Insights & Analysis, Inventory Management

How poor inventory management ruined Target Canada

BY Vera Lim 2 Mar, "16

In January 2015, Target Canada announced that it would be closing all 133 of its stores, only a year and 10 months after they opened in March 2013. In hindsight, it seems like their rapid expansion in Canada was overly ambitious, but it was in line with Target’s plan to expand as quickly as possible once it entered the Canadian market.

In their rush to open stores as quickly as possible, Target Canada assumed they could repeat the successes of Target U.S. This was apparent in their decision in 2011 to buy over the leases of 124 Zellers supermarkets, and to turn these into Target Canada stores by 2013. 

The compressed timeline forced Target Canada to put inexperienced staff in charge of managing a new inventory system different from the one used by the parent company. By doing this, they were setting the stage for an inventory management disaster of $5.4 billion.

Target_fail.jpgNow, we’ll be looking at the three of the biggest oversights by Target Canada, and how these contributed to its downfall.

  1. Lack of standardization

    Imagine products being unable to fit into shipping containers or store shelves. That’s what happened to Target Canada because they didn’t provide their newly hired merchandising assistants with guidelines on how to enter data for approximately 75,000 different products.

    If you’re running your own business, ensuring everything is standardized is a fundamental step for success. You’ve got to set up a workflow that dictates how data should be entered into the system, from dimensions, to currency, and even units of measurements.

    While these guidelines sound like  they should be common sense, Target Canada experienced data-entry errors like product dimensions being entered in the wrong unit of measurement (eg. inches instead of centimetres). Or entered in the wrong order (eg. height by length by width instead of length by width by height). Or even entered in the wrong currency.

    Ultimately, the sheer amount of incorrect data meant Target Canada’s system was only accurate about 30% of the time -- a far cry from the 98-99% accuracy of Target in the U.S.
  2.  Failed forecasting

    Target Canada was a victim of the parent’s company popularity.

    Basically, Target Canada ended up ordering way more products than they could sell, which led to overflowing distribution centers.  

    Since Target Canada did not have past years’ data to guide their purchasing decisions, they went with forecasts developed at the U.S. headquarters. Instead of seeing Target Canada as a new brand that needed to wrestle away market share from rival retailers, Target headquarters saw Target Canada stores as an extension of the stores in the U.S.

    Furthermore, vendors also provided Target Canada with overly-optimistic estimates due to the popularity of the brand.

    As a result, Target Canada ended up carrying too much inventory in stock, and this placed a massive strain on the company’s finances. Inventory control is important for a company to improve its cash flow, as the point of inventory control is to generate maximum profits with minimum inventory investment, and that’s where the Economic Order Quantity comes into play.
    EOQ_formula.png

    If your business is already up and running, referring to your past records will let you know your demand and your costs. If you’re a new business or are expanding to a new market, the key is to make estimates based on well-researched information.. Research your competitors and ask your vendors for quotes. Survey the buying patterns and behavior of the market. It’s better to overestimate your costs and underestimate your demands until you’ve got the numbers right.  
  3. Poor inventory managementPoor_Inventory_management.jpg

    Inventory management is all about getting the right amount of product, at the right price, at the right time, and in the right place. Of these, Target Canada got one thing right. They purchased their products at the right price.

    As seen above, Target Canada ordered too many products due to over optimistic forecasting. Also, because they failed to establish proper guidelines for entering data, there were instances of overseas shipments being held up because the products couldn’t fit into shipping containers as expected, or tariff codes were missing.  

    But perhaps where Target Canada really failed was in their ability to get their products into the right place at the right time. Consumers were encountering barely stocked stores while distribution centres were overflowing, and the existing software didn’t help. It indicated products were in stock even though the shelves were empty, and this exemplified the disconnect between the management and the actual store situation.

    In fact, all this happened because Target Canada chose a ready made solution over adapting their existing technology from the U.S. But the problem was that even though they chose top-of-the-line inventory management software, the staff at Target was unfamiliar with it.

    Choosing the right inventory management software is key to your business. After all, it stores all the information about your products. With inventory management software, you’ll be able to access accurate inventory information in real time whenever you need it.

    On top of that, the right inventory management software can provide you with the business intelligence you need to succeed. With business intelligence, you’ll always know your bestselling products, or how your sales are performing according to channel.

    If you’re trying to decide if a particular inventory management software suits your business, it’s always a good idea to sign up for a trial account.


This article was written with reference to THE LAST DAYS OF TARGET.

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See also:

5 lessons from the top 25 global supply chains of 2015

Out of stock problems? Walmart, Nike and Best Buy had them too, but here’s how you can do better

How does Santa Claus manage inventory: An eBook

     

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