Target logistics refers to the process of planning, implementing and monitoring a smooth flow and storage of items, services and information from the source to the point of consumption.
Objectives of the target stores’ logistics process are to achieve the top rate customer service, incur the least cost possible, avail products to clients at the right time and adapt to constant market changes. Target stores logistics is the physical distribution channel. It entails the transfer of products from production sites to warehouses or distribution centers and retail stores. Target stores or retail stores should be located near consumers. However, distribution centers can be located in remote areas to cut down storage costs. Some firms have a central distribution center, while others have a series of regional distribution centers. The network and the number of retail stores vary, depending on how extensive a company is.
Target logistics operations can be subdivided into five categories namely:
- Forward and reverse logistics – this entails the product delivery from distribution centers, reverse logistics and store to store transfers.
- Target stores activities – the receiving process, physical counting of item, replenishment and stocking.
- Inventory management – stock optimization and loss prevention checks.
- Multichannel retail activities.
- Information management.
Distribution centers – are warehousing facilities that store and distribute products to target stores for consumers. A distribution center ensures a shorter delivery time than transferring items directly from manufacturers by trimming the turnaround time. Other benefits of distributing products through distribution centers include:
Avoid expiration – inventory can be managed and rotated to make sure that deliveries are made, based on the shelf life of items to prevent the expiration. This is a crucial factor for short or medium lasting products.
High security – distribution centers can closely track the supply chain custody in order to prevent a theft and introduction of the counterfeit inventory.
Lower cost – the reduced cost of items and transportation can be realized by having a central procurement and consolidating the necessary product deliveries. A large number of products can be consolidated into one shipment or delivery.
For example, administration costs and processes, such as customs clearance, are substantially reduced by delivering ARVs in one consignment, rather than a number of supplies from various vendors.
High quality of products – quality assurance checks can be regularly conducted at the distributions hubs. This ensures that only high standard products are transferred to target stores. The clients’ gratification is predominantly achieved by delivering superior quality products at the right time.
Distribution centers reduce the chance of having stock outs by having a buffer stock. This ensures the reliability, since clients will not have to wait for shipping to be done.
High storage capacity – some countries have a limited product storage capacity and, thus, cannot accommodate large shipments from international producers. A distribution center shifts the burden of storage to a close location, where products can be drawn in smaller packages as required.
Target Stores Logistics Process
The logistics infrastructure is composed of a distribution center that is interlinked with many target stores. Retail stores are normally located in metropolitan areas, such as towns and cities, which have the target population. Target stores differ in physical sizes and sales capacity. Some stores can be located in remote areas in some cases. City stores are larger and more stocked than rural target stores due to a higher demand of products. International organizations, like Wal-Mart and Target, have exceptionally many stores. Wal-Mart has more than 10,000 retail stores across the globe.
Tesco limited is the UK’s top rate food retailer with a turnover of more than €67 billion; the firm has about 2,100 stores in the USA, Ireland, central Europe and the Far East and over 2400 stores in the UK alone (“Distribution/Transportation,” n.d.). Wal-Mart has a total of 42 regional distribution centers in the US, measuring over 1 million square feet.
Since the adoption of the target stores’ logistic approach, Tesco’s number of stores has grown tremendously, and more returns have been realized.
One distribution center can supply products to 100 or more target stores. Communication is quite significant in ensuring that there is a synchronous flow of products at the least cost possible.
The purchase data is used to calculate the economic order quantity (EOQ) for the distribution centers and target stores. EOQ calculation helps to reduce the variable ordering costs and inventory holding costs. Holding costs include storage costs, taxes, obsolescence losses, theft, insurance costs and other administrative costs. EOQ determines the volume of items that is supplied to a distribution center. For the flexibility, distributions centers use the electronic data interchange (EDI) to place more orders on a timely basis. Apart from ensuring a smooth flow of information and products, EDI also results in the cost reduction.
The electronic exchange of the trade data enables a fast and spotless information exchange between suppliers and the distribution centers. Products are transferred to distribution centers using the most convenient modes like shipping and road transport. For the unrivaled synchronization, products are constantly moved to distribution centers. For instance, Wal-Mart has a fleet of about 6,500 tractors and 55, 000 trailers that roll 24/7 to ensure a timely delivery of products (“Distribution/Transportation,” n.d.).
A forecasting computer program and a supervised reorder (SRO) system handle the product delivery and stock replenishment. The software and SRO system work out the quantity of products needed at each target store, and then, a purchase order is placed.
