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What We Can Learn from Target's Supply Chain Strategy

Michael Wilson | Jan 3, 2019

Category: Commercial

Target is one of the largest retailers in the U.S., and for good reason. Their sales strategies, marketing efforts, and supply chain strategies are superior to many other ...

Target is one of the largest retailers in the U.S., and for good reason. Their sales strategies, marketing efforts, and supply chain strategies are superior to many other department stores, keeping the business efficient and driving down costs for customers. Here's a look at what businesses can learn from Target's new supply chain strategy.

How Target Changed Its Supply Chain Strategy in 2018

In the past, Target—and many stores like it—would replenish shelf stock by sending cases of items on trucks to the stores. For example, if a store placed an order for shampoo, they would receive a case of shampoo. Naturally, not all the shampoo in a case is going to fit on a shelf, which means extra cases of items waiting to be shelved in back rooms. The new system, however, replenishes store supply on an individual basis. Employees can pick orders for multiple stores at a time without leaving their workstations, making the packing facility much more efficient.

Essentially, a tote for an individual store will be conveyed throughout the different workstations, allowing pickers to place items for that store into the tote. When full, it's a "mixed bag" of items, however, it matches the store's exact order for what they need to restock.

Target CEO Brian Cornell said in a February 28th analyst meeting that, "Fundamentally, we are changing how we move product. In the future, we know we’ll still have to move cases. But to move product faster, and to manage the growing digital demand, we have to start moving individual items."

This "order-to-shelf" system leaves more space in back rooms and saves money on employee labor and inventory management. Instead of stocking back rooms, trucks deliver items directly to store shelves.

The Results of a Modernized Supply Chain Strategy

According to Supply Chain Dive, "many of the results, according to the earnings call, were a consequence of a commitment to move product to and from stores faster than ever before. New distribution centers, remodeled backrooms at stores and a revamped delivery-fee structure are but a tip of the $7 billion iceberg that makes up Target's supply chain strategy for the next three years. A strategy which may be best described in one word: modernization."

Target COO John Mulligan said, "When you think about the work we're doing across the operations team, you quickly see that it's all about modernizing how we work, both our operating model and how we use our physical assets."

Cornell said in an earnings call that the investments in supply chain renovation were showing results, including Target's plan "to perform wall-to-wall remodels of approximately 1,000 stores over a three-year period."

 The transformation of the Target supply chain has allowed the company to:

  • Place their stores at the center of a modern network design to deliver an unmatched combination of convenient fulfillment options
  • Open new small format stores across the country, allowing us to reach more guests
  • Deliver on their brand promise of "Pay Less" and ensure that items are priced right daily
  • Consistently debut new merchandise from their exclusive brand portfolio
  • Rollout new convenient digital capabilities that make it easier and more inspiring for guests to shop and save
  • Invest in hours, wages and training for Target team members

"[All of] these investments enable our team to deliver higher levels of service and productivity, and our guests are responding to the change," Cornell said.

How Can Other Companies Use Target's Example to Enhance the Success of Their Business?

Target's success shows the importance of going beyond "adequate" supply chain management and seeking to excel at it. Full visibility of the supply chain and taking order fulfillment down to the granular level can make a significant difference in the overall cost to ship, track, and stock items in-store. Target's CEO realized that stores didn't need to keep a crate full of shampoo in the back room for distribution when a few bottles were purchased by customers off the shelf. He realized that by automating the ordering process and allowing manufacturing facilities to be notified when orders specific, singular items come through, stores can get only what they need, when they need it. Eliminating excess and streamlining this process has certainly proved profitable and can be a game change for other businesses as well.

Other companies have also made the effort to revolutionize their supply chain strategies, like Ikea, who started with a pretty good strategy but continues to look for new, innovative ways to maximize their supply chain and drive down costs.

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