BUSINESS PROBLEM SOLVING CASE How Supply Chain Management Problems Killed Target Canada Target is one of the world's most successful general systems would have to be able to calculate prices in merchandise retailers, with 1,795 retail store locations Canadian currency, which is worth about 75 percent and a powerful brand image as a fashion-forward dis- of a U.S. dollar, with the conversion rate constantly counter. It is not as big or far-flung as Walmart, with fluctuating. Canada also uses the metric system, so $70 billion in annual revenue compared with $485 the system would have to convert inches and feet into billion for Walmart, and all of its stores are located in centimeters and meters as well. Knowing the size the United States. (Walmart has 11,695 stores all over of an item and the size of packaging is essential for the world.) Target is very good at what it does and, stocking shelves and inventory management. Target's ideally, would to like to grow like Walmart. In 2011 it supply chain management and pricing software would decided to make its first foray into global expansion have to be modified to handle multiple measurement by opening up retail stores in Canada. That year systems and currencies. Adding to the complexity, Target acquired the leaseholds of 189 locations oper- products for Target's Canadian market might have ated by Hudson's Bay Company's Zellers discount different dimensions from those for the United States. chain for $1.8 billion, hoping to open Target stores in A box of shower curtain hooks for the U.S. market 124 of these sites by the end of 2013. This was a very might be 12 inches long but only 11 inches for ambitious and possibly unrealistic timetable. Canada, expressed in centimeters. In other words, Target opened its first Canadian stores in March internationalizing systems takes a great deal of work 2013. Target's expansion into Canada was highly antici- and planning, pated by consumers and feared by rivals, but it failed Target's U.S. operations used custom-built systems miserably. On January 15, 2015, Target Canada filed for ordering products from vendors, moving goods for bankruptcy protection, announcing that it would through warehouses, and stocking store shelves. These close all of its 133 Canadian stores, and began liqui- systems worked very well, and Target's IT staff and dating their inventory. All Target Canada stores were business end users were highly experienced in using closed by April 12, 2015. Some experts consider Target them. Target's management had to decide whether Canada a case study in what retailers should not do to customize these domestic systems so they could when they enter a new market. work abroad or move to completely new systems Target quickly moved to build three new gigantic for Canada. Because it would require considerable distribution centers in Canada. (A distribution center time and effort to internationalize these systems, is where all the products from thousands of vendors Target's management opted for a new ready-made are sorted and prepared for shipment to individual software package solution, thinking that it could be stores.) Unfortunately, Target Canada was unable to implemented faster, even if the company had little keep track of its products or make sure that the right experience actually using the new system. amounts of products were being ordered, stored, and SAP was selected because of its functionality in shipped. At first too few products were arriving at the enterprise resource planning (ERP) and supply distribution centers, leaving store shelves bare and chain management as well as capabilities for sup- Canadian customers empty-handed. Later the distribu- porting different languages and currencies. Data tion centers became overwhelmed with too much prod- on the products in Target's Canadian stores would uct. Target's information systems could not properly be fed from the SAP system to other systems to compute shelving locations. Target had the stock, but it forecast demand for products, manage its distri- was stuck in the distribution centers and store shelves bution centers, and replenish stock in the stores. still remained empty. Making matters worse, the retail Target hoped that eventually it could replace its store checkout system was unreliable and didn't process custom homegrown systems with SAP so that the transactions properly. And Target Canada also had entire company would have the same set of systems higher product prices and less product selection than worldwide. However, SAP implementations in large U.S. Target stores. Canadian sales never took off, and companies typically take a long time-often three Target had to end its business in Canada. to five years and many millions of dollars. Target How could this have happened? First, Target's wanted to go live with SAP in only two years. This business was geared to operating domestically in the was exceedingly, if not unrealistically, ambitious, United States. To operate in Canada, its information but management thought using consultants from 343 344 Part II: Key System Applications for the Digital Age Accenture who were highly experienced in SAP Adding to Target Canada's system woes, the point-of- implementations would speed things up. sale (POS) system was not working properly. Terminals In 2012, once Target began ordering items for its for cash payments took too long to boot up and some- pending Canadian launch, items sourced overseas times froze, items wouldn't scan, the self-checkout sta- with long lead times were stalled. Products weren't tions gave incorrect change, or the POS system would fitting into shipping containers as expected, and tariff not provide the correct price. Target Canada had pur- codes were missing or incomplete. Other items weren't chased POS software from an Israeli company called able to fit properly onto store shelves. The data used Retalix. Unlike SAP, Retalix is not an industry standard. by Target's supply chain software was full of flaws, It is believed that Target chose this software package