Logistic Operation Of Tesco Management Essay
Supply chain and logistic management is a autonomous function of agents and entities working together to bring material and product in order to ship it retail outlet for sale, with the arrival of latest technology supply chain operation had become highly visible at all level but there is still lots of work needs doing. Retailers like Tesco, LIDL and ALDI had their supplier across world. In order to manage high accuracy for stock availability, supply chain and logistic operation has to best and aligned with overall business strategy. In this report author had performed comparative analysis of logistic and supply chain operation of all three retailers. Analysis had been done on the basis of moved by all three retailers in different duration of time with targeted perspective. Author made special focus on steps taken toward latest technology adoption with time over certain intensions.
LOGISTIC OPERATION OF TESCO:
Tesco had tried RFID in its Cambridge store on Gillette Mach 3 razors in January, 2003. Company had also extended its operation to track DVDs as a process of trial in Sandhurst, Bershire. According to Tesco Director for group technology we are in a process of developing standards that would allow us to understand supply chain. In case of RFID for DVDs, each DVD have unique tag that would be activated by shelf reader, when product is moved to shelves from back store or when product got purchased leading to an activation of signal for central computer system for appropriate action (Newsletter, 2003). In 2007, Tesco had re-engineered its entire supply chain in order to make common system foundation for all store across world. Major focus would be on continuous replenishment monitor and continuous in store inventory control (Newsletter, 2007). Tesco was strongly lacking in term of communication and visibility before implementing IP (internet protocol) network program. IP network had greatly facilitated communication among stores and warehouses. This move was taken in mid of 2008 and cost about £100m (Newsletter, 2008). According to Tesco IT director Jon Higgion, Global supply chain have become more and more complex, therefore companies that integrate effective network with their suppliers naturally obtain competitive advantage. Tesco emphasize over common infrastructure, so that it could easily be aligned with suppliers at all levels (Newsletter, 2007). Due to changing nature of business, its absolutely vital to have good visibility in entire supply chain with appropriate instant level of decision assisting technologies. In order to boost visibility Tesco had signed £28m deal with CA technology to install equipment’s and software that would improve visibility of entire supply chain. Tesco had also realize that its infrastructure is complex and time consuming therefore, move was desired in order to consolidate consistent service experience. This deal was also targeted to map devices in entire supply chain spectrum at any time. New system would also facilitate issues that may effect delivery services and fix any potential error that may do so (Newsletter, 2011). Tesco describe its trading policy and dealing elements with its suppliers by projecting customer satisfaction as key driving element. Tesco Fairly has been integrated to all level of operations showing key form of broad strategy toward corporate responsibility. Tesco describe four key principles to as driving elements when dealing with suppliers. Values, monitoring, improvement and Transparency: Tesco ensures great values sharing when working with suppliers. Tesco concentrate over monitoring working environment of their supplier. Instead of pressurizing supplier for better value and low price, Tesco provide assistance to its suppliers and finally transparency to make honest and open work being at all level of supply chain (Tesco, 2012). A survey conducted by IGD on supply chain practice suggest that Tesco is the best in class retailer in term of supply chain management followed by P&G. Survey had included numerous factors like growth, customer focus, district business model, integrated supply chain and level of strong collaborative relationship. Other best class retailer includes Aldi, ASDA and LIDL (Vending international, 2006). Bakery is one of most critical element of entire supply chain and there is no absolute way to maintain sale and waste unless Tesco had adopted a new system called GXS’s intelligent web-forms. Test was performed on Maclean’s highland bakery resulting in improved sale and availability. Company has about 130 staff in North west of Scotland, producing extensive range of bakery products whole sales customers, international customers and for their own shop. Tesco is one of key account of Bakery who takes products on daily basis. Trail version of new system found highly successful and Maclean would use this system to other six more stores. According to Director Maclean, serving fresh bakery product across highland is quite challenging and demanding. Deployment of new system facilitates each serving store to login and fill up requirement for each following day. This system provides real time assistance in case of substantial changes required to make in following order (Logistic manager, 2011). In order to maintain continuous standard, Tesco had adopted strict policy for enforcing strong standards. Tesco had introduced ethical standards to its entire supplier with assessment protocols. Suppliers get supplied with “supplier started pack”, a guide that present standard Tesco always intend to implement. Tesco had systematic method to approve all new suppliers. Every supplier have to have ability to meet project standards. Prior to starting supply chain, Tesco perform risk analysis for every supplier. Tesco perform ethical audit to every supplier on annual basis. Ethical standard had two basic purposes: first is to avoid duplication of brand and secondly to maintain the process of continuous improvement. Tesco always intended to build and long lasting relationship. This could only be possible by embedding practice audit and training as pivotal process of suppliers. Tesco make significant amount of spending for skill development plan and considered as one of core element of ethical trade strategy. Due highly availability of suppliers Tesco nominate and distinguish different supplier with Gold, Silver and Bronze category. Data had build IT based system for introducing transparency using supplier data exchange method (Tesco, 2012).
