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Supply Chain News: Target Testing Extreme New Lean-Oriented Store Replenishment Model with "Flow Centers"

 

Many Items will be Replenished as Eaches, not Cases, Reducing Storage Needs

May 15, 2018
SCDigest Editorial Staff

Target stores continues to move aggressively and innovatively to adapt to the new world of ecommerce.

In 2016, for example, Target's CIO announced the company was moving away from packaged supply chain planning software in favor of new in-house built systems it said were more aligned with omnichannel commerce.

Supply Chain Digest Says...

At Target, stores supported by the flow center have reduced back-room inventories "to a fraction of the norm," Mosier added in his conference presentation last week.


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"We need to get the fundamentals in place and that's because the stress and strain we put on our supply chain today is very different to what was the case four or five years ago," said Target's Mike McNamara.

Target has also been opening stores in urban areas with a much smaller footprint than its traditional stores, started using item-level RFID tagging to better track inventory, and been aggressive about using its stores for efulfillment.

And its success with store-based ecommerce fulillment – nearly 70% of its on-line orders were filled via its stores in last year's Christmas season – is in part behind a potential whole new approach to store replenishment.

As reported this week by the Wall Street Journal, Target hopes to reduce the DC to store replenishment cycle from days to hours and reduce inventory at stores at the same time, especially at its aforementioned small-format stores..

The approach, is being piloted at a Target DC in Perth Amboy, NJ also uses a single pool of inventory to replenish stores and fulfill on-line orders, a departure from Target's existing processes.

Target is calling the test New Jersey DC a "flow center." Under the approach, Target replenishes stores more frequently with smaller quantities of items more precisely tied to what has sold, rather than shipping full cases of products as is usually done even for slow movers when they reach a replenishment point.

That could mean shipping "five bottles of shampoo, a case of ketchup, two polo shirts on hangers and a pallet of water, all prepared to move out directly to the sales floor," Preston Mosier, Target's senior vice president of global supply chain and logistics field operations, said last week at an industry conference in New York. "Or it could mean sending similar items prepared to move directly to a pack station to later go out to a guest in the neighborhood."

That approach in turn naturally results in less inventory held at stores, freeing up space room for still more ecommerce fulfillment, Target COO John Mulligan said in a conference call with investors in March. "Shipping more orders from our stores reduces our costs, while allowing us to move faster," he said, according to the Wall Street Journal.



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Target's costs would be reduced by shipping products to consumers' homes from stores close by rather than by more distant distribution centers. SCDigest notes, however, that most studies have found pick and pack and ship processes are more costly at store than in a DC.

At Target, stores supported by the flow center have reduced back-room inventories "to a fraction of the norm," Mosier added in his conference presentation last week. Out-of-stocks are also down, increasing sales, Mosier said.

SCDigest notes many store chains in Europe such as Tesco have been using similar approaches for years, as often there stores lack the backroom space to store full cases of product.

We also note there are additional handling and transportation costs in such a strategy – how those balance out will likely be key metrics for the test.


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