Logistics and Operations Management: Analysing the Supply Chain of Tesco Finest Beef Cannelloni

Abstract

This report undertakes a case study of Tesco Finest Beef Cannelloni from the perspective of analysing the supply chain of the ingredients of the product. As a means of creating value for a company, the supply chain will be examined from the perspective of managing uncertainty, promoting efficiency and ensuring certain standards are met. The study looks at the ingredient list of the product, using various secondary sources to track these ingredients to the supplier, where after the supply chain and challenges thereof are analysed to present a reasoned conclusion as to the efficiency of the Tesco Finest Beef Cannelloni product.

Introduction

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Since the 1990s, an essential element of the UK beef industry has been the emergence of partnerships between producers, abattoirs and supermarkets in order to ensure sustainability in the supply chain relationships (Fearne, 1999). Since this time the total market share of the beef industry held by supermarket chains has increased to over 75 percent of the total fresh meat being supplied by these retail outlets. These long-standing partnerships are also essential mechanisms for ensuring accountability and transparency in the supply chain, a principle recently recognised by Tesco Plc as a priority for their supply chain management strategy in the near future (Tesco, 2013). Tesco is one of the largest retailers in the UK with operations extending to Europe and the East. One of the primary strategies of Tesco is to be the creator of a highly valued brand known for quality at a competitive price (Tesco, 2013). The quality therefore of their own-label brand is an essential element of creating value in their supply chain. The product that has been chosen as the subject of this report is the Tesco Finest Beef Cannelloni. It is essential to the quality of the Finest Beef Cannelloni product therefore that Tesco have some measure of control and transparency in the upstream supply chain process of the product. This is essential to ensure the quality of the processed meat that is eventually integrated into this product. It is evident through the recent equine contaminate scandal that there is a lack of control over this element of the Tesco supply chain as four Tesco-branded products have tested positive for the contaminate (Tesco, 2013). This report seeks to understand the supply chain of the Tesco Beef Cannelloni product, which will serve as the subject of critical analysis herein.

Processed Product and Controversy

As mentioned, the processed meat product that is the subject of the current report is Tesco Finest Beef Cannelloni. With the contamination of certain Tesco branded products with horsemeat, there has been a renewed interest in ensuring quality, sustainability and certainty in the supply chain. Arguably, this may have formed the basis for the integration of supply chain goals by Tesco. Van der Vorst and Beulen (2002) argue that improving the strength of the supply chain in times of controversy, such as previous outbreaks of swine flu and foot-and-mouth disease, is necessary for preventing the spread of the contaminate and to regain consumer trust. The manufacturing function of the supply chain of a company is affected by three identified categories of uncertainty, namely supply, process and demand uncertainty (van der Vorst & Beulen, 2002). The presence of these uncertainties drive the decision makers to create safety buffers in time, capacity and inventory in order to mitigate the potential effects of any uncertainty in the supply chain (Fynes, et al., 2004). It is argued that maintaining a level of flexibility in the supply chain is one of the essential characteristics necessary to ensure uncertainty is correctly managed. In the case of Tesco Beef Cannelloni, there has been uncertainty created due to the presence of horsemeat contaminates in other similar beef products in the Tesco brand range. This will create a hesitance on the part of the customer to purchase Tesco branded beef products. Ensuring increased and publicly acknowledged transparency in the supply chain of the company is an essential element to ensure the long-term sustainability of the product, as there is a need to increase consumer trust in the brand again.

Ingredients

The ingredients of Tesco Finest Beef Cannelloni according to the product information are as follows:

Beef (23%), Tomato, Cooked Egg Pasta, Milk, Water, Tomato Juice, Tomato Puree, Whipping Cream, Cornflour, Onion, Mature Cheddar Cheese, Garlic Puree, Wheat Flour, Cheese, Olive Oil, Beef Stock, Soft Cheese, Pasteurised Egg, Carrot, Celery, Salt, Butter, Oregano, Balsamic Vinegar, Sugar, Vegetable Oil, Pectin, Basil, Marjoram, Black Pepper, Bay, White Pepper, Nutmeg, Cooked Egg Pasta (Durum Wheat Semolina, Water, Pasteurised Egg) and Beef Stock (Beef, Yeast Extract, Salt).

