Target pressuring suppliers to enhance supply chain efficiency

The competition among retailers today is fierce. As digital technologies evolve and the market continues to grow and expand, even big-name companies are grappling with how to get a leg up over rivals.

In an exclusive report released today, Reuters revealed that Target Corp. is taking a number of measures to accelerate supply chain operations in a broader effort to keep pace with competitors Wal-Mart Stores Inc. and Inc. The brand, which is sixth in the country for retail sales, is investing billions of dollars to revamp its supply chain - turning much of its attention to its vendors.

New vendor rules set forth by Target
Reuters revealed that it obtained a letter transmitted from Target to suppliers indicating some of the negative ramifications they could incur for poor performance. For example, beginning May 30, the retailer will be creating stricter time frames for deliveries and increasing the required fees vendors have to pay if a delivery is late. Furthermore, the source added that if a supplier provides inaccurate information on items, it could be looking at a fine of $10,000.

These new standards are just some of the initiatives being implemented in Target's plan. Reuters explained that the retail corporation previously announced it would be spending at least $5 billion on technology and supply chain-related investments over the course of two years. Some of the primary driving forces behind accelerating delivery times include the need to maintain better levels of stock, drive revenue and improve cost management.

John Mulligan, who was named COO late last year, told Reuters in an interview on Monday that including suppliers in its restructuring and revamping efforts is entirely necessary and that "These steps are a key part of becoming more reliable."

In March of this year, at an annual investment meeting, Target Chief Executive Brian Cornell explained that the retailer's focus is on making sure its consumers have a seamless shopping experience.

"Every time we don't deliver, we're leaving sales on the table," Cornell said. "By getting the fundamentals right in our supply chain, stores and technology, we will unlock tremendous potential for growth in our business."

This week, Mulligan told Reuters that he and Cornell recently discussed the upcoming changes with more than 200 of its vendors. Mulligan indicated that they addressed many questions and concerns the suppliers had and took the time to be receptive to the opinions of Target's partners. 

How the new supply chain system will work 
Quickening supply chain operations can be a difficult endeavor within itself. But, for Target, achieving the goal has become increasingly complicated due to the expansion it made not too long ago to begin selling fresh produce, meat and other perishable food items, Reuters noted. Furthermore, the retail giant, like many other online sellers, has found it challenging to meet the growing needs of omnichannel purchasing and shipping.

Reuters reported that a "grace period" (typically anywhere between two to 12 days) for shipping will not be offered to Target vendors anymore; they will be expected to deliver shipments to the retailer's warehouses on the exact day they are scheduled for, otherwise they will have to pay a penalty fee. Kantar Retail Principal Analyst Amy Koo told the source that this efforts will result in less inventory the merchant will have to manage at any given time, ultimately enhancing its supply chain efficiency. 

"In theory, everything can move faster, and they will have less stuff in the system," Koo explained.

Target suppliers have been told that the late delivery fines, which are currently set at 1 to 3 percent of the cost of the order, will increase to 5 percent, according to Reuters. And while these changes do not officially take effect until the end of the month, Mulligan told the source that the discount retailer will allow a window of adjustment. 

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