importance of supply chain at retail organisation

INTRODUCTION

1.1 BACKGROUND

Retailing is a dynamic industry, consisting of activities such as food, fashion, consumer goods, financial services and leisure, which is growing at an exponential rate. To stay competitive in this globalized world, retailers should be able to launch products and promotions quickly and provide enhanced customer service. In an industry notorious for high turnover, retailers are faced with the challenge to meet the growing market mantra of “more for less” to stay in competition.

Success in grocery market depends on meeting the needs of the end customer, which are changing at a very rapid rate, as the consumer taste and preferences changes. Consumers expect the high quality product for fewer prices, businesses are trying harder then ever to balance the act of holding a high level of service and at a low cost which is becoming difficult for retail supply chain department.

According to IGD research centre, the United Kingdom grocery market is worth £146.3 billion for the year 2009, a rise of 4.8% on 2008 and it also predicts that the grocery market will almost double in size by 2014. With consumers looking for a greater diversity in what and where they buy, the suppliers and retailers will recognize the emerging demands of consumers and adjust their strategies accordingly. The grocery retail spending accounts 52p in every£1 of spending (IGD 2009, Internet stats).

In 2005, AMR Research declared a list of leading companies which had achieved a highly demand driven supply chain practices and technologies successfully based on the past performance and future potential. Tesco, a UK based grocery retail giant was positioned 9th in the list.

“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” (Stuart Ross, Director, Supply Chain & Distribution, Tesco, 2005).

According to James Womack (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.” (Author, the Machine that Changed the World, and Lean Thinking, 2005).

According to a study by ICMR, One of the factors that assisted Tesco to emerge as a market leader in UK grocery retail was its effective Supply chain management (SCM). Lean management solutions were introduced into its supply chain management. It adopted systems like primary distribution, POS data, continuous replenishment and adopted RFID technology to build an effective supply chain system.

SIGNIFICANCE OF RESEARCH

HYPOTHESIS

Supply chain plays a very important role in the success of the organization so investment in Supply chain management pays back in the form of high level of customer satisfaction leading to higher profitability.

1.2 AIM OF THIS RESEARCH

The main purpose of this study is to critically evaluate if there is a definite pay back in consistently excelling effective supply chain management performance in a case organisation. This research will explore the different tools implemented by Tesco to achieve the ultimate goal of achieving the higher customer value. 

1.3 RESEARCH QUESTIONS

1. What are the tools in Supply chain management?
2. Has the investment in IT helped Tesco improve sales, supply chain and efficiency across the company?
3. Has Tesco made any improvement in stock management?
4. Is inventory management often ignored?
5. Does Tesco achieve the potential distribution excellence?

1.4 RESEARCH OBJECTIVES:

The main objective of this research is to analyse the SCM performance in UK retail giant Tesco and how it can improve to accomplish its organisational objectives. To define the objectives in this research, their will be a complete explanation of how Tesco operates and how supply chain management manages the relationship that flows between the different levels of management performances. Following are the main objectives of this research:

1. Toascertain a clear understating of how the supply chain systems work at the UK grocery retailer Tesco.
2. To determine if SCM accomplish the organizational objectives of improving performance, increasing profitability, customer satisfaction, productivity & quality and reducing wastage.
3. To determine the factors related with the success or failure of SCM.
4. Analysing the factors like logistic, lean synchronization & JIT factors that has major impact on organisational SCM.
5. Benchmarking the different supermarkets in grocery retail.
6. What future trends can affect the SCM in Tesco retailing?

CHAPTER 2

RESEARCH CONCEPTULIZATION

2.1 INTRODUCTION

According to researchers at Michigan state university (Mar, 2010), there is a definite pay back in consistently excelling in the supply chain management i.e. Return on investment (ROI). This furthermore illustrates that companies should now be investing more to make their SC more effective and flexible to achieve the high customer satisfaction, which is the core reason for any business to survive.

