Discussions on Twitter skim by the surface at million klips a second, but there are sometimes when good questions that pop up that are worth thinking about.
A few days back James Surowiecki had a question about where the COVID vaccine inventory is located (See link below) and how many doses we have in each location. It is a pretty good question — I particularly like how Surowiecki wondered “how this is possible” — as it is one of the things that “seems obvious” but is just so hard in practical operation and inventory control.
I really don't understand how this is possible, and the story doesn't help clarify it. Pfizer and Moderna know how many doses they've produced. The states know how many doses they've received. So how can the feds not know how many doses they have?https://t.co/t5IWTlr0FY
— James Surowiecki (@JamesSurowiecki) January 25, 2021
Missing inventory (unaccounted for) is very common. More common than we think it is. I will try to answer this question why without getting into the politics of how the vaccine distribution supply chain has been handled so far.
National Retail Federation (NRF) estimates that the shrink rate (the amount of inventory unaccounted for) was 1.38% in 2019 (and has in fact remained steady at that rate for many years). In fact, in their 2019 survey, more than 10% of the retail firms reported shrinkage of 3% or higher. For retailers tottering on bankruptcy and thin (net) margins – (note: gross margins are generally high and operating costs are huge), shrinkage can make the biggest difference.
Inaccurate inventory data is quite common, even if a firm did a great job at managing inventory. Walmart has been for many years the industry leader in running a very efficient supply chain, but even Walmart loses millions in unaccounted-for inventory every year. (The economics of RFID tags is mostly about per-unit cost vs. shrinkage size tradeoff).
What are the sources of unaccounted inventory? Typically, the often guessed reasons are shoplifting and employee theft. In fact, you can read more on Wired about Walmart’s Everseen AI efforts to cut shrinkage due to employee theft. But, inventory diversion, administrative errors, poor pricing, cash counting, and slow updating of books — all of which cause the “missing” inventory.
Practically, a good portion of the “missing” inventory is sometimes the in-transit inventory (the inventory often not “on books”, some insured inventory on its way). Even in a well-oiled supply chain, there is a ton of inventory “just shuttling” from one place to another.
In a classic paper, Nicole DeHoratius, and Ananth Raman have shown in their work, Inventory Record Inaccuracy: An Empirical Analysis, (link, $), show that there is a substantial variance in shrinkage between product categories and between stories. So, effective control of shrinkage requires a lot of local decision authority.
The problem with Covid vaccine distribution is that shrinkage and inventory accounting issues are real and significant. Now throw in “diverting”, poor reporting of spoilage, secondary markets, and we have a scenario that we haven’t quite planned for. It is exasperating, but not surprising, to learn that we don’t know where the vaccines are in the chain.
Supply Chain requires decentralized control policies, but a lot of centralized accounting. The Laissez-faire attitude of the CDC planning by delegating retail pharmacy chains and medical employers (to the counties) to do the right thing, is one big problem. What’s good for the store is not necessarily good for the whole chain. Without central control, it is not possible to know what is being done at the store level, without careful bookkeeping that is done frequently.
For the COVID vaccines it would help a lot to track store-level inventory, the number of vaccines injected and the number of vaccines disposed at the end of the day and reintegrate the data at central locations.