TESCO CASE STUDY IN LOGISTICS | Schemes and Mind Maps Business Economics

4 Chapter 1 •

Logistics

and the supp lychain

----

terns it will use;

manageria

beca

use it

compas

ses deci

sions

about

sourcing,

making

delivering

produ

cts

and

erv

ices

within

erall 'ga me pla

This

chapter

addresses

four

key issues:

1 l

istics and

the

supply

cha

in: definitions, structure, tiering.

Materi

al f

low

and

inform ation fl

: the supplychain and

the

ema

nd chain.

3 C

ompe

ting

through logi

ics: competitive criteria in t

marketplace.

4 l

istics

str

egi

es: aligning capabilities across

the

supply chain.

1.1

Logistics

and

the

supply chain

Key

issues:

What

the

supply

chain,

and

how

is it

structured?

What

the

pur-

pose

of a

supply

chain?

Logistics is a big word for a big c

lle

nge

. Let us begin by giving an example of

cha

lle

e in practice,

because

that is

where

logistics starts

and

en ds.

Tesco

Iesc o is the

's largest food retailer, with a sales turnover of more than €67.5

bill

ion.

While it has some 638 st ores in central Europe, and some 636 in the

Far

st, most are

in the United Kingdom and Northern Ireland, where it has nearly 1,800. This number

has increased rapidlyas r

escc

entered the convenience store market with deals such as

the Tesco Express alliance with

Esso

to run grocery shops at petrol stations. The prod-

uct range held by the stores has g rown rapidly in recen t yea rs, and curr

ent

ly stands at

65,000 stock-keeping units (skus) depending on the size of the store as resco broadens

its presence in the 'non-f

ood'

market for electrical goods, stationery, clothing and the

like. This massive range

supported by 3,000 suppliers, who are expected to provide

service

level

s (correct time and quantities) of at least 98.5 per cent by delivering to

Tescowithin ha

-hour time 'wind ows'.

lumes are equ

ally

impressive. In a year, some

2.5 b

ill

ion 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

fe-

time loyalty'.

de product range and high on-shelf availab

ity across that range are

key ena blers 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 loo k at how Tesco deals with each of these in turn .

early reform for supermarket operation was to have supp liers deliver to a d istr

bution centre rather than to every store. During the 1980s, distribut ion to reta il stores

was handled by 26 depots. These operated on a

ngle-temperature basis, and were

small and relatively ineff

ici

ent.

Deli

very volumes to each store were also relatively low,

and it was not economic to deliver to all stores each day. Goods that required tern-

perewre-controned environments had to be carried on separate vehicles.

ch product

group had different ordering systems. The network of depots simply cou ld n

handle

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4 Chapter 1 • Logistics and the supply chain

terns it will use; manageria l, beca use it en compas ses deci sions about so u rcin g, making an d delivering produ cts and serv ices within an ov erall 'ga m e pla n'.

This chapter addresses four key issues: 1 l og ist ics an d the supply cha in: def initions, structure, tiering. 2 Materi al f low and info rm at io n fl ow : the supply chain a nd the d ema nd chain. 3 Compe ting t h ro ug h logist ics: competitive criteria in t he marketplace. 4 l og istics str at egi es : a ligning capabilities across the supply chain.

1.1 Logistics and the supply chain

Key issues: What is the supply chain, and how is it structured? What is the pur- pose of a supply chain?

Logistics is a big wo rd for a big c ha lle nge. Let us beg in by giv ing an exam ple o f t ha t cha lle nge in pract ice, because t ha t is where lo gistics sta rts and en ds.

Tesco

Iesc o is the UK 's largest food retailer, with a sales turnover of more than € 67.5 bill ion. While it has some 638 stores in central Europe, and some 636 in the Far Ea st, most are in the United Kingdom and Northern Ireland, where it has nearly 1,800. This number

has increased rapidly as rescc entered the convenience sto re market with deals such as

