Monday, February 29, 2016

TARGET CANADA, SUPPLY CHAIN AND SAP -- A MESS THAT LED TO LEAVING THE MARKET

February 24, 2016


A post-mortem of the massive supply chain failure of Target Canada – and how it might have been avoided



by Johan van der Merwe


Imagine empty shelves. Not totally bare, but with missing products here and there, accentuating the emptiness. Take a moment to imagine walking into a brand new store on its opening day – a store that has been heavily advertised for months – and finding empty shelves everywhere. Now take a moment to imagine you’re a corporate executive responsible for this, and imagine that feeling in the pit of your stomach when your customers start complaining about this on social media with messages like “How can I or anyone purchase if there is nothing left for me to buy?”. This was the unenviable position that Target Canada found itself in upon its not-so-grand opening in 2013. This story is unfortunately not one of redemption – Target Canada filed for bankruptcy protection in January 2015 and ended up shuttering all of the 133 stores it had opened by April that year. Its foray into Canada ended up costing Target, one of the US’s largest retail giants, about $7 billion according to Canadian Business (you can read their full analysis of the collapse here). There are many reasons why Target Canada failed, but this analysis is only about one of them: A problem that could have been avoided, and, if it had been, could possibly have saved Target’s Canadian venture. This failure comes down to one key question that every retailer hopes never to have to answer: Why were there empty shelves? Embed from Getty Images Between a rock and a hard place Target had reliable software running their retail supply chain in the US. This software was used to manage product orders from vendors, to monitor the transportation of products between the distribution warehouses and the Target stores, and to ensure that deliveries were made on time. This custom software was built internally and refined over time, helping Target grow into a $70 billion business at the time of the Canadian expansion. The problem with this proprietary software was that it was not set up to deal with any country outside the US. For example, it would have to be customized to work with the Canadian dollar, and even just to accept French language characters. It was a behemoth. Adapting it to the Canadian market would not be quick, and Target’s timeline in Canada was tight – very tight. This was the rock. The hard place was the other option – implementing existing third-party software. This software could be implemented faster for the Canadian market, but no one at Target had any experience with any third-party Enterprise Resource Planning (ERP) software. Target leaned towards the hard place and chose SAP, software that’s notoriously difficult to implement and to learn to use effectively – so much so that there’s a veritable cottage industry of SAP consultants that exist solely for the sake of helping companies implement and use SAP. Target Canada even hired a large consultancy, Accenture, to help speed up the process. But SAP is a lumbering giant, and the global retail world is filled with stories about the difficulties that companies have faced in integrating it, and the time it takes – the better part of a decade in some cases. Target Canada decided to integrate SAP within two years, the rationale being that it didn’t have any legacy data that needed to be ported, so it could start fresh. This is where the empty shelves began. SAP, a product which dates back to the 1970s, is big. Very big. And because of its size and complexity, it isn’t what we call ‘agile’. In other words, it doesn’t have the ability to adapt at short notice to changing conditions and processes. Changes inevitably arise with short timetables and new systems. Combined with the associated learning curve, the SAP implementation did not bode well. A high wire act with no net The problems foreshadowed by the tight timetable and SAP integration began in 2012, a year before the proposed opening. Some products from overseas weren’t fitting into shipping containers, thereby delaying shipments, and somehow products that did make it to Target’s new Canadian distribution centres could not be processed, or didn’t fit where they were supposed to go on store shelves. A series of “that’s not supposed to happen” problems quickly turned into a full-blown crisis. The reason was bad data. For each product that was stocked by Target, multiple information fields about that product – dozens, potentially – had to be entered into the company’s ERP software. For 75,000 products. On a very tight timetable. The data was riddled with mistakes. Incorrect information, missing fields, typos. Later estimates had it that only 30% of the product data at the time was accurate. The result was supply chain problems that took months to correct, and even then continued to haunt the new Canadian stores. How did it get so bad? The answer is that there were no measures in place to catch the bad data as it was forming – there was no safety net. SAP didn’t catch the problem because Target hadn’t built in the systems needed to flag potentially erroneous entries at that point. As a result, bad data was being rapidly added to the database, unchecked. The crisis was such that Target opted to shut down the entire merchandising division so that the merchandising team could manually go over every single line of data for every single product in order to ensure accuracy. They saw no other way to address this problem. The knock-on effect was empty shelves in stores, while products were piling up at distribution centres and warehouses. This became such a problem that Target Canada had to ironically resort to renting extra space to cope with the overflow at the distribution level. Meanwhile, the problems at distribution centres were causing chaos in the stores themselves. Many stores ended up with too much of one product and too little of another. Famously, at one point, Target Canada printed a flyer in which almost every item on its cover was out of stock. The problems were eventually fixed, and, slowly, the supply chain began functioning as it should. But by then the scale of the losses and the underestimation of supply and overestimation of demand were being fully realized. With Target Canada projected to only start turning a profit six years later, in 2021, Target made the decision to cut its losses and close up shop. Embed from Getty Images Lessons for retailers Target made a number of strategic missteps in laying the foundation of their supply chain in Canada. Here’s what you need to do to avoid making the same mistakes. 1. Use supply chain software that meets your schedule Target was on a very tight schedule to get its Canadian operations up and running. Switching to a system like SAP was simply strategically incompatible with their tight deadlines. One thing they could have done to mitigate this was to use additional software in conjunction with SAP. For example, JourneyApps can create mobile apps that facilitate accurate data entry and validation – all of which can integrate with SAP. 2. Use an agile solution Giant, legacy software takes a long time to implement, and once implemented is very difficult to change. This is simply incompatible with how many businesses operate today – especially those looking to break into new markets. Modern software, like the bespoke retail and supply chain apps that JourneyApps creates, is designed to be agile. It’s designed to take account of changing needs depending on usage, and changes can be made quickly and easily to meet those needs. 3. Ensure there’s a data quality safety net from Day 1 Supply chain management relies on data to function, and because so much of the process is now automated, the quality of that data is paramount. Target Canada is, if nothing else, a very scary story about what happens when bad data meets a complicated supply chain. Every app JourneyApps creates for our clients is consciously designed with data validation in mind. It’s implemented at the beginning as part of the complete solution our clients receive, and it’s designed for each of their specific needs. In the end, Target Canada failed for many reasons, not just because of supply chain problems. There was the initial real estate deal that necessitated the incredibly tight timeline. There was the implementation of incredibly complex software that no one had ever used before. There were the inexperienced people they hired to input product data. There were numerous missteps and mistakes along the way. There was the sheer scale of the project. Target Canada exists most importantly now as a cautionary tale. - See more at: http://journeyapps.com/blog/2016/02/24/a-post-mortem-of-the-massive-supply-chain-failure-of-target-canada/#sthash.Qx9D1BQ5.dpuf