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OM in the News: Target Tests Retail ‘Flow Center’ for Faster, Nimbler Distribution

May 20, 2018

The company hopes to send shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products.

“Target is testing a new distribution strategy aimed at speeding up its restocking and making the retailer more nimble as it competes with rivals like Amazon and Walmart”, reports The Wall Street Journal (May 15, 2018). The aim is to pare Target’s replenishment cycle from days to hours and reduce inventory at stores. The approach, now in pilot mode at a warehouse in N.J., also uses the same pool of inventory to replenish stores and fulfill online orders, a departure from Target’s existing supply chain.

Under the operation, through a “flow center,” the company sends shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products. That could mean shipping “five bottles of shampoo, a case of ketchup, two polo shirts on hangers and a pallet of water, all prepared to move out directly to the sales floor,” said the Supply Chain VP.

Target is also creating a new warehouse management system intended to better integrate its distribution and fulfillment operations, which now use separate systems. The logistics effort comes as Target is investing $7 billion in improvements as it adjusts to the changing consumer shopping patterns that have buffeted the retail world. The explosive growth of e-commerce has put a premium on rapid delivery to online buyers and pressured traditional retailers to make better use of their “big box”real estate.

Target has been expanding its use of stores to fulfill online orders, and nearly 70% of its online volume is handled by stores. With less inventory held at stores, “we can dedicate more room to digital fulfillment. Shipping more orders from our stores reduces our costs, while allowing us to move faster,” said the COO. Stores supported by the flow center have reduced back-room inventories “to a fraction of the norm.”

Classroom discussion questions:

  1. Describe Target’s existing and new distribution strategies.
  2. What is a “flow center?”
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