Tesco is an UK based supermarket ranked as number one (Internet stats, 2010). It has variety of chains such as, superstore, extra, metro express and also does there own range of products. Tesco sells more than 40,000 food products, including clothing (F&F) (Data monitor, 2003). Tesco wanted to make things easier to stay competitive and to offer continuous top quality service to its customer by offering a wide range of products to choose from. For this Tesco had to make its supply chain less complicated and to reduce the stock shrinkage. The Role of IT in Tesco’s supply chain management has transformed the company’s stock control and distribution network. (TFL, year).

ADT developed a RFID solution to receive, count, and transport the exact quantity of per product at the exact time to the store. ADT helped Tesco to implement a quick solution that helped it to monitor the delivery through the supply chain. This included installation of 4000 readers and 16000 antennas through out the Tesco warehouses and stores in the UK. The ADT RFID helped Tesco to overcome the supply chain problems like late deliveries, out of stock, reducing the harmful impacts on the customer service (Supply chain Europe: Feb, 2005). RFID was one thing that made the company such a big hit in grocery retail market (Leahy T, 2003).

2.2 DEFINING SUPPLY CHAIN MANAGEMENT (SCM)

According to Philip kaminsky (2004), SCM can be defined as a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right time, in order to minimize system wide costs while satisfying service level requirements.

The supply chain is not restricted to the downstream flow of information and products and services from suppliers through to customer. Although the most evident fall out in SCM takes place when downstream flow lacks to meet the customer requirements, the core cause may be a failure in the upstream flow of information. (Nigel et, al. 2009)

2.3 ROLE OF SUPPLY CHAIN MANAGEMENT

SCM plays a vital role in an organisation as it is responsible for getting increased performance from different operational levels to minimize the waste or loss to the business.  Supply chain is often referred as Logistics management as well, as it is management of relationship between suppliers, manufactures, warehouses, distributing network and finished products to the end customers that flow with in the network (Simchi L, et al. 2004).

A supply chain has three key parts:

1. Supply concentrates on the availability of raw materials for manufacturing from suppliers keeping in mind, how, when, and from what location.
2. Manufacturing concentrates on transforming these raw materials into finished products.
3. Distribution concentrates on ensuring these finished products are made available to the consumers through a formalised network of distributors, warehouses, and retailers (Nigel, et .al, 2009).

2.4 MANAGING SUPPLY CHAIN

Supply chain management now has a new face (Radjou, 2005). Companies should now aim at making their supply chain investment more efficient and flexible.

According to David Simchi (2004), it is becoming more difficult to manage the Supply and Demand factor in supply chain. This comes from the fact that before the demand is estimated, the manufactures have to decide the appropriate production level which implies a great amount of supply risk. Inventory levels also fluctuate across the supply chain and forecasting does not really help the organisation. This makes it difficult to estimate the demand for the product (Simchi L, et.al, 2004).

Economic factors and technological factors like change in demand and supply affect the supply chain in Tesco. These economical factors are not controllable but they have major impacts on the performance of Tesco’s supply chain network which would make things bit complicated to manage.

2.5 SUPPLY CHAIN MANAGEMENT ADDS VALUE TO THE PRODUCT

According to Michael Porter (1998), he developed the concept of Value chain in his book ‘The Competitive advantage’. He recommended that all activities performed within the organisation add value to the products and services. He suggested that these activities should be performed efficiently and effectively if the organisation wants to achieve competitive advantage. To exceed the costs incurred and for the customers to return to the organisations these activities should be run efficiently.

Value chain can be further divided into two categories:

Primary activities include the action from the time the unfinished goods are received by the supplier to add value to the product by converting it into finished product. When the value is added to the product they are ready to be distributed to the distribution centres (Christopher M, 2005).

