Target Corp.
Steven Gole
Josh Fitzpatrick
Mike Srock
11/22/2005
Dr. Golhar
BUS 375
Executive Summary
Target Corporation is an upscale discounter that provides high-quality, in-trend merchandise at attractive prices in clean, spacious and guest-friendly stores. In addition, Target operates an online business, www.Target.com. In 2004 Target had over 46 million in revenues making it a leader in the discount store market.
We took an approach of taking a detailed look at the corporation and reporting on its current situation. We did that by analyzing several factors such as their history, product offering, financial standing, and employee relations. We found that Target is striving for improvement which is shown by increasing revenues over the past five years. We also went into great detail analyzing inputs, processing, outputs, and flow units to better understand how they operate. By understanding them we determined products, capital, customers, and orders were important flow units.
We further analyzed their process activities to find how Target operates and the cost of providing merchandise to customers in that pattern that Target does. Upon analyzing we formulated problems in their process. Problems we noticed were the high level of inventory, and receiving processes. Through research we concluded our recommendations for improving their company and business. We suggest implementing some principles of just-in-time. Our results and recommendations shows a need for improvement but, that Target has situated itself compared to its competition in a better standing to be a leader in their market place for many years to come.
Table of Contents
Introduction………………………………………………………………..4
Inputs, Processes, Outputs…………………………………………………6
Flow Units………………………………………………………………….9
Identification and Analysis the Process Activities……………………………11
Measures of Performance for Product / Service and the Process.……….......14
Improving the Process…………………………………………………..….16
Conclusion…………………………………………………………….....…18
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References………………………………………………………………..…19
Appendix A: Unit Flow Diagram
Appendix B: System Diagram
Appendix C: Target (TGT) Stock Profile
Introduction
The Target Corporation is one of the few nationwide companies able to sum up their operation in three words: fast, fun and friendly. These words are brought to life within the corporation and form the backbone of the company philosophy. This ideology toward retail dates back to 1911 when the Dayton Dry Goods Store, parent company of Target Corp., was founded. The store soon renames itself The Dayton Company and in 1962 enters discount merchandising with the opening of its first Target Store. In 1967 Dayton Corporation has its first public offering of common stock and soon merges with The J.L. Hudson Company, forming the Dayton Hudson Corporation. Target quickly becomes the corporation’s number one revenue producer making its presence known in retailing throughout the 1970’s and 80’s. In 2000 the Dayton Hudson Corporation is renamed the Target Corporation. Today Target Corporation has 1,308 stores in 47 states, and employs more than 300,000 team members.
The Target Corporation consists of four core businesses that merge to create innovation in retailing. The largest of these is Target Sourcing Services/Associated Merchandising Corporation where they “travel the world to provide high quality, trend-right merchandise at a great value.” Second is Target Commercial Interiors which specializes in providing high quality goods and services for the office environment. Next is Target.com which offers guests an innovative approach to retail shopping over the internet. Last is Target Financial Services which offers a wide array of financial products including the Target line of credit, or the REDcard. Target made 1,157,000 from its financial services division in 2005.
Target consistently strives to delight their guests with a broad assortment of high quality merchandise that encompasses everything from designer apparel to toothpaste. The product line consists of everyday items such as laundry detergent and bath tissue as well as toys, electronics, food, designer clothing and furniture. The merchandise is primarily composed of product manufactured by quality vendor companies outside of Target. This variety allows them to be competitive in the retail market, especially against the retail giant Wal-Mart, which is Target Corporation’s number one competitor. Target maintains the title of number two in the retail business (Wal-Mart being number one by a great margin) with sales revenues of 46,839,000 dollars in 2004.
Inputs, Processes and Outputs
The Target Corporation receives the inputs needed to operate from its extensive network of vendor companies. Target works in partnership with the vendors to ensure timely delivery of the input products to one of the 23 distribution centers which it operates. Examples of input products are Oster kitchen appliances, Isaac Mizrahi home décor, Sony electronics, or Schwinn bicycles. Any merchandise product is considered an input product. The product received from the vendors is essentially the raw material that is processed through company operations.
