CASE STUDY: Tesco PLC…

CASE STUDY:

Tesco PLC

Tesco_PLC_is_the_UKs_largest_food_retailer,_with_a_revenue_of_about_65_billion_(excluding
the Tesco Bank business) for the financial year 201213. As illustrated by
Table 1.1, Tesco has grown into a global business since the mid-1990s and now
has approximately_7,000_stores_across_12_countries_in_the_USA,_Central_Europe_and_Asia,_
employing_over_530,000_people._The_number_of_stores_in_the_UK_alone_has_risen_rapidly_from_2,300_in_2010_to_3,146_in_2013,_in_part_due_to_the_opening_of_further_Tesco_
Express_ stores_ (smaller_ convenience_ stores),_
54_ of_ which

CASE STUDY:

Tesco PLC

Tesco_PLC_is_the_UKs_largest_food_retailer,_with_a_revenue_of_about_65_billion_(excluding
the Tesco Bank business) for the financial year 201213. As illustrated by
Table 1.1, Tesco has grown into a global business since the mid-1990s and now
has approximately_7,000_stores_across_12_countries_in_the_USA,_Central_Europe_and_Asia,_
employing_over_530,000_people._The_number_of_stores_in_the_UK_alone_has_risen_rapidly_from_2,300_in_2010_to_3,146_in_2013,_in_part_due_to_the_opening_of_further_Tesco_
Express_ stores_ (smaller_ convenience_ stores),_
54_ of_ which_ opened_ over_ a_ 6-month_
period_in_2013._Whilst_Tesco_PLC_is_now_undeniably_global,_with_more_than_half_of_
the_ stores_ outside_ the_UK,_ the_UK_
business_ still_ dominates,_ accounting_for_
around_ two thirds of the revenue. With this in mind, the remainder of
this case focuses on Tesco_UK. Tesco states that its new core purpose is
we make what matters better, together. This reflects that society desires
business to demonstrate that it has a purpose beyond profit a sense that
large companies should be contributing more to tackling some of the big
challenges. The world has changed from a culture of more is better to one of
making what matters better. As a responsible corporate citizen in the area of
logistics_alone,_Tesco_is_the_UKs_market_leader_in_the_use_of_biofuels_and_works_hard_to_
reduce its CO2 emissions per case delivered, through initiatives including
rail, barge and alternative fuels. The company also buys considerable numbers
of double-deck trailers to move more cases per trip. Consistent_with_the_multi-channel_approach_(discussed_in_Section_2.1.2),_Tesco_UK_
operates_an_online_Tesco_store_(Tesco.com),_where_its_full_range_of_products,_estimated_
at_around_75,000,_is_available._Indeed,_now_50_cities_outside_
the_UK_have_access_ to this service. Through this
growing channel, products can be delivered direct to the customers home or, by
using Click and Collect, the customer nominates a convenient Tesco_store_
(or_drive-through)_from_which_ to_collect_
their_shopping._Whilst,_ typically,_ Tesco_online_orders_are_picked_from_stores_open_to_customers_(rather_than_distribution_
centres),_Tesco_UK_is_beginning_to_establish_dot-com-only_stores,_and_in_2013_five_such_
stores had been opened. The product range held by the stores has grown rapidly
in recent years as Tesco broadens its presence in the non-food market for
electrical goods, stationery, clothing and the like. This massive range is
supported by thousands of suppliers, who_ are_ expected_ to_
meet_ agreed_ service_ levels_ (correct_ time_
and_ quantities)_ by_ delivering_ to_Tesco_within_
specific_ time_windows._In_England_ alone_270_
suppliers_ are_supplying_over_1,250_products_each._Volumes_are_impressive_with_over_2_billion_
cases_of_product_shipped_from_suppliers_to_the_stores_each_year._Indeed,_part_of_the_
Tesco business model is a virtuous circle where Tesco develops economies of
scale, which allows it to invest in offers for customers, which in turn leads
to Tesco selling more, and so on. So_how_does_Tesco_maintain_high_availability_of_so_many_product_lines_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.

Material flow from suppliers to stores

An early reform for supermarket operation
was to have suppliers deliver to a depot rather than to every store. During the
1980s, distribution to retail stores was handled by_ 26_ depots,_
which_ operated_ on_ a_ single-temperature_
basis,_ and_ were_ small_ and_ relatively
inefficient. Delivery volumes to each store were also relatively low, and it
was_not_economic_to_deliver_to_all_stores_each_day._Goods_that_required_temperaturecontrolled_
environments_had_ to_be_carried_on_
separate_vehicles._Each_product_group_ had
different ordering systems. The network of depots simply could not handle the
growth in volumes and the increasingly high standards of temperature control. A
new distribution strategy was needed. Many small depots with limited
temperature control facilities were replaced by fresh food depots 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 fresh
food depot can handle over 80 million cases per year on a 40-acre site. The
warehouse_building_comprises_36,000_square_metres_divided_into_3_temperature_zones:_
25C_(frozen),_1C_(chilled)_and_12C_(semi-ambient)._Each_depot_serves_a_group_of_
between_50_and_500_retail_stores._Delivery_vehicles_for_fresh_food_depots_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 using a combination of inhouse and outsourced logistics. Grocery and
non-food goods, such as cans and clothing, are delivered separately. In_
recent_years_ Tesco_has_ established_four_
store_formats_ _Extra,_ Superstore,__Metro_
and_ Express_ _ which_ vary_ dramatically_
in_ size_ from_ 5,500_ square_ metres_
(Extra)_ to_ 280_square_metres_(Express),_stock_accordingly_varying_product_ranges_and_are_located_
in_different_locations_from_out_of_town_(Extra)_to_city_centre_(Express)._This_diversification
presents major challenges to supply chain management. For instance, delivering
to a_Tesco_Express_in_the_middle_of_London_will_require_frequent_small_deliveries_using_small_
vans_facing_restrictions_in_delivery_times._On_the_other_hand,_a_Tesco_Extra_will_require_
lorry_load_deliveries_of_a_much_wider_product_range_(Tsinopoulos_and_Mena,_2010).

Information flow

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_re-order_across_the_whole_range_(store-based_
ordering)._Instead,_sales_of_each_product_line_are_tracked_continuously_through_the_till_by_
means_of_electronic_point_of_sale_(EPOS)_systems._As_a_customers_purchases_are_scanned_
through the barcode reader at the till, the sale is recorded automatically for
each stockkeeping_unit_(SKU)._Cumulative_sales_are_updated_every_four_hours_on_Tesco_Information_
Exchange_(TIE)._This_is_a_system_based_on_internet_technology_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._Amongst_other_things,_TIE_aims_to_improve_processes_for_introducing_new_
products and promotions, and to monitor service levels. Based on 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 de-stock their depots by ordering only what was needed to meet
tomorrows 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
depot: no stock is left after store orders have been fulfilled. This means that
the same space in the depot can be used several times over. Deliveries to
stores are made in two waves, at specific times and within defined windows.
This helps to improve product availability at stores throughout the day, and
thus support changes in demand. Updated_by_Joe_Thomas_(Tesco)_2010_and_through_access_to_the_Tesco_PLC_website_(www.tescoplc.com),_
October 2013

Questions

1 Describe_the_key_logistics_processes_at_Tesco_UK.

2 What_do_you_think_are_the_main_logistics_challenges_in_running_the_Tesco_UK_operation?

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