Support activities provide guidelines for the primary activities to help the organisation meet its competitive advantage. This includes obtaining the best quality of raw materials at the best market price. Technological developments are applied at this point to help reduce the cost of production and R & D to develop new products. HRM is responsible for acquiring the right manpower to do the job (Christopher M, 2005).

In Value chain the key distinction is to identify whether the exchange that generates value in the chain is between business to business (B2B) or business to customers (B2C) (Andrew Feller, 2006).

2.6 LEAN SYNCHRONIZATION AND JIT IN SCM

Lean synchronization is the aim of achieving what customers want, in exact quantities, exactly when needed, and at the lowest cost possible (Nigel, et.al, 2009). Synchronization means providing the exact quantity of product demanded with the perfect quality in exact quantities and at the right location and no waste (Nigel, et.al, 2009).

Lean synchronization and JIT go hand in hand as both aims at the same objectives. The concept of lean emphasises on eliminations of waste and JIT stresses on producing products and services only when they are needed or demanded.

To achieve efficient level of Supply chain, the organisation must eliminate all forms of waste. Waste is also referred as activity that does not add value to the product. It could be waiting time, transport, inventory, over stocking or under production.

According to the study by Cummins worldwide fortune 500, the engine company, an engine was being worked on for only 15% of the time it was in the factory. This meant that 85% of its time, the operation was adding cost to the engine, not adding value.

SUPPLY CHAIN AND CUSTOMER SATISFATION

Success in business only comes through the customer satisfaction (Christopher M, 2005) and customer satisfaction comes from good quality at a competitive price. Companies leave no stone unturned and spend to improve the quality or the supply chain network that relates to customer value (Kotler P, 2008). This raises a critical question on how much is a customer worth? Companies are now realising that the answer is ‘yes’ to a great extent. Companies like Wal Mart, Dell and Tesco have recognised this and are investing a great on their supply chain network to turn their perspective customers into their profitable customer.

Consumers are increasingly demanding so large chains like Tesco are capturing large amounts of consumer information through their club card scheme that can be used to communicate with the consumer Ritz (2005).

2.7 INVENTORY AND QUALITY MANAGEMENT IN SCM

Operations managers have always been hesitant towards inventories. Inventory management is holding or stocking the finished goods. Over the years, the organisations have tried to improve their customer service whilst controlling overstocking and by speeding the flow of products through the supply chains (Nigel, et.al, 2009). Inventory management can be risky as well, as the stock stored could be Deteriorate or might just get lost. On the other hand this could be an insurance against unexpected demand. The inventory management exists only because the demand and supply are not definite.

Forker et al (1997) investigated the impact of quality management practices all over supply chain network and found that managing the quality throughout the SC is directly related to the higher levels of conformance.

IT systems like Radio frequency identification (RFID) has helped Tesco to control the fluctuation in its inventory while controlling the costs.

RATIONALE OF THE RESEARCH

The main purpose of this research is to make a clear understanding of how Tesco manages supply chain in UK. Supply chain is not new to any organisation, what is new is, how efficiently their SC performs to achieve the organisational objectives. In the past, retail giant Tesco has faced some major supply chain problems which affected its market position and profitability. The in depth study of SCM at Tesco will open a new chapter which will show how Tesco has come so far to be a number one retail store in UK grocery market.

RESEARCH METHODOLOGY

Research in general refers to a search for information. It can also be defined as scientific and systematic search for relevant information on a explicit topic. Research is a systematic effort to gain new knowledge (Redman & mory, 2006).

Research is defining and refining the dilemma, devising hypothesis or proposing solutions, collecting, organising and evaluating data and arriving at conclusions (Clifford woody, 2006).

In brief, the research is a an intensive and purposeful search for information all the way through objective and systematic method of discovering solution to a dilemma is research.

RESEARCH DESIGN

This research is based on one of the leading grocery retailer Tesco. Tesco has 2,282 stores in UK and employees 286,394 (Internet stats). Tesco has a very vast network of supply chain management. Supply chain management (SCM) has become a very prominent concern for both large and small companies as they strive for better quality and higher customer satisfaction (Mentzer et al. 2000; Chopra and Meindle 2001).