Target maintains many other inputs that are necessary to function properly as a discount retailer. The company invests large quantities of capital into the upkeep of current facilities as well as the construction of new facilities. An example of this would be the very recent approval of the board to build 60 new stores with construction commencing in 2006. These facilities must be outfitted with the proper equipment and utilities in order to compete in the market. These inputs consist of computers, inventory databases and handheld digital scanner units for the stores. The distribution center in turn must be equipped with forklifts, inventory tracking systems and gigantic conveyor structures. Facilities are not able to operate without the last input resource, labor. Target must train new employees and supply continuing education to current employees all while providing a competitive wage and benefits.
The innovative process which Target implements within their distribution centers are a significant part of the corporation’s success. The process begins when the freight is received from the vendor companies. This function is performed by the inbound department. The freight is scanned with a digital scanner and is entered into the inventory system automatically. The system, which is connected with the system in the stores, breaks the freight down into two categories. The first category consists of freight that must be shipped directly to one of the stores and receives a “flow” label. The second category consists of freight that must be stored in reserve for future store requests and receives a “reserve” label. The “flow” label contains a barcode linking it to a specific Target store while the “reserve” label contains a barcode linking it to a specific location within the distribution center. After the freight is categorized it is staged on the receiving docks for the Warehousing department to transfer to the correct locations.
The Warehousing department proceeds to pick up the pallets of freight manually with forklifts and transports the freight to either the shipping depalletization area or the racks of the distribution center. The “flow” freight is dropped of at the shipping depalletization area where it is taken off the pallets and loaded onto the conveyor system that leads to the shipping wing. The “reserve” freight is stored in the racks of the warehouse which can be as high as three stories tall. Warehousing will receive notification through the inventory system as to when they should pull the “reserve” freight.
The freight eventually reaches the shipping wing where a high tech vision system scans the “flow” labels on the freight and diverts the product to the correct trailer. The trailers are manually loaded by the outbound department. When the trailers reach 100 percent capacity they are brought out into the warehouse yard to await transportation to the corresponding store.
The stores receive the freight in a way very similar to the distribution centers. The freight is scanned into the inventory system and is either placed in storage or on the sales floor. This point in the process is where the merchandise has complete it’s transformation into an output. The product is displayed on the store shelf until it is eventually sold. This transaction converts the product into sales revenue for the Target Corporation and completes the process.
Identification of Flow Units
A flow unit is characterized as a unit or set of units that undergoes change and is transformed. Target has several types of flow units depending on whom, where, and how a product is purchased. The four flow units used at Target are currency, customers, orders, and products.
Currency is the main flow unit in any Target transaction. Target must first purchase a product from a supplier. Currency leaves their account and they are delivered a product to their warehouses. Target then delivers that product to a respective Target, Super Target, or Target Greatland retail store. A customer then purchases the product with cash, credit, debit, or check. The cycle of currency is then complete when a store has received payment for an item or items. Like in every transaction, currency changes, thus making it the most important flow unit for Target.
Customers are a flow unit when they enter the store or online domain to purchase a product. Target is providing a service to them by providing all the products and amenities to serve their needs. A customer is a flow unit from the time they enter store property until there departure. Other than shopping, a customer is provided with service in the food court, pharmacy, and with general help and maintenance. When a customer comes to Target to shop they become a flow unit that customer service must cater to.
Orders for a product are another flow unit Target must plan for. They can come from within a physical store or from their website www.target.com. An order flow unit is from the receipt of an order to the delivery of the product. An order can be placed in Target store for future pick-up or to be delivered. Some products may be purchased in store and delivered by mail from the local target warehouse to the customer’s home. An item may also be out of stock and delivered to the store to be picked-up by the customer. When completing an online transaction a customer purchases a product from www.Target.com. The product is delivered by mail to the customer and the flow unit order is finished. Once an order is placed, it is processed, value is added, and the order is delivered then the flow unit is finished.
Finally, a product can be a flow unit. From the time it is delivered to Target warehouses, value is added by procedures it goes through. First, value is added by organizing products inside the warehouse. Second, shipping out to individual stores adds more value to the product. Finally, by stocking and maintaining the product even more value is added. The customer purchases the increasingly valued product to complete the product flow unit process.
Flow units deal with the most vital happenings in a company. This is no different for Target. If a problem were to occur than Target corporation would severely suffer.
Identification and Analysis of the Process Activities.
Target has a main goal to accomplish in their process, to provide their end user with the best possible product at the best possible value. Target has an established reputation with consumers that has allowed them to deliver the perfect balance of differentiation and value.
