V Commerce and Inventory Management

This past week's reading emphasized the difficulty of managing inventories, especially in volatile markets. "Managing Inventories--Reorder Point Systems," outlined various methods, such as scheduled demand and stock replenish planning, in which inventory can be ordered [1]. Meanwhile, "Managing Inventories: What is the Appropriate Order Quantity?"examined the costs of inventory and "Building a Flexible Supply Chain for Uncertain Times" explained how commodity volatility can lead to "bullwhip effect" within supply chain inventories [2] [3].

In response, I looked into novel approaches of inventory control. One surprise finding was the increased use and deployment of retail vending machines--what has become known as "V-Commerce."

Inventory Benefits of Vending Machines

Source: http://www.nytimes.com/imagepages/2010/05/26/business/26vending-web.html

In, "The New Touch Face of Vending Machines" The New York Times begins to break down the economic advantages of vending machines:

1) Because no employees are used, retail stores can reap larger profits from items in vending machines than from selling those items in brick and mortar stores.

2) Machines can use responsive ROQ replenish models to self order (over the internet) replacement goods when stock gets low.

3) Vending machines risk less inventory waste, not only because the overall inventory quantities are less, but because machines can be moved, removed or added at locations depending on customer demand.

4) Now with the use of touch screens, vending machines collect data on what goods are purchased, the frequency the machine is used, and the interface progression of potential customers at the machine terminal [4].

Expanding V-Commerce

Source: http://www.nytimes.com/2009/03/14/business/worldbusiness/14vend.html?pagewanted=all

Retail vending machines still make up a relatively small about of the total vending machine market. They account for only 1 billion of 11 billion in worldwide vending machine revenues [4].

But the popularity is growing. Some brick and mortar retailers are beginning to incorporate vending machines into their delivery lines [4]. As George Van Horn, Senior Market Analyst with IBISWorld explains, "They have a brick-and-mortar, they have mail order, they have a website, so the vending machine itself is just one more extension of the brand [5]."

In Minnesota, home to the Mall of America, vending machines offer items such as dippers, toiletries, and groceries [5]. The U.S. is also preparing to welcome Italy's increasingly popular "Let's Pizza" vending machines, which dispense fresh baked pizza (made from scratch) to customers in just a few minutes. Using a real time, automatic, online inventory ordering system, Let's Pizza's machines are able to carry up to 200 "fresh" ingredients, including meat and vegetable toppings [6].

Question: Future of V-Commerce?

Vending machines may offer a more efficient inventory management, but I wonder if, like Dell, the tight inventory management of the machines will hamper their quality. Vending machines will always have limited inventory and lack personal customer service. The New York Times admits that, while they have been more successful in Europe, retail vending machines have been viewed by Americans as "dehumanizing" [4]. Similarly, I am skeptical that a pizza vending machine can deliver the quality of food I would expect from a traditional food service. 

Do the inventory advantages of vending machines outweigh quality concerns?

How hard will retailers push retail vending machines on customers?

How much consumer demand can retail vending machines be expected to absorb? 

[1] Freeland, James R and Robert D. Landel. "Managing Inventories--Reorder Point Systems." University of Virginia. Darden Business Publishing (UVA-OM-0936), 2000.

[2] Freeland, James R and Robert D. Landel. Managing Inventories: What Is The Appropriate Order Quantity?" University of Virginia. Darden Business Publishing (UVA-OM-1006), 2003.

[3] Glatzel, Christoph, Stefan Helmcke, and Joshua Wine. "Building a flexible supply chain for uncertain times." The McKinsey Quarterly, March 2009.

[4] Rosenbloom, Steven. "The New Touch Face of Vending Machines." The New York Times, 25 May, 2010.

[5] Crosby, Jackie. "Vending Machines Go Beyond Soda and Chips." The L.A. Times, 17 January, 2011.

[6] Tagliabue, John. "In Italy, A Vending Machine Even Makes the Pizza." The New York Times, 13 March, 2009.