Target's Supply Chain Shakeup Paying Dividends

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Target's Supply Chain Shakeup Paying Dividends

By Tim Denman - 08/29/2016
As Target continues to increasingly focus on digital retailing, both in-store and out, it has invested heavily in its fulfillment network to increase the speed at which product flows throughout the enterprise. Thanks to an end-to-end restructuring of the supply chain shoppers are enjoying massive reductions in out-of-stocks and in-store fulfillment wait times.

Since taking over as chief operating officer a year ago John Mulligan has made significant adjustments both on the front line and in the warehouse to ensure that as Target's digital retailing efforts continue to scale up the retailer is able to consistently meet demand.

"One of the key priorities in my new team has been to look at the entire supply chain and find ways to optimize it end to end to deliver reliability for our guests while driving efficiency for the organization as a whole," Mulligan said on a recent earnings call with analysts. "A key measure of reliability is our ability to stay in stock and I am pleased that we continue to see improvement even as we begin to compare against improvements from a year ago."

Mulligan laid out two key areas Target is focused on as it looks to both supercharge its fulfillment network and in-store performance.  

Out of Stocks. Like all retailers Target relies upon its consumer goods partners to ensure its stores are stocked with the appropriate levels of merchandise. Regardless of how quick and efficient a retailer's supply chain is, if its vendors are not able to keep product flowing into distribution and fulfillment centers on a timely basis it will be unable to consistently meet demand. Over the past year Target has worked with its vendors to lessen the about of variability in product flow to ensure product is in place when and where it is needed.

"In the past, an unacceptable number of vendor shipments were received by our DCs either too early or too late," Mulligan said. "This variability drove a lot of extra workload in the DCs while reducing our reliability downstream. As a result this year, we have been collaborating with our vendors to increase the percent of shipments that arrive on the correct date and we have already seen meaningful progress. The percent of shipments that arrive on time has more than doubled and we expect to see additional improvement as we roll out new processes to additional vendors over time."

Thanks to this ongoing collaboration with suppliers Target has been able to reduce out of stocks by more than 50% in the past six months. In addition, thanks to changes in the prioritization of inbound processing, the time it takes to unload shipments into the DC has been trimmed by over 50%. And finally thanks to an increased focused on outbound processing the retailer is well on its way of meeting its stated goal of having daily deliveries to every store, regardless of store sales volume.

In-Store Pick-Up. By replenishing store levels on a daily basis Target will not only improved in-stocks but also reduced backroom inventory and associate workload. By lessening associate backroom demands, Target is freeing them up to focus on the retailer's increasingly important flexible fulfillment initiatives.

"At the end of 2015, more than 460 stores were shipping items directly to guest homes and we are planning to double our capacity this year by expanding this capability to more than 500 additional stores," Mulligan said. "These additional locations will further improve our average ship time while providing deeper access to our store inventories increasing the likelihood that we can ship a guest’s entire order from a single nearby store location. Because we are now pre-positioning high velocity web-only items in the backroom, at ship-from-store locations, we are able to reduce last mile and split shipment expenses dramatically."

In addition to its ship-from-store capabilities, Target continues to refine in-store pick up operations to meet rising demand. In 2016 the retailer experienced a 50% increase in in-store pick up on the heels of a 60% increase last year. Thanks to investments in order management technology and the streamlining of associate's workflow, 90% of in-store pickups are now ready within one hour.

"In 75 of our highest volume stores, we are increasing holding capacity to allow our team to retreat items more quickly even during peak times," Mulligan said. "We are also investing in additional digital devices to support peak demand and across all of our stores. We have implemented systems and processes to allow stores to forecast and monitor pickup demand ensuring we maintain proper staffing levels."