The forecasting computer program obtains the point-of sale data and uses 3 years’ worth of these data to forecast sales for each stock keeping unit (SKU) independently on a daily basis. The basis of the forecast is the software package that makes changes to the estimates based on a particular day of the week, price deductions, seasonality factors and whether or not a particular SKU is placed in a weekly advert (Kerslake, 2005).
After the generation of a forecast, the SRO system uses the forecast and determines the right quantity of each product that should be transferred to a particular target store. For these computations to be effected, the SRO must know the amount of inventory on shelves, the shelves’ space allotment, points of re-order and the case size for every SKU. This data is fed into the system once and remains in the system till a manual change is done. The SRO determines the quantity of products that should be left on the shelves before the next delivery.
Target Stores’ Delivery Schedules
The number of weakly deliveries from a distribution center to a target store is determined by using the average sales volume in a week. Stores’ deliveries should be very frequent. Daily deliveries are the most preferred due to a number of reasons. To begin with, a decrease in time period between deliveries leads to a reduced demand over that time. Therefore, a high number of deliveries results to a high demand. For instance, the standard deviation of demand is reduced by a square root of four (two), when the time between deliveries is from four days to two days (Kerslake, 2005). A reduction in the variability of demand leads to the additional handling of products. A high frequency of the product delivery also reduces the occurrence of stock outs. More deliveries are preferred for target stores that have a limited product storage room.
Distribution center (DC) processes – a distribution center is usually centrally located apart from all the target stores. This helps to reduce the product shipment time and related transport costs. Inbound product shipments are obtained and put away throughout the day in distribution centers. DC operations involve the picking up stores’ orders, packaging products for each store into cases and loading items to trucks. Target stores’ orders are processed within the shortest time possible, and then, a timely delivery is made. Deliveries are picked and dispatched throughout the day. Some SKU’s are ordered and delivered more frequently than others depending on the market or demand.
Target stores can be classified into 3 categories, namely high volume stores, medium volume stores and low volume stores. The basis of the classification is the sales volumes and the average reordering data.
Computerization in the Target Stores’ Logistics Process
Electronic Data Interchange (EDI) is a technological tool that is used to facilitate logistics and form a more transparent economic process as shown in the figure below (Figure 2.0). A timely electronic transfer of the structured data between target stores and a distribution center can be easily realized through the use of EDI (“EDI in Procurement,” 2004). The merits of automatic exchange of the commercial information are exceptionally numerous. To begin with, EDI leads to cost saving due to the reduced paperwork and the associated administrative expenses. Procurement documents are transferred in a standard form without the element of human error. The conveyance of information between two points is very fast and convenient. EDI ensures a 24/7 service because computers are always connected at all the times.
Advancement of the Target Stores’ Logistics System
Simulation models can be built to determine the economic order quantities and the optimal delivery frequency for every target store. The model is designed to imitate a particular store’s replenishment procedures. The model is tested by comparing its response to the actual data obtained from the system. After a successful testing, the model should then be validated. Simulation models have been quite helpful to a number of organizations as they result in the least total costs and ensure a synchronous flow of products.
Challenges of Logistics at Target
- Poor infrastructure. Unsatisfactory integration of transport networks, computer technology and logistics facilities lead to high costs. A product delivery to target stores can be delayed as a result of poor roads and a lot of traffic in some regions.
- Poor training – an inadequately educated and poorly skilled work force results in the product transfer delay and unnecessary costs. The logistics sector, thus, becomes inefficient, of substandard quality and with a limited technological competence. The procurement and supply chain personnel should be highly innovative, learned and competent enough to realize the set logistical goals.
- High operational costs – these include high hiring costs and the increasing cost of training logistic staff members. Training is done to improve the efficiency in the procurement and storage processes.
- Regulations – different regulations are imposed by zonal, local and national bodies. The policy disparity hinders the establishment of national logistics networks.
- Poor storage facilities limit the efficiency of the target stores’ logistics operation. A poor product arrangement in warehouses can cause the unnecessary product delivery delays and expiration for perishable items.
- Extensive bureaucratic procedures and trade barriers, such as quotas and tariffs. Quotas limit the growth of logistic firms to new territories. Tariffs increase the overall cost incurred in the supply chain network. Many bureaucratic procedures discourage investors and lead to a wastage of the delivery time.
- Regional imbalances and high transport costs.
Target stores’ logistics process can lead to a reduced cost and the customers’ satisfaction if well managed. Profit margins can also contribute towards the growth and expansion. Good planning can be done to manage the challenges listed above and ensure an effective logistic infrastructure.