2. Technology has revamped inventory management
Technology isn’t just transforming the consumer story. It’s having a similarly dramatic influence on industry, resulting in efficiency gains not reflected in traditional productivity measurements.
For instance, based on corporate capital expenditure data accessible via Bloomberg, it’s clear that U.S. investment is generally accelerating. However, the cost of that investment is going down, allowing companies to become dramatically more efficient in order to better compete. Similarly, with the help of new technologies, many corporations have refined inventory management practices, or have adopted business models that are purposefully asset-light, causing average inventory levels to decline over the past few decades. As the chart above shows, among the top 1500 U.S. stocks by market capitalization over the past 35 years, the percentage of companies reporting effectively zero inventory levels has increased to more than 20 percent from fewer than 5 percent, an extraordinary four-fold rise.
Market Realist – Technology has revamped inventory management for companies in a big way. More and more companies are carrying less and less physical assets even though they’re churning out tangible, physical, marketable goods. Alibaba (BABA) is one of the world’s largest retailers, but the company doesn’t hold any inventory—unlike its peers. The same applies to Uber, which doesn’t maintain its own fleet of cars but nevertheless is a leader in its sector. Technology (VGT) and innovation (XT) have enabled companies to generate value without heavy inventory carrying costs.
Tesla Motors (TSLA) is another prime example. The company, known for its innovation, offers an extraordinarily simple buying experience by making factory-direct sales. Tesla doesn’t have any dealerships, cutting out middlemen entirely. Customers can build, customize, and order cars through the company’s website. The company produces more value with fewer employees and capital than its peers. For example, General Motors (GM) creates $1.85 of market value per dollar of physical assets and $240,000 market value per employee. On the other hand, Tesla creates $11 of market value per dollar of physical assets and $2.9 million of market value per employee (Sources: Geoff Colvin, fortune.com).
The above graph shows how more companies are becoming less reliant on physical assets to generate value. Apple (AAPL) generates $30.2 of market value for every dollar of physical assets, while the metric stands at $30.8 for Twitter (TWTR), $53 for Facebook (FB), and $101 for Visa!
This game-changing trend isn’t accounted for in any of the productivity and consumption metrics. The current statistical tools are unable to measure the rise in efficiency and cost-saving through the advent of a sharing economy. In fact, the US economy may actually be a lot stronger than we think because of this very factor.