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Executive Summary of the Tesco Company

The objective of the report is to critically analyse the logistic functions in the recently opened food outlets of TESCO, UK's most significant multiple shop in Central European countries, Thailand and the more recent "Fresh and Easy store" in United States of America as contrary to the more developed logistic operations in the UK.

For the purpose of creating a critical analysis, we've first analyzed the procedures of TESCO in United Kingdom starting with the original supply chain businesses and then a gradual advancement of a powerful and efficient resource chain. Next we evaluated the operation strategies adopted to keep up and control the international businesses and the issues confronted by Tesco to keep a steady global brand image.

It was found that in order to keep up a consistent service delivery system across the globe; Tesco has been making necessary changes in the service operations like international warehouse management, constant replenishment policy, and international logistics. The changes made have been around in accordance to the legal and cultural sensitivity of the overseas country.

The maintenance of international logistics has been critical for Tesco and with the geographical growth it is very important for Tesco to adjust to intermodal intercontinental mode of transportation. It's advocated that Tesco develop knowledge in sea freight move by developing dock outs close to sea shoreline in abroad countries and then carrying goods from docks to the particular central warehouse devices. This will help in achieving inexpensive and effective freight cost taking into consideration the situation that Tesco sources both locally and internationally.

Highly advanced IT and IT systems have given Tesco a competitive edge over the competitors on a global program and has helped Tesco in increasing the overall resource chain profitability. Using the expansion happening across the continents it is important for Tesco to keep up consistent service functions across the globe. This can be done by developing remote station controlling and checking of activity of goods by latest RFID and satellite sensing technology. Tesco need to develop dual monitoring system both on nationwide and international level. With the use of upscale Warehouse management system, international fleet management systems and the ERP systems in conjunction with remote sensing technology, Tesco can screen and control international functions.

1. 0 Introduction

TESCO was founded in the entire year 1924 by John Edward Cohen. The name TESCO comes from the initials of Cohen's tea supplier T. E. Stockwell combined with first 2 letters of Cohen. Cohen is considered to be the biggest retail revolutionary accountable for several small revolutions which has led to the current retail industry. Tesco:OurHistoryHYPERLINK "http://www. tescocorporate. com/plc/about_us/tesco_story""

TESCO is one of the biggest retailers on the planet operating around 2491 stores and using over 350, 000 people worldwide with earnings exceeding 3 billion. The UK is the company's largest market while it has recently broadened their operations in Central Europe, Thailand and just lately in US under the name of "Fresh & Easy". In United Kingdom, TESCO manages under four banners of Extra, Superstore, Metro, Express, One Stop and Homeplus.

As of February 2009, Tesco's UK store portfolio was as comes after[1]

Format

Number

Total Area(sq legs)

TESCO Extra

177

12, 622, 000

TESCO Superstores

448

13, 433, 000

TESCO Metro

174

2, 025, 000

TESCO Express

961

2, 125, 000

One Stop

512

672, 000

TESCO Homeplus

10

408, 000

Total

2306

30, 877, 000

Source: Tesco PLC, Analyst Pack, Apr 2009

TESCO is detailed on London Stock Exchange under the sign TSCO and has a second list on Irish STOCK MARKET with the name TESCO PLC.

Tesco international procedure was in line with the vision of Tesco to become a global retail house. It moved into into joint projects with local partners, like SAMSUNG group in Korea and Charoen Pokphand in Thailand; and yes it started its US operations under the name of "Fresh and Easy". The US operations were intended to be a direct competition to the Walmart. Tesco now operated in Ireland, Czech Republic and Poland as Central European countries operations, Thailand, South Korea, China, and Japan as Asian Procedures and recently joined into US.

