Starting now, it’s no more Mr. Nice Target.
The discount retailer has tightened the reins on its suppliers in yet another effort to increase supply chain efficiency and compete with rivals like Walmart and Amazon.
As of May 30, domestic suppliers will face tightened delivery deadlines, they’ll no longer have the two- to 12-day grace period (category dependent) to ship goods late without penalties, and fines for inaccurate product information could reach as high as $10,000.
The crackdowns are Target’s first major moves since hiring John Mulligan as chief operating officer late last year to help fix its supply chain problems. The retailer also hired Arthur Valdez (previously Amazon’s vice president of operations, focused on supply chain expansion, who also did prior stints at Walmart and Kmart) as executive vice president, chief supply chain and logistics officer in February, reporting to Mulligan.
“While we’ve made significant progress in improving our operations, Target’s growth hinges on our ability to enhance the fundamental aspects of our business, starting with the supply chain,” Mulligan said in a previous statement. And part of enhancing the supply chain includes improving end-to-end processes so guests get seamless experience.
The stricter rules for suppliers are part of Target’s plan to achieve this necessary supply chain upgrade.
Having a tighter hold on its deliveries will be key to keeping shelves stocked, maximizing sales and controlling costs, according to Target.
In its 2015 annual report, Target stressed the significance of timely supplier deliveries.
“As we continue to add fulfillment capabilities or pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more challenging,” the report noted. “If our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks, delivery delays or increased delivery costs that could lead to lost sales and decreased guest confidence, and adversely affect our results of operations.”
In a letter to suppliers noting the changes, Target said the goal, in short, is to keep products stocked and lower missed sales, Reuters reported, and it also means they’ll be able to hold less inventory, the system won’t be clogged, and things will be able to get through the system more quickly and efficiently.
Now domestic suppliers will have to give a single-day arrival date for shipments bound for Target’s warehouses—and there won’t be any grace period. Fines for late shipments will jump to 5 percent of the cost of the order, up from 1 to 3 percent depending on the product.
Mulligan told Reuters Target will be flexible with suppliers during the “adjustment period.”
Target isn’t the first to tighten up restrictions on its suppliers. In February, Walmart told suppliers it was upping its on-time delivery standard from 90 percent to 95 percent, and cutting the delivery window to within one to two days of the target date.