Failure of Target U.S. Company in Canada

This article discusses the failure of Target U.S. Company in Canada and the problems it faced in managing inventory. It explores the higher expectations of Canadians, higher pricing, order quantity problems, and safety stock problems. The article also analyzes the root causes of these problems, such as competition, poor planning, and improper inventory recording techniques. Finally, it provides recommendations for the Target Company to overcome these issues.

Running Head: OPERATION MANAGEMENT
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Topic: Failure of Target U.S. Company in Canada
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Table of Contents
INTRODUCTION...........................................................................................................................2
Analysis of problem.........................................................................................................................5
Recommendations..........................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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INTRODUCTION
Target Canada company was the Canadian subsidiary of the Target Corporation which is the
eighth-largest retailer in the United States, with its headquarters in Mississauga, Ontario the
subsidiary was formed with the acquisition of Zellers locations from Hudson’s Bay Company in
January 2011. The target company being the parent company, opened up branches in Canada to
facilitate its business in March 2013. The branch, however, was in an excellent position to
continue in operation until when it had issues in managing inventory. The systems which were to
aid in the managing of inventory inflow and outflow into the business, and at times could omit
crucial information relating to inventory management, was not well integrated with the company
procedures to facilitate smooth operations.

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Problems facing the Target Canada Company
Higher expectations by Canadians
When the branch was opened in Canada, the Canadians expected that the new Company would
come up with new products into the market different from what other retailers were offering. The
Canadians expected the Company to charge them fair prices carefully to what other retailers
were charging. This was so disappointing because they had to keep their products with them or
in the stores until they were forced to change the product line.
Higher pricing
The Target U.S. Company used to charge customers exorbitantly high prices on the products,
which to the customers was quite unfair practices by the Company. Therefore Canadians
considered buying products from other retailers at a reasonably low and fair price (Yadollahi,
2017). Target failed when it started competing with well-organized enterprises in terms of price
of goods, where the competitors are well established and have been in the market for a
considerably long period taking into the needs and want of the customers.
The order quantity problems
The problem associated with ordering concerning economic order quantity ( EOQ) is to
determine the amount of stock to be added into the system before the inventory becomes
completely depleted (Shekarian, 2016). The problem may arise when the firm is considering
making bulk purchases includes carrying costs and storage costs, which can be inversely related

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to small purchases which will be made in a short period. The target company was unable to
understand and plan for the retail where in most cases the business was faced with the problem
of empty shelves, and this made their not to be able to shop what they wanted to.
When to order problems
This problem steps in when the firm is not accurately able to trace the minimum stock level
required in the store and the maximum inventory level before considering any further purchases.
The firm should be able to understand when next to make an order in order to meet the demand
in the inventory level requirements until the next new supplies. The target company was unable
to make an early tracing of the inventory to understand what the stores needed to continue in
operation. The poor planning resulted in some stores receiving so many products and others not
receiving products, stores receiving wrong inventories which were not ordered or some were to
be directed to other stores but failed.
Safety stock problem
This is the problem resulted when the firm is not able to adjust to the anticipated fluctuations in
inventory, where the firm is supposed to keep a certain level of inventory to help maintain the
operation of the firm without running out of stock completely. This problem resulted mainly
from poor forecasting in terms of the future demands of the retail shops, and there was

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referencing records on how they should implement their new strategies. Target us was a new
company in Canada, and they used the U.S. forecast to plan on the Canada market, which made
them fail.
Analysis of the problem
The significant causes of inventory problems result from poor record keeping by the
management where the accurate do not accurately display the flow of inventory and the
requirements to meet the discrepancy that might occur during the normal operations of the firm.
Target failed in terms of inventory management where despite obtaining their inventories at the

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right prices, they fail to deliver the products at the right time and place, by delivering products to
wrong stores and late deliveries leading to empty shelves. The primary root causes of the
problems faced by the Target Company include;
Competition
The primary cause of high pricing was when the target was struggling to adjust to the market
forces, deriving ways of surviving through overcharging Canadians on the common goods. The
Target Company was competing with Wal-Mart enterprises (Kirzner, 2015), which has been in
existence from 1994 and has established itself well in terms of product delivery and customer
satisfaction (Phadermrod, 2019). The reason behind high pricing was because the liabilities of
the business were increasing every day and the Company was unable to fund itself, “our Target
Canada business had reached the point where, without additional funding, it could not continue
to meet its liabilities. Put, we are losing money every day," Cornell said in a blog post.
Poor planning
The Target Company did not carry adequate research on the market demands concerning the
needs and wants of the customers. This made the Company to avail the products which were
available in other business and without considering the start price that will attract new customers
and help maintain them. This was controversial of this was that the target company started by