2. 0 TESCO Logistic Strategy

Initially under Cohen, TESCO sailed on the theory of "Pile it High, Sell it Cheap"[ Corina, M (1971)]. The idea was encouraged from the united states retail format where bulk procurement was done leading to low cost and therefore better revenue realization. However, with the changes in macro environment and increasing competition from other retail stores, there was decrease in profit margins and the company was remaining with tarnished brand image. Hence under management of MacLaurin, who been successful Cohen, TESCO made a decision to bring in important, radical and remarkable changes available operations and a company re-engineering was finished with a focus to develop an efficient and efficient supply string aided with the ground breaking consumption of technology. (Tescocorporate. com, Record)

Currently, Tesco functions both local and global sourcing. There has been continuous progression in the syndication and procedure strategy of Tesco which may be break up majorly into four phases. First was the time when there is direct delivery from the suppliers to the stores, this transformed into centralized regional syndication system as the second move in the overdue 1970's. The third move was a amalgamated distribution strategy in the late 1980's and in the 1990's it was the vertical collaboration in the source string as the fourth move.

Under its vertical collaboration strategy, the emphasis has gone to streamline the resource chain techniques with the utilization of technology and sharing of information over the supply chain to develop a highly effective and efficient source chain. Sharing of information with the suppliers started in 1997 with the establishment of commercially secure data exchange system predicated on the internet to aid the suppliers with the info on the existing inventory holdings.

This was used with examination on the primary distribution (supplier to circulation centre) to implement changes that added online value over the whole supply chain. After the primary circulation was stabilised, there was business motivation to help make the logistics and flow of materials streamline to generate further cost-benefit competence. This resulted in negotiation of more competitive distribution rates. This process of constant change and improvement has resulted in radical reduction in the lead time to stores and from suppliers.

2. 1 Value chain Analysis

2. 1. 1 Inbound Logistics

This is the first step in the worthiness string, thus posses the first value creating opportunity. Tesco phone calls this as the primary distribution and the activities include receipt of goods at the warehouse from the suppliers, internal handling and circulation to the stores and lastly placing the goods on display at the shelves. Quality control steps are used at every point to ensure that the clients get true value for money and the pointless costs aren't transferred to the customers.

2. 1. 2 Operations

Operations form an essential and critical area for the clean functioning of Tesco. The duties involve daily inventory management, shelf screen and stock management to ensure competitive benefits.

2. 1. 3 Outbound Logistics

This consists of delivery to the client. Tesco offers convenience to the clients by giving them home delivery. Also efforts are made to improve trolley space, parking facilities and other tangibles to maximise feel good for the customers.

2. 1. 4 Marketing and Sales

Through the clubcard initiative, Tesco has effectively engaged dedicated customer platform and attract more customers by heavy advertising through radio, local newspapers and Television. Tesco has also started their green initiative as a corporate and business interpersonal responsibility and branding itself as a inexperienced and sensible company in the sight of the client.

2. 2 Tesco Logistics: UK

Tesco holds a commanding 13% share in UK retail market. The emphasis has gone to grow talk about in food while increasing the area contribution in hypermarkets.

Tesco, at this time of time come to the optimum degree of supply chain efficiency and the logistic businesses are actually benchmarked by the competitors. Presently stock is inspected every day on a genuine time basis and based on the inventory, orders are refined centrally. Production schedule plans are prepared and the same is then transferred from deport to the store after endorsement of depot in control. Jones and Clarke (2002)

Fig1. Inventory Management, Tesco Source: Fernie and Sparks 2004 edition

2. 3 Constant Replenishment: UK

CR launched in 1999, changed the batch data processing with a continuous circulation system and then multiple requests are delivered to the suppliers thus lowering stock positioning and better inventory control. Through this, the chance of high inventory handed to the suppliers. The suppliers received the orders as per the requirements more often than once a day through the central batch control unit. The exact same were then prepared by the suppliers and then put together according to the batch purchases at the Tesco depot. Multiple deliveries are then designed to ensure effective fleet usage and faster replenishment.

