Just Two Hours of Inventory? No Warehouse Needed.

Phantom Warehouses Are Baaack... Do you remember the Dispatch I wrote about Cisco's "disappearing warehouses" way back on November 15, 1999, when the Internet Bubble was still inflating? The idea was that Cisco's supply chain would become so perfectly calibrated that Cisco could merge customer orders with its suppliers at the FedEx shipping dock. Hence, no warehouses needed. (Wall Street Journal, Nov 4, 1999) Oops, just six months later, Cisco reported an excess inventory charge of $2.2 billion, demonstrating the difficulty of matching customer orders with suppliers in a rapidly shifting business environment. Bet you those warehouses were pretty full.

Well, just two years later Michael Dell, CEO of Dell Computers, claims to have solved the supply chain problem. "When you go into our PN2 factory in Austin, they only hold about two hours' worth of inventory. ... There is no warehouse for raw materials and there are no finished goods. So basically what is happening is that the delivered materials go right into production, and we only build computers that have already been bought. Then they go right off the line onto trains, planes, and FedEx trucks ... the very same day." (Red Herring's "The Angler," October 30, 2001)

And Michael Dell's expectation is that the economy will move in his direction. "There is certainly a lot of inventory in flux because most businesses do not operate with perfect, real-time information. ... Dell is today, of course, an extreme example of how to refine this information process. But I would say that over the next ten years most companies will have to migrate in this direction or they will not be competitive." ... Wow, have you seen evidence of this trend? Send me stories.

--Peter Pike

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