LOGISTIC STRATEGY OF ALDI:
ALDI Strategy of running business in UK is quite different compare to retailer like TESCO, ASDA and Morrison. Typical UK market is different compare to parent market of ALDI (Germany). In Parent market of ALDI, Product distinguishing is small with limited number of sub-lines. As major emphasizes is on price and volume. On the other hand, UK market provides greater choice with price variation to the customers. This strategy has shaped up ALDI supply chain as completely different to Giant retailers, now comparing ALDI with TESCO in term of competition isn’t quite right as operate in completely different segment of business but growth and supply chain analysis could bring significant success factor for comparison. Because of having limited lines and bulk volume, ALDI strategy provide greater flexibility to its logistic to make product available, cost associated with buying get reduced and bargaining power of ALDI also gets increase (Harvey, 2000). ALDI believe to run lean management on its supply chain operation. A process introduced for manufacturing in order to attain more from less. Lean management assist a great deal to minimize the labor, time, space and material cost. Lean production always results better value over its cost ultimately provide greater room to make better value for customer but its comparatively challenging to maintain lean management for long run especially in retail business. Hence logistic operation of ALDI, is JIT (just in time), which ultimately reduce stock keeping at warehouse and eventually help to minimize the waste figure. ALDI run total quality management on its supply chain and logistic operation (The time, 2012). Like other retailers, ALDI also acquire third party solutions for its logistic and supply chain management. One of key solution provider for its logistic operation is Gilt. Gilt provides vehicle management to ALDI for nearly 300 vehicles movement management per day. Gilt utilizes Paragon software that provides real time visibility and performance monitoring solutions. Currently Gilt had also acquired Paragon solution for fleet control and management that provide scheduling capability and efficient transport management by using real time tracking system. According to spokes man from Gilt, On time delivery is crucial and late arrival brings significant impacts therefore our paragon solution provides realistic route plan for making deliveries on time. (In case of lean management late arrival brings considerable bad impact over business) (Logistic manager, 2006). Logistic service to acquire products from supplier has been carried out by “supply chain solution limited”. Company takes majority of ALDI products in Pallet form. This company is dedicated to perform custom clearance, duty deferment, inland haulage, container De-stuffing and warehousing service. As ALDI buy majority of products in bulk, therefore attaining third party solution is quite suitable for business (supplychain solution limited, 2012). Within warehouse also ALDI also work in consolidation with Armstrong logistic ltd. Armstrong have been awarded as ALDI approved partner in logistic operation. Major target of Armstrong logistic as prescribed by ALDI are cost reduction, supplier performance improvement, high efficiency, reducing carbon footprint and high rate of availability on shop floor. Armstrong work closely with ALDI product supplier in term of maintaining quality and other aspects. Stock from supplier get directly shipped to targeted warehouse without having any having particular administration (Armstrong logistic, 2012). Wal-Mart offer 150,000 grocery product, traditional grocer in UK offer about 20,000 products but ALDI offers just 700 product but provide tough time to grocers. ALDI provide 90% of food product that people buy on daily basis with 40% less price. ALDI follow no-frill strategy with low product range and by greater customer experience. Majority of products are private label products. No frill strategy is aligned with logistic strategy of ALDI as it uses pallets and shelve without decoration to market product (Deloitte college for collective leadership, 2011). One of key fact of success for ALDI is its perfect alignment of business strategy with its logistic strategy. In year 2007, when fixed term contract of electricity came into end and ALDI experience rising cost of electricity usage for its refrigerated units. Nicky Ridley had decided that should be some better way to store frozen food and come up with new mechanism called olivo portable insulated containers. Those containers utilized injected CO2 to provide low temperature which is quite cheap. ALDI had planned to spread Olivo insulated containers to all over UK in coming future (warehouse & logistic news, 2008).
