Target Corporation’s Improved SC and Inventory Management
Target is the second-largest discount retailer in the United States with over 1,900 stores nationwide. Target offers a vast variety of products including food, toys, pet products, toiletries, electronics, household items, and clothes for people of all ages just to name a few. The massive amount of products and brands that Target offers demands that its supply chain is equally as complex and large.
Retailers, such as Target, must try their best to avoid out-of-stocks because they disappoint customers and decrease sales greatly. It is especially difficult for companies like Target to avoid out-of-stocks because of both the large number of stores nationwide, and the large number of products, options, and sizes that the Target brand promises to its consumers.
In the past, Target used a traditional linear model for its supply chain, in which goods would simply flow from the manufacturer to its stores according to demand. Target has been active in its efforts to improve its supply chain and inventory management and is adopting an Omnichannel commerce approach. They announced this plan last year with hopes it will improve inventory accuracy for brick and mortar locations, as well as for its e-commerce department.
Retailers expend a lot of money paying employees to constantly restock shelves. Target has addressed this problem by reducing the number of sizes and brands it offers. For example, they may have previously offered 8 different brands of shampoos, all with three different size options. Now they would offer something like 4 brands of shampoos with 2 size options. Target’s changes have decreased out-of-stocks by 40% during the holiday shopping season. Target reports they decrease the amount they spend managing their inventory by 15%.
How would you judge Target’s efforts and system changes to improve their supply chain and inventory management? Are there any other concepts from class that Target could possibly implemented to further build upon their success?
SOURCES:
http://fortune.com/2016/03/02/target-inventory/
http://scdigest.com/ontarget/16-03-22-2.php?cid=10453&ctype=content
https://www.bloomberg.com/profiles/companies/TGT:US-target-corp
Luke,
Target is a great example of a company that has adapted their inventory strategy to market trends and remained competitive in an increasingly difficult world for brick-and-mortar retail stores. Your point about their decision to simplify their inventory approach is interesting. Referring to your example of shampoo, for example, brings up a good point- I have often thought that there are so many options to choose from that it makes a decision more difficult for the consumer. In the long run, I think this simplification strategy makes the shopping experience less painful.
Although Target has moved to offering less options on different types of inventory, their business model offering a wide range of goods has kept them competitive when other businesses have struggled. For example, Toys-R-Us, which recently decided to close all U.S. stores, blames stores like Target for their decline. Toys R Us cited stores like Target, that priced their toys at “”at low-margins or as loss-leaders” during the holiday shopping season and offered aggressive online shipping options, Toys R Us attorneys said early Thursday in a court filing. Toys R Us “could not compete” with those prices because it relies “exclusively on toys for profit.” Companies like Target, however, have a wide range of inventory to help adapt to market trends. It will be interesting to see how Target continues to change its inventory strategy in the future.
Link: https://www.usatoday.com/story/money/2018/03/15/toys-r-us-liquidation-amazon-target-walmart/427209002/
Luke,
I think there’s a huge section of the Target customers that go to their store because of their wide selection. They like to browse the aisles, look for new products, and usually leave the store with a few items that they didn’t need. I understand from a company perspective why they would choose to narrow their selection, but I think some customers might have a negative reaction to having a more limited selection of goods.
An article by Fortune about Target’s inventory process describe the company testing out a new system that adds larger quantities of stock to the shelves more, thus reducing the inventory in the back stock, and ultimately reducing the amount of labor involved in restocking each shelf http://fortune.com/2016/03/02/target-inventory/). I think this is a logical step for a company like target to take, and it’s one that doesn’t necessarily affect the shopping experience that customers know and love.
I think Target can utilize technology to make changes to each individual store. The locations of the stores determine the demographics of the shoppers. By accessing data and drawing conclusions from the data about shopping habits, they might be able to better tailor the products they carry and the amounts of inventory needed at each store.
Luke,
I especially like the first question you have asked about this topic when you say, “How would you judge Target’s efforts and system changes to improve their supply chain and inventory management”. Some people may think they like the many options they are given. For example, when you mention that they may have previously carried 8 brands of shampoos but now carry 4 with less size options. Although at first glance, it may look better to have many options, it is not true psychologically. I have attached an article about the psychology of choice at the bottom of this response. When someone has many options, they are lead to disappointment because when they use whatever they have bought, they are still thinking of the many other options they could have bought. On the contrary, it may have been better if there were only three options, because that person can choose which type suits them more than the other two and are most likely headed for the most overall satisfaction. Therefore, I think Target made the right choice.
https://www.psychologytoday.com/us/blog/behind-online-behavior/201410/the-psychology-choice
Luke,
I went to target a lot with my family when I was younger to buy a wide range of items. While they were sometimes out of certain products, they usually had a similar item in stock. It is good to hear that they are doing what they can to stop the “out of stock” problem by cutting brands and options, but I wonder if losing that flexibility might hurt them. There are many brands out there that inspire a high level of brand loyalty, but there are replacements that many people will buy. There will be times when demand will break through the anticipation inventory, and when that happens some of the replacement products will no longer be there. It will be interesting to see the route they follow as they watch their inventory decision play out.
