Operations and Supply Chain Management in Tesco

Operations and Supply Chain Management

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Introduction

Tesco is among the largest global grocery and general merchandise retailing companies operating in the United Kingdom and across 11 countries. Tesco is one of the world’s largest retailers, with total revenues ranking it third among retailers worldwide; the company was founded in 1919. In 2023, Tesco has a market share of over 27% in the total grocery market of the UK and it has over 4000 outlets in the form of hypermarkets, supermarkets and convenience stores and others (Statista, 2024). This has made Tesco adopt a physical selling strategy coupled with an online selling strategy making it possible for it to sell its products to a large customer base with a wide range of products.

In the retail industry, operation and supply chain management play a central role in attaining operational advantage. These functions include the planning, sourcing, production and delivery functions that enable products to get to the consumers at minimal cost. To Tesco and any other company with an extensive and integrated supply chain, the improvement of these processes is the key to sustainable competitiveness and customer satisfaction. Supply chain management means Tesco can cut costs, increase the availability of products and thus increase customer satisfaction to achieve organisational goals.

The reason for this report is to analyse Tesco’s supply chain management to determine its effectiveness in enhancing operations. Specifically, this report will assess two of the operational excellence drivers in Tesco, assess the effectiveness of delivery systems and forward recommendations for better supply chain management in Tesco.

The report is structured as follows: first, it evaluates the application of technology and supplier relationship management on operation improvement. Thirdly, it focuses on Tesco’s delivery systems; Lean philosophy, and SCOR model. Finally, the report includes recommendations for enhancing Tesco’s supply chain and is dedicated to data, green, and the last mile.?

Evaluation of Two Key Drivers of Operational Excellence

Operational excellence at Tesco is significantly driven by two key factors: the effective use of technology in its supply chain management and a very sound supplier management program. These two drivers have been useful to Tesco to sustain its competitive advantage in the retail industry by guaranteeing effectiveness, value for cash, and customer satisfaction.

Integrating Technology in Supply Chain

Tesco has for a long time been in a vanguard of organizations that have embraced the use of advanced technology in managing its supply chain. New automated warehouses and upgraded data analysis tools have become the key drivers that changed the way a company approaches inventory and demand. For instance, Tesco’s application of radio-frequency identification (RFID) in warehousing has allowed the tracking of stocks in the supply chain network in real-time. The following system gives precise information about the stock for the products and when it reaches a specific level, it can order for restocking Tesco uses big data analytics to improve demand forecasting (Kgobe and Ozor, 2021).

Apart from RFID, Tesco applies big data analyses to improve demand forecasting. Based on historical data on sales, customers’ behaviour and other factors like season, Tesco will be in a position to forecast the demand accurately. This predictive capability allows the company to manage its inventory to meet demand, avoid holding lots of unsold inventory, and lower the holding expenses. Technological advancement has also enhanced Tesco's Just-In-Time (JIT) stock management where the company can better stock its inventories and also minimize the amount of capital that is tied up in inventories as forecasted (Meng, 2024).

The effects of these technologies on operational efficiency are great. For instance, automated warehouses have cut the cost of labour and hastened the order fulfilment process, which has enabled Tesco to process orders faster and deliver products to stores without great delay. These efficiencies result in cost reductions which can be extended to customers at lower prices (Custodio and Machado, 2020). Furthermore, better stock management leads to stock availability on the shelves, which is more customer satisfaction. Consumers always like the assurance of the steadiness of product supply which in turn makes them loyal to the brand.

Supplier Relationship Management

Another strategic operational model, implemented by Tesco is the Supplier relationship management (SRM). Tesco's strategy is based on the development of strong and long-term relationships with its suppliers, to achieve cooperation. With the suppliers, Tesco has a good relationship in that the business partners in achieving a sustainable supply chain and quality products, stability and cost control (Fernie, 2023). This focus on SRM enables Tesco to make negotiations on better prices, tenors and quality of products sold in their outlets.

Some of the actions done in this area by Tesco include the Supplier Network which is a direct communication and working forum for the company’s suppliers. It fosters openness, and this is because members of this network can share information regarding the best practices and challenges and work on new ideas with each other. For instance, Tesco sourced fresh produce from the local farmers and producers while he ensured that are provided the required quality produce (Evans and Mason, 2018). This integration allows Tesco to have the right quality of products that are important in creating trust with its customers.

Also, these strong relationships have enabled Tesco to have a more flexible supply chain system in place (Mena et al., 2018). This is because by partnering with suppliers Tesco can easily adapt to changes in demand and trends within the market. For instance, in the COVID-19 breakout, Tesco was able to efficiently work with suppliers to meet new demand for the products including those associated with home use and perishable foods (Tescoplc, 2020). It also made it possible for shelves to be always full despite the unpredictable nature of the consumers.

Analysis and Evaluation of Effective Delivery Systems

The most important factor that Tesco and other retail giants require to sustain competitive advantage in the market is the delivery system. There are a number of models that can be used to map and improve delivery processes, two of these are Lean Six Sigma and the Supply Chain Operations Reference (SCOR).

