Retailer Target puts the spotlight on supply chain

Plagued by a huge security breach a couple of years ago and a botched attempt to enter the Canadian market, the US retailer Target perhaps took a wise step this past week in naming John Mulligan COO and responsible for the company’s supply chain. Mr. Mulligan will certainly be kept busy particularly as Target’s CEO noted the retailer has an “incredibly complex supply chain” for unacceptable stock

In fact, in its recent earnings conference call, Target admitted its supply chain was built to serve an outdated model in which product flowed from vendors through distribution centers to stores. “To serve guests today we are becoming much more flexible in a way we fulfill demand for products and services. And this is stretching our supply chain well beyond its core capabilities. And frankly, as a result some retail fundamentals have started to suffer.” As a result, Mr. Mulligan’s first task is to “focus first and foremost on improving the capabilities of our supply chain, working across organizational boundaries to understand and address root causes that are hampering day to day execution”.
That’s a big task particularly as Target continues to test out various initiatives to boost store and digital sales. It should be noted that while overall second quarter sales increased 2.8% year-over-year, digital sales as a percentage of total sales increased only 0.5% for the same period.
So, among the initiatives currently underway are shipping from stores. Currently the company is shipping digital orders from 140 stores but by the end of this year it expects to be shipping from 450 locations. The company noted that this will allow it to balance inventory across the network. Sounds good and many other retailers are already doing this. Target is also testing what it calls “available to promise” in which it will provide a guest a specific delivery commitment of typically 2 or 3 business days. Perhaps more information is needed about this new promise but it seems to me that retailers/shippers have the capability to narrow this delivery time even further?
Furthermore, a more “localized” experience is being tested in Chicago to test changes to assortment, presentation and inventory commitments on certain items. In addition, Target replaced its third party recommendation engine with an internally developed product – Cartwheel- which incorporates both in-store and online guest history. According to Target, it has generated incremental sales of $50 million to $100 million so far this year.
And finally, the company plans to test and introduce a more flexible format in various locations. According to Target, it opened a store in Boston next to Fenway Park stating “It simply reflects our goal to become flexible and how we fit into every community with an ability to open up a variety of stores, different sizes and layouts, offer a locally relevant assortment and provide guests with easy access to items from our entire digital assortment through in store pickup.”
All these initiatives sound exciting and show the company as interested in testing out new ideas but it also needs to be mindful of how each affects its supply chain and that apparently is where Mr. Mulligan will come into play – to help create a supply chain that matches the flexibility the company is striving towards in how it displays and sells its expanding merchandise categories to customers.
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