Tesco : Retail & Logistics Mgt

The business world nowadays is very different from the past. It is fast changing, challenging and full of opportunities. In order to sustain the business, the companies need to minimize costs, maximize profits and make the business environmentally sustainable. The management of the organization achieve these goals through supply chain management has recently focused (Fawcett, et al. , 2007). Tesco is one of the World’s leading retailer with operations in United Kingdom, Korea, Poland, Czech Republic and Slovakia, Hungary, Malaysia, Japan, China and the United States.

She became increasingly significant on the international stage. The supply chain transformation has underpinned to this retail success story. Tesco adopted a common operating model across its worldwide business, admitting it to spread and support key supply chain and replenishment applications when it expanded into new countries. Tesco leveraged a common model across multiple countries and strong willingness to accept local market without losing its core identity, this allowed Tesco think globally and act locally (Smith and Sparks 1993 and Gustafsson et al 2006).

There were four main improving stages in distribution and supply chain strategies in Tesco that could be demonstrated; Direct to store delivery, centralization, composite distribution and vertical collaboration and ‘lean’ supply chains (Fernie & Sparks, 2009). Direct to store delivery (DSD): This process operated in mid-1970s. The direct delivery by the manufacturers and suppliers to the retail shops whenever they wanted. Shop manages operated in own interest. These made central control and standardization more difficult.

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A requirement of alternative in approach to supply and distribution occurred as the new corporate business strategy took hold (Fernie & Sparks, 2009). Centralization: This process was applied to move away from DSD in 1980. The introduction of centralization compelled suppliers to meet Tesco’s operational demands and gave control over the supply of products to stores within a lead time of maximum of 48 hours. Suppliers were forced to deliver into the distribution centers of the supply network.

This allowed faster stock turn, better lead time and reduced inventory cost. Moreover, the organized network of centralized distribution centers was linked by computer to stores and head offices. Buffer stock level and operations stock was reduced. However, this created problems of high logistic cost due to the increased delivery frequency, running of empty or un-full vehicle and increased labor cost on more frequent receiving. Nevertheless, outsourcing was the key component of the revised supply chain network.

It allowed making comparison between Tesco’s operated centers and outside contractors, to measure the practices between two parties and drive efficiency (Fernie & Sparks, 2009). Composite Distribution: This integrated strategy of supply was implemented in 1990, in ongoing improvement process. It enabled chilled, fresh and frozen products to be distributed by multi-temperature warehouses and vehicles through a common system. Special designed vehicles with individual temperature control compartments were used to delivery any combination of these products.

According to Fernie and Sparks (2009, pg. ,151), “The move to composite led to the further centralization of more product groups , the reduction of stock holding, faster product movement along the channel, better information sharing, the reduction of order lead times and stronger code control for critical products. This composite structure became the backbone of the supply network. ” Tesco international business growth and the new methods of working, the composite nature of centers became regional distribution centers (RDC) gradually.

Vertical Collaboration and “Lean” Supply Chains: Jones and Clarke (2002) stated that there were lots of chances for improvement even in the best-run value streams. A famous quoted example, Tesco cola can journey (Womack and Jones 2005). The can example demonstrated the improvement process undertaken by Tesco. Firstly, map of the traditional value stream. Secondly, value stream flow was designed. Finally, Tesco turn up from flow principle and began to look at synchronization and aspects of lean manufacturing and upply (Fernie & Sparks, 2009). “Tesco moved to a lean supply system using the flow system multiple daily orders were send to suppliers allowing for multiple deliveries, reducing stock holding through cross-docking and varying availabilities and quality (Fernie and Sparks 2009, pg. , 155). Tesco initialed to change the supply chain pattern to fit in various countries. The success infrastructure and the processes of supply chain were embedded in new enter countries.

For example, Hungary, Ireland, Korea, Poland and Czech Republic, major RDC was built in these countries. The composite model had been effectively implemented, even with the same logistics service partners (Child, 2002). However, in some occasion, Tesco needed to rethink the supply system and adopting advanced information technology as the springboard to step forward. For example, Oracle Retail Warehouse Management System was deployed in Korea in 2004. Successful implementations transplanted to other countries. Oracle Corporation, 2012) Similarly, Micro Focus was selected to upgrade the supply chain management systems (Continuous Replenishment Application) to create a common model across all countries and support to move into US market in 2007 (Micro Focus, 2011). Summarizing the above, the outcome of an informed supply chain and the development of advanced IT infrastructure enable seamless information sharing on a common platform with internet-based network. It enhanced the effectiveness and efficiency of the supply chain.

According to Harrison and Hoek (2008), Information sharing technology enables collaborative partners working together from product design, manufacturing, logistic flow, demand forecasting, replenishment planning and work closely to align their organization strategy in order to achieve competitive advantage. Kotler (1988) claimed that a company going abroad must study and understanding each foreign market carefully, being sensitive to its culture and economics, and apply adjustment in its products and communication to suit local needs.

With support of the above authors, Tesco had made a remarkable supply chain operation in international expansion. Question 2: Different aspects concerning Tesco’s International experience are included in the indicated case study from page 30. You are required to select and evaluate three of these experiences. Various dimensions of Tesco’s international experience are illustrated in the case study. The following experiences are selected to be evaluated, they are entry mode experiences, marketing and communications and human capital experience.

