By Kate Taylor / www.supplychain247.com / October 10th, 2015
The potential shift to relying on outside partners comes as Target pushes to revamp its food business with newer offerings and aims to get a bigger slice of online grocery sales, which will put new pressures on its food supply chain.
Target is seriously considering partnerships with outside companies to make the fresh food supply chain more reliable, Chief Operating Officer John Mulligan told Reuters.
Target’s grocery offerings recently evolved to include more fresh food.
However, as products shifted to meet customer demand for healthy and organic food, Mulligan says the supply chain became a patchwork system that is not fully reliable in many parts of the country.
In August, Target blamed its “incredibly complex supply chain” for understocked stores this year, reporting that in-store product levels had been getting worse over the last couple of quarters.
Understocking issues have further aggravated Target’s weak grocery sales over the last few years.
Groceries, fresh produce, meat, dairy, and other similar offerings need to be replenished 100 time or more every year. Any miscalculation or shortage from an outside distributor immediately impacts Target sales, as shelves remain unstocked.
As Target works to improve its grocery business, e-commerce has been a major concern, as Walmart and Amazon continue to surge ahead of the company.
Chief Operating Officer John Mulligan said his hope is to ultimately make Target competitive with rivals like Wal-Mart Stores Inc and Amazon.com Inc without following their capital-intensive strategy of rolling out multiple warehouses and distribution centers.
“We will not be building $200 million fulfillment centers all over the country, Target stores nationwide have some 8 to 9 billion items on store floors, in transit or in warehouses at any given time”
The company has tripled the number of stores from which it ships online orders directly, but acknowledges that implementing the strategy isn’t easy.
“The challenge of where you put inventory is going to be much more difficult in the future as we ship products from stores,” Mulligan said.
Related: Walmart Targets Amazon in Potentially Costly Distribution E-Commerce Battle
In September, the company partnered with Instacart to offer same-day delivery of groceries and other household items in select areas.
Target told investors in March that the company planned to spend $1 billion to improve its supply network and online sales tech.
Target has not yet provided any names of potential partners, or revealed a timeline of when it would announce its decision.
However, Reuters reports that analysts and consultants suggest that likely candidates might include Minneapolis-based retail chain SuperValu, North Carolina-based wholesale distributor MDI, and regional wholesale co-operatives including Affiliated Foods Midwest and Washington state-based URM Stores Inc.
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