Target recently announced new, stricter rules for its suppliers in an effort to increase efficiency and reliability in its supply chain. The big box retailer has been plagued with supply chain snafus leading to empty shelves and missed sales. This has made it more difficult for Target to compete with major rivals Walmart and Amazon and Target’s new rules resemble the tight guidelines for suppliers that Walmart put in place last year.
The new policy at Target eliminates its previous 2-12 day grace period for shipment arrival and increased late fees to around 5 percent of the order value. In addition, suppliers who don’t provide complete and accurate product information can be fined as much as $5,000-10,000. Unfortunately, the new policy is all stick and no carrot, with no incentives offered to suppliers who deliver reliably.
Related Article: 6 Inventory Management Best Practices
While the new policies are strict and uncompromising, and may not be the best way to build the vendor-customer relationship, in today’s competitive environment retailers are at the mercy of their slowest suppliers and as a result can be demanding. For Target, “these steps are a key part of becoming more reliable,” John Mulligan, the company’s COO, told Reuters.
The rules apply to domestic suppliers only, for now, and require that suppliers give a “single-day arrival date for shipments.” Achieving that kind of delivery standard means suppliers need to have an advanced inventory management system. Yet one supplier told Reuters that the cost to create systems is being placed entirely on the supplier.
Last year, Walmart also announced a new set of guidelines for its suppliers that included stiff penalties. Walmart raised its standard for on-time delivery from 90 percent to 95 percent and it also cut the window for deliveries from 1-4 days to 1-2 days. Suppliers have not been pleased with the changes.
“This change in policy puts the costs of carrying products more on the supplier’s shoulders.” Kai Clarke, CEO of American Retail Consultants explained of the Walmart rules to RetailDive.
Whether working with a big box retailer like Target or Walmart or trying to manage the inventory in your own retail business, being reliable is critical for any business, no matter where you are in the supply chain. And to be reliable getting inventory right is crucial. Barcode based inventory management systems can provide a cost-effective way to do so and help you develop a better supplier-customer relationship.
Getting Inventory Shipments Right With Barcodes
The ability to ship inventory in a specific time-frame, like a one-day delivery window, means you need to be able track and monitor it effectively and efficiently. Ultimately, this kind of inventory management is about information management, and to manage information you need to be able to gather it, access it, analyze it, and act on it. Automatic identification (Auto ID) technologies have become critical tools for this kind of data gathering, according to a recent Deloitte report.
Auto ID technologies includes a wide range of tools systems, from point-of-sale to GPS, to gather data about inventory. Barcode inventory management systems are one of the most effective and efficient auto ID technologies and are easy to implement and scale. Of critical importance, barcode systems provide data in real-time and in a way that can be easily analyzed.
“The best decision-making is driven by feedback on events as or before – not after – they occur,” John Hill, a director at The St. Onge Company, told Deloitte. “Automatic identification, wearable and mobile technology, and cloud-based systems provide the real-time visibility into the dynamics of actual operations that companies must have for world-class supply chain decision-making and management.”
Gathering data is the first step to inventory management and a streamlined supply chain. Traditional methods of inventory data collection used pen and paper or Excel spreadsheets where information was entered manually. This is a big mistake.
Auto ID technology, like Wasp Barcode’s Inventory Management system, uses barcode scanners to automatically enter information, eliminating human error and vastly reducing data entry time. For coordinating complicated shipping schedules with large amounts of inventory time can’t be wasted entering inventory data by hand.
Barcodes also can contain a large range of inventory data so using it doesn’t just capture location, but time, contents, and important product details that retailers like Target and Walmart often require.
The information is no good if it can’t be accessed by important decision makers and cross-functional teams. In the past it wasn’t uncommon for inventory data to be tracked in a simple Excel spreadsheet accessible to one person. That doesn’t work today.
Limiting access to one person, or one person at a time, dangerously increases the risk of fraud, but more importantly it isn’t usable or functional for the company as a whole. The warehouse manager isn’t the only person who needs to keep track of inventory in today’s interconnected world, logistics and shipping teams, production, sales, and marketing teams also can often benefit from access.
Using a barcode inventory management system allows multiple users to access a database that is updated in real-time. Users and their activity can be tracked and collaboration between teams and even suppliers and customers can be enhanced with the easily shareable information. Creating an accessible, real-time database makes coordinating shipping schedules and delivery is much easier.
Among the new requirements from Target and Walmart are product details provided on delivery. Using a barcode system will ensure you have all relevant product details on hand in an accessible format for your customers, whether they are a big box retailer or a small business.
Real-time data is necessary for making prompt decisions in a fast paced business environment, but in the long haul data gathering is valuable for the analysis of trends and systems and the ability to forecast future events.
Auto ID technologies, like barcodes, allow users to identify historical trends in the data they gather and this can often be used to identify points of friction and increase efficiency. An automated inventory management system will capture lots of useful information to analyze, just make sure you don’t get lost in the data.
Finally, information and analysis is only valuable when it is turned into action. For example, Target’s goal is to be a more efficient retailer, meaning it holds less inventory on hand in its warehouses. To do so it needs suppliers who can meet reliable shipping deadlines. If suppliers can analyze their data and identify ways to ensure inventory is on hand when the retail giant needs it they can move it quickly.
The Right Way To Build Supplier-Customer Relationships
The customer is always right…except when they aren’t. While Target, Walmart, and any customer should expect reliable, timely delivery, many analysts think the strict approach the big retailers are taking is counterproductive in the long term.
Dr. Karl Manrodt, Professor of Logistics at Georgia College and State University, an expert on buyer-supplier relationships believes collaboration and incentives are the better approach. He explained to Forbes, “Using penalties definitely works, in the short term. But it is myopic and ineffective in the long term.”
As a supplier it is important to use the best technology to manage your inventory and ensure reliable products and delivery. On the customer end, penalties are an important tool for compliance and to recoup losses when delays occur, but they need to be reasonable, and often if you are going to use penalties it is helpful to offer incentives and rewards as well.
“Suppliers have to make both short term and long term choices about how to best relate to a customer in order to meet its demand,” Dr. Chad Autry, the William J. Taylor Professor of Supply Chain Management at the University of Tennessee at Knoxville, also an advocate for collaboration told the publication. “Does it make sense to spend the extra money to meet a service level and prevent a penalty if that concession is going to cost the supplier more down the road in terms of excess inventory, more expedited fees, or more overtime costs? It really boils down to a math problem, and usually, the short-term approach becomes the most expensive in the longer-term. The best companies realize that by working collaboratively and transparently with their suppliers in the short term – even at terms that would seem less advantageous from a revenue perspective at first – they can make greater long-term profits. Supplier performance management is an important component, but it’s only one part of the larger picture.”
Using effective inventory management to be a reliable supplier and to work collaboratively with your buyer is best practice, whether it is a requirement from the buyer or not.