Entry mode experience: Expansion into foreign markets can be carried out via the four mechanisms; direct investment, acquisition, licensing and joint venture (Foley, 1999). The entry mode that Tesco chose to adopt when entering foreign market was acquisition (Yoruk & Radoservic, 2000). (Fig. 1) Compared to other large retail companies such as Wal-Mart who lean to focus on larger market, Tesco tended to take a more conservative entry strategy. Tesco entered the central European market through store-by-store mode. It allowed testing on the market with comparatively lower startup cost.

The human and financial capital was also minimized. On the other hand, the cost of failure or replacing them by larger hypermarket was also lower. After a testing period of these acquisitions, Tesco started to expand through Greenfield investments. It constructed new hypermarkets in outskirt (Beckmann, 1999). This was a very aspiring change for Tesco since this was totally new. This approach allowed to have a experience on the expand which is completely apart from current domestic supermarket format and extend the international retail store operations.

Marketing and communication: Tesco learned from accumulated experiences in approaching new markets, compared to the failure experience in entering the Ireland and French markets, Tesco made success in entering Czech Republic because of its vigorous initiative to adopt the local market without drooping its core identity which were offered low prices, high quality product and services. With global strategies and adapt customization in each local market, like McDonalds operates, with a global development plan, but adapting locally, has become known as ‘glocalisation’.

Tiplady (2003) defined that the way in which ideas and structures that circulate globally and adapted and changed by local realities. Tesco adopted this as the core strategy to enter different foreign markets continuously. In recognizing and understanding the local needs, which included the needs of customers, competitors and the macro environment. Global sourcing and supply chain experience: As mentioned previously, Tesco think globally and act locally. It’s chosen to create a long term relationship with local producer in individual countries.

For example, in considering the high level of national identity existing in Czech Republic, Tesco worked with the local food processors and farmers to develop its own label products at a lower cost. In UK, almost cover 40% of own brand products (Yoruk & Radoservic, 2000). In Ireland, Tesco also supported local Irish products and producers. It purchased goods worth ? 900 million annually from Irish companies in 2002. Tesco also worked together with the Irish companies to produce Tesco brand products for both domestic and international market which increased the production volume (Anon, 2000).

In 2010, Irish exported more than ? 700 million of goods to worldwide Tesco. This also set up a corporate social responsibility image which create as a high corporate reputation and a positive image to the customers too. The remarkable supply chain operation in international expansion was adapted in changing mode to fit different countries. The successful implementation would become the back bone of the supply chain and embedded to other location with adjustment. The initiative in adopting new information technology infrastructure to enable information sharing which improved the supplier’s relationships.

Question 3: Select a global retail company of your choice and discuss how globalization impacted on their strategy approach. Globalization is the concept of how global companies seeking to grow its business by extending its markets whilst at the same time seeking cost reduction through economic of scale in areas such as purchasing, production and focused manufacturing and or assembly operations (Christopher, 2005). IKEA is one of the world’s largest furniture retailers. It perceives itself as the leader within the global market of home furniture. In 2010, it has 280 stores in 26 countries worldwide.

The core business idea of IKEA is to offer a wide range of well-designed, functional home furnishing products at low prices that most of the people can afford. Its main business strategy is “one-design-suits-all” that is aligning the design of products so as to enjoy economies of scale, efficiency as well as lower cost. Therefore, IKEA designs the product that suit as many markets as possible. The flat packaging system for packing its furniture to optimize carrier space, lower down the utilization of warehouse space and minimizing the types of pallets used to store is extraordinary.

It helps to cut down the costs compared to other competitors. Moreover, IKEA has a wide supplier base all over the world. Most of them located in low-cost nations, for example, China and East Europe. IKEA maintains a good and long-term relationship with its suppliers. It supports its suppliers in the form of leased equipment, credit facilities or even extending guarantees for supplier’s bank loan. With strong alliance and partnership with suppliers, in return, improved relationship with the suppliers, hence IKEA could be certain on the supply, standardization of products at high quality with the optimum low price.

Furthermore, IKEA also benefits from the scale of its global business. All of the suppliers need to comply with IKEA’s IWAY requirement. The IWAY is a recognized standard and a quality assurance selling point to both the current and potential new customer. Organizations have attempted to expand into new markets with the target to enjoy the benefits through globalization. A new demand in logistical activities in supply chain is increased (Skjott-Larsen, et al. , 2007). IKEA’s global supply chain involves more than 1380 suppliers, 41 trading service offices, 31 distribution centers (DC) and 11 customer DCs across the world.

IKEA provides its suppliers with support in logistics and IT. The transport manager finds the optimal mode of transportation, delivery lead time and cost involved. IKEA preferred to build its DCs closer to seaports in order to use more ocean transport and less of road and rail transport. Products are either delivered directly to the stores or the DCs whichever is closer. For those slow moving items, they are delivered to those centralized DCs which can cover for a large region (Trent & Monczka, 2002) .

In addition, standardization helped IKEA to manage pilot projects at a DC and embedded in worldwide DCs if found successful. It enables IKEA to benchmark the performances of various DCs as all worked on identical procedures. The flat packaging is all designed to fit the highest possible products into the containers minimize logistic cost. This meliorates the efficiency and lower the overall landed costs of products (Agndal, 2006). Moreover, IKEA applies the same design, technology, and operations at all of its facilities thus the processes are standardize across the supply chain.

The employees could move from any one location around the world that actually opens the opportunities for staff to widen their career experience and learn other cultures (Kling & Goteman, 2003). Globalization is an ongoing development processes. These are not purely concern on the geographical spread of economic activities across national boundaries. It also includes the functional integration of globally scattered activities. The enterprises convert into a unit that is linked to the world at large instead of a domestic unit (Dicken, 2003). Bibliography Agndal, H. , 2006.

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