Using Blockchain Tech to Decrease Lead Times, Increase Inventory Turns, and Conquer Logistics

A Quick Story About How Gap Shortened Their Logistics Times and How You Can Too

Having been involved in both brick & mortar and e-commerce retail for over 35 years, I’ve seen dozens of businesses try and fail to adapt to shifting logistical landscapes. I’ve also seen my fair share of success stories. One of the most poignant of the latter examples involves Gap.

In the late seventies and early eighties, B&M Gap stores were struggling to stay afloat. They were purchasing and distributing soft goods from abroad via the traditional shipment containers of the era. These shipments would take roughly 6–8 weeks on the water before they finally made it to the U.S. And that was barring any transportation complications, which happened persistently.

So the average lead times for Gap to get their products to market could be anywhere from 7–10 months. That was causing a logistics nightmare for their business. Profits were understandably suffering.

Longer Logistics Slow Down Retail Responsiveness

The problems associated with longer lead times don’t arise immediately. They tend to all pile up at the end of the season or fiscal year. They become compounded as logistical complications caused by malfunctioning transportation services, worker’s strikes, and various other issues start to occur throughout the supply-chain. And 7–10 month lead times can be devastating if they involve the movement of a product that ends up performing poorly once it makes it to the final retail locations.

Practically all companies are required to reckon with product misfires from time to time. However, when the logistics times behind moving these products are unnecessarily lengthy, businesses end up with massive amounts of unsold unpopular products left on the shelves or stored in warehouses. They’re then forced to dramatically mark down their overstocked inventory and watch that season’s profits quickly start to slip away.

This is the conundrum that Gap was facing. They were waiting the majority of the year for their products to reach the shelves. And they had no choice but to order those products in massive quantities in an attempt to cut down operational costs.

When products didn’t perform well, Gap had to eat the costs. In the clothing retail industry, trends and seasons can rapidly shift consumer tastes and retailers need to adapt quickly or otherwise suffer. This requires an equally rapid response by clothing company logistics. Gap, like many others at the time, were not able to keep up with this pace. They ended up eating the cost of product overstock and operational inefficiency far too often.

Enter Mickey

This all changed when Mickey Drexler, the new CEO of Gap inc., entered the scene.

Rather than focusing primarily on new product development or better retail operations, Drexler understood that the biggest single asset that businesses need to efficiently manage is their inventory. He proceeded to tackle Gap’s logistical difficulties head on.

Drexler’s first task was to find a way to shorten the Gap supply-chain timeline. And so he decided to start doing something that nobody else was at the time.

No matter what, going against the grain is always a risky move. This is particularly true when it comes to logistics. This time, however, Drexler’s risk massively paid off.

Drexler started shipping Gap’s soft goods via air freight. This rearranged the entire paradigm of their supply-chain. With air freight, Gap could get products shipped to the U.S. from manufacturers within 24 hours. By concurrently weeding out other inefficiencies in their logistics, they managed to cut down their lead times by at least 3 months. This laid the foundation for Gap’s historic rise throughout the late eighties and early nineties.

With drastically shorter lead times, Gap was able to order new inventory more frequently and in smaller quantities. This, in turn, led to less of their cash being tied up in inventory and upped their turn rate to 3 or 4 times per season. The more inventory turns they had, the more Gap was able to create a positive cash flow and rapidly respond to operational deficits throughout the remainder of their supply-chain. They could adapt quickly and efficiently, while keeping less overhead by simplifying their logistics. And so they understandably prospered.

Hindsight is 20–20, Forethought is Priceless

Looking back now, the decision to move from cargo ships to air freight might seem insanely obvious. Unfortunately, that’s the case with every technological shake-up within an industry. Hindsight is always 20–20.

Luckily for us, we’ve recently caught on to a prospectively game-changing aspect of tech while it’s still young and cutting edge. That tech is blockchain, and it’s most likely going to change the face of logistics, retail, and the entire world for that matter.

Blockchain is still very much in its infancy, and yet it’s already extremely promising. This tech offers businesses unprecedented levels of transparency and trackability regarding their products. One of blockchain’s most immediately powerful implications, however, is its ability to simplify logistics and shorten lead times.

How is this done?

Simply put, blockchain provides businesses with a means for viewing their entire logistics networks as clear as day, with all inefficiencies, corruptions, and single points of failure laid bare. It can speed up transactions, help quickly and efficiently locate problem areas, and enable businesses to respond to information flowing back and forth from source to consumer in real-time.

So real-time data input and response, faster and more efficient transactions and exchanges, and easily optimizable transportation and distribution services… those are the three points of interest where blockchain, smart contracts, and cryptocurrency can offer help. And this tech is still being overlooked by the bulk of wary businesses.

Sure, it’s good to be cautious. Especially when it comes to logistics. My only point is that small to mid-sized businesses rarely have such an obvious opportunity to gain an edge on competitors by adopting powerful, youthful, and extremely promising technology well ahead of the curve. Blockchain is serving up that opportunity in the same way that air freight shipments did for Drexler and Gap.

By speeding up transactions and exchanges, helping businesses instantly locate logistical issues, and providing an abundance of previously hidden, corrupted, or unavailable data, blockchain can effectively decrease lead times, increase inventory turns, and up profits for companies in practically any industry.

Gap was able to conquer retail in the late eighties and early nineties by being responsive, innovative, and fearless. Sure, Drexler and the company as a whole eventually saw a downturn. But they once saw a clear path to victory and didn’t let tradition or seemingly immovable systems get in the way. That path led to the rise of one of the most universally recognized clothing retailers of all time.

Blockchain is now offering a similar path. It’s now up to businesses everywhere to take the risk and adopt it.