Fig2. CR for Tesco Source: Fernie and Sparks 2004 edition

The motion of goods happens through largely highway and railways in the UK. In 1997, Tesco started using canal function of transport to dispatch goods between Manchester circulation facility and Liverpool. The movement happens between a central warehouse and the local depots based on the batch requests generated through the central control unit on a regular basis. The inventory is taken care of by showing the inventory position data with the suppliers on a genuine time basis. The control of stock levels is made certain so that no person runs out of any goods. By writing the information, chances of bullwhip effect are reduced and genuine forecasting and program planning is done. [Gustafsson K, J¶nson G, Smith D and Sparks L (2006)]

2. 4 Overseas Operations

By 2003, Tesco has started functioning effectively in Ireland, Slovakia, Hungary, Poland, Czech Republic, Thailand and South Korea. It really is evident from the 2003 total annual survey of Tesco Plc that overseas operation now accounts for almost half the Tesco retail space and nearly 20% of sales (Tesco Plc Annual report, 2003). Handling international operations is a task for Tesco. With the experience of managing a competent supply chain in the UK, Tesco has had the opportunity to replicate the operation abroad in a similar manner. However there has been change in procurement strategy. Tesco has designed to local and global sourcing strategy. Tesco has had the opportunity to utilize the local skill and resources and also managed to maintain a consistent global brand image. Local Procedure and distribution is done through rail and street between a central distribution center and the stores. In addition, it uses sea transportation to source products from global suppliers, thus maintaining a consistency. The principal distribution is stored similar as the UK operations and the utilization of it has empowered Tesco to optimize the supply chain activities and boost the supply string value internationally as well.

Tesco unlike its UK procedures has deviated from the just with time inventory management. To streamline the overseas operation they have determined local manufacturers to develop a cost effective competence over the competitors. The globally sourced products are bought in bulk according to the fright management system and therefore delivery of such products happens as per the stocks degrees of the central control units. Moreover, there were legal bindings under the meals and beverage laws and regulations of the various overseas countries and therefore Tesco has to effectively manage as per the differing trade and labour laws.

Due to global sourcing there has been change in the Continuous Replenishment insurance policy as implemented by Tesco in the UK. The replenishments of globally sourced goods do not happen on a daily basis. The near future demand of such goods is anticipated in advance and thus they are procured in bulk and transferred through intermodal businesses to maximize the overall supply chain profitability.

With the starting point of international functions, Tesco has became aware the necessity of technology improvement and the high range information systems to maintain and take care of the global businesses. The recent use of RFID technology has enabled Tesco to keep track of and find the shipments and the neighborhood transportation instantly. Also, the ERP systems have been in place to improve the supply string value globally as well. However, to maintain the international criteria and global brand image, there's been high cost incident on the transportation of goods procured from the international suppliers, thus leading to low margins in some instances. But with useful company management program and real-time posting of information with the suppliers high travelling cost has been offset with the overall increase in supply chain success.

Strategic Changes made to include international operations

Heavy investment is engaged to broaden geographically and there is need to provide cross ethnical training to the employees.

International sourcing from standard suppliers is shipped to the new locations through sea transport.

RFID technology implemented to track and find the shipments.

Utilization of local individual and natural resources to attain better margins.

Hub and spoke model put in place to build central warehouses and docks close to sea and then transporting the same to the faraway locations.

Forecasting and demand estimation done centrally and the inventory details distributed to the suppliers on a genuine time basis to ensure low inventory holding cost.

Multiple deliveries from the suppliers ensured fast replenishment and zero stock out situations.

3. 0 Travelling Policy

Tesco sources both locally and globally. With the geographical expansion of Tesco to Central Europe, Asia and lately in US, it has been a challenge to control the transport and distribution of goods at the new locations keeping the product quality consistent to that of the global image of Tesco. [Anderson, D. L. , Britt. F. E. , and Favre. D. J. (1997)]

Risks associated with international logistics and transportation (Zhihui Tune, Apr 2005)

Easy to lose control of operation and movements

Increase in paper work and documents binding to different legal and taxation in abroad countries.

Risk of delays in obtaining and entrance of goods internationally.

