SQL queries to determine if the toilet paper count is accurate.

Now that's why you write the date on the jar of pickles - a few folks eat from that expired jar and suddenly Pedro's toilet paper count goes all to shit!

There's an Andrew Sullivan joke in there somewhere, but I can't be bothered to find it.

Mary Pat said...

My husband does the inventory management in our house.... and guess what: it's not that complicated. (And the people who buy the huge-ass fridges/freezers aren't buying bulk at warehouse stores, as testing99 says.)

If you're at the level of having to feed 20 people daily, then you're going to hire at least one servant to manage the situation. Otherwise, you learn to organize your food storage space so that the most-used items are easily reachable, and you know where to find new bottles of ketchup (for instance). And if you buy the gallon tubs of mustard, you learn to save more manageable sizes to fill from the tub. If you're having trouble dealing with Costco/Walmart bulk foods, I have plenty of tips in making it more manageable. But RFIDs are not needed.

Brett said...

You may think that my six month inventory of food isn't cost effective compared to your one week inventory, but come the next pandemic, who's going to be laughing at who?

Seriously, (As though that weren't serious.) seasonal production and continuous consumption demand that somebody maintain an inventory. Society is more robust against disruptions if that inventory is maintained at the consumer level.

SFG said...

Seems you've got excess on the mind. SUVs, Costco, etc. Yeah, that's all going to end. Home inventory systems, lol. People will be stocking up on cordwood in ten years at the rate oil prices are rising.
I don't know about sliding to preindustrial levels, but there does seem to be this assumption that things are going to get better and better, and I think we are in for a long slide downhill. I wouldn't be surprised if twentieth-century ideologies like fascism and communism make a comeback (which will only end in grief--I know a lot of you guys like Hitler but the whole thing wound up with, as Steve likes to say, Russian soldiers raping German women in the ruins of Berlin; as for communism, well, Sweden seems to be able to pull it off, but as for the rest of us...).

Here in the US we had a good thing going for quite a while with our excess of natural resources, but that's starting to run out. Fortunately, we still have a very productive country with a lot of fertile land, and that will count for a lot in the fairly near future.
This is why I wish conservatives would pay attention to global warming, even if Al Gore likes to talk about it. This could really hurt America; higher temperatures will move the optimal range out of our Great Plains. Canada will be the new breadbasket of N. America and we'll be...importing a lot of food. (I was going to say the new Mexico, but there are other reasons for that. ;) )

Maybe buckets of pickles are superfluous, but barrels of grain and beans aren't such a bad idea. I buy those huge cans of oatmeal and you'd be surprised how fast my kids go through them. I'd be surprised too if I didn't have to change their diapers.
How about twenty-pound bags of rice? The Chinese do that, and they're so thin white guys are chasing their women 'cause ours have gotten too fat.

You know, they're already starting to talk about demolition as a solution to the housing crisis. I'm not so sure demolition is quite the right term. I think salvaging might be the operative concept. We're going to have to salvage a lot of the material that's gone into poorly-planned projects.
Maybe. Seems to me we have a lot of people without homes. The problem is that rising oil prices are going to make extra suburban housing stock redundant, because it won't be economical to get out there by car. We're looking at more public transportation, I think.

The future is in density rather than sprawl--that's right, more Manhattans. Skyscrapers are energetically cheap because all the heat they give off heats the other skyscrapers. No more affordable family formation, I know, but the economy is not going to stay good.

Conservatives ought to look into making a right-wing New York. If you can actually attract conservative artists, I'd love to see patriotic musicals with country soundtracks and art galleries showing paintings of football players and eagles. When the art world drank the modern art (my used toilet paper is art!) Kool-Aid they gave up a lot of great stuff. Cities may presently be strongholds of the Left, but they're also easy to defend; just post guards at the entrance to your apartment building. This might actually be an opportunity for those of you who want to try separatist experiments; who's going to invade an apartment block full of heavily armed rednecks?

If you want to invest, think about the companies that will convert recent wasteful projects (e.g. unnecessary asphalt parking lots and suburban expansions) into useful products or energy.
I'm not sure. Yankee ingenuity's a powerful thing, but there really is this sort of problem where a lot of nice chemical reactions are energetically expensive, and energy's going to be harder and harder to get. Can we strip off the ashpalt and do something useful with it? Think about how spread out that stuff is and how you'd have to cart it back (on a truck, with newly risen oil prices) to wherever you're living now. You also can't build an apartment building out of plywood, so we can't recycle the materials.

dearieme said...

The solution to the problem of ancient pickles in the fridge is to take up home wine-making. The yeasts are so good that they can find thir way into your acid-packed pickle jar and ferment happily away. Thus the pickles are ruined, you throw them out, and the problem is solved. A truly enterprising supermarket would offer cheap yeast with every jar of pickles.