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overcharging customers with high prices on goods, they had a low inventory where they had
empty shelves, and they did not provide a different product from the ones offered by other retail
shops in Canada. This left so many customers disappointed with the operations of the target
company and even diverted their attention to other retail shops.
Poor inventory recording techniques
The problem of ordering quantity resulted mainly from using an outdated ERP system which did
not provide sufficient data concerning the flow of inventory. The employees were not adequately
trained in using the available, and these resulted from too many errors in terms of record keeping
and tracking the flow of inventory (Wild, 2017). When the target was expanding its operations in

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Canada, it failed to use an integrated ERP system that was not correctly implemented, and the
retail did not spend time to test the system, and it did not train its employees on how to use the
system.
The problem arises when the firm does not balance itself between how much should be ordered
or purchased and to determine whether the purchases should be in bulk or not, taking into
considerations the carrying costs associated with the quantity to be ordered. To illustrate the
order quantity problem, we should consider the amount of inventory to be purchased by taking a
pivotal illustration to explain the order quantity;
Illustration
The usage of inventory items costing 1 dollar is 1000 dollars units per year, and the ordering cost
is 10 dollars, carrying charges is 20% based on average inventory per year. Stock out the cost is
$5 per unit of shortage incurred. Find the economic order quantity.
Solution
Demand =1000
Ordering cost=$10 per unit
Holding cost=20%
Stock out cost=$5 per unit
Therefore, EOQ=√2CoD/C.H.,
Where Co is ordering cost
D is demand

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Ch is holding cost
Therefore. EOQ= √2*10*1OOO/0.2
=316 Units
Therefore, it is evident from the illustration that 316 units per order are the very favorable
quantity to be ordered at every reorder level. The firm should always make at least an order of
316 units at every fresh ordering points.
Bad data
Most of the information obtained from the systems were not clear on the record of inventory to
outline if there are shortages and which stores had adequate products. This led to experiencing
high stock out in many stores and some stores receiving products they had not ordered because
the system did not indicate the time of when the next a reorder should be made. The Target
Company failed to plan adequately where it was unable to understand the shortage in the stores
at each point, because of the technological mishaps where the ERP system could not give a clear
direction of the flow of inventory and the system though implemented could not suit the exact
needs of the Company. Target had many stores, and the system available could not account for
the operation of the entire stores; in some cases, some stores could have excess products, and
others stores could not have any inventory. The stores located in the middle-class customers
Target covet experienced poor sales, and it was difficult to understand the order requirements."
They diminished peoples image of what target was. They should have done fewer stores, but
better stores," Doug Stephens, president of Retail Prophet consultant in Toronto, told Fortune.
Specific quantities should be maintained in the stores to meet the unexpected requirements until
when the next purchases are initiated. The target company was unable to make complete records

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by the logistics and the Company because of poor record keeping left the Company with empty
shelves. Therefore the firm will make set reorder point in two situations; with safety stock and
with no safety stock.
The following illustration will help understand the concept of reorder point;
EOQ= 1000 Units
Lead-time=5weeks
Average usage = 50units per week
Solution
Reorder level= average usage * Lead time
= 5*50
=240 units, the firm will be making an order whenever the
Quantity falls below 250 units or before 250 units
This will help the target company understands when the orders should be made, and how long
are the orders going to take before being delivered into the business premise, and to establish the
requirement of each store. This will help avoid ordering unnecessary inventory, which increases
the shipping costs and results in idle stock in the stores.
Improper warehousing
The target company in Canada had 124 stores, which were opened to facilitate the operation of
the branch company. Because of poor planning, most of the stores could not have adequate
inventory to cater to the needs of the Canadians, leading to stock out problems in most of the

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stores ( Davarzani, 2015). This made it difficult for most customers to obtain their goods at their
convenience due to empty shelves resulted from stock outs the retail. The Target Company did
not have a warehouse facility where it could keep some stock to act as a buffer in its operation
and to ensure there is no stock out at any point of the business operation. The problem of
uncertainties fluctuations in the amount of inventory needed in the system. The target company
was unable to maintain its ERP systems, which was to be used to estimate the exact amount of
stock available in the store and the amounts to be ordered. The firm will, therefore, be unable to
maintain the buffer between the processes of the business. A simple illustration can be used to
the points on safety stock;
Given the following details for guidelines,
Demand 6000 units
Ordering cost $ 6 per order
Cost per unit $2
Carrying cost $ 2
Lead time ten days
Safety stock-20 days.
Compute
1. EOQ
2. Reordering level
3. Ideal inventory level

