Target Operations Management: Forces, Trends, and Strategy

Forces Shaping Operations Management

Operations management at Target has been driven by two main forces: competitive forces and technological change. The two work in concert with one another, so it is necessary to understand both. First, competition in Target's industry is highly intense. The company is positioned as a mass-market retailer, offering a wide range of goods through an omnichannel strategy. Its most critical competitor is Walmart, but in reality Target competes with a broad array of retailers. If a consumer wants groceries, clothing, cosmetics, or kitchen supplies, they could shop at Target or Walmart, at any of dozens of other stores, or online. In that sense, competition is intense. Target competes as something of a cost leader — though it has positioned itself a step above the absolute cheapest stores, offering better value while still remaining competitively priced versus most mass-market outlets.

In order to compete at this level, Target needs to move goods through its system quickly and efficiently. It makes its money on volume rather than margin, so high throughput and tight cost controls are essential for consistent profitability. Maintaining competitive positioning is also important. If costs drift too high, the merchandise strategy and in-store experience become misaligned with pricing — or the company becomes unprofitable. Keeping costs under control, however, is a tremendous challenge given the expertise with which competitors like Walmart and Costco execute that task. When compared with higher-end retailers, or Amazon, Target must undercut those companies to attract business. All of this means that Target is under significant competitive pressure to execute a highly efficient supply chain strategy and control costs across the board.

The second major force on operations management is technology. Target's competitors understand that technology is a source of significant productivity gains — primarily because any high-volume business can achieve major cost savings with every incremental improvement. If Target saves a quarter of a cent on every item it sells, that translates into extraordinary cost savings given that the company sells millions of individual items per day. Any firm that relies on supply chain efficiency for competitive advantage, or even just as a core competency, inevitably depends on technology to drive operations.

A number of technological advancements have proven especially useful in recent years. One is demand forecasting. Target's ability to proactively gauge consumer demand increases throughput at its stores and reduces inventory holding costs. Furthermore, demand forecasting makes it easier for Target to sell a greater percentage of merchandise at full price, rather than discounting items for quick sale. Another advancement is software that tracks each piece of inventory as it moves through the system. This granular level of information allows management to make adjustments more quickly when needed. For example, if a snowstorm is predicted in Seattle and there is a surplus of snow shovels in Boise, Target can redeploy those shovels to Seattle before the storm arrives. Thousands of decisions of this kind can be made daily, based on granular data. Many of these decisions regarding the flow of goods can now be made in an automated way, further saving time. Fully automated warehouses are another means by which a company like Target can reduce costs and increase supply chain efficiency, though all of these technologies require significant investment.

References

Bhattacharyya, S. (2018). Cost of doing business: Target's e-commerce sales growth means higher logistics costs. Digiday UK. Retrieved April 1, 2019 from https://digiday.com/retail/target-e-commerce-sales-growth-higher-logistics-costs/

Lopez, E. (2018). Why 2018 is the year of modernization for Target. Supply Chain Dive. Retrieved April 1, 2019 from https://www.supplychaindive.com/news/data-target-optimizes-supply-chain-inventory-logic/524971/

Target. (2017). Investing to grow: Target commits more than $7 billion to adapt to rapidly evolving guest preferences. Target.com. Retrieved April 1, 2019 from https://corporate.target.com/article/2017/02/financial-community-meeting