LOGISTIC STRATEGY OF LIDL:
Like ALDI, LIDL had also shown extensive growth for past few years. In year 2010, LIDL market share had raise by 16.2% in grocery retailing. In LIDL, logistic operation is much similar to ALDI. Majority of research suggest that LIDL would continuously perform good for coming years because of its traditional style of retailer. One of the key reason for success of ALDI is its dynamic and simple supply chain and logistic network. LIDL believe that by reducing the number of SKU in logistic products ranges compare to TESCO (20,000) and WALMART (50,000). Products lines selected by LIDL are most commonly and widely used lines. Small product line provide significant assortment with 80% of sale comes from private labels. ALDI follow same strategy to make its supply chain simple and bring cost down but in case of Tesco, supply chain is quite complex due to wide variety of lines. Due to large volume of purchased goods, cost of products always stays less due to bulk manufacturing, small procurement team is required to perform procedural flows and LIDL attain more bargaining power over suppliers. In bound logistic always comes with full load trucks with full pallets. Now storage and warehousing become simple as it removes complex delivery window, commissioning and re-pelleting. This logistic strategy brings more roam in store warehouse, better inventory management and increase productivity of worker (easy to move and stack pallets compare to use cages for extensive products lines) (atkearney, 2011). Another important aspect of supply chain and logistic management that had brought significant success for discounter is its dense distribution network with highly standardized outlet across world. LIDL follow similar style of strategy across world. ALDI and LIDL both have similar sort of strategy when dealing with supply chain. Both discounter try to make comparatively big distribution center like ALDI handle 8,000 stores with just 125 regional headquarters, hence every distribution center handle around 60 stores all together. LIDL have 105 distribution centers to handle 10,000 stores in UK. This shows that LIDL is more dense compare to ALDI as well. Distribution center’s size of LIDL is further more bigger. Transportation service for LIDL has been outsourced. In spite of having efficient logistic network, LIDL had shown great interest in product packaging design. Majority of LIDL products have shelf-ready packaging that ultimately helps to reduce waster, handling process and also improve brand reputation. Study shows that nearly 100% products of LIDL use ready-shelf packaging, on the other hand TESCO uses 40% of ready self packaging. Utilizing mixed product cases and pallets with different product range in single case allow wide product range without increasing shelf space and handling cost. LIDL product presentation on shop floor is also highly logistic driven. LIDL displays good extent of product on floor in the form of either full pallets or half pallets. Traditional form of representing product on shelf associate greater cost compare to product presentation on floor in the form of pallet. In some time shelf representation cost is three time compare to half pallet representation on floor. LIDL believe no-frill strategy as best possible strategy for its logistic operation. LIDL avoid introducing new products and innovation. Majority of investment goes toward introducing cost saving provisions (ATKEARNEY, 2011). LIDL had installed fully automate pick and packing provision for its distribution center. LIDL supply chain infrastructure is different and retailer like Tesco can’t filled the gap because of its level of operation and variety of line but Tesco lead the business by differentiation although it make logistic operation highly complex (ATKEARNEY, 2011). LIDL had made announcement build new logistic center of size 426,000 Sq ft in Hamshire as a part of its investment on south central distribution network. Tesco has been planning to build its distribution center to cover south west London and Sussex of size 120,000 Sq ft (Matthews, 2012). This shows that difference of size between two-distribution centers in same region.
Above describe process for managing logistic and supply chain operation shows numerous factor making discounter brands LIDL and ALDI to acquire greater share and get aligned precisely with brand positioning strategy. Tesco run integrated style of managing supply chain operation, therefore it absolutely vital for company to have high technology solution for maintains visibility. That’s why Tesco had made significant investment in technology advancement in past few seven eight years as discussed above. Due to having vast variety of product line, Tesco ought to have close coordination with supplier that could be seen in policy statement shown in official documentation. It not possible for Tesco to run lean supply chain due to diversity there is a greater change of failure over success. On the other hand, discounter due to overall business strategy had quite upper hands. First and most important aspect that LIDL and ALDI don’t have to make strong investment on sophisticated supply chain technology due to short product ranges. It had also be seen that size of distribution center created by Tesco is small compare to LIDL. LIDL believe to have on distribution center for many stores. Those distribution centers have different style of construction, particularly their multi-story composition for holding large amount of pallets. Majority of pallets get shipped to stores without any alteration. LIDL believe to follow lean management strategy. Which help discounter to bring price down and reduce waste. High tech solutions have been required to make lean management in operation, therefore majority of logistic operation investment by ALDI have been targeted for lean management technology solutions. For LIDL most vital aspect of technology solution is fleet management, time management and assortment management. LIDL had made contracts with private logistic solution provider to management critical aspect of its logistic operation by employing high class technology solutions. In term of acquiring contractual services, Tesco, LIDL and ALDI had completely different mechanism. Tesco go for every possible solution that bring cost saving, reduce stock loss and improve visibility like RFID examination at different store on different products but ALDI and LIDL acquire services for their operation based over priorities. LIDL seems to acquire service by making solution provide as business partner. ALDI acquire high tech solution on contractual basis. For ALDI making contractual service for particular span of time provide a window for modification if a better solution gets available in the market. LIDL believe that making partnership provide opportunity for close coordination among logistic partner for improving service for mutual benefits. LIDL had successfully reduce handling operations in its supply chain and logistic operation by integrating majority of distribution center not only in UK but also in Europe. This had brought greater bargaining power for discounter compare to Tesco. Supplier development is very important for Tesco due to differentiation but not essential for LIDL due to small and very common product lines. Major concentration of LIDL in coming future is to open more store to expand business by utilizing traditional style of business. Author would recommend Tesco to implant at least two basic strategies. Bulk purchase of basic lines. Lean management in small and express stores and finally greater emphasis over shelf price labeling.