Target Supply Chain Woes Get Serious

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Target is now taking its supply chain problems seriously. The major retailer has been struggling with running out of stock and even having empty shelves in stores. But last week, John Mulligan, the newly appointed chief operating officer, called the company’s woes “unacceptable.”

"We've been asking our supply chain to move well beyond its original design and become more flexible in the way we serve our guests," Mulligan said. "However, while we understand the reasons, the simple fact is that our current performance is unacceptable."

Target’s online ordering and in-store pickup options have reportedly magnified the retailer’s supply chain problems. The growth in online ordering could have more widespread impacts in the retail sector, where other companies’ supply chains might not be up to the task.

Being able to order an item online and pick it up at a nearby Target store, instead of waiting for it to be delivered later, can be a helpful option for consumers. I recently tried to take advantage of this option myself and definitely got a taste of Target’s inventory issues. I went to Target’s e-commerce site to buy a common household item. Seeing that the retailer had the item in stock at the store 2 blocks from my apartment, I chose to walk on over to the store and pick it up. Turns out, the item was not in stock at that store, and I left empty-handed and frustrated. At least it was just a 2-block walk.

Our Analysts Weigh In

My personal experience makes it easy to see just how Target, what would otherwise appear to be an incredibly successful retailer, is struggling to meet consumer demands. As Thomas Kase, Spend Matters vice president of research, pointed out, it’s also easy to see how a far better integrated inventory, point of sale (POS) system, together with an e-commerce system that in turn is tied to supplier inventory and delivery capabilities, is necessary, as more items are either drop-shipped directly to a customer’s home (à la Amazon) or directly to the local store in question. IBM, with its Smarter Commerce vision, and many other technology firms have been focused on addressing this challenge for years, Thomas said.

Supply chain responsiveness, however, is only part of the problem. Demand forecasting is also key. Keeping grocery items stocked has been a major problem for Target. Spend Matter’s own analyst Andrew Karpie said this doesn’t come as a surprise, as Target does not have the deep competencies that supermarkets do. Unlike most other items sold at Target, food products are perishable and the demand for food products can be driven by more or less immediate need, Andrew said.

Target recently reported it would invest $1 billion into supply chain improvements and technology – a step that seems to be in the right direction. Andrew also warned the Target case might provide a cautionary tale for businesses – not just in retail – that are increasing digitization efforts on the demand side of the business.

Furthermore, in a given business, the supply chains associated with different procurement categories may also be vulnerable and not as resilient as they seem. Procurement stands between the demand side of the business and the business’ supply chain, Andrew pointed out. Therefore it will become increasingly critical to be able to monitor changes in demand and upstream supply chain vulnerability. Procurement to the rescue!

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