Arthur Valdez knows how to make things go fast.
For 16 years, he helped Amazon set the bar in retail for getting packages to customers at warp speed. Now he’s doing the same at Target Corp., helping it play catch-up as it modernizes its systems built around stores to adapt to the faster-paced online shopping world.
A year into his role as Target’s chief supply chain and logistics officer, Valdez is overseeing a major overhaul of Target’s network of 40 warehouses, 10,000 trailer trucks and related inventory management systems. The goal is speed, efficiency and accuracy. The effort is a key part of Target’s strategic road map as it looks to reverse sliding sales and pinched profit margins.
If he can get it right, it could mean not only reducing costs for Target but also getting online orders into customers’ hands within hours, ensuring customers don’t encounter empty shelves as often and stepping on the gas in opening smaller stores in dense urban centers where backroom space is much more limited.
In his first sit-down interview since arriving at the Minneapolis-based retailer, Valdez likened the traditional supply chain for brick-and-mortar retailers to a slow-moving elephant, which transports large amounts of products at one time. His task, he said, is to help transform Target into a gazelle that can more swiftly move smaller shipments, down to individual items, to where they are needed.
“Speed matters,” he said. “We’ve got to be faster than the elephant. … Where I spend my time today is helping problem-solve how to become the gazelle.”
Some of the fruits of his labor are already beginning to show with a series of tests that Target plans to quickly scale if successful.
The retailer is soon launching a pilot program for next-day delivery of household essentials called Target Restock in the Twin Cities. Next month, it will test a same-day delivery service for in-store purchases from its recently opened Manhattan store in Tribeca. And this fall, Target will try out its own curbside pickup service for online orders when it opens its next-generation prototype store outside of Houston.
To be sure, Target is chasing some of its competitors in rolling out these innovations. Amazon has pushed the envelope with deliveries within one to two hours through its Prime Now service. And Wal-Mart has been aggressively expanding its curbside grocery pickup service, which will be up and running at more than 1,110 locations later this year.
By moving products more quickly through Target’s network, Valdez is also hoping to address one of the other nagging issues for Target and the subject of frequent customer complaints: out-of-stock items.
“It’s about being there when you need it to be there,” he said. “Today, we’re not reacting fast enough. We need to do it better.”
He added that Target has already seen some measurable improvements in reducing out-of-stocks and better shelf availability in tests where it has been moving to a faster, real-time replenishment model.
To aid his efforts, Target will open next month a 718,000-square-foot warehouse in Perth Amboy, N.J., just across the river from New York City where the retailer is opening several urban stores in the coming years. It will serve as a lab for Valdez’s team to try out the latest in automation and robotics as they further test out replenishing stores with single items.
“It’s almost like having a little Lego set, and that Lego set is helping us put things together,” Valdez said. “You know what, this piece didn’t fit exactly right, so let’s take that one out and plug this one in.”
Target is investing a portion of the $2 billion earmarked for capital expenditures this year — and part of $7 billion over three years — on upgrading its supply chain. Other major initiatives aimed at reviving Target’s business include remodeling stores, improving digital capabilities and launching new private-label brands.
“How do we get just the right amount of product to exactly the right place at exactly the right time?” CEO Brian Cornell posed to analysts in New York in late February. “The work underway is game-changing for Target.”
The work, other executives added, is fundamentally changing how Target moves products, so when a store sells one bottle of shampoo, Target can put another bottle on a truck within hours to replace it. In doing so, products coming in can then go straight to the sales floor so Target can dedicate more backroom space to shipping online orders.
Within the past few years, the supply chain has gone from the sidelines to being a more central part of many retailers’ strategic agendas as they grapple with the shift to online shopping, said Steve Osburn, managing director of consulting firm Kurt Salmon. In this landscape, where you hold your inventory and how fast you can move it has become a competitive advantage — or weakness.
Retailers are especially motivated to solve these problems since issues in the supply chain — which used to be taken care of at warehouses and were shielded from public view — are now more visible, he said.
“You’ve got so much product going through e-commerce, if there’s a problem in the supply chain, it’s the customer who’s the first to see it,” Osburn said.
The growing importance of supply chain also was evident in the buzz surrounding Valdez’s appointment last year. When Target poached him from Amazon, it became big news. Part of the intrigue was that Amazon, which continues to grow while many traditional retailers are struggling, is more often the beneficiary of defectors from Target.
Amazon wasn’t happy about it. It sued Valdez for allegedly violating a noncompete clause. The issue was eventually settled. Valdez declined to comment on the matter and shied away from talking much about Amazon.
Growing up in Pueblo, Colo., Valdez was introduced to the business at a young age. After school, he would often accompany his grandparents as they made deliveries as part of their pharmaceutical business. And his parents both worked for UPS.
“I’d go to my dad’s office and look over the rail and see all of the conveyors and trucks and see how product was moving, and I just got the bug,” he said.
After graduating from Colorado State University, he got his first job at Wal-Mart, where he helped it open its first distribution center in Mexico. He mused about how one of the last things he did as Amazon’s vice president of operations also was opening a warehouse in Mexico, located across the street from Wal-Mart’s. He had stints at Blockbuster and Staples in between.
As for Target, he said he was drawn to it because of the opportunity to leverage its 1,800 stores — which are in proximity to where most Americans live — to help get products to customers faster.
“That’s a huge advantage,” he said. “We can offer second to none the speed from those stores in a tremendous way that others cannot.”
Target already fulfills about half of its online orders from its stores, either through in-store pickup or directly shipping items to customers. In doing so, it has cut down on shipping times and costs.
In the meantime, the tech industry is exploring ideas such as how self-driving — and even flying — cars might revolutionize transportation and get products to customers. But for now, Valdez said Target is focused on the more immediate future.
“We’ll not go that far — not yet,” he said.