Product lead time should only dictate the amount kept at the DCs. Most stores have a truck schedule where as long as product is at the DC, the lead time is only a day or two once the stock drops below the amount necessary for replenishment. It is far more efficient for a pallet of a certain DPCI to be held in storage in 1 spot at the DC and sent out as necessary to the stores than it is to blast dozens of stores with it at once whether they need it or not.
For most product in most stores, it should be as simple as "when o/h drops below max capacity - case size + projected sales until product arrives at store, then ship". For example, a case of deodorant carries 6 eaches and the floor capacity is 12. If I have 12 on hand and sell 4 and the item is forecasted to sell another 2 by the next time I can get it on the truck, then send it. Since we get a truck daily, it's not likely I'm going to sell the other 8 before it comes in. If I was a low volume store, the chance of selling the rest is even lower.
Contrast this with a real life example of our current system. I received 30 bikes of just 1 DPCI during the holiday season. Ok, it's the holidays and it's going in the ad. It's a little ambitious as we've never sold that many of that particular bike before in previous seasons but whatever. Our bike builder makes sure to display them prominently and...only slightly more sales than usual. Than we find out we're the only store in our district to even receive them. A major metroplex and 1 store gets 30 ad bikes and everyone else has to tell prospective buyers to drive to us?
As a result, we sold about half of them and it took the entire following year to sell the rest (while still getting them in from the DC). How many bikes would have been sold if they had allocated the available stock in a way that wasn't stupid? How many people said "screw driving halfway across the city, I'll just get a bike from Wal-Mart instead"?
After 20 years at Target, I call bullshit on that. I have seen literally hundreds, if not thousands of examples to the contrary.
The absolute worst example I can think of is canned vegetables at my store. One year, we received 4 pallets of assorted canned Del-Monte for the holidays. That by itself is no big deal, it's the holiday season and we can expect to sell those. In the latter half of the season, they kept coming in and replenishing those sales and we still had 3 pallets total by the end of January. That by itself should be no big deal. Using a replenishment system that wasn't retarded, we should be able to make sure our o/h counts stayed up to date and sell through them eventually without further replenishment from the DC. After all, if you have literally 1500 cans of cut green beans in location and the o/h is accurate, obviously the system should take that into account right?
Nope. They kept fucking coming in all year; faster than we could sell them. By the next holiday season, we had 4 pallets of vegetables in location and received another 4 for the holiday allocation. We had tried multiple times to sweep them back but couldn't. Since they came in as palletized assortments, they didn't come with the original plastic wrap that the casepacks do. They came in as loose traypacks arranged on the pallet which was then shrink-wrapped. Since sweeps required all original case packaging, they got sent right back. It took our regional VP showing up and actually looking in the backroom for more than 30 seconds to make it stop.
The problem we have at Target is that our
Inventory Management System (IMS) does not work nor does it match our current business model. Our DC's are set up to supply the stores in cycles, not as we sell or what is known as JIT. That's why we were set up to maximize case quantities with back stock quantities sufficient enough to cover the turn around time for the next receiving cycle. The only exception are master pack items and broken case quantities. This is where our re-packs come into play.
So the problem we all face is the demand forecast vs. actual sales along with the supply chain life. If the forecast demand tells us that bikes are the hot item, well you know what happens. The window is small and if they don't sell, they don't sell. The supply chain orders and release have dates which the bikes are to be released throughout the supply chain with the last ship dates.
Take for instance our import warehouses and how they are used to buffer quantities so as not to overwhelm the Target Supply Chain prior to transition. Most likely those bikes came in containers and were sorted to according to which DC until they had sufficient quantities to be released or held until the release date. .
Once they meet the requirements to release, they literally start emptying out the Import DC's so they can bring in the next wave of imports sort/hold. The DC's in turn released them to the stores as to what the order quantities stated for the time period of the release to the particular store. Once again, whether we're selling that merchandise or not, it's on the way.
The same thing exist with PFresh and all of its supply chain cycles. It's been ordered and we are all going to accept it.
What we don't see or not made aware of is our sales forecast on individual items per whatever our sales cycle time is for that item. The purchases are made far in advance (about a year or so) and once ordered are coming in whether we're selling it or not. The problem is that we order such large quantities that if you cancel or reduce an order, the unit price goes up substantially or you pay for it whether you take it or not. So to maintain margin we accept the orders like everyone else in retail.
This past year there was a push to move out inventory faster. The problem is that we cannot handle surges like that. There is no buffer area at the store level unless you bring in outside storage.
I'll give you an example of how far off the mark we are currently. Home Depot has NO shelves in their DC's. It is literally a through put operation that distributes all incoming freight to all of the stores that DC serves. Each aisle or bulk location arrives at the store on pallet ready to go to a location. It's all unloaded and rinse and repeat the next cycle. Their process matches their business model. Ours does not.
Other retail DC's that ship JIT are set up to pick pack store orders like a wholesale distribution hub. Ours is not set up for "eaches".
Modernization will never work correctly until we update our IMS and DC's to match our new business model. Canada was "the canary in the coal mine" when it came to how dysfunctional our supply chain model operates. We simply could not recreate it. Why? Because we are not efficient.