For the purposes of the supply chain analysis, these ingredients can be categorised as follows: Meat and meat by-products, milk and dairy products, fresh ingredients, and herbs and spices. As individual analysis of exact supply chain information on every product is not practical for the purposes of the present report, these categories will serve to track the supply chain of the ingredients.

Sourcing of Ingredients

In analysing the supply chain of the Finest Beef Cannelloni, within the greater Tesco supply chain one can observe a complex structure due to the vertical integration and outsourcing model that is used in the broader supply chain strategy of the company. The Finest Beef Cannelloni is not manufactured by Tesco itself and is a product of a supply chain manufacturer who delivers the final product to the central distribution warehouse of the company (Tesco, 2013). However, as part of the vertical integration of the supply chain, these manufacturers are still subject to the same quality standards and control mechanisms as Tesco’s unprocessed products. The ingredients for the Finest Beef Cannelloni are sourced from a number of different of supply chain sources which are used by the manufacturer to then make the product. The meat and meat by-products that are used in the range are sourced directly, either from an abattoir or the meat processor directly (Tesco Plc, 2013. With a controlled agricultural policy with regards to all meat products used, Tesco aims to ensure that their products are of the highest quality. Rigorous quality control mechanisms which aim to ensure the continued maintenance of the product quality see the meat producers and abattoirs being subjected to routine and surprise inspections in order to ensure that the quality standards are maintained (Tesco, 2013). The meat products are an essential component of the Finest Beef Cannelloni range. The sourcing of the milk and dairy products of Tesco follow a similar strategy to their meat supply process. It stands to reason that the financial interest in ensuring the quality of meat and dairy products is greater than it would be for dried herbs, spices and other ingredients, as the quality of these products is an essential element of ensuring the quality of the end-user product. With vast differentials in quality standards of meat and dairy existing to a greater extent, the supply of these products from controlled farms is essential to the value offering of their final product.

The Tesco Nuture policy is one which is applicable to the supply chain of all fresh fruits and vegetables that are directly stocked in the Tesco supermarket, but also applicable to the products used in their branded ranges. This policy ensures that all fruits and vegetables are grown according to environmental and responsible standards, which simultaneously encourages sustainable farming practices, such as responsible energy use, recycling and use of natural resources, and which independently audits all farmers to ensure that these standards are met (Tesco Nuture, 2013).

The remainder of the ingredients, namely herbs, spices and other ingredients are sourced either through trade or directly from manufacturers which supply to the Tesco supermarket chain (Tesco Plc, 2013). This is a complex supply chain process as there is little control over the quality of the product prior to its addition to the Finest Beef Cannelloni. As there is no significant financial interest in directly manufacturing these products as part of the vertical integration of the supply chain, it is logical that these products are sourced in this way.

These ingredients are then supplied to the manufacturer who processes the product for delivery to a central distribution centre of Tesco (Tesco Plc, 2013). The complexity of the supply chain is an avenue which has been identified for improvement in the future as, despite having rigorous standards for abattoirs and processors, the presence of equine contaminates in other Finest beef products has demonstrated that there is a lack of transparency in the supply chain and further that the supply chain is too complex. It is evident therefore that the complex structure of the supply chain makes the tracing of the individual ingredients somewhat problematic, lacking the transparency that has been complained of in light of the recent scandal questioning the overall product quality of these goods.

Supply Chain

Supermarkets are different from other processed meat manufacturers, as they buy meat directly from meat processors using a centralised distribution system (Fearne, 1999). Supply Chain Management can be defined as the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders (Drucker, 1998). This flow of information, products and services for Tesco can be observed in the diagram below:

(Tollington & Wachter, 2001)

The relevance of this model cannot be overstated, as the central concern of this model of supply chain management is the flow of information from the customer which will ensure that the needs and desires of the end-user customer are carefully considered in order to tailor the product to meet the specific needs of those customers (Lambert & Copper, 2000). This ensures that demand uncertainty which is a central concern of supply chain management theory is effectively managed.

