ABOUT TESCO

Tesco deals in food retailing. The current retail position of Tesco is far removed from the origins of the company. Tesco made its name by the operation of a pile it high, sell it cheap’ approach to food retailing.price competitiveness was critical to this and fitted well with the consumer requirements of the time. The company and its store managers were essentially individual entrepreneurs. The growth of the company saw considerable expansion until by the early 1970s Tesco had 800 stores across England and Wales. This entrepreneurial approach to retailing, epitomized by the company founder sir jack Cohen, was put under pressure, however, as competition and consumer requirements evolved. and still therewas a down market image. Tesco therefore had to change.

Changes introduced in1977

• Initially the transformation was operation checkout.• Dramatically, trading stamps were removed from the

business.• Prices were cut nationally.(as the business received an

immediate boost to volume).• Stores were re-merchandized.• Different approach of Tesco retailing was viewed by

the consumer.• Beginning of better understanding its customers as

well as control its business.

Impact of change

• Due to the transformation of this retail however, brought into sharp focus and quality and capability of Tesco supply systems and its relationships with suppliers.

• Finally it moves away from its down market image.

Tesco’s Development

Initially the focus was on conforming out-of-town superstores, but since the early 1990s a multi-format approach was developed encompassing hypermarkets, superstores, supermarkets, city centre stores and convenience operations. Now the online retailing has become a major channel. Due to this developments Tesco corporate brand has been strongly developed and international ambitions have acelerated.

INTRODUCTION OF FOUR MAIN STRATEGIS REGARDING DISTRIBUTION AND SUPPLY CHAIN

AND OPERATIONS• Direct store delivery (before 1970s)• Centralization (from1970s)• Composite distribution (from1980s)• Vertical collaboration and lean supply chain

(from1990s).

Discussion on the strategies.

Direct to store delivery (DSD)Tesco in the mid-1970s operated a direct to

store delivery process. Suppliers and manufacturers delivered directly to stores. Store managers often operated their own relationships, which made central control and standardization difficult to achieve.

Advantages

• Absence of intermediators• Reduction in cost• Time saving

Disadvantages

• Inconsistency in product ranges• Quality was not maintained properly• Prices were inconsistent.• Availability is the essential factor.

RESULT

DSD system fell apart under the pressures of the volume increases of operation checkout.

CENRALIZATIONThe basis of this decision was the realization of the critical nature of

range control on the operations. Store managers could no longer be allowed to decide ranges and prices and to operate their own mini-empires.

Tesco replaced DSD by a centrally controlled and physically centralized distribution network and service delivering the vast majority of stores needs utilizing common handling systems, with deliveries within lead time of a maximum of 48 hours.

The introduction of centralization forced suppliers to meet Tesco’s operational demands and gave Tesco control over the supply of products to stores.

Centralization proceeded on a product line basis. By 1989 Tesco had 42 depots, of which 26 were temperature controlled.

Advantages

• It produced the necessary control over the business.

• Extension of company’s distribution facilities• Building of new distribution centres.• Aligned more appropriately with the current

and future store location profile.

DISADVANTAGES

• Quality control inspection at each location was expensive

• Each product group had different ordering systems

• Fresh foods were basically handled through single-temperature, single-product depots.

• Increased store receipt costs

COMPOSITE DISTRIBUTIONA strategy of composite distribution was planned in the

1980s to take full effect in the 1990s.A complication during this changeover was the need to ensure continuity of service to stores, made more difficult by the rapid growth of the business at this time.

Composite distribution enabled temperature controlled product i.e. (chilled, fresh and frozen) to be distributed through one system of multi-temperature warehouses and vehicles.

Composite distribution used specially designed vehicles with temperature controlled compartments to deliver any combination of these products.

ADVANTAGES

• Mentainence of freshness.• Customer satisfaction.• Opportunity to reduce the levels of stock.• In store availability.• Improvement in quality and reduction in

wastage.• Required comparatively lower capital costs.• Reduction in operational costs.

DISADVANTAGES

• Introduction is not a simple procedure.• Such changes are easy to list but hard to

implement and achieve.• It provides control over the one part of the

supply chain, but other parts remained untouched.

VERTICAL COLLABORATION AND LEAN SUPPLY CHAIN

It came into force from the late 1990s.There has been focus on vertical collaboration

and integration in the supply chain through an emphasis on a lean approach to supply chains, resulting amongst other things in ‘stockless’ distribution.

INITIATIVES

• Continuous replenishment• In-store range management• Network management• Flow through• Primary distribution

CONTINUOUS REPLENISHMENT

CR was introduced in 1999 and has two key features. These are, first, a replacement of batch data processing with a flow system, and second using the flow system, multiple daily orders are sent to suppliers allowing for multiple deliveries, reducing stock holding through cross-docking and varying availability and quality.

IN-STORE RANGE MANAGEMENT

• Based on customer behaviour data and stock-holding capacity analysis at store, Tesco produces store-specific planograms and store-specific ranging. Tesco provides the exact stock requirement for specific shelves in specific stores to its out-replenishment system.

NETWORK MANAGEMENT

Network management integrates and maintains the network assets and extends the life of the system. New sites add to the capacity of the system. The frozen element of the composite system had been centralized in a new frozen centre, allowing chill and ambient expansion in the released space. Cross-docking is used at regional centres for frozen and slow-moving lines.

FLOW-THROUGH

Flow-through or cross-docking is now more extensive. Product storage is much reduced. Increasingly distribution centers have no racking and do not store product; they are essentially ‘stockless’.

PRIMARY DISTRIBUTION

Primary distribution is the term Tesco prefers for factory gate pricing ,seeing the process as a strategic change in the way goods flow…however cost reduction is a key driver behind the interest in primary distribution.

TESCO’S CURRENT POSITIONThe Tesco supply chain network is well documented in IGD (2008). This

report shows that in 2007 there were 29distribution depots, with a warehouse area of 8.45 million square feet and annual total case volumes of 1.93 billion. Centralized distribution accounts for 95 percent of the volume. Of these 29 depots, 23 are now run in-house by Tesco and the remainder are contracted to Wincanton (four) and DHL- Exel (two). National distribution centres (seven) are combined with Regional Distribution Centres (10), composite Distribution centres (1) and Temperature controlled Depots (11). In addition there are five trunking or consolidation sites run by Tesco (managing non-food, slow-moving grocery and beers, wines and spirits lines) and further 17 shared user consolidation centres operated by a variety of out sourced companies that feed into this system. The core network operates over 2,000 vehicle units and 4000 trailer units, covering 659 million km per annum.