Virtual Inventory: A Good fit for some Retailers.

I spend a lot of time in airline seats.  Invariably I wind up looking at the Sky Mall catalog.  You know the one.  It has hundreds of the coolest gadgets, like spiked sandals for aerating your yard. These are items that are fun to look at but sometimes hard to legitimize for purchase.

Nevertheless, people do buy.  Sky Mall  in-flight catalogs  feature over 2,000 products provided by retailers including Hammacher-Schlemmer, Lillian Vernon, Sharper Image, and The Wine Enthusiast.   Sky Mall catalogs appear on-line and on almost 90% of all US domestic air flights. 

Sky Mall is a marketing company. If you buy from them the order is processed then transmitted to a vendor for drop shipment to your home or office. The system works well. Two years ago I bought two Christmas presents on Sky Mall.  The process worked great. I ordered on-line and the shipments arrived promptly via parcel carrier straight from the vendor. When one item didn’t fit, I processed a return directly through Sky Mall. I was able to return the item with no problem with a credit back to my American Express card.

The whole concept of drop shipping or maintenance of a “virtual” inventory was one of the basic ideas behind many dot.coms in the early 2000’s.    Unfortunately many vendors weren’t set up to ship in lots less than pallet-load. Forget the concept of vendors having Internet strategies of their own! Parcel carriers also were less prepared to handle residential shipments than they are today.  Now many retailers have their own on-line stores and sell through Sky Mall as an additional sales channel.   3PL's are also more capable of handling web fulfillment for either a manufacturer or a third party drop shipper.

Residential shipments are still expensive for parcel carriers to handle, but with combination services that leverage the US Postal Service for final mile delivery, home delivery has become much  more cost effective than it has been in the past. Parcel carriers and technology vendors now have greater ability to provide on-line order tracking, thus increasing consumer confidence in ordering and processing returns on-line.  In many instances parcel carrier tracking is embedded directly into the on-line merchants web site.

As companies practice “Lean” as a supply chain concept, many firms are looking at how to reduce in-house inventories.  Use of Vendor Managed Inventory and virtual inventory could be good for your business depending on the nature of your product line and marketing. In the mid-1990's Sky Mall owned inventory.  It almost put them out of business.  By going to a virtual inventory, drop ship methodology, the company was saved.  Sky Mall repositioned its business from an inventory based retailer to a marketing company presenting to a uniquely "captive" audience.  They hooked the airlines into the game by paying them a percentage of sales.

For those interested in the fascinating story and history of Sky Mall, check this link at Answers.com.

The article below is clipped from Multi-Channel Merchant.com and discusses virtual inventories. Multichannelmerchant.com is an excellent resource for retailers that specialize in on-line sales and order fulfillment.

clipped from multichannelmerchant.com Virtual inventories get real Jun  1, 2006 12:00 PM , By Karen Kroll About 10 years ago, when the Internet frenzy was taking off, many in the industry predicted the rise of virtual fulfillment and, possibly the end of in house fulfillment. “At the beginning of the Internet, people claimed that everything would be virtual and that they didn't need to worry about fulfillment,” says Serguei Netessine, assistant professor of operations and information management at the University of Pennsylvania's Wharton School of Business. But just as most of the dot-com stocks didn't pan out, the notion of virtual inventory did not immediately become a widespread practice. In the virtual-supply-chain model, a merchant sells the products but never actually takes possession of them; rather, the supplier drop-ships merchandise directly to customers as orders are received. Many merchants' early attempts at virtual-inventory models came up short. The wholesalers and distributors that took on the task of fulfilling orders to consumers often were unprepared. “They were equipped to ship pallets to retailers,” Netessine says, not to send single orders to individual customers. Getting products to consumers required a different set of business processes and equipment than the wholesalers had in place at the time. As a result, orders often weren't filled in a timely manner. And few merchants had the technology needed to track order fulfillment. During the past few years, however, a growing number of retailers and suppliers have become more adept at working within a virtual-inventory model. For starters, more wholesalers have put into place the picking, packing, and other equipment they need. In addition, many merchants have developed their own or found third-party applications that allow them to reliably connect, in real-time, with suppliers.

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