Question

Tesco
Tesco is the UK’s largest food retailer, with a sales turnover of more than 67.5 billion. While it has
some 638 stores in central Europe, and some 636 in the Far East, most are in the United Kingdom
and Northern Ireland, where it has nearly 1,800. This number has increased rapidly as Tesco entered
the convenience store market with deals such as the Tesco Express alliance with Esso to run grocery
shops at petrol stations. The product range held by the stores has grown rapidly in recent years, and
currently stands at 65,000 stock-keeping units (skus) depending on the size of the store as Tesco
broadens its presence in the ‘non-food’ market for electrical goods, stationery, clothing and the like.
This massive range is supported by 3,000 suppliers, who are expected to provide service levels
(correct time and quantities) of at least 98.5 per cent by delivering to Tesco within half-hour time
‘windows’. Volumes are equally impressive. In a year, some 2.5 billion cases of product are shipped
from suppliers to the stores.
Tesco states that its core purpose is ‘to create value for customers to earn their life- time loyalty’. Wide
product range and high on-shelf availability across that range are key enablers of that core purpose.
So how do you maintain high availability of so many skus in so many stores? This question goes to
the heart of logistics management for such a vast organisation. Logistics is about material flow, and
about information flow. Let us look at how Tesco deals with each of these in turn.
Tesco operates Composite distribution centres (called regional distribution centres, RDCs), which can
handle many products at several temperature ranges. The opportunity is to provide a cost-effective
daily delivery service to all stores. Typically, a composite distribution centre can handle over 60 million
cases per year on a 15-acre site. The warehouse building comprises 25,000 square metres divided
into three temperature zones. Each distribution centre (DC) serves a group of between 100 and 140
retail stores. Delivery vehicles for composite depots can use insulated trailers divided into chambers
by means of movable bulkheads so they can operate at different temperatures. Deliveries are made
at agreed, scheduled times. Ambient goods such as cans and clothing are delivered through a
separate grocery distribution network which relies on a stocked environment where orders are picked
by store. This operation is complemented by a strategically located trunking station which operates a
pick to zero operation for fast-moving grocery on merchandise units that can be placed directly on the
shop floor.
So much for the method of transporting goods from supplier through to the stores, but how much
should be sent to each store? With such a huge product range today, it is impossible for the individual
store to reorder across the whole range (store-based ordering). Instead, sales of each product lineare tracked continuously through the till by means of electronic point of sale (EPOS) systems. As a
customer’s purchases are scanned through the bar code reader at the till, the sale is automatically
recorded for each sku. Cumulative sales are updated every four hours on Tesco Information Exchange
(TIE). This is a system based on Internet Protocol that allows Tesco and its suppliers to communicate
trading information. The aim of improved communication is to reduce response times from
manufacturer to stores and to ensure product availability on the shelf. Among other things, TIE aims
to improve processes for introducing new products and promotions, and to monitor service levels.
Based on the cumulative sales, Tesco places orders with its suppliers by means of electronic data
interchange (EDI). As volumes and product ranges increased during the 1990s, food retailers such as
Tesco aimed to destock their distribution centres by ordering only what was needed to meet
tomorrow’s forecast sales. For fast-moving products such as types of cheese and washing powders,
the aim is day 1 for day 2: that is, to order today what is needed for tomorrow. For fast-moving
products, the aim is to pick to zero in the distribution centre: no stock is left after store orders have
been fulfilled and deliveries to stores are made as soon as the product is picked, which increases the
stock availability for the customer. The flow of the product into the distribution centre is broken into
four waves and specific products are delivered in different cycles through the day. This means that
the same space in the distribution centre can be used several times over.

Source: Harrison,A & Van Hoek,R. (2014). Logistics Management & Strategy Competing through
the Supply Chain. Fifth Edition. Prentice Hall International Edition

Question 1
Describe the key logistics processes and supply chain functions used to create value for Tesco’s
global supply chain.

Question 2
Differentiate between Tesco’s logistics and marketing channels and the important role in managing
their vast product range and customer base.

Answer 1

The Supply Chain Process In Tesco

The supply chain management system of Tesco relied heavily on the improvement of the process. This concept was used by the company in the sense that the company wants to create loyalty for the customers for life time basis. The supply chain of the company was in the process from the period of 1983-1996. During that period the company took some serious steps to improve the supply chain of the company. The electronic data interchange was introduced by the company, there were certain other services that the company took the initiative of like centralized distribution, scanning of the point of sale, automated control of warehouse and centralized ordering. The supply chain manager of the company at that time from the year 1985 to 2002 was Graham Booth . According to him this replenishment was triggered by the need of the customers. He felt that the need to have the same set of suppliers along the distribution centers of the company as well vehicles that supply the goods to the company as well as the entire chain of the company would be ideal for the company .
The company had 23654 stores in the year 2005 throughout the world out of which 1780 stores were in the UK. There were 12 countries where the internal operations of the company were spread. The company gained competitive advantage over the competitors and they tried to maintain that position. The company tried to do so, by incorporating innovations which was due to the demand of the customers. More over the company wanted to maintain a cordial as well as strong relation with the suppliers of the company so that they are able to get the goods on time and so that the company is able to deliver safe and sustainable product to the customers.

importance=

Tesco has suppliers on both a local and global scale. In the current economic climate, many customers want to buy products which can support their local business and economy. They are also concerned about food miles and the relative environment impact of the produce they chose (Christopher L. Weber and H. Scott Matthews, 2008). Therefore, it is necessary for Tesco to switch task on expanding local sourcing. This task can not only reduce the unit cost distribution year on year, but also lower the capital invested in vehicles. Besides, it can also produce positive effects on cutting down carbon footprint. On climate change, vehicles using for distribution to stores generate a major proportion of Tesco’s indirect carbon footprint. It is a big challenge for Tesco to address how it can respect on environmental limits. As Tesco continues to expand its business, it must reduce its environment impact at the same time. If the company is failing in controlling the emission of pollutants, the growth of brands will be destroyed.

difference=While logistics is concerned with what it is going to take for the company to actually physically create a product, marketing is concerned with how a product will satisfy a consumer. Marketing develops an idea for a product; the idea then goes over to logistics and logistics produces the product or service; then, the product goes back over to marketing for distribution to customers. If a business is creating a strategy, logistics decides the who's, what's, where's and when's, so that the strategy may be put into effect. Marketing creates strategies, but does not necessarily implement the strategies it creates.