Question

Tesco-Case Study

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 line are 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.

Case Study -Question

Tesco's important role in managing its vast product range and customer base?

Answer 1

Tesco Plc is a multinational general merchandise and grocery store and retailer having its headquarters based at Walwyn Garden City, Hertfordshire, England. The third-largest retailer (by revenues) in the world has a presence in 7 European and Asian countries.

Tesco plays a commendable tole in managing its vast product range and customer base and plays the role of facilitator, invigilator, organizer, manager, and resource provider among others. Tesco has more than 65, 000 stock keeping units, which are supported by around 3, 000 suppliers. Tesco requires that its supplier provide a service level of at least 98.5%, and can help the stores procure supplies in half-hour time windows. While invigilation and supervision are at its best, Tesco also facilitates customer satisfaction to ensure that its vast customer bases can buy the maximum number of products they need under one roof. Tesco organizes the supply chains and stores efficiently and more than 2.5 billion product cases reach the stores yearly.
Tesco’s management and business strategies also aim at improving the value delivered to the end customers, and the company aims to create lasting brand loyalty. That is why it emphasizes on store management aspects including high on-shelf availability and comprehensive product list. The Composite Distribution Centers of the company can handle a variety of products, at different temperatures. The highly capable centers have been estimated to handle up to 60 million cases each year when spreading across a 15-acre site. These centers are divided into different temperature zones, which ensures that the products are stored in ideal conditions. A balance is also created between the number of distribution centers and several stores connected to them so that excessive loads are absent and delivery, store, and procurement remain efficient and free from wastages. Deliveries are also made at the fixed and schedule times, to reduce ambiguity. The company also has specialized distribution centers for certain specialized goods, for instance, cans. Some units, depending on their characteristics, may reach to the shop floors directly.

The organization of stores and sales also uses technologies including the EPOS or Electronic Point of Sale technology and system. Sales are recorded automatically and are also updated on the Tesco Information Exchange (TIE). Suppliers are connected to the IT system as well, and hence the flow of information is smooth and speedy. Easy data access ensures that orders are made timely. Supply and procurement cycles are also broken into waves so that the same storage space at a distribution center can be used more efficiently and with the highest degree of cost-effectiveness.