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  Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
 
 
  - Sept. 9, 2015 -  

Supply Chain News: Target Battling Out-of-Stock Issues, Following Years of the Same by Walmart

Challenge of Running Traditional and eCommerce Supply Chains Part of Issue, Company Exec Says - and Maybe Runnng Just a Bit Too Lean

 
     
     
  by SCDigest Editorial Staff  
     
 

For almost five years, Walmart executives have been complaining about the company's struggles to keep its shelves well stocked with merchandise. Now Target admits it is having much the same problem in its US stores after problems with product availability helped kill its big entry into the Canadian market less than a year ago.

In October 2011, reports surfaced that Walmart had hired firms including Acosta Inc. in the US and Retail Insight in the UK to walk the aisles and track whether hundreds of items are in stock. Products were often missing from the store floor as a plan to add thousands of items back to stores after a major SKU pruning just two years before crowded storage space, while tighter labor budgets left workers less time to stock shelves.

SCDigest Says:

The Target Canada stores never gained traction there and were losing large sums of money - with complaints about significant stock outs said to be a key issue in why Target stores never took off north of the border.

 

 

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Then in early 2013, a report came that then Walmart US CEO Bill Simon had told a meeting of store managers that the retail giant's two-year problems with keeping store shelves stocked were "getting worse," and a major threat to its operations.

"We run out quickly and the new stuff doesn't come in," Simon said, according to the minutes of the meeting in February, as reported at the time by Bloomberg.

Then in March of 2014, more of the same, as again Bloomberg reported that Walmart executives told another meeting of store managers that if they could solve the out-of-stock issue it could lead to as much as $3 billion in additional sales in the US alone each year. Managers were told that Improving "in-stocks" was a top operational priority for the year.

So maybe there is something in the mass merchant air, as it was reported this week that Target was facing similar out-of-stock battles.

A web site called MPRNews.com, which covers news in the Minneapolis-St. Paul area where Target is headquartered, reported last week that while Target "once downplayed its problems keeping stores stocked with merchandise, Target CEO Brian Cornell now says the empty shelves are a serious problem that must be solved. Last month, he called the situation unacceptable and appointed veteran Target executive John Mulligan to find a fix."

That article was accompanies by a picture of an almost totally empty section of shelving said to be from a local Target store.

"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 told Wall Street analysts recently. "However, while we understand the reasons, the simple fact is that our current performance is unacceptable."

The challenge of running both additional logistics and fulfillment network while serving a rapidly growing on-line business at the same time is causing some of the inventory woes, Mulligan noted, "conceded the company's supply chain isn't built to serve customers in stores and online," MRPNews reported.

That in turn came just after news out of Walmart that it was changing the way it was managing inventory, with Greg Foran, current CEO of Walmart US, saying on the company's earnings call that the company has been holding more of its inventory at distribution centers rather than in the backrooms of its stores, a strategic choice that gives the retailer more flexibility in meeting demand - especially of the on-line variety.

Coming full circle, Foran added that keeping the inventory further upstream also has the additional benefit of freeing up extra space in store backrooms, enabling employees to operate more efficiently and find inventory there more easily. Walmart has also upgraded technology used by its managers and simplified the process of receiving deliveries and stocking shelves

Now back to Target. In May, it announced it was jumping on the RFID bandwagon, with Keri Jones, EVP global supply chain and operations, writing on a company blog that Target would start rolling out an item-level tagging program later this year.


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"We're now working with key vendors on a fast-tracked timeline to begin inserting a "smart label" on price tags that will help Target improve our inventory accuracy and enhance our ability to keep stores in stock," Jones said.

Item-level RFID is thought to greatly improve perpetual inventory accuracy at retail stores, a key factor in using stores for on-line order fulfillment. The greater inventory accuracy can also reduce out-of-stocks by driving replenishment processes based on more accurate data about what is really on-hand in each store. (See Target Stores Latest to Jump on Item-Level RFID Bandwagon.)

The image to the right of empty shelves from a St. Paul Target store is from MPRNews.com.

Somewhat ironically, the issues with stock outs at US stores come just nine months after the chain announced it was closing all 133 of its stores in Canada, all of which had opened since 2011, taking a $5.4 billion dollar write off in the process.

The Canada stores never gained traction there and were losing large sums of money - with complaints about significant stock outs said to be a key issue in why Target stores never took off north of the border.

