Target stores is getting a lot tougher with vendors relative to compliance, according to a story from the Reuters news service.
The new rules and penalties were detailed in a letter sent to suppliers. They will start to take effect at the end of the May 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."
Supply Chain Digest Says... |
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| With and planning and execution system, the retailer says that even now, when there is an out-of-stock, "it is almost always due to a supplier failure." |
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The new rules, detailed in the letter, call for domestic suppliers to meet a single-day arrival date for shipments to Target's warehouses. Domestic suppliers still constitute the majority of Target's vendor base.
Suppliers will no longer have a multi-day delivery window to ship a few days after the promised date without penalties, the letter says. Target suppliers currently have a delivery window of two to 12 days, depending on product category.
A packaged foods supplier who ships products to Target's distribution centers commented to Reuters that the cost of narrowing the delivery window to a single day will be "entirely ours, and they won't share any" of the resulting benefits.
Target is also hiking chargebacks on late shipments to a substantial 5% of the order cost, according to the letter. Currently, chargebacks for late shipments range between 1-3%, depending on the product category.
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Household, paper, pet products and center-store grocery suppliers have to comply with the rules in June, health and beauty vendors in July, and categories including apparel, home and electronics in August.
 What's more, Target is said to be considering "escalating charges of $5,000-$10,000" for vendors that fail to provide complete and accurate product information in their UPC catalogs.
The moves are among the first major steps Target has taken since John Mulligan was appointed as COO late in 2015 to fix supply problems that emerged after it expanded its product offerings, including fresh food, several years ago.
"These steps are a key part of becoming more reliable," Mulligan told Reuters.
Mulligan told Reuters in an interview on Monday that the company aims to include suppliers in the effort. He and CEO Brian Cornell met over 200 suppliers recently.
"Obviously there were concerns, so we listened to those and we feel very good with where we are going with our vendor partners," Mulligan said.
Next Target will be looking a tightening rules for international suppliers.
The moves at Target comes after rival Walmart made some similar changes to its rules earlier in 2016.
At an annual vendor conference in February, Walmart informed suppliers that it was raising its standard for on-time delivery to 95% from 90%, according to a Walmart presentation slide posted on a Facebook group and confirmed by several suppliers.
It 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.
Are retailers finally taking firm actions to reduce the tremendous amount of variability that has always characterized retail supply chains? It appears that way.
Interesting Notes from JDA Conference
Supply Chain Digest editor Dan Gilmore recently attended JDA software's 2016 user conference in Nashville, and at a special meeting of select customers from retail and consumer goods included some discussion related to vendor performance management.
One large regional grocery chain has a new mandate to achieve 100% in stocks in store. It already had very high service levels, but the new goal is literally zero out-of-stocks – a tall order indeed.
As you might imagine, a company manager said it really needs to make some significant changes in processes to reach to the goal. Can it really be done? More importantly, is it worth it? The answer to both those questions are open, but this is the new hard target.
With an integrated planning and execution system, the retailer says that even now, when there is an out-of-stock, "it is almost always due to a supplier failure." It notes that by leaning out its supply chain and really reducing inventory levels to a minimum, it is now more dependent on supplier performance for on-time and in-full than ever before.
Another primarily hard goods retailer interestingly noted that the company had moved in the last year to an "open-to-buy" concept, where merchants are basically given a budget for a given category that constrains their spending, with the obvious goal of reducing inventories.
But it is not working out nearly as well as expected. Why? Because if something is a hot seller, of course the buyer can purchase more from suppliers to take advantage of the opportunity. No retailer is going to constrain the spend to the original open-to-buy number and lose sales for the SKUs that are exceeding forecast. Meanwhile, the buyers have probably hit their open-to-buy maxes on other items. Interesting.
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