Logistics and Supply Chain Considerations for Tesco Research Proposal

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Logistics and Supply Chain Considerations for Tesco

Logistics and Supply Chain Recommendations for Tesco

In defining how Tesco can be as efficient and profitable possible in their expansion throughout the United States (Economist, 2007) the company must make a series of strategic decisions that will in turn lead to stronger logistics execution throughout their supply chains for years to come. The Economist article, Fresh, but Far From Easy (Economist, 2007) provides a thorough overview of the expansion of Tesco beyond its operations in Europe to the Western United States. It further illustrates the many supply chain strategic-level challenges that the company will face, operating in a country where quantity, volume, and make-to-stock products dominate over a larger number but smaller quantity of products, specifically ready-to-eat meals, which are the case in the United Kingdom. What Tesco must do is concentrate on the efficiencies learned from operating in Europe, and translate those efficiencies into the much broader and more diverse supply chains they will have to create, maintain and optimize over time in the western United States. It is the intent of this analysis to provide guidance to Tesco in their transition from supply chains that have shorter timeframes of execution and many more suppliers to much more complex supply chains with potentially longer order, fulfillment and service cycles.

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TOPIC: Research Proposal on Logistics and Supply Chain Considerations for Tesco Assignment

Strategically, Tesco needs to first create a demand-driven supply network (Barrett, 2007) that is more aligned to forecasts, order histories and customer demands than on internal needs of efficiency including inventory turns or just the reduction of order costs. As the Tesco business model is one that concentrates on perishable goods being replenished at a rapid pace to ensure less spoilage and higher levels of inventory turns on produce and made-to-cook meals, creating a more demand-driven supply network is critical (Maruyama, Hirogaki, 2007). The essence of a demand-driven supply network is one that aligns all processes, systems, and logistics processes to ensure the highest levels of accuracy, reliability and scalability of transactions to fulfill customer order is attained.

The need for a demand driven supply network is accentuated by the fact that the customer, not the supplier or the internal measure of performance of the supplier network, need to be at the center of the supply chain planning and execution efforts (Jones, Clarke, 2002). To create a demand driven supply chain is to create one that is customer-driven. Once this is achieved, the use of specific metrics including the perfect order (Columbus, 2008) can be used to measure how effective the supply chain is in meeting customer demand over time. The perfect order is a useful metric in this regard as it measures delivering the requested product on the requested date to the customer who has ordered or purchased it. Given the fact that Tesco is one of the global leaders of grocery retailing globally (Child, 2002) they are familiar with metrics that measure their own efficiency at supply chain coordination and optimization, and the role of supply chain process improvement in meeting and exceeding customers' expectations over time. This is a critically important set of metrics for the company moving forward into new global markets, as it capitalizes on the company's strength and expertise in dashboards (Todd, 2008) while also transforming their global expertise in supply chain performance into specific, unique and highly differentiated conditions at the local western U.S. level.

Fine Tuning and Automating the Tesco Demand Driven Supply Network

As is shown in Fresh, but Far From Easy (Economist, 2007) Tesco is very thorough in their demand planning and forecasting of products to be included in their supplier mix. Through the use of ethnographics and the study of 60 families throughout Phoenix, Tesco seeks to optimize the mix of products to be sourced from suppliers. This is a fairly common practice for Tesco, regardless of the given geography they are attempting to launch stores into (Desjardins, 2007). This practice also shows how thoroughly the company takes the concept of creating an accurate sourcing forecast, and given the smaller sizes of their stores, the need for much greater forecasting accuracy and inventory management. Contrasting this approach to their larger, more volume-centric competitors in the U.S. including Albertson's, Kroger's; Safeway and the evolving role of Wal-Mart is defining for themselves in food retailing, Tesco's smaller, more market-focused approach will eventually deliver more insights into creating a more efficient supply chain. The Wal-Mart focus on pricing and availability failed in Germany specifically because it ignored the more important granular details of the market. Tesco has taken a much more detailed, thorough approach to analyzing specific market characteristics. These include highly specific details of which products, their brands, the relative quantities purchased during each shopping visit, pricing, and correlations with other purchases can be understood both from visiting with consumers in their homes (Economist, 2007) and also by analyzing their purchases using Clubcard data over time (Child, 2002). None of the larger competitors invest this level of analysis into understanding their supply chains, yet Wal-Mart does psychographic analysis to segment their customers by their level of purchasing buyer however. Taken together all of these analytics and ethnographically-based data provide Tesco with valuable insights into how they can optimally balance inbound supplier orders of unique products, optimizing stores averaging 10,000 square feet.

Creating a Collaborative Supply Chain

For Tesco operating in the U.S. where suppliers will often assume they are competing against each other and that price and availability are what matter most, Tesco will need to create a much more collaborative supply chain. To do this they will need to adopt more of a Collaborative Planning Forecasting and Replenishment (CPFR)-based model (Richardson, 2003) especially in the areas of perishable goods. Inherent in adopting CPFR is also the need for creating more trust across its supplier base, and seek to share more of the forecasts for products across categories. This is essential given the highly perishable nature of the food, meals and produce the company is selling. There is also the need for creating greater levels of information sharing between suppliers to make sure forecast dates are met. This is a common practice in industries other than retail, with the use of collaborative supply chain management being one of the key success factors of the Toyota Production Systems (TPS) in the automotive industry for example (Dyer, Nobeoka, 2000).

In other industries it is common practice to invoke and even nurture conflict between suppliers in order to get the best possible price, availability and terms. Yet in the perishables and retail industry and given the fact that Tesco is concentrating on ready-to-eat meals that have been recently prepared, it is critically important that they nurture and foster cross-supplier collaboration. As has been shown in the Toyota Production System over time, the suppliers become more focused on sharing knowledge and a learning ecosystem develops, where practices are shared over time (Dyer, Nobeoka, 2000). It is critically important for Tesco to look at how they can transform their supply chain into a knowledge generating network, as the requirement of creating up to 50 unique meals a day is going to require it.

Tesco Needs To Refine Then Automate Collaborative Processes

Along with its largest global competitors including Carrefour and Wal-Mart, Tesco has been piloting Radio Frequency Identification (RFID) and Electronic Product Code (EPC) globally for the last few years to gain efficiencies in warehousing, logistics and supply chain performance (Wamba, Boeck, 2008).art, Tesco has also specifically required its largest suppliers globally to participate in at least one or more pilots to see how the company can achieve mixed-pallet mode shipping at the scan rates possible with RFID. Typically RFID can be scanned electronically at 25 miles per hour at rapid speeds, which would significantly increase efficiency in retailing supply chains in general and with Tesco specifically. The reason this automation is so critically important is that it opens up the opportunity for Tesco to alleviate once step from their logistics function. Instead of sending massive shipments to centralized distribution centers, Tesco can have its largest suppliers create a single mixed pallet and ship directly to the smaller stores in its chains. This will also save costs for franchisers who are investing in stores and typically tie up the majority of their working capital in inventory. Mixed pallet mode is most effectively accomplished using RFID, as each item or package can be tagged and then read at a relative high rate of speed throughout a warehouse. This is also critically important for managing perishables as they move through the supply chain as well, as the RFID code set has a date tag within it. The use of this technology is critically important for Tesco's expansion strategy into smaller stores.

In conjunction with this development, Tesco can benefit significantly from concentrating on Direct Store Distribution (DSD), in conjunction with RFID to gain the maximum level of efficiency possible in the expansion and continued supply chain programs oriented at… [END OF PREVIEW] . . . READ MORE

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