Overview of Delivery System Models in Retail

In the retail industry, delivery systems indicate how effective the transfer of products from suppliers to the stores and finally to the consumers will be. Lean Six Sigma is a process improvement methodology that integrates Lean process improvement methodology, which targets reduction of waste with Six Sigma which targets the reduction of process variability. This approach is quite useful in the retail sector to reduce wastage in stock and distribution and at the same time guarantee the quality of products (Ruben et al., 2018).

The SCOR model is a tool used to assess and monitor all aspects of supply chain operations, from procurement through to manufacturing, order fulfilment and returns. It focuses on five key processes: These are; Planning, Sourcing, Production, Delivery, and Recovery. The SCOR model is important in retail as it provides a clear view of the supply chain, thus helping in the organization of the flow of products through different channels and stakeholders (Saleheen et al., 2018).

Application of Lean Principles in Tesco’s Delivery System

Figure 1: Lean Six Sigma Model

(Source: Patel and Patel, 2021)

Currently, Tesco has efficiently implemented Lean principles in its delivery process in an endeavour to minimize waste within the company. The most significant component of the Lean process is the ongoing search for improvements because less efficient processes should be redesigned. Some of these principles that Tesco uses include an efficient restocking process and accurate shelf management.

Tesco’s Lean restocking strategy entails the use of information technology to track the rate of sales, and order or reorder inventory as appropriate. For example, the stores of Tesco have an automatic system that alerts the management when a particular product is out of stock. This approach reduces the storage time of products and guarantees that stocks transit from distribution centres to supermarket shelves in the shortest time possible (Purwasih and Candana, 2024).

Another area that applies Lean principles is shelf management. Tesco employs what is known as planograms – these are diagrams that determine how certain products should be placed in the store based on how often customers are likely to buy them. This method helps to make sure that any item that tends to run out of stock regularly is in plenty supply and this is always beneficial to the customers. This also facilitates easy changes in product positioning based on market sales trends hence facilitating a right stock circulation to the stores (Castaldo et al., 2020).

The results obtained from applying Lean principles are quite profound, particularly in the areas of lead time reduction and in-store availability. Tesco can make available products at the time when the customer demands them through efficient restocking and shelf management. This also means that lead times are reduced to allow Tesco to be very responsive to fluctuations in demand, for instance during the festive seasons or other promotions among other factors that improve operational flexibility (Marques et al., 2022).

Use of SCOR Model in Tesco’s Delivery System

Figure 2: SCOR Model

(Source: Ascm, 2019)

Currently, Tesco use the SCOR model to work on the flow of supply chain processes to establish a clear and effective flow of processes from sourcing to delivery. The SCOR model has five processes of planning, sourcing, making, delivering and returning which are useful in managing the multifaceted issues of retail logistics. In this model, Tesco can align its supply chain management with the strategic objectives of the firm and the important trade-off between supply chain efficiency and customer orientation (Alan et al., 2019).

The “Plan” aspect of the SCOR model involves demand forecasting and supply chain planning. In the area of purchasing, BI is used at Tesco to assist in determining the customers’ demand so that the procurement of the company is in line with this demand. This also helps Tesco to forecast the stock holding, in other words, they never find themselves in a scenario where they have large stock or no stock at all. The “Source” component focuses on maintaining strong supplier relationships, which enables Tesco to secure favourable terms and reliable supplies, as discussed earlier (Chehbi-Gamoura et al., 2020).

The “Deliver” stage is where the SCOR model particularly benefits Tesco. The actual flow of products from various manufacturers to stores and consumers through Internet orders is in this stage. Through the use of the SCOR model, the visibility of Tesco’s supply chain from supplier to the end consumer has been improved (Weenk, 2019). By doing this, Tesco will be able to see where there are likely to be challenges such as delay in transport and or warehousing and then address it.

The end-to-end visibility enhances the relationship between every chain in the Tesco value chain and it helps suppliers, distribution centres, regional managers and store managers to get real information. Due to this capability, there are few misunderstandings, and good decision-making, therefore time and resources are saved. For example, during holidays what has been referred to as the SCOR-based system allows Tesco to effectively adjust delivery schedules and ensure that their stores are restocked even during such periods as this (Weenk, 2019).

The SCOR model has also helped Tesco to apply a structured approach to returns management as relates to the products sold. This is especially so because customers who purchase from online outlets are likely to be more demanding, especially on the return policies that the firms have placed (Ruben et al., 2018). In the case of returns, Tesco eliminates interruptions of the supply chain and guarantees that returned products are efficiently handled and either returned to the shelves or disposed of.

Challenges and Areas for Improvement

Tesco is faced with the following challenges in enhancing delivery systems using Lean principles and the SCOR model. One major issue is demanding volatility. Retail demand is not very stable as it depends on several factors including economic trends, shifts in customer preferences, and other circumstances such as the current pandemic situation. As Lean principles aim to eliminate waste, customers do not allow the supply chain to hold inventory to meet increased demand, should it occur, thus making it vulnerable to disruptions (Donthu and Gustafsson, 2020).