The process starts with their suppliers, this is vital to the company’s ability to delivery the kind of quality that their customers have come to expect. Vendor selection is very important when you are relying on someone else to keep up with Target’s standards of excellence. Target believes that in a business like theirs, in which they are dealing with thousands of vendors, careful vendor selection and education at the front end is the most effective way to see that their standards are met. Target Corporation works closely with its vendors to ensure that they understand how they work and how both companies can best work together for a productive relationship. Target ensures that the relationship will be productive by offering education programs to any vendor they do business with. A program is in place company-wide that requires vendors to be "Approved for Purchase." Vendors must understand and expressly agree to meet Target Corporation Terms of Engagement. Target Corporation is also committed to partnering with small businesses and suppliers who are certified as a minority or woman owned enterprise. In 2005 target paid vendors 1,421 million for merchandise. When dealing with such a large value amount it is imperative to have great relations with its suppliers, which Target demands.
Vendors also play a vital role in income receivable; cost of sales is partially offset by various forms of consideration earned from their vendors. Target Corporation receives this income by means of vendor-sponsored programs such as volume rebates, markdown allowances, promotions and advertising, and compliance programs. The cost of sales and administrative expenses in 2005 was 9,789 million.
Target stores take the merchandise from their vendors and deliver it to the consumer with quality and value at a reasonable price. Target Corporation designs their stores to be easy and intuitive to shop, with related departments conveniently placed next to each other and a “racetrack” central aisle, which creates a speedy flow to let the consumer get on their way. Target Corporation also works hard to make sure the consumers experience is consistently enjoyable, with a clean environment, friendly team members and feel-good details on all sides. For expenditures for property and equipment, Target paid 3,068 million in 2005.
Target Corporation believes in continuous improvement and innovation to make the customers shopping experience a good and efficient process. Target Corporation has a commitment to good design, which is abided by as a cornerstone philosophy through out the organization. By implementing both the previous philosophies Target Corporation has expressed them through two recent new additions to the Target way of consumer service.
The first of the two innovations is the Guest Call Buttons (pictured below) press one of these small boxes and a Target team member will respond within 60 seconds to track down an answer to your consumer problem.
The other innovative way Target Corporation has come to serve their customers is medically related it is called their ClearRxSM system (pictured below). This pharmacy innovation delivers your prescriptions in an easy-to-read, color-coded bottle, minimizing the chance of taking the wrong dose or of confusing medications between family members.
Both of the previous innovations have one goal they are trying to accomplish which is to serve the consumers in the best possible manner. The Guest Call buttons are so customers don’t have to wander the stores to find an employee to answer their question. The ClearRxSM system has the safety of not only of the consumer in mind, but the entire consumers’ family.
Target Corporation is working to provide the end user with not only a great product but a great experience in attaining the product. From the quality of their vendors, the quality of their stores, and the innovations they have created in helping the consumer.
Measures of performance for product/service and the process
When it comes to evaluating performance Target Corporation is second to none in evaluation. Target Corporation will accept nothing less than excellence out of all the different parts of their product/service process. From the vendors whom goods are supplied to the inner workings of your local Target store.
Vendors that have contracts with Target are thoroughly evaluated before an agreement is meet they must comply with all of the current laws before a contract is met. After a vendor is part of the Target Corporation they must comply with their Standards of Vendor Engagement and Target Corporation Conditions of Contract, which reserves the right to review a vendor’s practices – including unannounced, on-site inspections of facilities. Money is also a major issue with vendors where as some contracts may result in income for the Target Corporation. This is evaluated and measured based on provisions of the program in place, by computing the estimated point at which they have completed their performance under the agreement and the amount is earned.
Target Corporation implements the same design and store layout in a large majority of their stores only special circumstances such as lot space may change the interior design. All stores are evaluated on a regular basis to make sure they are not falling behind the other store trends.
Target Corporation is also a firm believer in continuous improvement and innovation. They are constantly reevaluating themselves to make sure they are staying in stride with technology and their competitors. Target believes they must stay on the cusp of the newest revelations in consumer service in order to stay competitive in their market.
Below is a list of Rewards and Recognition where Target Corporation has been recognized.