Difficult to trade and trace as the idea of action is remote.

There can be discord in the traditions and culture of the abroad country,

Lack of infrastructure capacities in the hose pipe country which may hamper the easy movements of goods

3. 1 Rail Freight

With the extensive rail reach in some of the abroad countries rail freight proves to be a cost-effective on bulk purchasing and low value goods. This setting of transport is low on rate and thus need to be used in sluggish moving goods and in cases where demand forecasting is accurate for a longer period of your energy. However there is a limitation in this function because of the slow acceleration and inflexible service. But rail cannot be entirely be relied as a travelling method as the last mile needs to be road.

3. 2 Sea Freight

With the physical expansions, sea freight offers an inexpensive mode of operation. The service however is poor but there is not hard and quick availability of service due to the regular routes and service offered. There is a delay induced in this function of travelling as it included additional investment in growing port infrastructure for launching and uploading of goods.

3. 3 Road Freight

Road freight should be put in place as a result of the strategic decision to ensure a balance between velocity and responsiveness of the inventory management. Highway Transport offers an easy and regular service but this is often a relatively expensive method of transportation. This is used in combo with move on and rotate off ferry services to cover intercontinental journeys.

3. 4 Transportation Model for International and Country wide Operations

For the nationwide distribution of goods, Tesco has been pursuing intermodal transportation policy using rail, street and canal as method of transportation. It comes after a hub and opportunity model where in central warehouses are taken care of and through them the goods are delivered to the local stores. Inventory at both warehouse and local stores is tracked by the central processing device. Inventory reports are produced on a real time basis in the neighborhood stores and in case of inventory falling under safety limits, warehouse is informed and the stock is dispatched. Freight management system is set up which makes sure that minimal cost incurring vehicles is preferred. [Bearnon, B. M (1998)]

For the international businesses, Tesco should look for standardizing their suppliers on an international level. A similar hub and spoke model can be executed. The warehouses can be suitably located near the sea shoreline as dock products to ensure that the international equipment can be preserved on a relatively cheaper setting of sea transfer. The decision of the dock units need to be made depending on the commercial and labour laws to ensure maximum profitability of the whole supply chain. Central warehouses can be preserved depending upon the positioning of the ultimate local stores. An extended hub and spoke model can be recognized with the goods being transferred from the dock products to the central warehouse and then finally to the finish stores.

End Store

Central Warehouse

Dock Products: Close to sea

End Store

Dock Systems: Near sea

Central Warehouse

End Store

Dock Models: Close to sea

End Store

Fig3. Travelling Model for international and national operations

4. 0 IT: Critical Factor

Information Technology now discovers itself as an essential activity for just about any world class company operating in virtually any field, technology or sector. It really is now used as a means of competence above the competitors. IT has been utilized by organizations to restructure and re-engineer the circulation set up to achieve higher service standard, appropriate creation planning and demand forecasting thereby achieving low source chain cost and high supply chain profitability. The recent breakthroughs in the info Technology enable the organizations to have a real time track and management of stock inventory at each degree of the supply chain thereby elimination of any potential for information mismanagement and bullwhip effect. IT infrastructure now provides competitive position to a company through reduced amount of cycle time, execution and free move of cross functional information. [Smith, W B (2000)]

Companies have finally gone into maximum vertical and horizontal integration of resource chain levels by participating into strategic tie ups with the suppliers, wholesalers, marketers and retailers. This inter organizational development of resource string has been allowed by strong IT infrastructure, thus providing three specific benefits of [Mishra R K (2004)]

Cost Reduction

Higher Productivity

New product/ Market Strategies

Source: Jim Rowley and Julie Williamson, Conventry University

Typical supply chain as in case there is Tesco can be split into 2 subchains. The first can be called as motion supply chain. This involves movement of organic materials from suppliers to the business shop floor, cross functional motion of work in progress goods and the ultimate movement of done goods from warehouse to the retail stores. The other part of the supply string is forwards and backward information stream. The later subchain of information flow is rather more complex than the forward movement of the product from assembly brand to the ultimate retailing stage because of the integration of the multiple celebrations involved in the complete supply string. Critical concern is of providing the right information at the right time at each level of the source chain, failure which leads to passing of erroneous information over the supply chain which gets cascaded at each level. [King, J. (2000)]

Also the use of strong IT infrastructure and advanced software services have helped Tesco in figuring out the usage habits of the end customers and has aided in developing a strong faithful customer base. This has helped in exact demand forecasting, low inventory levels and an efficient creation scheduling.