This research will be based on the systematic method of collecting data, interpreting and analysing the information. Under this research secondary data would be given more preference keeping the primary data for the base as it provides an efficient way of gathering a great amount of data. This will save time and money on collecting data that already exist.

Secondary data can be collected from the data that already exists. It is a data that has been already collected by someone for their own purpose (Glaser, 1963) or further analysis of an existing data set (Hewson, 2006). It involves the examination of the secondary sources of data. There are two types of secondary data

• nternal secondary data is the data that every organisation keeps in record for their own purpose; increasing use of loyalty cards has provided the retail organisations to collect a wide range of information on customer spending habits. (Smith, E 2008)
• External secondary data is the data that has been published by other organisations or the reports or surveys conducted by government, competitors, trade publications. (Smith, E 2008)

The data will be collected from the studies and research already done by other researchers. The survey undertaken by Tesco itself, this research will be more reliable on the data available on internet as the statistics would show how the company is performing to achieve the higher level of profitability and higher customer.

To carry out this research, applied research will be carried out as this research is designed to aim at finding the explanation for a practical problem of the society or an organisational issue (Kumar, R 2008). Tries to say how things can be changed (Kumar, R 2008). Under this research, knowledge is not acquired for the sake of knowledge but for a certain goal for e.g. to cure a specific disease, improving efficiency in energy, transport. This finding will give an understanding of how SCM works at Tesco by going through the data that already exists to prove the hypothesis.

A quantitative method is based on collecting, analyzing, interpreting and then writing the outcome of the study (Creswell, 2003). It relies on the measurement of amount or quantity. This is more suitable to phenomena that are expressed in terms of quantity. The data collected under this method will help to determine the success or failure of SCM by comparing the figures collected to analyze the results.

Informative and valuable quality information will be collected based on the previous analysis, case studies, journal and related books and then the data will be analysed and compared before writing the result. Hence, this research will use Quantitative method to analyze the effectiveness of supply chain management.

This research will be based on empirical research understanding by experimenting or observation of relationships between the scores obtained to test a specific hypothesis. Measurement, research design and analysis are performed to identify the relationships between the scores across the measures (Donald, P 2005). This will enable to compare and contrast the different supermarkets like ASDA, Sainsbury’s, and Morrison with Tesco.

Numerous case studies will also be undertaken to get an intensive and in depth knowledge of research. It is like any other research, is a process of developing a question, carrying out a literature review, collecting data, considering ethical issues, analysing data, drawing conclusion and offer recommendation.

LIMITATION

The main limitation of this research is that the high official would probably not disclose the figures that would be needed to prove the hypothesis, rather it will have to depend more on the outsource i.e. data available on Tesco.com and researches carried out by different researchers like IGD, ICMR.

TIME SCALE

EXPECTED CONCLUSION

Tesco Plc being the leading retailer in UK grocery retail, has come far to be the leader in the market. Tesco has been investing a lot on their supply chain network with the aim to achieve a higher customer share through customer satisfaction. The introduction of Informatics Technology (IT) in Tesco Plc has helped the company to enhance their network of upstream and downstream information. RFID has enabled Tesco Plc to make things quicker and less complicated and makes their supply chain network more effective to help the company reduce wastage. The expected

References

Nigel slack et.al, operations and process management, 2nd edition 2009, Pearson Education Limited.

Michael Porter, Competitive advantage : creating and sustaining superior performance, 1998

Martin Christopher, Logistics and supply chain management creating value added networks, 3rd edition 2005, Pearson education limited

Supply chain Europe, February 2005

IGD surveys 2009 internet stats

ICMR 2009 internet stats

David Simchi et al, managing the supply chain: the definitive guide for the business professional, 2004, the Mc Graw hill companies