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Target Stores Rethinks Inventory Management, Writes own Apps to Better Leverage Extended Supply Chain in Omnichannel World

 

Traditional Linear Supply Chain and DRP Model is Dead, CIO Says, as Target Moves Away from Packaged Software

March 22, 2016
SCDigest Editorial Staff

Target has been extremely active in its supply chain recently, with naturally most of the focus on Omnichannel commerce. That included announcing last year a fast track plan to move to item-level RFID to improve inventory accuracy in support of store-level ecommerce fulfillment and order on-line, pick up in store. (See Target Stores Latest to Jump on Item-Level RFID Bandwagon.)

Then just a few weeks ago, Target announced it had hired former Amazom.com executive Arthur Valdez to head its global supply chain, though Amazon is now challenging that hiring in court, saying Valdez violated the non-compete agreement he had at Amazon. Amazon says that 2012 agreement requires an 18-month hiatus before Valdez can take a position with similar responsibilities at a rival firm.

Supply Chain Digest Says...

With Omnichannel, fulfillment now can potentially come from almost any node in the network - including supplier sites - and increasing there is the need to forecast at the store level, not just a DCs.


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Now news that Amazon is investing in a new generation of software applications, largely built in-house, to improve inventory management, order sourcing, and more in an Ommichannel world, part of its on-going major investment in Omnichannel, which last year topped $1 billion.

As reported this week in CIO magazine, Target is modernizing a supply chain that was built based on a traditional linear model, in which goods predictably flowed from the manufacturer to one of its distribution centers and then to the shelves of one of its 1,800 stores.

That model simply no longer works, Target says.

"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," Target CIO Mike McNamara told CIO.com.

To that end, the retailer is writing supply chain applications for assortment planning, digital merchandising, store ordering and forecasting as well as supplier ordering and demand forecasting.

And to get the job done, it is using many modern tools, as developers track projects in Jira, share code in GitHub and configure applications with Chef. While those terms are probably unfamiliar to most supply chain professionals, it's enough to know these are all new generation Cloud-based tools.

The predicable linear supply chain model is basically dead, Target says. McNamara says the retailer's inventory lens has been extended to include more products from countries such as China as well as perishable groceries, for which timelines is a critical factor.

But the driving factor is that Target is now shipping products directly from fulfillment centers, distribution centers and local stores to consumers' homes in support of on-line and mobile ordering. In fact, in Target's fourth quarter, an amazing one-third of its on-line orders were picked up in store or filled from inventory in stores. This is a sea change in fulfillment models.

Of course, so-called Distributed Order Management (DOM) software is designed to address much of this fulfilment complexity, selecting the best point of fulfillment across the extended network based on configuration of sophisticated rules for order sourcing, combined with visibility to inventory, capacities and constraints, and orders across the network. Leading DOM providers include IBM/JDA (a partnership), Manhattan Associates, Softeon, and enVista.

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Target seems to be building its own DOM along with other supply chain capabilities.

The retailer wants to control a "longer bit of the supply chain," McNamara told CIO "We're using the whole enterprise inventory to service our guests in a way we never did before." Nearly all retailers since the 1990s have used Distribution Requirements Planning (DRP) software to plan inventories at a distribution center level in support of a largely fixed group of stores.

With Omnichannel, fulfillment now can potentially come from almost any node in the network - including supplier sites - and increasing there is the need to forecast at the store level, not just a DCs. Put that together, and the traditional DC/DRP model may just no longer work.

With this new plan, Target is also reversing its IT strategy, in which most work was outsourced to third parties in the US and overseas, especially India, and there was heavy reliance on packaged applications from software vendors.

Now, McNamara told CIO, Target is bringing in-house most of the 65% of its technology capabilities that were being outsourced, and moving to much more in-house custom code development.

McNamara says that change is necessary so that it can analyze its supply chain for sales and customer trends and better allocate resources across the enterprise.

"The world of packaged software just doesn't serve big businesses well," he says. "We're recruiting engineering talent as fast as we can and replacing third parties.”

That is a very interesting take that clearly moves away from the general trend towards package apps over the past 20 years. Part of a broader trend? We will have to wait and see.


What are your thoughts on Target's new IT strategies? Is the traditional, linear supply chain/DRP model dead in retail? Are you surpsied or not Target is going now with mostly in-house development? Let us know your thoughts at the Feedback section below or the link above to send an email.

 

Your Comments/Feedback

Darryl Landvater

Product Director, JDA
Posted on: Mar, 23 2016
Yes, the DC/DRP model is dead. 

The store-level DRP model where the extended supply chain including stores, DCs. vendors, and other locations is very much alive and is both tested and proven in retail. 

All trading partners are linked together with clear visibility upstream and downstream. Changes are communicated daily or more frequently. The planning horizon extends a year into the future. 

 

Steve Kohler

CEO, iwoorx.com
Posted on: Mar, 24 2016
No question here.  If an application is central to the business mission of a
company, that company must own it own code.  Did Amazon buy packaged
applications?  I think NOT.


Mike Doherty

Vice President, Demand Clarity Inc.
Posted on: Mar, 28 2016
I applaud Mr. McNamara and his vision for a totally connected retail supply chain.  He is right, the traditional DC-level DRP model is dead, or dying.  Instead it will be replaced with Flowcasting - a completely connected supply chain where all partners are driven by a forecast of consumer demand and work to a common plan and a single set of numbers.

How am I so sure?  Because one of our Canadian retail clients, Princess Auto, has recently completed the implementation of the Flowcasting model and are managing their entire business to a single set of numbers.  Like Target envisions, they can plan and satisfy consumer demand from anywhere they need because their planning process starts with the consumer - regardless of channel.

An excellent article, Dan, and again, I applaud Target and Mr. McNamara on their vision.

Regards,
Mike Doherty
Co-author, Flowcasting the Retail Supply Chain

Mike Doherty

Vice President, Demand Clarity
Posted on: Mar, 31 2016

In an omni-channel retail world the entire supply chain needs to be in the system because vendors can ship to the stores, DCs, depots, fulfillment centers, and so on.

So, a DC-level DRP system will not do the job.

I suspect we both agree on that.

If so, then the logical solution would be a store-level DRP system which also includes the DCs, depots, fulfillment centers and so on. This way, everything is in the system and a model of the business exists from the final point of sale all the way back to the vendors, and possibly further back to raw material suppliers if the vendors have DRP/MRP systems. Forecasts, planned shipments, financial plans, transportation plans, and capacity plans exist for this fully integrated supply chain, everyone has up-to-date, clear and undistorted visibility, and everyone is working to a common set of plans.

Do we agree on this?

If so, then the next question is does it make sense for Target to create their own store-level system?

The success of these systems is mostly a function of the people side of the business - changing the process and behaviors and we have lots to share in this regard, as does our client. But you also need to have software which can do the job.

There is nothing preventing a company like Target from changing their processes, and the process changes are tested and proven.

So, could a retailer as large as Target create store-level DRP software? If so, what would it cost? Would it be less than what many retailers are spending to implement a package

 

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