Ask Target's Chief Supply Chain and Logistics Officer Arthur Valdez Jr. to sum up the retailer's supply-chain journey since he joined the company in 2016, and he'll answer in two words: "One inventory."
A unified inventory strategy is the "anchor" and the "catalyst" for Target's unique, and so far successful, transition to store-centric omnichannel fulfillment, Valdez said at the virtual Council of Supply Chain Management Professionals Edge conference Sept. 22.
Intentionally fulfilling most e-commerce orders from stores as Target does (75% of digital sales in Q2) is a somewhat unique strategy in the retail world. But it has become less rare since the start of the coronavirus pandemic.
Restrictions on retail stores trapped inventory inside them, and retailers quickly adapted to keep inventory from losing relevance and to keep workers employed. But those without a unified inventory-management strategy — essentially one inventory-management and buying operation instead of separate operations for each delivery channel — will by now have realized the difficulty a divided strategy can bring. Target came to that realization years ago.
"If I was a buyer and I was a merchandiser with one product, I was buying for an in-store shopping experience, while maybe there was a digital buyer that was purchasing for the digital experience," Valdez described of the pre-transition strategy at Target. "We don't have that problem anymore."
Target adopted the unified strategy fairly early in the world of retail — the company has been shipping from stores since before Valdez came aboard in 2016. Rival Walmart recently joined its buying operations for digital and in-store inventory.
It took some relearning on the part of buyers and merchandisers, said Valdez — shifting buyer mindsets from just one type of customer experience to combining the two and broadening the types of demand for merchandisers to factor in. But it paid off in the long run.
Valdez called unified inventory an "unlocking moment" for Target's supply chain. Part of the reason is the influence the "one inventory" philosophy has on the rest of the business. The strategy had knock-on effects that shifted practices and priorities across the supply chain, including transportation.
A tightly managed, centralized inventory strategy depends on timely transportation. To fulfill e-commerce orders from stores, the stores have had to sacrifice back-of-house space, meaning the inventory flow into stores has to be space- and labor-efficient. The company has invested in custom technology that packs stores' replenishment orders in such a way that boxes can go directly from the loading dock to the aisles for unpacking. But that sort of precision means even more pressure on the trucks that deliver those boxes.
"Traditionally, transportation has been an opportunity to take cost out," Valdez said, adding that he is investing in transportation because the precise timing of deliveries is essential to Target's operations.
As a result, the financial metrics behind fulfillment are improving as a greater share of consumer purchases move online. In Q2, Target reported a 30% reduction in cost per online order YoY — a phenomenon Valdez said he expects to echo in the C-suite.
"Because of the logistics and supply-chain influence on the world today around speed and convenience and transportation and inventory management, and the algorithms associated with that, I expect that many more CEOs will be coming from the supply chain and logistics field over time," Valdez said.