As with the case of new technologies adoption, there are concerns when new technologies are incorporated into the current systems. For instance, the adoption of data analytics and AI needs capital investment in Information technology and personnel development. It becomes challenging to justify these investments in cases where the short-term returns are not well-defined (Zamani et al., 2023).

One other issue is that of the last mile delivery, which can be a problem for Tesco’s expanding online grocery business. The last-mile delivery is generally recognized as the costliest process stage because of the difficulties associated with delivering products to individual homes (Donthu and Gustafsson, 2020).

Recommendations

Recommendation 1: Enhancing Data Analytics and AI for Predictive Analysis

Tesco already has implemented data analytical tools in demand forecasting and inventory management, but it is possible to enhance it by using artificial intelligence for analysis. AI can help Tesco in the way of not only demand forecasting but also the way it delivers services to customers by understanding their buying behaviours and tendencies (Ikevuje et al., 2024).

It is through the use of machine learning algorithms that Tesco can evaluate large sets of customer data to forecast future buying patterns. For example, AI can assist Tesco in predicting the changes in demand for certain products, which will allow the company to make necessary changes in the stock in advance. This would help to eliminate cases of stockouts and overstocking hence making the operation efficient in terms of controlling its operation costs. However, Tesco can employ AI-based analysis to develop unique promotions and offers for every customer (Ikevuje et al., 2024). Thus, Tesco can improve its customer loyalty and stimulate its sales by offering its clients the relevant products and services.

Recommendation 2: Strengthening Sustainability in the Supply Chain

Currently, the retailer and the customer have realized the importance of sustainability. There is scope for Tesco to improve its processes towards sustainable supply chain management because it supports its business objectives for sustainable development. This ranges from reducing carbon emissions in logistics and coming up with environmentally friendly packaging systems.

This is because one of the key ways that Tesco can shrink its carbon footprint is by using efficient transport networks to cut fuel use. Route optimization software employs the best approaches to plan the route, minimize mileage, and minimize greenhouse gas emissions that Tesco can use. Similarly, changing delivery vehicles to electric or even the hybrid variety might help decrease emissions more. Another possibility for Tesco could be to seek cooperation with logistics providers who have already implemented sustainability policies in their work so that all supply chain activities correspond to environmental priorities (Chowdhury and Quaddus, 2021).

Another area where Tesco can effect change is in the reduction of the use of plastic packaging. Tesco can use recyclable or biodegradable materials, which can attract the attention of environmentally conscious consumers and reduce the amount of waste. For example, the use of recycled packaging or the introduction of reusable packaging could greatly reduce Tesco’s environmental impact (Gouda and Saranga, 2018). The public becomes more conscious of the brand’s environment, and investing more in sustainability would help Tesco build its consumer appeal and loyalty.

Recommendation 3: Optimizing Last-Mile Delivery with Partnerships

Last-mile delivery has emerged as a critical factor with the growth of e-commerce and the need to satisfy customers. To improve last-mile delivery performance, Tesco should consider outsourcing delivery with local couriers and increase the number of click-and-collect centres, which gives customers more options for receiving their orders.

Cooperation with local delivery services is beneficial for Tesco because it helps expand the customer base and shorten delivery times. Local services bear more expertise regarding the area and hence can deliver the products faster and more effectively. Further, outsourcing with some of the large delivery companies may assist Tesco in controlling its costs during its busy periods such as festive seasons or its sale promotions and without having to buy many vehicles. For instance, partnerships such as with Deliveroo or Uber Eats for grocery delivery can assist Tesco in making certain that it delivers its products on time and meets its customers’ expectations (Bányai, 2018).

Another avenue for improving last-mile delivery is to increase the extent of Tesco’s click-and-collect services. Web order and store collection enable customers to order products via the web and collect these products from a nearby Tesco store, thus cutting down transport expenses and allowing customers to pick up their orders at their leisure (Ko et al., 2020).?

Conclusion

In conclusion, the operation excellence of Tesco is supported by strategic technology and supplier relationship management. The examination of these two aspects revealed that the use of innovative approaches such as automated depots and data science positively impacts Tesco’s inventory as well as demand forecasting and its overall performance. Secondly, the company has a long-term relationship with its supplier which has been very advantageous in that the company has been able to negotiate for better prices besides ensuring that they receive high-quality goods as well as the right quantity to meet its customers' demand.

In the assessment of the delivery systems of Tesco, Lean concepts were seen as elements of supply chain management together with the SCOR model. Lean is useful to Tesco in eliminating waste, reducing complexity and enhancing product availability in the stores while SCOR assists in mapping and controlling the supply chain. These models have contributed to reducing the lead time of the company’s supply chain, avoiding supply chain constraints and enhancing customer satisfaction.

The recommendations given include building an even stronger foundation for predictive data analysis and AI, increasing commitment to sustainability, and enhancing last-mile delivery through partnerships. Thus, by applying these strategies, Tesco can improve its performance, concerning the changes in customers’ needs and demands in the sphere of the retail industry.

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