IT Infrastructure Failures that Target Company faced in Canada
Target is one of America's largest and most successful retailers. The 114-year-old company that evolved out of the old Dayton-Hudson company now has more than 1,800 retail locations.
There are many reasons why Target Canada wasn’t able to sustain a profit – you can read about all of them in this excellent article, “The Last Days of Target Canada,” in Canadian Business magazine – but these are the four major failures that I have identified based on my in-depth analysis:
- SAP ERP Implementation
- POS (Point Of Sale) System Malfunction
- No Online Presence
- Replenishment System Malfunction
SAP ERP Implementation
When an ERP system is working well, it can be a major boon for a business.
Data is clean and up-to-date, communication between departments or locations is clear, and leadership can make smarter, more informed decisions.
But in some cases, ERP implementation failure does happen. It’s important to look at these ERP failure examples to understand how to avoid such situations, like Target’s ill-fated venture into Canada.
The major retailer announced in January that it would pull out of the Canadian market after losing millions at its 133 Canadian stores, all of which were opened between 2013 and 2015.
One of the most important decisions concerned technology—the systems that allow the company to
order products from vendors, process goods through warehouses and get them onto store shelves
promptly. In the U.S., Target used custom technology that had been fine-tuned over the years to meet
its exacting needs, and the corporation had developed a deep well of knowledge around how these
systems functioned.
Target faced a choice: Was it better to extend that existing technology to Canada or buy a completely new, off-the-shelf system? Is this sound familiar to you?
Finding an answer was tricky.
By using Target’s existing technology, employees in Canada could draw on the large amount of expertise in the U.S.
The technology was not set up to deal with a foreign country,
and it would have to be customized to take into account the Canadian dollar and even French-language characters.
Those changes would take time—which Target did not have.
Target Canada attempted to roll out an SAP ERP system that it had no experience with.
Let me provide you brief history of SAP ERP System.
SAP was started in 1972 by five former IBM employees with a vision of creating standard application
software for real-time business processing.
SAP stands for Systems Analysis and Program Development.
SAP ERP is the most known and expensive ERP system in the world and only big companies can afford
that. Deploying SAP involves a lot of time and resources.
Considered the gold standard in retail, SAP is used by many companies around the world, from Indigo in Canada to Procter and Gamble and Samsung. It essentially serves as a retailer’s brain, storing huge
amounts of data related to every single product in stores.
That data would be fed by SAP into Target’s other crucial systems: software to forecast demand for products and replenish stocks, and a separate program for managing the distribution centres. After implementing SAP in Canada, Target wanted to eventually switch the U.S. operations over as well, aligning the two countries and ensuring the entire company benefited from the latest technology.
For example, Sobeys introduced a version of SAP in 1996 and given up the effort by 2000. It wasn’t until 2004 that the grocery chain tried again.
Similarly, Loblaws started moving to SAP in 2007 and projected three to five years to get it done.
The implementation took two years longer than expected because of unreliable data in the system.
Target was again seeking to do the impossible: It was going to set up and run SAP in roughly two years. The company wasn’t doing it alone, however, and hired Accenture (which also worked on Loblaws’ integration) as the lead consultant on the project.
Target believed the problems other retailers faced were due to errors in data conversion. Those companies were essentially taking information from their existing systems and translating it for SAP, a messy process in which it’s easy to make mistakes.
Target, on the other hand, was starting fresh. There was no data to convert, only new
information to input.
As a result, it had to enter all of its data manually into the system and it rushed to do this for its 75,000
products to be ready for launch. But the data was so inaccurate (an investigative team put the accuracy at 30 per cent) that it crippled Target’s efforts to keep inventory humming through its supply line.
Lesson learned:
Even when new software systems are deployed correctly, enough time has to be
dedicated to staff training to ensure that it’s being used properly.
Where possible, automated accuracy-checking should be put in place to prevent simple human errors that are often made when entering data (eg. UPC codes that just don’t have enough digits).
Accurate data is incredibly important.
POS (point of sale) system malfunction:
The self-checkouts gave incorrect change. The cash terminals took unusually long to boot up and
sometimes froze. Items wouldn’t scan, or the POS returned the incorrect price.
Sometimes a transaction would appear to complete, and the customer would leave the store—but the payment never actually went through.
The POS package was purchased from an Israeli company called Retalix, it represented the first time the system was being deployed in Canada.
Lesson learned:
Where possible, use a POS that’s been market-tested in your locality. If you’re adopting a newer POS, set up a pilot project to ensure there are no problems with it before a wide roll-out.
No online presence:
Nowadays, 49% of Canadian Internet users shop online monthly and many of them comparing on-line
offers, in-store availability, brands and prices from different retailers. Target has non-functioning online shopping website.
Consumers compared Target.com and target.ca web site and was disappointed. If a business is going to
enter a new area…hey you have to come in full force and make an impression…
Problems:
- Non-functioning online shopping
- Big competition online
What they could have done:
- Launch and test before entering new market
- Replenishment system malfunction
The company had purchased a sophisticated forecasting and replenishment system made by a
firm called JDA Software, but it wasn’t particularly useful at the outset, requiring years of
historical data to actually provide meaningful sales forecasts.
According to someone with knowledge of the forecasting process in Minneapolis, the company treated Canadian locations the same way they did operational stores in the U.S. and not as newcomers that would have to draw competitors away from rival retailers.
Manhattan, the company’s warehouse software, and SAP weren’t communicating properly.
Sometimes, the issues concerned dimensions and quantities.
Problem:
Business analysts were evaluated based on the percentage of their items being in stock. But instead of making sure items actually got stocked quickly, they just turned off an auto-replenishment system so it would appear on paper as if the stock was always high.
As a result, store shelves sat empty while the head office thought they were fully stocked.
Lesson learned:
Make sure that metrics for evaluation actually reflect what’s happening. Where there is automation that’s crucial to keep your business pipeline running smoothly, limit access to control over those features and set up alerts if the feature is turned off or on.
The moral of the story is that IT matters. If done correctly, IT should not be an afterthought.
IT drives the entire enterprise. Forgetting that leads to dashed dreams and lost billions.
