What Was the Supply Chain Like in the 1800s?

Those who grow their own food have benefits: The food is good. It's fresh and, being fresh, it's probably tastier. It's probably healthier too. A lot of fresh foods can be canned and stored – and indeed they are, and were.

What about furniture and clothing? In the 1800s, these were often handmade. People went to the general store and purchased fabric, needles, thread, wood products, glue, chisels, etc.

After buying from general stores, people bought from catalogs. Sears Roebuck began selling watches and jewelry in 1888. Not long later, their product lines included sewing machines, sporting goods, musical instruments, saddles, firearms, buggies and on and on.

But this ancient lost art of homemade products and shopping by catalog has mostly been replaced by the mass market, the Internet, supply chain channels and logistics.

There were relatively low costs when people made their own products. Of course, when they started buying ready-made products, costs could get out of reach for many.

I guess prices fluctuated by supply and demand just like today. You know, when there is a growing demand for certain items, the price goes up. When prices go up, there is less demand or people start shopping for alternatives.

These same supply and demand principles have been run through the ringer with economists over the years. Economists have found that when prices increase on some products, many if not most people, will stop buying that product or they will start shopping around. Then for other products, many if not most people will continue buying a product even if the price goes up.

Those products where people will start shopping around on a price increase are called “elastic” products. Think of a rubber band being stretched wider and wider – this may represent people leaving a store and going here and there looking for other products.

Those products where people will continue buying regardless of a price increase are called “inelastic” products. Buyers are locked in. They won't leave. They don't leave the store and stretch their search for better products.

Retailers want “inelastic” products and shoppers for the most part. The best way to do this is to create a brand with their products. People look at brands and retailers are hoping that their buyers will stick with their brand during periods of price increases.

Smart retailers will monitor buying habits and can sometimes using pricing strategies to push or pull people to certain products. Yes, it can get complicated but it can be very profitable for those retailers who know what they are doing.

Thus far we have talked about the “buying side” and “prices” that customers have to deal with. What about the costs that retailers face?

The prices of many products are “cost-based”. This is in addition to price fluctuations based upon fluctuations of customer demand. The simple formula is: Cost + Profit = Selling Price. Other products are “market-based”. This is when the retailer will price a product based upon what the market will bear without a lot of regard for the retailer's cost.

Big box retailers (Walmart, Costco, Target, etc. – cost-based) need to control their costs in attempts to keep prices in a range to maintain solid customer demand. Specialty stores (market-based) have the luxury of selling at relatively higher prices with lesser thought to costs – but their market base is usually smaller than the big box stores.

Retailers have several categories of costs. There is cost of goods sold for manufacturing companies and there are selling, general and administrative costs. These take a large portion of each dollar that retailers take in.

If you drill down into the cost of sales, you will find logistics costs and these are closely monitored as logistics departments plan the best course for locating and bringing materials into the factory, storing them, processing them and shipping them outbound.

Logistics costs have hovered around 8% of nominal GDP with trucking making up the highest percentage of costs. That's a whole lot of money in the context of our overall economy. And, retailers, manufacturers, suppliers, growers and distributors need to navigate the intricacies of logistics to stay competitive.

We haven't even touched base on future, innovative expectations such as hydrogen fuel cells, cloud logistics, OTA engine updates, drone and UVA delivery, bionic enhancements, on-demand 3-D printing, warehouse sharing, semi-autonomous trucks and on and on.

But, we'll save these topics for another day.

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