the Tesco Express alliance with Esso to run grocery shops at petrol stations. The prod- uct range held by the stores has g rown rapidly in recent years, and current ly stand s at 65,000 stock-keeping units (skus) depending on the size of the store as resco 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 level s (correct time and quantities) of at least 98.5 per cent by delivering to Tesco within ha lf -hour time 'wind ows'. Vo lumes are equ ally impressive. In a year, some 2.5 b ill ion cases of prod uct are shipped from suppliers to the stores. Tesco states that its core purpose is 'to create value for custo mers to earn their li fe- time loyalty'. Wi de prod uct range and hig h on-shelf availab il ity across that range are key ena blers 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. An early reform for supermarket operation was to have supp liers deliver to a d istri- bution centre rathe r than to every store. During the 1980s, distribut ion to reta il stores was handled by 26 depots. These operated on a si ng le-temperature basis, and were small and relatively ineffici ent. Deli very volumes to each store were also relatively low, and it was not economic to deliver to all stores each day. Goods that required tern- perewre-controned environments had to be carried on separate vehicles. Ea ch product group had different ordering systems. The network of depots simply cou ld n ot hand le

Logistics and the supply chain 5

the growth in volume and the increasingly high standards of temperature control. A new distribution stra tegy was needed. Unde r the 'composit e' d istributio n system, many small depots with limited te mpe ra- tu re con trol facilit ies were replaced by composite d istrib ution centres (called regiona l d istribution cen tres, RDCs), which can han dle many products at several temperatu re ranges. The oppo rtunity is to provide a cost-ettectfve daily delivery service to all stores. Typically, a composite distri but ion centre can hand le over 60 million cases per year on a t s -acre site. The wa re house bu il d ing comp rises 25.000 square metres divided into th ree temperatu re zones: frozen ( -2Ye), + 2°C (chilled) and + 12°C (semi-ambient). Each distribution centre (DC) serves a gro up of between 100 and 140 retail stores. Delivery vehicles fo r composite depots can use insulated trailers divided into chambers by means of movable bulkheads $0 they can opera te at different temperatures. Deliveries are made at agreed. scheduled times. Ambient qocds such 03$ cans and cloth- ing are delivered through a separate grocery distribution network. which relies on a stocked environment where orders are picked by store. Thi$ operation is complemented by a streteqlcany located trunking station which operates a pick to zero ope ration for fest-movinq grocery on merchandise units that can be placed directly on the shop floor. So much for the method of transportrnq qoods from supplier through to the stores, but how much should be sent to each store? With such a huge product range today, it i$ impossible fo r the individual store to reorder across the who le 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 customer's purchases are scanned th ro ugh the bar cod e reader at the ti ll, the sale is auto matically recor ded for each sku. Cumulative sales are upd ated every fou r ho urs on jescc Info rmation Exchange (TIE). This Is a system based on Internet Protocol that allows Tesco and its suppuers to com municate tradi ng information. The aim of im proved co mmunication Is to reduce response um es from m anufactu rer to stores and to ensure prod uct availability on the shelt. Amon g other thing s, TIE aim s to imp rove processes for introd ucing new products and promotions, and to m onit or service levels. Based on the cum ulative sales, 'resco places orders w it h its suppliers by means of elec- tr onic data i nt erchange (EDI). As volumes and produ ct ranges increased d uring the 1990s, food retailers such as 'te sco aim ed to destock their distribution centres by order- ing only wh at w as needed to meet t omorrow 's fo recast sales. For fast-m oving pr odu cts such as ty pes of cheese and washing powders, the aim is day 1 for day 2: th at is, to orde r today what is needed f or tom orr ow. For fast-mov ing pr odu cts, th e aim is to pick to zero in the di stribu tion cent re: no stoc k is left after sto re orders have been fulfilled and deliveries to sto res are mad e as soon as th e produ ct is picked, wh ich increases the stoc k availability for th e customer. The flow of the prod uct int o the d istribution centre is broken int o four w aves and specific produ cts are delivered in diffe rent cycles th rough the day. This means that th e same space in th e d istrib ution cent re can be used several ti mes over.

Questions 1 Describe the key log ist ics processes at res co. 2 Wh at do you thin k are the main logistics challenges in running the Tesco operation?

TESCO CASE STUDY IN LOGISTICS, Schemes and Mind Maps of Business Economics

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Partial preview of the text

Download TESCO CASE STUDY IN LOGISTICS and more Schemes and Mind Maps Business Economics in PDF only on Docsity!

1.1 Logistics and the supply chain

Tesco

has increased rapidly as rescc entered the convenience sto re market with deals such as