The Tesco supply chain is one which is based on vertical integration of suppliers, manufacturers and distributors. This ensures that there is maximum control over the supply chain process. As noted above, the processed product is delivered to a central distribution centre, which sees the final product then being shipped using the Tesco distribution network to Tesco supermarkets around the UK. The supply chain strategy of Tesco is to ensure that the products supplied in supermarket regions are reflective of the specific needs of those customers, Finest Beef Cannelloni therefore is available specifically in UK supermarkets. As Tesco Finest is only available in Tesco supermarkets, the downstream supply chain is relatively simple, as there is no interaction outside of the vertically integrated supply chain and unlike manufacturers, there is no dealing with agents or distributors. It is evident that the supply chain of Tesco is complex through necessity, as it simultaneously functions as supplier and buyer of goods for distribution within the supermarket chain itself. Although accountability is sought after through vertical integration, this has itself presented problems with transparency and therefore poses a complex situation to Tesco who now has to attempt to simplify the supply chain for the purposes of quality control, whilst maintaining efficiency in this dual role that it has.

Challenges

There are a number of challenges for the Tesco supply chain and most notably these relate to the complexity of the identified manufacturing, processing and supply sources. Although there are significant quality and control mechanisms that form a part of the Tesco supply chain with regards to their upstream operations, it is evident that the complexity of the supply chain itself has resulted in some discrepancy in the supply chain, as other Tesco Finest products have been found to contain the equine contaminate. Although this is not specific to the Tesco Finest Beef Cannelloni, as forming part of the same supply chain, similar quality control standards can be faced. Although the manufacturing process of Tesco is vertically integrated into the supply chain, this affords Tesco less control over the manufacturing process and therefore may present difficulty in maintenance of standards in the long-term.

These issues however have been noted by Tesco, particularly the difficulty which is created with their overly complex supply chain (Tesco, 2013). In an attempt to recreate value within the supply chain, which was lost as a direct result of the horsemeat scandal, the company has committed to publicly available product testing published online, as well as new goals for defining the upstream supply chain, specifically to simplify the supply chain in order to promote accountability and transparency.

Conclusion

As a generalisation, one can observe through this analysis that Tesco exhibits all the success factors of an efficient and value-based supply chain, namely exhibiting elements of continuous investment, good staff, volume growth, improvement of measurement and control of costs and innovation (Fearne & Hughes, 1999). Tesco is constantly seeking to improve the ways in which it creates value through its supply chain management and the way in which they have dealt with the horsemeat scandal has demonstrated an important element of flexibility in the supply chain process. This is to say that the company immediately responded to the identified weakness in the supply chain by reassessing their goals and working towards a strategic reformation of the supply chain in order to meet the consumer concerns over quality and transparency.

References

Drucker, P. (1998) Managements New Paradigms. Forbes, October, pp. 152 – 177

Fearne, A. (1999) The Evolution of Partnerships in the Meat Supply Chain; Insights from the British Beef Industry. Supply Chain Management, 3(4), pp. 1 – 24

Fearne, A. & Hughes, D. (1999) Success factors in the fresh produce supply chain: insights from the UK. Supply Chain Management: An International Journal, 4(3), pp. 120 – 131

Frynes, B., de Burca, S. & Marshall, D. (2004) Environmental uncertainty, supply chain relationship quality and performance. Journal of Purchasing and Supply Management, 10(4–5), pp. 179 – 190.

Gupta, A. & Maranas, C. (2003) Managing demand uncertainty in supply chain planning. Computers and Chemical Engineering, 27, pp. 1219 – 1227

Lambert, D. & Cooper, M. (2000) Issues in Supply Chain Management. Industrial Marketing Management, 29, pp. 65 – 83

Tesco (2013) Products: Testing. [online] Available on: http://tescofoodnews.com/testing/products/ [Accessed 8 April 2013]

Tesco Nuture (2013) The Scheme and How it Works. Available on: http://www.tesco.com/nurture/?page=nurturescheme [Accessed 8 April 2013]

Tesco Plc (2013) Annual Report 2012. [online] Available on: http://www.tescoplc.com/files/reports/ar2012/index.asp [Accessed 8 April 2013]

Tesco Plc (2013) Our Strategy. [online] Available on: http://www.tescoplc.com/index.asp?pageid=97 [Accessed 8 April 2013]

Tollington, T. & Wachter, P. (2001) ABC/TA for Internet retail shopping. International Journal of Retail & Distribution Management, 29(4), pp. 149 – 155

Van der Vorst, A. & Beulens, J. (2002) Identifying sources of uncertainty to generate supply chain redesign strategies. International Journal of Physical Distribution & Logistics Management 32(6), pp. 409 – 431.

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