Luke,
It was really interesting to read about Target’s new supply chain and inventory management. It is interesting to understand how this has affected their total costs and sales in dollars.
Sometimes it could be hard for companies to change or transform their supply chain. However, with Target’s strategy of reducing inventory, as you discussed, is one to cut costs. Additionally, according to reuters.com, the sixth-largest retail chain in the U.S. has cracked down on its suppliers. Target “plans to tighten deadlines for deliveries to its warehouses, hike fines for late deliveries, and could institute fines up to $10,000 for inaccuracies in product information…” This strategy being implemented by Target of ‘playing hard ball’ is an aggressive one, but it also seems to be effective. This move is more specifically targeted at their fresh food products that they began serving just a few years ago to address the issues that have come along with that.
https://www.reuters.com/article/us-target-suppliers-exclusive/exclusive-target-gets-tough-with-vendors-to-speed-up-supply-chain-idUSKCN0XV096
Luke,
Thank you for sharing this information on Target’s new strategy. It is interesting to think about how Target has changed their inventory strategy by decreasing the number of options. Target is typically where I go when I need multiple products because I think of them having a large selection of goods. Target has been in the news in the past for their advanced big marketing tactics. Specifically, Target has a large database of consumer information which they can use to predict purchases.
It would be interesting for Target to use this information to then plan out their inventory strategy for each store. Target can make assumptions based on purchase behavior of customers to predict which items customers will purchase in the future. For example if Target has information on the amount and type of diapers purchased by customer A, they can then use this information to stock larger sizes and predict when the customer will no longer need to purchase diapers. This can help Target better stock inventory. Although some may view Target having access to all sorts of data about consumers concerning, it can better tailor a customer’s shopping experience.
https://www.reuters.com/article/us-target-breach-datamining/what-target-knows-about-you-idUSBREA0M1JM20140123
http://www.cc.com/video-clips/dv9iqc/the-colbert-report-the-word—surrender-to-a-buyer-power
Luke,
Thanks for your post on Target’s new and improved inventory strategy. This post was especially interesting to me because my mother buys everything at Target, and as a result, I accompanied her on countless trips to our local Target. The “out-of-stock” problem is a very real issue that causes customer dissatisfaction. I know this to be true after going to Target with my mother for the sole purpose of buying “Homemade Vanilla” Blue Bell Ice Cream and finding only the flavors “Strawberry” and “Rocky Road.”
While Target’s new inventory strategy will inevitably decrease the frequency and magnitude of “out-of-stock” problems, it negatively impacts the variety of products that Target can offer. This new inventory strategy does not come without a tradeoff.
Luke,
Thanks for your insight into Target’s big changes. It’s really an interesting concept that I hadn’t considered before. How do massive retailers like Wal-Mart and Target stay connected to all of their products in all locations to be sure that they are not wasting shelf space on products that don’t sell well. My guess is that Apics S&OP plays a huge part in what they do. Listening to their customers and to employees across several business functions and departments is critical to maintaining an edge and keeping shareholders happy.
Like you mentioned, Target cut stockouts by 40% and inventory management costs by 15%. Even though there may be some niche products that consumers will miss, the firm’s goal of profit-maximization is one step closer to being met under this new system.
More info on Apics S&OP can be found on the slideshow 17 Planning Sales and Operations.
Thanks again.
Luke,
Thank you for bringing up some interesting points and questions. Target is really embodying the idea that simpler is better. I think most consumers would agree that having 8 different shampoo options each with 3 different sizing options is a little excessive. Offering fewer options but making sure that they’re always reliably in stock is a great way to simplify their approach and ensure that they always have what their customers want. This is also a great example of companies trying to increase satisfaction by decreasing the impact of cognitive dissonance. Cognitive dissonance, or buyer’s remorse, can arise when consumers are offered too many choices and have a hard time making decisions or regret the decision they made. This decreases overall customer satisfaction related to the brand and the store in general because consumers relate their feelings of buyer’s remorse with the store as a whole. So, by simplifying their supply chain and streamlining their operations management, Target has successfully reduced costs, while also potentially increasing customer satisfaction.
Source:
https://www.simplypsychology.org/cognitive-dissonance.html
Adam,
You make some good points about Target’s simpler is better approach. I agree that having so many variations of products can make inventory management messier than it could be if less variations of sizes, fragrances, and brands were sold. I think your discussion of cognitive dissonance is really interesting. Initially, I’m sure that Target wanted to be the store that “had it all”, thus explaining why they previously offered such a large variety of products for their customers. While they were trying to increase customer satisfaction by making sure they had any and every product that a potential customer would want, they were ultimately decreasing customer satisfaction by having frequent out-of-stocks. This new approach reminds me of that of Costco. Costco provides a limited variety of items which allows for them to continually keep up with each product’s stock, avoiding potential out-of-stocks. By limiting inventory variation, Target can better keep up with their inventory management and ultimately increase customer satisfaction.