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 The sixth-largest U.S. retailer by sales plans to tighten deadlines
for deliveries to its warehouses, hike fines for late deliveries,
and could institute penalties of up to $10,000 for inaccuracies in
product information, according to a letter sent to suppliers and
obtained by Reuters and an interview with Target's chief operating
officer John Mulligan.
The moves, effective May 30, are the first major steps Target has
taken since Mulligan was appointed as COO late in 2015 to fix supply
problems that emerged after it expanded product offerings, including
fresh food, several years ago.
A tighter grip on its deliveries is seen as crucial to keeping
shelves stocked, maximizing sales and controlling costs. Target has
already announced an investment of over $5 billion in supply chain
and technology infrastructure between 2015-2017.
Mulligan told Reuters in an interview on Monday that the company
aims to include suppliers in the effort.
"These steps are a key part of becoming more reliable," Mulligan
said.
The new rules and penalties are detailed in a letter sent to
suppliers. They will start to take effect at the end of the month
and will be rolled out over the next 60-90 days.
In the letter, Target said the goal was to keep products stocked to
"lower missed sales for all of us."
Mulligan and Chief Executive Brian Cornell met over 200 suppliers
recently to talk through the changes. He described the discussion as
productive.
"We had a very long question-and-answer session," Mulligan said.
"Obviously there were concerns, so we listened to those and we feel
very good with where we are going with our vendor partners."
Next on his list for improvements is Target's international supply
chain, and he has already started holding talks with vendors who
import products to the Unites States, Mulligan said.
Target is not the first large retailer to focus on supply chain
precision. At an annual vendor conference in February, Wal-Mart
informed suppliers that it was raising its standard for on-time
delivery to 95 percent from 90 percent, according to a Wal-Mart
presentation slide posted on a Facebook group and confirmed by
several suppliers. Wal-Mart is also cutting the window for
deliveries to within 1 to 2 days of a target date, depending on the
product category, from 1 to 4 days previously, the Wal-Mart slide
showed. A spokesman for the company declined to comment on the
changes.
NEW RULES
Target's supply chain became more complex several years ago when it
expanded its offering of perishable goods such as meat, fresh
produce and dairy products.
Further complications came when the retailer started catering to
online shoppers by shipping orders directly from warehouses and also
allowing them to pick up online orders in stores.
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Amy Koo, principal analyst with Kantar Retail said the new changes
mean Target can hold less inventory, which is key to being an
efficient retailer. "In theory, everything can move faster, and they
will have less stuff in the system."
Target's stores nationwide in 2015 had 8 to 9 billion items on store
floors, in transit or in warehouses at any given point.
The new rules, detailed in the letter, call for domestic suppliers
to give a single-day arrival date for shipments to Target's
warehouses. Domestic suppliers constitute the majority of Target's
vendor base.
These suppliers will no longer have a "grace period" to ship a few
days after the promised date without penalties, the letter says.
Suppliers said the current grace period for shipments is two to 12
days depending on product category.
A packaged foods supplier who ships products to Target's warehouses
said the cost of narrowing the delivery window to a single day will
be "entirely ours, and they won't share any of that."
Target will also hike fines on late shipments to 5 percent of the
order cost, according to the letter, which adds that the retailer is
considering "escalating charges of $5,000-$10,000" for suppliers who
fail to provide complete and accurate product information.
Currently, late fines range between 1-3 percent depending on the
product, according to suppliers.
Mulligan said Target will be flexible with suppliers during an
adjustment period.
The retailer, which operates 1,800 stores and 40 U.S. warehouses,
will roll out the proposed changes over the summer, the letter says.
Household, paper, pet products and center-store grocery suppliers
have to comply with the rules in June; health and beauty vendors in
July and divisions including apparel, home and electronics in
August.
(Reporting by Nandita Bose in Chicago; Editing by Jo Winterbottom
and Edward Tobin)
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