Some of the advanced technological developments occurring across different industries can be listed below

Electronic Business: Along with the upsurge in internet savvy customers and continuous concentrate on providing convenience to the customers, organizations have resorted to conduction of business in a paperless environment. This involves emails, electronic digital money transfer and purchasing and selling of goods and services electronically on internet. This also includes quick and paperless mix functional movement of documents.

Bar coding and Scanner: That is one of the most frequent technological growth in the retail industry and is seen at the checkout counter of the shops. The bar rules bring full information of the merchandise, information on suppliers and the whole product life circuit details.

Data Warehouse: Data Warehouse refer to the consolidated database management of the company's entire creation system databases. This can be used in making analytical and proper decisions like demand estimation, development planning and forecasting by the most notable management of the firms.

Enterprise Source Planning tools: The SAP, Oracle ERP system varieties backbone of the IT infrastructure of virtually all the fortune 500 companies. These systems provide complete end to end highly optimised source chain process moves that reduce the manual activities and assist in achieving automated stream of information across the complete chain.

With well prepared IT infrastructure, Tesco has developed a competitive advantage against the rivals. Sharing of information with the suppliers at Tesco were only available in 1997 with the establishment of commercially secure data exchange system based on the internet to accomplish the suppliers with the info on the current inventory holdings. This aided the suppliers to truly have a real time tracking of the mandatory inventory at the development center and the warehouse of Tesco, thus low inventory retaining cost for Tesco and better demand estimation for both Tesco and the suppliers.

With the use of IT, Tesco has become a market head in UK, but with the globalization and geographic growth, Tesco faces an effort to keep an eye on and deal with the supply chain activities in the abroad location as well. For successful monitoring and effective control it is very important for Tesco to develop remote monitoring systems you can use to keep tabs on and discover the activity of goods locally and internationally. These distant monitoring applications have to be in constant with the prevailing policies and the source string activities of Tesco, UK. The real time monitoring can be done by using satellite television monitoring and tracking of movement of goods by utilizing RFID technology, ERP systems to monitor the procurement, order handling and overseas dealer management, warehouse management and fleet management systems.

International Warehouse Management System will help in providing buffer between resource and demand considering the fact that Tesco resources products and goods both internationally and internationally. It can develop international stock retaining facilities by which the products can be transported efficiently and financially to the remotely located retail outlets. This may also help Tesco to keep good dispatch facilities and warehouse operational activities.

Developing a global Fleet Management System is needed for permanent reliability of vehicles. It will help in preserving scheduling, vehicle maintenance and traffic monitoring. This will help in international movements of goods across edges efficiently and economically,

Electronic data systems have to be deployed to fully capture essential data of customers like customer details, use habits, order sizes and order details like product and variety. This can be done by by using a database system to choose customers delivery, past shopping details across the different countries where the customer has shopped and thus creating a digital report of the special requirements if any of the customer.

5. 0 Conclusion

The report thus highlights on the critical evaluation on the changes in the resource chain procedures especially international logistics and Information Technology up gradations in order to maintain consistent service delivery. Tesco need to adapt as per the legal and culture of the international countries, hence need to maintain global monitoring and controlling mechanisms to trail the cross continent motion of goods and therefore achieving maximum resource chain profitability. While using adaptation to international logistics and high level information technology systems, Tesco can replicate the success in the united kingdom on a global platform as well.

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