Tesco's Supply Chain Management Practices

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Case Details:

Case Code : OPER054
Case Length : 19 Pages
Period : 2000-05
Organization : Tesco
Pub Date : 2006
Teaching Note : Not Available
Countries : UK
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Customer focus and commitment to value has propelled Tesco into a leadership position developing a dynamic 'virtuous circle' comprising scale, efficiency and innovation within the supply chain." ¹

- Stuart Ross, Director, Supply Chain & Distribution, Tesco, 2005.

"Tesco, the UK-based grocer, is an example of a success story. They have learned how to go beyond Wal-Mart. They came to Dan Jones ten years ago and asked, "How would Toyota run a grocery business?" And they've been working hard to become the Toyota of the grocery business ever since."²

- James Womack, Co-Author, The Machine that Changed the World, and Lean Thinking, 2005.

Introduction

In December 2005, AMR Research (AMR)³ announced the 'Second Annual Supply Chain Top 25' - a list of leading companies that had employed demand driven supply chain practices and technologies successfully. UK based retailing giant Tesco was ranked 9th in the list, preceded by Dell, P&G, IBM, Nokia, Toyota Motors, Johnson & Johnson, Samsung Electronics and Wal-Mart.

AMR's report ranked the companies based on past performance and future potential on the basis of their supply chain management (SCM) capabilities. The return on assets and inventory turns were given weightage of 25% each and 10% was for growth in sales in the previous 12 months.

The remaining weightage of 40% was given to the opinion of AMR Research, based on a structured voting methodology across AMR's team of analysts. Commenting on Tesco's achievements, analysts at AMR commented, "The UK based grocer was the first to really succeed with direct to consumer sales, while maintaining killer inventory turns and growth."⁴ (Refer Exhibit I for details of top ten companies in 'Supply Chain Top 25').

Tesco is renowned for its best practices in SCM, which included lean management and using RFID technology. The company has gained and maintained advantage over its competitors by incorporating innovations in its supply chain like point of sale data, continuous replenishment system triggered by customer demand, primary distribution, cross dock⁵ Distribution Centers and use of a single vehicle to serve several stores. In 2001, the Sigma Project⁶ commended Tesco's SCM efforts, "Only in the most integrated supply chain organizations, such as Dell Computer, Wal-Mart, Tesco and Volkswagen, does SCM appear to mean the integrated management of materials, information and financial flows from raw material extraction to end-user."⁷

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1] "Competitive Logistics - Collaboration the Manufacturers' Response," Cranfield Management Development Centre, November 03, 2005.

2] Quinn, Francis J, "The Lion of Lean: An Interview with James Womack", Supply Chain Management Review July 1, 2005.

3] Boston (USA)-based AMR Research provides research and advice to enhance business process performance and cost savings, using the latest technology. It provides research and advice on several important business initiatives including supply chain transformation, new product introduction, customer profitability, compliance and governance.

4] Friscia, Tony, Marah, Kevin O' and Souza, Joe, "The AMR Research Supply Chain Top 25 and the New Trillion Dollar Opportunity," AMR Research Report, November 2004.

5] Cross-docking is a practice in the logistics industry. Materials are unloaded from an incoming truck trailer or rail car and loaded in outbound trailers or rail cars, eliminating the need for storage in between. This can be done when changing the vehicle or to sort material intended for different destinations or to combine material from different origins.

6] Project SIGMA aims to provide clear, practical advice to organizations to help them make a meaningful contribution to sustainable development.

7] Charter, Martin, Kielkiewicz-Young, Aleksandra, Young, Alex and Hughes, Andrew, "Supply Chain Strategy and Evaluation,'" The Sigma Project R&D Report, January 2001.