Argent Paladin said...

I disagree with those who say that the deluxe fridge demographic and the Costco demographic don't overlap.
http://tinyurl.com/53gc4o

Grumpy Old Man said...

How many pixles did you waste writing "pickel?" Don't wanna be fickel.

Martin said...

"Bill said...

Fortunately, we still have a very productive country with a lot of fertile land, and that will count for a lot in the fairly near future."

I'm not picking on you, Bill, I say this sort of thing myself. But I find it interesting that, in trying to inventory what we still have going for us in this country, we always say things like "well, we've still got arable land for people to farm". Yeah, for OTHER people to farm. All of those things that might still save us always end up being someone elses responsibility.

What do I have to offer, I wonder? What can I personally do? What would I do to earn my keep and support my family if everything went south? I've thought about it alot in recent years, and still have no good answer.

Martin said...

I would prefer to pay more by patronizing my local super-market or hardware store, than shop at Walmart or Home Depot. The people who work at these smaller outlets earn a better living, and as a result, I get better neighbors. And having better neighbors is more important than getting the absolute lowest price on a lawn sprinkler that will break in six months anyway.

SFG said...

I would prefer to pay more by patronizing my local super-market or hardware store, than shop at Walmart or Home Depot. The people who work at these smaller outlets earn a better living, and as a result, I get better neighbors. And having better neighbors is more important than getting the absolute lowest price on a lawn sprinkler that will break in six months anyway.
Unfortunately, most people don't agree with you.

Bill said...

I wouldn't be surprised if twentieth-century ideologies like fascism and communism make a comeback (which will only end in grief--I know a lot of you guys like Hitler [...]

Give me a break. WWII is getting so old that Hitler enthusiasm is slowly becoming historical reenactment rather than any credible political movement.

Seems to me we have a lot of people without homes. The problem is that rising oil prices are going to make extra suburban housing stock redundant, because it won't be economical to get out there by car. We're looking at more public transportation, I think.

The future is in density rather than sprawl--that's right, more Manhattans. Skyscrapers are energetically cheap because all the heat they give off heats the other skyscrapers. No more affordable family formation, I know, but the economy is not going to stay good.


Yes, suburbs will slowly become slums where the undesirables live. But the future is not Manhattan from coast to coast. It is more small, dense towns and cities and a lot more rural living. As energy gets more expensive, factory farming and intercontinental shipping of produce will be less profitable. People will have to put more effort into growing food.

When my grandma was a little girl here in Seattle 80-90 years ago, there was a thriving farming community in the Kent valley a few miles south of town. She would take the train down there and stay on her friend's farm every summer. Now, that same valley has become a giant, asphalt-covered industrial park full of malls and low-rise office buildings. Too bad, because we'll need it for farming again.

Yankee ingenuity's a powerful thing, but there really is this sort of problem where a lot of nice chemical reactions are energetically expensive, and energy's going to be harder and harder to get. Can we strip off the ashpalt and do something useful with it? Think about how spread out that stuff is and how you'd have to cart it back (on a truck, with newly risen oil prices) to wherever you're living now. You also can't build an apartment building out of plywood, so we can't recycle the materials.

Asphalt can be converted into fuel:

Patent for asphalt conversion

Eventually, this will be economically feasible, because along with the decline of the personal automobile parking lots and many roads will become costly nuisances.

Anonymous said...

I live 12 miles north of Boston in a small city with a florishing downtown retail district. I have 2 chain markets within a 15-minute walk and an additional 3 within a 15-minute drive. All five have weekly circulars, and I stock up on staples, even though I live in a two-bedroom condo with limited storage. I occasionally go to Costco with my girlfriend and, excluding a few things like razors (has anyone else noticed since P & G bought Gillette, Mach 3 blades NEVER go on sale anymore?), I seldom see much better deals on the stuff I buy on a regular basis.

What's a better deal for me, the vat of yogurt in one flavor from Wal-Cost-Sam-BJ's, or the flavors and brand I want from a chain market when they're buy 1 get 1 free, as happens almost monthly?

mark said...

Years ago, professional "Idea Creator" Faith Popcorn introduced the idea of an all-inclusive lifestyle subscription, where you pay a lump-sum for a package deal and just ask your service representatives to provide you with solutions. It was the flip-side to her nuclear family gated-community on steriods Cocooning concept.

I could see this happening any time now. A just-in-time domestic household economy with anonymous lifestyle coaching via software (think e-trade) for budgeting.

Ethan Mudgett said...

I believe inventory management can benefit both the company and their clients. Clients have needs that that only their chosen company and suppliers can provide. The system, however, will simply maintain control and keep track of all their stocks and the supplies that their customers badly need.

Ethan Mudgett