Retailers always want to have the right product at the right place at the right time at the right cost. Target is no exception to this. Their goal is to always have the items their guests want when they want them.
When purchase orders from Target to vendors aren't shipped as planned, whether that's related to timing or fill-rate, sales are missed, guest frustration increases, and rework might need to happen at Target, the vendor, and the carrier. All of this leads to increased costs and complexity in the supply chain. Those are the two things that you want to keep as low as possible within a supply chain so that products are as cheap as possible for you and me to buy at a store.
To try and incentivize vendors to be on time and in full, retailers like Target often implement a punitive fine program, Target's Compliance program in their language (sometimes referred to as OTFR for On Time Fill Rate, or OTIF at other retailers). They state their goal isn't to create more fines, but to recognize zero charges and 100% compliance on the timing and fill rate of orders.
Target's Compliance Goals
Target's goals suppliers are responsible for are assessed on each purchase order and are as follows:
Fill Rate:
95% of all revised order units are delivered
On Time:
Collect (We Pay): 100% of goods for PO are picked up within pickup date window
Prepaid (They Pay): 100% of goods for PO are received in yard delivery window
EDI 856 Advanced Ship Notice (ASN) Availability:
100% of purchase orders with delivery appointments have an available, error-free ASN before the In-Yard date/time for the associated delivering trailer
Compliance Fines Summary
Compliance Type | Goal | Fine |
Fill Rate | 95% | 5% COGs of goods not received |
On Time | 100% | 5% COGs of all goods received outside window |
EDI 856 (ASN) Availability | 100% | 3% COGs of all goods received without an ASN |
Measured Without Fines
Target does keep track of a few other areas for compliance, however, they do not yet assess fines for these areas:
Item level fill rate, called Supplier Item Fill Rate (SIFR)
ASN Accuracy for items and quantities listed on the ASN vs the purchase order
On Time Release (OTR) within ShipIQ (SIQ), measures when an order was released in SIQ compared to the timing of a PO
Supplier Pickup Adherence (SPA) also from SIQ, measures adherence to the assigned Pickup Date in SIQ
While no fines are currently assessed, they may be in the future per Target. It's a good idea to keep up with these metrics because they can help you improve your supply chain performance and be a better partner to retailers like Target as well as to your end consumers.
Based on messaging from Target, it's most likely that OTR and SPA will both turn into real fines either by the end of 2023 or sometime in the first half of 2024.