Improving Inventory Management at Target Corporation

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Target Corporation: Improving Inventory Management

Target is one of America's top department store retailers. It was named as the second-largest retailer behind Walmart in 2017 (Target Corporation, 2017). The company was incorporated in Minnesota in 1902, and currently operates 1,822 stores in the U.S. The current board chairman and CEO of Target Corporation is Brian Cornell, a position he has held since August 2014. Target reports in its 2017 annual statement a total $71,879 million in sales revenue for that year.

Operational Issue: Poor Inventory Management

An operational issue that Target has been facing in the last three years is poor inventory management. Target customers began complaining about shortage of goods and out-of-stock items in the stores from the beginning of 2015. Around the time, Target had been pursuing a rapid expansion program into the Canadian market. In August that year, the Company's management released a statement indicating that the unacceptable stock levels at their stores that year were due to an "incredibly complex supply chain," and forecasted weak growth in their quarter sales at established stores. Three years later, target customers still encounter empty shelves in the company's stores, and the corporation closed all of its 133 its stores in Canada citing operational constraints.

Recommendations to Solve Inventory Management Issues

The first recommendation for Target to solve its inventory management is to drive efficiency around its processes. It emerged that one of the reasons why Target's management is facing inventory shortages is because of a complex supply chain framework. Perishables such as groceries and lean meat take very long to move from the distributors to the shelves, leading to expiries and subpar quality inventory. A good process improvement measure that can be taken by Target is direct dispatch of perishables to the stores by their distributors to reduce lead times.

Target can also better manage inventory using real-time analytics under a single platform. A key reason that has been cited by scholars for causing inventory problems at Target is inaccurate demand forecasts. Like many other companies, Target still uses periodic sales and operational forecasting tools that do not take business and environmental changes into account. An example of a powerful sales and operations tool that Target can use to better manage its inventory real-time is an SAP Enterprise Resource Planning (ERP) system.

Target may also consider an inventory optimization tool for better inventory analysis. Unlike the analytics system, this tool will be stand-alone, but use data from Target's existing ERP system. An inventory optimization tool will helpful in taking critical factors like demand and supply variability as well as replenishment parameters to establish the required optimum inventory levels (Slack, Brandon-Jones, & Johnstone, 2016). Such systems are almost fully automated, and would leave Target human resources to focus on other areas to drive operational excellence.

In terms of people in operations, Target can leverage on supply chain partnering to improve inventory management operations. Slack et al. (2016) define supply chain partnering as the creation of network with an organization's partners to deliver collective value creation to the customer. Where the collaboration between Target and its suppliers is interactive and efficient, it will be easier and less costly to get the products to the customers in good time. Essential tools to strengthen supply chain partnering include interactive calendaring and IP communications.

Apart from the suppliers, Target needs to streamline communication with its customers. Customers are the best partners in an organization's operations as they are able to easily identify critical areas of improvement in such matters as staple inventories and desired slotting (Slack et al. 2016). By establishing open communication lines with customers, Target will be agile in responding to market changes. A practical way of promoting customer focus is through a robust customer relationship management (CRM) solution linked to IP communications to enable real-time use of feedback.

Lastly, Target may consider outsourcing people for its support functions. IT, Finance, and HR may be outsourced to managed service providers to enable Target's workforce to focus on operational excellence. This recommendation will be crucial in creating a lean organization that promotes visibility around inventory without the distraction of in-house maintenance. Outsourcing will also be a way of enabling joint planning of logistics activities with the help of third-party expertise.

Conclusion

In conclusion, there are six recommendations that Target can implement to improve inventory management. These are process improvement, real-time analytics, inventory optimization tool, supply chain partnering, communication with customers, and outsourcing.

References

Slack, N., Brandon-Jones, A., & Johnston, R. (2016). Operations Management. Melbourne, AU: Pearson Education.

Target Corporation (2017). 2017 Annual Report. Retrieved from https://corporate.target.com/annual-reports/2017/download.

January 19, 2024
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