In the last couple of months, Target has received much criticism due to various stocks out. As a result, Target sales have significantly dropped as the customers become increasingly disappointed and frustrated at the stores. According to Target, they perceive the core issues that contribute to the many stocks outs are related to the company offering a wide variety of products. Hence, Target aims at reducing the number of brands and varieties provided as a response to the stock out issues. Target Chief executive officer, Brian Cornell argues that increased efficiency at the stores will offer the opportunity to focus on priority products. Target retraces its inefficiency issues to the expansion of the grocery business to include perishable goods including dairy products and meat among others.
Furthermore, the complexities in inventory management were amplified when Target provided its online customers with the option of either receiving productsfrom the warehouses or picking the online orders from physical stores owned by the company. Since its establishment in 1902, the company has grown exponentially to become the third largest store chain in the United States operating over 1800 stores. Currently, the company’s growth is hindered by the significant stock out issues at its retail store. To this effect, the company is investing over 5 billion dollars in technology infrastructure and distribution aimed at streamlining inventory to manage and eliminate stock-outs as well as facilitates online growth(Solomon &Marshall,2018). The following document is a critical analysis of Target’s supply chain. The significant highlighting issues, current systems, the negative impact of stock outs and in conclusion recommendations that Target can apply to address the stock out the problems experienced.
As previously stated Target operates over 1800 stores in the United States in addition to an online store. Currently, online customers either pick their products from the store locations or company warehouses. Furthermore, the company is receiving negative publicity for having stock-outs at its stores. On evaluating Target inventory management systems, it is visible to note that the main issues affecting the organization are in three specific areas namely; Inventory management, transportation, and material handling. Target has combined both store inventory and online inventory. In that customer who purchases products online collected their purchases either from stores or company warehouses. In this system, the stores are at risk of encountering stock-outs as they had not factored in the online customers coming to pick their online purchases at the store(Solomon &Marshall,2018). For instance, if a store had stocked five boxes of canned beef and it was expected to be sold in three days as that is when they hope the next bunch, it will encounter a stock out if an online customer comes and carries two boxes. Secondly, the company suppliers do not supply goods on the ‘promised date’ as the company has adopted a contract with the suppliers that provide them with a ‘grace period.’ Therefore the suppliers can deliver the goods later than the ‘promised day’ without being charged with any penalties. The ‘grace period’ is a risky concept that has played a significant role in creating stock outs(Solomon &Marshall,2018). Thirdly, the suppliers use ‘small’ cases to pack the products; hence the staff has to carry multiple cases instead of one ‘big ‘case fewer times. Also, the shelf structure of the store wastes a lot of storage space which if restructured would enable the stores to hold more inventories(Key Concepts,2018).
Target currently applies the Administered Vertical Marketing System with a particular focus on intensive distribution. In an Administered VMS(Vertical Marketing System) the stakeholders are independent of each other and work voluntarily due to the power of single channel stakeholder. Manufacturers favor this brand as strong brands have a list of resellers who are will to distribute their products. Similarly, Intensive distribution focuses on maximizing market coverage by distributing products through wholesalers and retailers. Intensive distribution is familiar with convenientproducts including bread, milk, and candy among others. The main reason intense distribution is favorable for available goods is that the focus is on the availability of the products as opposed to any other consideration the customer may have in regards to the products. For instance, when a customer wants milk, their main concern is if they will get the milk at their local store failure to get milk at one store will lead them to visit another store and another until they purchase the milk.
Stock out refers to the state at which the demand for a product or service cannot be sustained or fulfilled by the current inventory. For instance, if a store has 20 packets of milk and a customer wants to purchase 30 packs of milk, then the store is said to have a stock out as they a lower amount of inventory to satisfy the customer’s demands. Stock-outs have numerous adverse effects on an organization as they can result in a loss of reputation, loss of customers and loss of revenues among others. The primary goal in developing and implementing an inventory management system is to address stock outs ensuring that the organization has adequate income to cater to customer demands(Wild,2017).
As discussed above, Target has been encountering numerous stock-outs and to address the issue the company needs to adopt an effective inventory management system. There are numerous options that the Target can consider including; Just-in-time(JIT) inventory management systems. JIT is applied to increase efficiency as well as reduce wastage by ensuring that the company receives the goods on time as required, thus reducing inventory costs. To ensure that JIT is effective an organization is required to forecast the demand for various products accurately. For instance, Target should know how many parts of milk it sells in each of its stores daily. The information can be acquired from previous sales reports. The JIT inventory management system would be highly effective for Target especially in regards to perishable products. Therefore some of the advantages of using JIT include reducing wastages since the products ordered are equitable to the demand. Secondly, the company reduces its warehouse costs as they will not be required to store the products for a long time. The second approach that Target can apply in effectively managing its inventory is developing and implementsinventory controls. Through critical evaluation of sales records the company can identify the quantities, it sells in a day, week and month. Once the company has identified the quantities, then they can set limits and alerts that notify the company that once products get to a specific quantity, they need to re-order. It is critical to note that the re-order levels must consider sales, contingency stock as well as the time it takes for the supplier to deliver the goods. These ensure that the company has adequate inventory at all times(Quayle,n.d).
Key Concepts of Supply Chain Management. (2018). Essentials of Supply Chain Management, 1-39. doi:10.1002/9781119464495.ch1
Solomon, M., Marshall, G., & Stuart, E. (2018). Brand you: Marketing real people, real choices. (9th ed.). Upper Saddle River, NJ: Pearson.
Quayle, M. (n.d.). Supply Chain Management. Purchasing and Supply Chain Management. doi:10.4018/9781591408994.ch005
Wild, T. (2017). Supply chain inventory management. Best Practice in Inventory Management, 217-237. doi:10.4324/9781315231532-16
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