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What Happened at Kmart

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Kmart, once the leader in the discount store industry, has found itself surpassed by Wal-Mart and Target in recent years and is now facing the possibility of closing its doors. The differences among the companies' successes can be seen in their business models and strategies. Wal-Mart focused on decreasing expenses and Target established its market placement as a high-quality low-cost discount store. In contrast, Kmart used a promotions-driven business model. Because of this, Kmart focused on trying to generate sales from promotions, rather than trying to cut expenses to increase their profits

Management contributed greatly to Kmart's problems by not paying attention to their business environment. As their competitors worked at lowering costs and improving customer service, Kmart continued with its strategy to carry as many products as possible and offer promotion after promotion. Even after Charles Conaway took over, he continued expanding the products carried rather than focusing on those products that were most profitable.

In all respects management failed to embrace technology as a means of improving the business. It was not until 1987, that Kmart began to put money into its information infrastructure. However, management rejected any use of technology that could benefit them. For example, while Kmart had the capability to collect data for forecasting, it did not. Rather management still developed the forecasts themselves. Additionally, a proposal to integrate computer systems in distribution was rejected because management thought it too costly. The technology lag in the distribution centers was so bad that reorders were often based on hand tracking.

Kmart's supply chain management contributed to their problems. The company did not have a strong relationship with suppliers. Unlike Wal-Mart where the supplier relationship focused on establishing strong sales of individual products, Kmart's suppliers pushed them to sell as many products as possible. Because of the push of products into the system, Kmart continued using the promotion-based model. The promotion-based approach in turn led to inconsistent demand for products that made it difficult for Kmart to forecast and maintain optimal inventory levels.

Also contributing to the supply chain problems was the organizational structure. The majority of shipping was planned centrally, rather than at the local level causing store inventories



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