Target Corporation is very proud of the recognition they have got over the years, but it is no reasons to relax and pat themselves on the back. Target Corporation knows they must continue to achieve excellence and be awarded for their achievements in the future. Targets push to excellence has show a continual improvement I market share. Target holds a 10% market share or greater in 10 states and they hold another 7.5% or better market share in 26 states. Targets largest market representation is in California where they have 193 stores with 23,895 thousands retail square feet. However they are represented in 47 states where they operate 1,308 stores with 165 million retail square feet.
Suggestions for Improving the Processes
Target Corporation maintains processes that are tremendously efficient and effective in delivering quality merchandise to customers at a low cost. The processes are fine tuned, but room for improvement remains in each process. There are also improvements that should be implemented with regards to corporate policy and employee relations.
The sheer size of Target makes it very difficult to implement the Just-In-Time philosophy but many of its characteristics could be applied to allow smoother operations. One of the goals of JIT is to eliminate unnecessary activities. Target maintains a strict policy with regards to freight received from its suppliers. This policy requires that all freight must be visually inspected while receiving is taking place and reconciled when the trailer is finished. This process is not in sync with the JIT system which holds that with good suppliers, receiving activity and inspection are not needed. Because they operate with so many suppliers, it is in targets best interest to for strong relation with suppliers that deliver high quality products.
The amount of inventory held within each Target distribution center is also an area the corporation should improve upon. According to the JIT system the elimination of large amounts of in-plant inventory is vital to a lean production facility. The distribution centers should receive small lots of product at a time when the stores need to be replenished. This may be impossible for Target Corporation to fully implement because of the amount of stores each distribution center must service. An applicable plan would be to create a committee focused on reducing inventory size and costs by a specific percentage every fiscal year.
The JIT system requires that a sound corporate strategy with regards to employee relations is one of employee empowerment. Empowered employees are necessary to bring the JIT system to life in a production environment. This is definitely an issue that must be addressed by the executive staff in order to maintain experienced and knowledgeable employees. Target Corporation trains most of their employees in only one function of the distribution center. A small percentage of employees are cross trained in other departments. Target should empower its employees by making sure each employee is cross trained in at least one other department. This would allow employees to see how other departments operate which would create more knowledgeable employees who are better equipped to bring about the corporation’s vision. This strategy would also give Target a chance to enrich their employee’s jobs and lives while improving productivity and quality. This would be returned with a workforce that is committed to Target and to the corporate goals which it tries to attain.
Conclusion
Target Corporation has proven to be a leader in its market as shown by its yearly profits and market share. With a yearly profit of over 46 million and an increasing market share of 17%, it separates its self from other competition. Target current stock price is trading at 55.40 on the NYSE with 5,694,500 shares in circulation. Target’s more than 46 million in revenues makes it a leader in the industry. Target operates 1308 stores that have a total of 165 million square feet of retail space.
The approach we took showed Targets current situation is booming as it undercuts its competition in product diversity and quality. We did that by analyzing their history, product offering, financial standing, and employee relations. All situations showed a strong background with proper accounting and fair employee relations. We studied about inputs, processing, outputs, and flow units to better understand how they operate. By knowing the four flow units we explained how Target caters to its customers and show a profit.
Upon analyzing Targets process activities we found that there were problems with inventory levels and in receiving. We formulated problems in their process. We recommend that they move to more of a just in time process and further empower employees to correct their problems. Our results and recommendations show that Target has situated itself compared to its competition in a better standing to be a leader in their market place for many years to come.
References
“Principles of Operations Management” 2005. (Heizer, Jay: Render, Barry). 2006, Pearson Prentice Hall.
“Proxy Statement: Annual Meeting of Shareholders” 2005. (Target). 18, May, 2005. Published by: Target Corp.
“Quotes and Info: Target Corp.” 2005. Yahoo Finance. 18 November, 2005. http://finance.yahoo.com/q?s=tgt
Target Corporation Annual Report 2004, 2005. Target Corporation 21 October, 2005. http://media.corporate- ir.net/media_files/irol/65/65828/reports/2004_TGT_annual.pdf
“Target Corporation” 2005. Target Corporation. 21, October, 2005. http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-000482
Target Corporation” 2005. Wet Feet. 11, October ,2005. Available: http://www.wetfeet.com/asp/companyprofiles.asp?companypk=100
Appendix C: Target (TGT) Stock Profile
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(Note: As shown on 11th of November, 2005)
One Year Stock Price Graph 
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