The 2:00 Minute Warning

There was big news out of Minneapolis last week when the stock price for Target took a significant dip.

This wasn’t just due to the current market volatility. Target reported their first quarter profitability and it came in much lower than forecasted. Although sales grew by 3.3% this was more than offset by an operating margin decline from nearly 10% to around 5%, which was far below expectations.

A Target corporation press release noted that “This year's gross margin rate reflected higher markdown rates, driven largely by inventory impairments and actions taken to address lower-than-expected sales in discretionary categories, as well as costs related to freight, supply chain disruptions, and increased compensation and headcount in our distribution centers.”

Target’s CEO, Brian Cornell, said “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time.”

Looking ahead, although they expect to see an improvement in operating margin for 2022, they’re also projecting that their transportation cost this year will be a billion dollars higher than last year. While some of that increase can be attributed to continued increased sales, the bulk of that increase is due to higher costs and ongoing challenges.

Target isn’t alone by any means. Walmart, Apple, and many other companies – especially retailers – are reporting similar challenges.

When it comes to managing a supply chain and transportation costs, some results are “legacy” issues driven by market conditions and others are “transitory” issues and directly tied to the way a company chooses to run their business. As we learned from Shelley Simpson of J.B. Hunt and Geoff Muessig of Pitt Ohio in our outstanding Navigating Your Supply Chain in Survival Mode webinar, shippers with inefficient supply chains are going to have higher freight costs because of how they manage these “transitory issues.”

That reality begs the question: “How can I make my supply chain more efficient?” To make the best of this situation and improve what you can, here are a few questions to consider:

Has your company mapped its supply chain and identified risks and threats that could cause disruptions?

What areas could be addressed that could help make your supply chain more efficient?

Is your supply chain based on assumptions about what your customers want or what your suppliers are capable of doing? Are your supply chain activities being driven by assumptions or facts?

What changes/ resources are necessary to move forward in creating a more efficient supply chain?

TranzAct has a wealth of experience and expertise that can boost your company’s supply chain capabilities. Whether it’s support for analyzing your operations and making improvements, managing truckload or LTL freight, tracking shipments with a TMS, or auditing and paying freight bills and generating great data, we encourage you to get in touch with us.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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