Supply Chain

Marc Wulfraat is president of MWPVL International, a supply chain and logistics consulting firm. He is based in . [email protected]

Shelf Stable Why Target’s Canadian distribution infrastructure has faced challenges over the past year by Marc Wulfraat

employ about 1,500 people and are out- sourced to a third-party logistics (3PL) firm called Eleven Points Logistics, which is an operating division of Genco. Target has also outsourced food distri- bution to , which supplies frozen food, dairy, and dry grocery products including national brands and Target’s private label products. The retailer has made strategic deci- sions to outsource these operational com- ponents of its business for its own reasons but suffice to say, outsourcing costs money. In the U.S., Target does not out- source its regional distribution centres to 3PLs and the company is in the process of

An empty shelf at moving towards self-distribution for gro- a Target Canada outlet cery merchandise. In addition, the travel distance from the he hype surrounding Target’s the peak Christmas season. DCs to the stores is also sub- acquisition of sent shock Furthermore, the empty shelves were stantially lower in the U.S. than it is in waves through the Canadian not restricted to one or two categories. Canada, while cost of fuel here is substan- T retail market-and for good rea- Almost every merchandise category was tially higher than in the U.S. son. In the United States, Target is a highly short of supply from apparel to perish- Finally, the cost of operating DCs respected retailer with an effective sup- able food. Clearly, behind the scenes is higher in Canada than in the U.S. porting logistics operations. there was a supply chain disaster unfold- Target operates 28,800 square feet of With such an excellent reputation ing, and unfortunately for Target Canada, distribution centre space per retail store south of the border, it’s no wonder Canadians were not impressed. in the U.S. versus 40,300 square feet of Canadian consumers had high expecta- While complaints about empty shelves distribution centre space per retail store tions in advance of Target’s arrival. But may be justified, the consumer perception in Canada. 2013 was a year best forgotten for Target that Target has higher prices in Canada Space costs money, and the only way Canada. In addition to experiencing the than in the U.S. is unfair. Prices here are to change this dynamic is to increase the largest credit card security breach in his- truly driven by marketplace dynamics. number of stores being serviced through tory, the company recently announced Quite simply, the cost to service retail the distribution centre. The typical Target hefty losses of US$941 million. In hind- stores in Canada is much higher com- RDC in the U.S. services 69 stores versus sight, these results were caused by multi- pared to the United States. This is due to 42 in Canada. This is why it is so impor- ple issues both real and perceived. the fact that Canada has a small popula- tant for retailers to leverage as much One very real and fundamental issue tion spread across a vast distance. volume as possible through their distri- Target struggled with all year was an In Canada, Target operates distribu- bution infrastructure. inability to keep store shelves stocked. At tion centres in Balzac, Alta., Milton, Ont., In short, Target’s supply chain issues are first, Target claimed consumer demand and Cornwall, Ont. In addition, there are real. When stores have near-empty was so overwhelming that they could not four offsite facilities to handle overflow shelves customers simply don’t spend keep up with demand. But the situation inventory and one national returns cen- money. As the old saying goes, you can’t sell persisted throughout the year and during tre. Target’s Canadian distribution centres from an empty cart. CG

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