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4. Number of times orders should be placed in a year
Solution
EOQ=√2COD/CH
=√2*6*6000/2
=189.units to be ordered each time
Reorder level=safety stock + lead time
= 10 + 20= 30 days
Consumption per day= (6000/360) = 16.67 units
So in 30 days, 30*16.67= 500 units
Ideal inventory level in 20 days
20*16.67=335 units
Number orders per year
Annual consumption/EOQ
=6000/189
=32 times
From the above illustration, the safety stock will start diminishing after the 20th day in the from
the day of making new purchases, whereby the retail will to estimate the amount of inventory to
be kept as safety stock in case the stores runs out of inventory which will be used as back up for

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the business. For our case, after every 20 days, the firm should check in the stores to ensure the
amount of inventory is not less than 335 units
Recommendations
The recommendations below will help the Target Company minimize the chances of failing from
continued operation and survival in the market and to develop an alternative solution to the
problems that resulted in the fall of the business. These are;
Carrying out the SWOT analysis
The target company before initiating another project or branch, it should carry out the SWOT
(strength, weaknesses, opportunities, and techniques) analysis on how the nature of the target
market. This will help identify the basic needs of the market and how to deliver the intended
needs to the customers (Gürel, 2017). This will ensure the customers’ expectations are met with
the required products and to ensure there is availability at any time the customers wants to make
purchases. The target company should create a supply chain criteria that will help anticipate the
demands for its customers and helps in product selection for its customers.
Low pricing mechanism
The target company should use penetration techniques like low pricing mechanism, which will
attract new customers in the first place (Hu, 2015). This is better off than getting into the market

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and start charging the high price on products despite being the new Company in the market. The
target company should not focus on competing with established enterprises. Instead, it should
develop suitable criteria on how it is going to get into the market first. This will help attract
customers who will be convinced by the low and fair prices of goods and later increase the prices
steadily to survive in the market.
Proper planning
Through adequate and proper planning, the Target Company will be able to understand the
market forces of demand and supply and how they should be at equilibrium to maintain their
customers (
Mensah, 2015). The Company should have an updated ERP system that will ensure proper
coordination between inflow and outflow of the product.
Proper record keeping
The Target Company should have proper record keeping techniques that will ensure proper
communication on the flow of inventory into and out of business (Covington, 2018). The
Company should install updated ERP systems and facilitate proper training programs on how to
use the systems and to ensure the system are integrated with the supply chain management
department to ensure conformity in the operations.
Conclusion
In the investigation of the problems that led to the failure of Target U.S Canada, the following
problems were encountered; high expectations by customers, high pricing, order quantity

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problem, when to order problem and safety stock problem. The solution to these problems
includes; SWOT analysis technique, market penetration techniques, proper planning, and proper
record keeping.
References
Covington, J. M., (2018). A collegiate approach: the instructor’s role in preparing students for
collegiate trumpet study (Doctoral dissertation, University of Alabama Libraries).

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Davarzani, H., & Norrman, A., (2015). Toward a relevant agenda for warehousing research:
literature review and practitioners' input. Logistics Research, 8(1), 1.
Gürel, E., & Tat, M., (2017). SWOT ANALYSIS: A THEORETICAL REVIEW. Journal of
International Social Research, 10(51).
Hu, M., Li, X., & Shi, M., (2015). Product and pricing decisions in crowdfunding. Marketing
Science, 34(3), 331-345.
Kirzner, I. M. (2015). Competition and entrepreneurship. University of Chicago Press.
Mensah, P., Merkuryev, Y., & Longo, F. (2015). Using ICT in developing a resilient supply
chain strategy. Procedia Computer Science, 43, 101-108.
Phadermrod, B., Crowder, R. M., & Wills, G. B. (2019). Importance-performance analysis based
SWOT analysis. International Journal of Information Management, 44, 194-203.
Shekarian, E., Olugu, E. U., Abdul-Rashid, S. H., & Kazemi, N. (2016). An economic order
quantity model considering different holding costs for imperfect quality items subject to
fuzziness and learning. Journal of Intelligent & Fuzzy Systems, 30(5), 2985-2997.
Wild, T., (2017). Best practice in inventory management. Routledge.
Yadollahi, E., Aghezzaf, E. H., Walraevens, J., & Raa, B. (2017). Considering the difference of
pre-set service level and actual service level in a safety-stock based SPIRP. Procedia
Manufacturing, 11, 1933-1939.