Target's Operational Excellence Strategy Essay

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 an mass market retailer, with a wide range of goods and an omnichannel strategy. Its most critical competitor is Wal-Mart, but the reality is that Target competes with a wide range of retailers. If a person wants groceries, clothes, cosmetics or kitchen supplies, they could go to Target or Walmart, or any of dozens of other stores, or shop online. So in that sense, competition is intense. Target competes as something of a cost leader – it has actually positioned itself a step above cost leaders, as a company that offers better value than the goods at the absolute cheapest stores, but still a store that is competitively priced versus most mass market outlets, for whatever the good in question is.

In order to compete at this level, Target needs to be able to move goods through its system quickly and efficiently. It makes its money on volumes, not margin, so a high throughput and tight cost controls are essential for Target to be consistently profitable. Maintaining competitive positioning is also important for Target. If costs drift too high, then the merchandise strategy and in-store experience will be misaligned with the pricing. Either that or the company becomes unprofitable. Keeping costs under control, however, is a tremendous challenge given the expertise with which competitors like Wal-mart and Costco can perform that task. When compared with higher-end retailers, or Amazon for that matter, Target has to undercut those companies in order to attract business from them. All of this means that Target is under incredible competitive pressure to execute on a highly efficient supply chain strategy, and control costs elsewhere.

The second major force on operations management is technology. Target’s competitors understand that technology is a source of significant productivity gains. This is mainly because any high volume business can win major cost savings with every incremental gain. If Target saves a quarter of a cent on every item it sells, that ends up being incredible cost savings, given that Target 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 relies on technology to drive operations.

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

Obstacles and Issues

One of the major obstacles with respect to operations management in particular is the need for constant investment. In the past couple of decades, technology, especially on the supply chain side, has advanced rapidly. Where twenty years ago everything was done with paper manifests, and maybe a little bit of computer work, today there are fully automated warehouses. As the pace of change increased, the need for technology investment did as well. For Target, there will always be the decision of how much to invest in operations technology, and when. The sums can be quite substantial. For example, Target invested $7 billion in 2017, and then immediately followed up with more investment last year to address the consumer trend towards digital shopping (Target, 2017).

There are other issues that arise as well. For example, a move to more e-commerce had to be paired with two-day shipping in order for Target to remain competitive. That came with increased logistics costs, which naturally threatened the company’s margins and had it looking for savings elsewhere (Lopez, 2018), but management signed off on this because it…

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…in each class are produced. But ultimately, Target derives the most value from being a leader in the use of information. Walmart is traditionally renowned for its use of data and its supply chain innovation. At the very least, Target needs to benchmark against Walmart, and to a lesser extent Costco. For its e-commerce, it needs to benchmark against Amazon. Ideally, Target can be a leader in these fields, rather than a follower, but the trends in the use of data, especially the massive data sets that retailers collect, and in the resource side of supply chain management, are the main ones that should drive operations strategy for Target.

The trend, in general, is in using data, automation and robotics to generate ever-greater efficiencies. If Target can hold the line on pricing for a good over an extended period, that will reflect well on the company in the eyes of consumers. Because operations management is so critical to the company, it must be at the front end of these trends, right in line with its major competitors. Those competitors define what consumers want in terms of pricing, merchandising and customer service, and Target will always have to match the leaders in the field, or be the leader itself. The further the company falls behind, the more likely it is to lose market share, and ultimately that would challenge its ability to be profitable, given the high fixed costs associated with running its massive stores.

Thankfully, Target’s leadership fully understands this. The company has sought to be progressive is as many aspects of its business as possible, because that approach is a business imperative. This is why it has built a culture of constant change and improvement on the operations side – it has to in order to survive. If Target fails to make adequate investments in emerging technologies, or fails to hire the people who can execute on strategies in that domain, the less likely this company is to succeed in the long run. In fact, leadership is correct in assessing that it cannot afford to start to slip – it must maintain positive momentum at all times because negative momentum is something that could build and ultimately ruin the company, as happened to Kmart.

All told, Target is very much subject to trends, especially on the operations side. While people might think that fashion trends are important, the trends…