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Retail Vendor Performance Management News Round Up for May 2018

Target Piloting New Flow Distribution Center; Four Retailers Make the 2018 Gartner 25 Supply Chains
; Kroger Bets Big on Ocado

May 30, 2018

by SCDigest Editorial Staff

Target Piloting New Flow Distribution Center


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

Target has 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.

Supply Chain Digest Says...

Under the "pilot" 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.

As reported 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 backspace 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.

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. 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 their 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.

How will this impact Target’s approach to vendor management? Target has for a long time used the “Mark for” approach to crossdock full case and mixed case shipments from vendors straight to stores at the DC – perhaps now the percent of split case cartons ordered from vendors and crossdocked will increased.

Four Retailers Make the 2018 Gartner 25 Supply Chains

The analysts at Gartner are out with their annual list of the top 25 supply chains for 2018, using a process that combines financial measures such as return on assets and inventory turns with a forced ranking process performed by both analysts and a group of supply chain professionals, plus external scores on corporate social responsibility.

Put all that in the computer and out spits something that looks like an objective process.

For the third straight year, consumer goods company Unilever came out on top – that after rival Procter & Gamble and also Apple, McDonald’s and Amazon were placed in the “supply chain masters” category, a sort of hall of fame for companies consistently in the top 5 on the list.

With Amazon thus not in contention, four retailers made the 2018 list:

  • Number 2 Inditex (Zara)
  • Number 9 H&M
  • Number 20 Walmart
  • Number 23 Home Depot

The omission of Target on the list again this year seems unusual.

Cisco Systems, Colgate-Palmolive and Intel round out the top five.

As we say every year, the Gartner top 25 supply chains - it has many faults, but it is the best we've got. It certainly stirs the pot.

Kroger Bets Big on Ocado

In mid-May, US grocery giant Kroger announced it had signed an exclusive deal with UK online supermarket Ocado to use its distribution technology in the United States.

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Ocado said it will begin setting up Kroger with various systems to help it manage warehouse operations, automation, logistics and delivery route planning in the US.

Ocado had developed - first for its own use - a unique robotic picking system for ecommerce, then began marketing the technology to others.

The companies will identify three sites in 2018 for development of new Kroger "automated warehouse facilities" in the United States, they said in a statement. A total of 20 will be identified in the first three years of the deal.


"Ocado believes Kroger to be the grocer best-positioned to win in US grocery and will discontinue discussions with other US-based retailers," the companies said in a statement.

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