Over the past year, major retailers such as Walmart and Target have increased their focus on solving supply chain issues that severely impact inventory management. The biggest pain point (for customers) is not having merchandise in stock,” said John Mulligan, Target’s chief operating officer. Under Mulligan, Target’s efforts have begun to show signs of success, as the company has taken steps to put more product on the sales floor rather than in warehouses by redesigning its shelves.
Stockouts have long been a problem for retailers, becoming more acute with the complexity of e-commerce and the omnichannel user experience. Not only do they result in unhappy customers, but retailers can lose nearly half of planned purchases when customers encounter stockouts. For a $74 billion retailer, out-of-stocks can mean $3 billion per year in lost sales.
On May 4, Reuters reported on Target’s recent moves to crack down on its suppliers. In an effort to reduce out-of-stocks, prevent lost sales and optimize inventory, it has tightened delivery deadlines for warehouses, increased fines for late deliveries and introduced penalties of up to $10,000 for inaccurate product information.
“While stockouts are disappointing to customers and hurt a company’s bottom line, they point to a much bigger problem. Companies have been struggling lately to get a handle on the complexity of their supply chain as they respond to a significant shift in consumer buying behavior,” said Mary Holcomb, Gerald T. Niedert Supply Chain Fellow & Professor of Supply Chain Management, University of Tennessee. Target’s strategic move is logical to remain competitive and meet the dynamic needs of consumers. However, EDI technology, the industry’s legacy communications system, will prevent the company’s supplier network from meeting these precise delivery requirements.”
The most significant change is Target’s requirement for domestic suppliers to provide a one-day arrival date for deliveries to warehouses, eliminating the previous two- to 12-day deadline for deliveries. The major retailer also announced plans to raise penalties for late deliveries to 5 percent of the order cost if suppliers do not provide complete and accurate product information. Currently, penalties for late deliveries range from 1 to 3 percent, depending on the product, according to suppliers.
With EDI, which was developed in the 1940s and refined in the 1970s, data is transmitted in batches via timers. Information is stored and then forwarded without confirmation, just like a fax machine. This memory delay causes daily freight transactions, such as tracking a package, to take between 30 and 240 minutes.
Target suppliers using EDI are making business and transportation decisions based on outdated, inaccurate information. By eliminating the previous 2-12 day grace period offered to suppliers and replacing it with a one-day arrival period, suppliers no longer have the flexibility to rely on slow systems with erratic connectivity and fragmented data.
As a modern alternative to EDI, Web services APIs (application programming interfaces) enable instant communication that results in up-to-date and dynamic information that supply chains need to maximize performance and implement proactive strategies. For years, APIs have transformed other industries. project44, an industry-leading hub for connecting LTL carriers, shippers and third-party logistics providers, is reshaping transportation industry communications through API technology.
“With freight APIs, there are opportunities to improve supply chain operations and freight movement that would never be possible with transportation networks based on EDI or manual communication processes,” said Tommy Barnes, president of project44. Target’s suppliers using our API technology have a significant competitive advantage – lowering return on investment and reducing transportation failures. In a situation where most suppliers will stumble under new requirements, APIs improve the supplier scorecard and open the door to additional revenue opportunities and promotional partnerships with the retail giant.”