Target Goes Local to Speed Up Order Deliveries

livemint.com:

One of the nation’s largest retailers has been making big changes to its distribution network using smaller warehouses. Target said its move to add regional hubs with specific roles to its supply chain over the past five years has helped pare its inventories, deliver online orders faster and speed up store replenishment. The Minneapolis-based merchant, like competitors Amazon.com and Walmart, has been trying to hold less inventory and trim shipping costs by placing goods closer to customers.

The strategy has also included fulfilling more online orders out of stores. The tactic marks a move away from mega-warehouses that ship e-commerce orders out nationwide from a central location, industry experts say. Using smaller warehouses to serve surrounding areas “makes your network more complex, but it allows you shorter distances and more flexibility," said Inna Kuznetsova, a logistics expert and chief executive of supply-chain software company ToolsGroup.

Kuznetsova said the tactic allows retailers to speed up deliveries by cutting down the distance goods must travel, while keeping costs down by using warehouses that are more efficient at handling large volumes of orders. Target said the changes to its supply chain helped it improve its in-stock inventory rates for the quarter ended July 29, even as it reported 17% lower inventory on its balance sheet than a year earlier. “By planning the business cautiously, by positioning with flexibility, and by the team reacting to some of the sales trends we saw in the quarter with urgency, we’ve been able to keep inventory really clean," said Michael Fiddelke, Target’s chief financial officer, on an earnings call Aug.