The Second Law of Thermodynamics and Logistics

In previous articles, I have covered the basics of material identification, cataloging systems, and even a slight tangent into counting methods. So, naturally, we are ready to talk physics...

Well, not really physics, but I do want to introduce the concept of entropy in a business scenario. Let's start with a definition from Wikipedia:

"The second law of thermodynamics states that the total entropy of an isolated system can only increase over time. It can remain constant in ideal cases where the system is in a steady state (equilibrium) or undergoing a reversible process."

What that really means is that the toothpaste in the tube is in an ordered state but, as soon as you change the system (squeeze it, or just throw a 2 year-old in the room), the toothpaste becomes in a disordered state (or a big mess). Systems tend to transition from order to disorder, which is why a pile of rocks does not spontaneously become a wall but, leave a wall standing long enough and it will become a pile of rocks.

Ok, so what the heck does this have to do with logistics? Actually, a lot.

Let's say that we have a warehouse where our inventory accuracy is a perfect 100%. Should we even bother to conduct physical inventories ever again? After all, we are perfect! Not so fast. Let's call that scenario our perfect tube of toothpaste, or a beautiful wall.

Now for a painful segway - back when I was working on my first PhD dissertation (yes, first), my topic of research was the impact of information quality on the supply chain. After waiting way too long to say something, my advisor felt that was not an important enough topic and made me start a new dissertation after two years of work, but I digress. I will not bore you with academic background, but you can research the works of Fangruo Chen, Simchi-Levi, and others who have written extensively on the subject. Even Claude Shannon wrote about information entropy. In short, a percentage of all business transactions result in errors - sometimes as high as 2% of all transactions result in some error.

Welcome to the second law of thermodynamics in logistics.

Someone might say "so it is just 2%, that is still a 98% accuracy".  Not really. Keep in mind that every item in inventory had to undergo a number of transactions to get into our inventory records. Catalog record master data had to be created, procurement, material identification, receipt, put-away, etc.

Now you can see our dilemma. If we don't do anything, the system will continue to turn our beautiful wall into a pile of rocks. The only way to fight this business entropy is, to say it in physics terms, to spend energy. We must conduct physical inventories and we must reconcile the "physical record" with the information record, and we must do this constantly, forever.