There’s a mathematical problem in which the goal is to optimize the route among multiple locations that often goes by the name of “the traveling salesman problem.” It can be tough. Interestingly enough, bees seem to have an approach to solving the problem.
But this isn’t about the bees. Or the math. It’s about a different kind of issue, and a much more difficult problem.
First, let me tell you a story. The story comes from the former CEO of a company that made lawnmowers. The company was, and is, one of the better-known brands. In the 1970s, its products were available all over the country, often through small local hardware stores. Their biggest distributor was Western Auto Supply Company. If you grew up anywhere in America in the 1960s or 1970s, you’re bound to remember Western Auto. There were over 4,000 franchised stories that existed in towns so small that sometimes the Western Auto was the town. They sold auto parts, plumbing supplies, nuts and bolts, a smattering of kid’s toys, a good selection of shotguns and lawnmowers.
Each of these franchise stores could take advantage of distribution network Western Auto provided and the deals that Western Auto struck, but what each of them carried was up to the local owners. So the lawnmower company treated them pretty much like every other independent store out there. They put their guys on the road with sample lawnmowers stowed in the back of Ford Country Squire station wagons. Those guys demonstrated the virtues of the lawnmowers at all those Western Autos, and all those Bill’s Hardware and all those Schneider’s Appliances across the country, writing down orders, getting a earful about complaints, and heading on to the next town.
And the lawnmower company did well. Its sales gradually increased. The range of its business and the number of salesmen on the road with its product grew. Its factories expanded.
Until, somewhere in the mid-1970s, the CEO of the company was approached by another kind of salesman … one from a company headquartered in Arkansas that was offering a new kind of deal. And everything changed—not just for the lawnmower company. For everyone.
Walmart already had more than 100 stores spread across five states by 1970. It doubled those numbers by the middle of the decade, and by the middle of the 1980s there were over 1,000 Walmart stores—all of them in rural areas, all of them far larger than stores like Western Auto.
And when they approached the CEO of the lawnmower company, they brought with them what seemed like a dream come true. The Walmart stores were not franchises. They were all owned and directed by the central office in Bentonville. What Walmart offered was this: They would buy the lawnmowers for their stores. The lawnmower company need not send salesmen to every town where Walmart had a store, they could deal directly with Bentonville. And they need not deliver those lawnmowers to every town. Walmart would handle the distribution.
For all this, they asked only that the company sell them the product at 10 percent less than the best price anyone else was getting. The lawnmower CEO fretted over this—after all, they had a history with some of the customers that went back many years. However, it wasn’t as if the salesmen weren’t always knocking the price down a bit for good customers, and Walmart looked to be a very good customer. So they made the deal.
A couple of years later, Walmart was back. By this time, they were already the largest outlet for the lawnmower CEO’s products, and after they told him how much they appreciated his products and his partnership, they had a simple request—they needed 20 percent off. When the CEO balked, Walmart expanded on the deal. Rather than being a customer, Walmart would become their only customer. They could phase out sales to other locations, sign an exclusive agreement, and Walmart would take care of everything past the factory door. The CEO fretted about this deal even longer, since it represented a radical change in his business model. But the numbers on the sheets looked good. They signed the agreement, and gradually their own sales and distribution chain was allowed to wither.
A few years after that, Walmart was back again. Only they didn’t come to the CEO’s office. They called him to theirs. And, since they were his only customer, he went. The offices at Bentonville weren’t fancy—they were deliberately un-fancy, with folding chairs and cheap plastic tables. A symbol that everyone in the company was doing everything to keep costs low. And that’s what they wanted from the CEO: Lower costs. They wanted thirty percent off. The CEO protested that he didn’t know how that was possible, but Walmart had a solution. They sent their own efficiency experts into his factory and with some time studies in some areas, a little less generous application of paint, a little thinner metal on a few parts, they got the cost they wanted. And of course the CEO signed.
And of course, just a couple of years after that, Walmart brought the CEO down for another visit. Sales were great, they told him, but customers had even greater expectation of the new supercenters that were replacing the thousands of big Walmarts with even more massive Walmarts. They needed a 50 percent reduction. When the CEO said that was impossible, Walmart had an answer. They already had a factory picked out overseas that could make the machines at the desired price. They were ready to go. All the CEO had to do was give the word, and he could close his inefficient factories, let go of everything except the company logo, and still make more money by far than they had ever made when they had all those salesmen, all those delivery guys, all those millwrights and painters and designers and engineers. Much more.
The CEO told them no and went back to his office. It took less than 24 hours for the board to fire him and appoint a new CEO who would say yes.
And that was how the company went from being a lawnmower company that made millions, to a company that made billions … for nothing at all. Until, of course, Walmart took the next step.
But that’s beside the point. Really, most of this is beside the point. Because the point was way back there around step one or two on this path to perdition—it’s back there when the salesmen and local distribution chain disappeared.
That’s not just the point where the salesmen lost their jobs, or where the guy in the lawnmower warehouse was replaced by someone in the Walmart warehouse. That’s also the place where all those mom and pop hardware stores exited the picture, because they didn’t have access to central management that brought them information about new products and managed purchasing. It’s where the Western Auto franchise stores started to lean more heavily on the supply chain of the parent company, and found to their frustration that they couldn’t get the deals to match prices at the new Walmart on the edge of town. They found that their small store, usually right on main street downtown, had a much higher per square foot cost to operate than Walmart’s giant tin box outside the city (and tax) limits. And one after another those stores failed, leaving dusty-glass gaps in small towns all over the country.
The exact same story was happening right down the street at the business that sold school supplies, and the one next to that selling women’s clothing, and the one on the other side selling televisions and home stereos.
But they didn’t fail alone. Because when those salesmen went on the road, they stayed at small local motels. And when they got hungry, they ate at small local restaurants. When those salesmen stopped selling lawnmowers—and everything else—out of their company station wagons and sedans, those hotels and diners also folded. Even the salesman that handled those company cars lost his job.
When people think about the losses their community has suffered with the opening of big box stores, they often think in terms of the money that an individual who worked at, or even owned, a local hardware or clothing store made compared to the food-stamps wages of a Walmart. And that’s true enough. But it doesn’t begin to capture the losses. The real losses are measured in the efficiency of the sales and distribution operations behind those stores.
Any businessman will tell you that efficiency is a good thing. In fact, the MBA class where I heard the lawnmower CEO tell his story? It was a class on efficiency. Everyone wants lower costs. Everyone wants lower waste. And every company is keen on lean, just-in-time, Six Sigma’ing its way to a process that results in the perfect product at zero cost.
But efficiency is also the wax on an already slippery slope. There are whole ecologies—in both the biosphere and business—that grow up around the spots on the process that are not smooth. The places that are less than perfect. There are whole swathes of the economy, and whole slices of the country, that depend on an inefficiency that you didn’t even recognize was an inefficiency … until the traveling salesmen stop coming.
And now, let’s talk about Amazon ...