It was reported that part of the issue with stockouts was a problem with case labeling and how many items Target's inventory system thought was in each box. The two quantities often didn't match, causing an inventory nightmare, as the system didn't necessarily know how much inventory was really in its Canadian DCs and how many items had really been shipped to stores. (See Wrong Units of Measure on Cases Played Key Role in Disastrous Launch of Target Canada Last Year.)

As for the current issues, Target's Lean approach to inventory may have been taken too far, some are saying.

"Target is really focused on profitability and, frankly, a lot of the items that are deemed unacceptable to be out-of-stock of are the basics. They don't make a lot money off of them," said Amy Koo, an analyst with the consulting and research firm Kantar Retail.

While the out-of-stock issues are said to be fairly broad, the problems are especially noticeable its food SKUs.


Why is it so hard for Walmart and Target to keep shelves stocked? What would you do? dPlease let us know your thoughts at the Feedback section (email) or button below.


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Recent Feedback

My company has supplied Target Stores with framed art.

Target has many issues that I am sure are common with large big box retailers.

Complicated computer systems. Some of which are unnecessary.

Young buyers not understanding their roles.  Too many cooks in the buying kitchen.

Delays on delivery of hardline items could be the overcomplicated rigorous testing required.  From the time an item is chosen by a Target buyer and the forecast team gets info to the vendor is so long, that the vendor has really to scramble to make any kind of reasonable timeline.  Many times falling short.

I have friends in different industries and we all complain about the same issues with big box stores.  Left hand doesn’t know what the right hand is doing.

 


Confidential
Confidential
Confidential
Sep, 12 2015

Interesting article on the continued OOS (Out-of-Stock) issues at Target and WalMart that have been going on for years.

In many respects, both companies seem to be "grasping at straws" attempting to fix problems and it appears, without much improvement.

There are many possible issues that might contribute to out of stocks.  Some are alluded to in the article and include the following with some comments of mine:

  • Both WalMart and Target reportedly have pruned SKU's and inventory.  Comment: Target's 2014 ITO was 5.8, Walmart's was 8.1.  Both were reductions from prior years suggesting inventory increased.
  • Store operations.Comment: More on this below
  • Supply chain not built to serve customers in store and online. Comment: US Census Bureau (August 2015) reports e-commence sales account for 7% of total retail sales.
  • Changing way of managing inventory — holding more at DC's.
  • Adding item level RFID to improve inventory accuracy. Comment:  Poor inventory record accuracy is a big contributor to problems.  Since both firms use POS systems that one would expect to drive replenishment, the question is how will item level RFID be an improvement over existing labeling, scanning and transaction systems?
  • Target had issues with case labeling and "quantity per" issue.  Comment - This is a fundamental corporate level Master Data Management issue that requires a high degree of accuracy in any system.

One area that I do have first hand knowledge and experience is with store stocking operations in retail.  Both companies indicate they have problems with stores in this area and have told store managers that, 'Improving 'in-stocks' was a top operational priority.  A problem that I have observed is that in many cases, store managers are handcuffed by corporate policies and directions that effectively limit their ability to be more successful in this area.

Here are some reasons:

  • Store staffing is driven by store budgets which are closely tied to sales projections.  Yet in-bound freight arrives in stores in advance of projected sales, particularly at this time of year as stores build inventory for the holiday season.  If they don't increase staffing to handle the growth, the backup in the back room builds rapidly.
  • With limited staff and multiple priorities, in many cases, stocking gets a low priority.
  • There is a learning curve related to stocking:  where does the product go in the store, what are the facings, etc.  This takes time to develop.  New people thrown at stocking have much lower productivity than experienced people.
  • Merchandisers and store planners seem oblivious to operational effectiveness at the store level.  In many cases, they are always, "moving things around".  Given directions and mandates fro higher up, store managers are required to use resources to relocate and move product, not restock.  This is non-value added work.
  • Stores receive merchandise triggered both PULL systems (POS) and PUSH systems ( seasonal items and seasonal builds of core products).  In many cases, store replenishment is driven by warehouse picking schemes and carrier capacity and not segregated by PULL and PUSH merchandise.  When the product arrives in the store, in many cases it is commingled.  If there already is a backlog at the store, it can be difficult to get the movers (POS driven replenishment items) pulled and out into the store.


Based on this my recommendations would be:

  • Plan labor budgets and staffing based on material flows and not just sales.
  • Staff stocking positions in advance so people can get trained and are ready for the product inflows.
  • Plan your store sets and then leave them alone.
  • If possible, segregate and label pallets by PULL and PUSH items.  Prioritize working the PULL items when the pallets are received into the stores.

 


Dave Armstrong
President
Inventory Curve LLC
Sep, 14 2015
a .