and the system required correct data to function prop because of touted capabilities for processing payments erly and ensure products moved as anticipated Product on mobile devices. Target Canada didn't have time to dimensions were in inches, not centimeters, or entered replace this software and kept going with all these bugs. in the wrong order. Sometimes the wrong currency By fall of 2013, Target's three distribution centers was used. Important information was missing, and were overflowing with goods. Target had to rent addi- there were numerous typos. tional storage facilities to accommodate the inventory Target's rush to launch pressured suppliers to enter overflow, making it even more difficult to track down data quickly into SAP for roughly 75,000 different items. Target stores might end up with too much of products. The data had to either be imported from some products and too little of others. The auto-replen- other systems or entered from scratch. A record for a ishment system, which kept track of what a store had in single item might have dozens of fields to fill out, such stock, wasn't functioning properly, either. Target Can- as fields for the manufacturer, the model, the dimen- ada's system required data about the exact dimensions sions, the weight, and how many units can fit into a of every product and every shelf in order to calculate shipping case. Much of the data were entered incor- whether employees needed to fill an empty rack. Much rectly. Widths were entered instead of lengths, and of the data were still incorrect, so the system couldn't prices and item descriptions were entered incorrectly make accurate calculations. The auto-replenishment as well. Young merchandising assistants in charge of system performed so badly that Target shut off the obtaining the details from suppliers were often not system at its three test stores and had employees replen- experienced enough to challenge vendors on the accu- ish shelves manually. Auto-replenishment wasn't rein- racy of the product information they provided. Infor- stated until months later, mation in Target's system was estimated to be only There was another reason for the discrepancies 30 percent accurate, compared with an accuracy rate between what items appeared to be in stock at head- of 98 to 99 percent for similar data in U.S. firms. quarters and were actually missing from stores. Target It also turned out that Manhattan, the company's sof Canada's replenishment system had a feature to notify ware for running its warehouses, did not communicate distribution centers to ship more product when a store well with SAP. For example, an employee at headquar- ran out. Some of the business analysts responsible ters might have ordered 1,000 toothbrushes but mistak- for this function, however, were purposely turning it enly entered into SAP data that the shipment would be off. These business analysts were judged based on the packaged as 10 boxes of 100 toothbrushes each. But the percentage of their products that were in stock at any shipment might actually be configured differently as given time. When the auto-replenishment switch was four large packages containing 250 toothbrushes cach. turned off, the system wouldn't report an item as out Target's distribution system would treat this shipment as of stock, so the analyst's numbers would look good on if it didn't exist and couldn't process the information. It paper. To prevent further gaming the system, Target's would identify the shipment as a "problem area." These IT team built a tool that reported when the system was kinds of problems crop up at any warehouse, but at Tar- turned on or off and determined whether there was a get Canada, they occurred way too often. legitimate reason for it to be turned off (for example, if Target had purchased a sophisticated and highly an item was seasonal.) The analysts were denied access regarded system from JDA Software for supply chain to these controls forecasting and replenishment. However, this software In 2014 Target's IT staff was finally able to install an typically requires years of historical data before it can automatic verification tool to catch bad data before they provide accurate sales forecasts. Lacking such data could enter SAP. The system wouldn't allow a purchase to feed the system, Targets buying team instead used order to proceed until an employee entered product code wildly optimistic projections, which assumed Canadian data that were correct. The problem was that the verifi- store sales from the start would be as high as opera- cation tool was deployed too late. On January 15, 2015, tional stores in the United States even though Target Target Canada announced it was filing for bankruptcy Canada was not yet that well established. protection. The company had already spent $7 billion Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 345 on expanding into Canada and was not projected to show a profit until 2021 at the earliest. All of Target Canada's 133 stores were closed, and 17,600 employees lost their jobs. Sources: David Gewirtz, "Billion Dollar Mistake: How Inferior IT Killed Target Canada," ZDNet, February 11, 2016; Joe Castaldo, “The Last Days of Target," www.canadianbusiness.com, accessed April 10, 2017; www. target.com, accessed March 1, 2017; and Marc Wulfraat, "The Aftermath of Target Canada's Collapse," Canadian Grocer, March 10, 2015. CASE STUDY QUESTIONS 9-13 How important was supply chain management 9-15 How much of Target Canada's problems were for Target Canada? How did it relate to its technology based? Explain your answer. business model? Explain your answer. 9-16 How responsible was management for Target 9-14 Identify all the problems Target Canada Canada's problems? Explain your answer. encountered that prevented it from becoming 9-17 What things should Target Canada have done a successful retailer. What were the people, differently to be successful? organization, and technology factors that contributed to these problems?
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