The use of supply chain management at tesco

This report topic is basically discuss about the systems of Supply Chain Management (SCM) and its contributions toward the business performance of Tesco PLC, formally known as the biggest retailer in Malaysia which selling variety of products such as groceries, electrical products, commodities, clothes, wines and liquors, foods, fruits, drinks and many others. Subsequently, this report also will discuss the history/background and the founder of Tesco PLC, follow by the outlines of SCM systems and its application towards Tesco PLC, and finally the pitfalls/challenges of implementing SCM systems.

1.0 Introduction

In the fast paced business world today, every company is pursuing for high efficiency, increase productivity, maximizing profit while minimizing its expenses. So, in order to attempt these achievements, Companies have to apply information systems to assist in both internal and external control. As we know that our information technologies are getting sophisticated from time to time, there is a system called Supply Chain Management (SCM). The usage of this particular system is to assists businesses in managing relationships toward their suppliers so that they’ll get the privilege to order products at lowest costs in duly delivery time. Moreover, SCM systems able to manage Companies which produce more complex products and which will have hundred or even thousand of suppliers from different type of goods and products.

On the other hand, Supply Chain Management systems also help suppliers, purchasing firms, distributors, and logistics Companies share information regarding order of products, productions, inventory levels, and delivery of products and services so they can make better decisions about how to organize and schedule sourcing, distributions as well as production (Laudon & Laudon, 2010, pg 86). In general, SCM combined with procedures and processes to assure Companies providing the best value to customers on dispatching of goods and services to customers at lowest cost. According to O’ Brien and Marakas (2008), they discussed that the aim of SCM system is to provide efficient, fast and low-cost network in business chain so that our suppliers will delivery goods and products within expected time while avoiding shortages of goods and services.

2.0 The history of Tesco PLC

Tesco PLC, known as UK based supermarket chain by both global sales and domestic market share. Indeed, Tesco is the largest retailer in British whilst the third largest retailer in the world behind Wal-Mart (The largest retailer of USA), and Carrefour (Second largest retailer of France). With the successful of its long term strategy for growth, Tesco has 4,331 outlets with 470,000 employees across 14 countries included UK itself and other countries which are Poland, South Korea, Slovakia, China, Japan, Republic of Ireland, India, Hungary, United State, Malaysia, Czech Republic, Thailand, and Turkey.

The founder of Tesco was Jack Cohen, the son of a Polish Jewish tailor who sold groceries in markets of the East End from the year of 1919s. The brand of Tesco appeared in 1924 and the name of Tesco derived after Jack Cohen bought a large shipment of tea of T.E. Stockwell, formally knows as Torring and Stockwell of Mincing Lane, Jack Cohen made his brand new labels by applying the first three letters of the supplier’s name and first two letters of his surname forming the word ‘TESCO’ (Anon 2010).

2.1 Supply Chain Management systems

According to Oz, he purposed that the process where the input in the form of raw material and parts, adding value to the parts by assembling and processing the raw material, then deliver the output to another unit for further processing or to a customer and finally one of the organizations in the sequence sells a finished goods or final product to a customer. The chain of purchase, process, and distribute is called as ‘Supply Chain’ whereas monitoring and controlling the supply chain is called ‘Supply Chain Management’ (SCM). Based on the information given by Wilson (1996), he discussed that SCM systems was initially developed as a management tool in USA, and it has seen as one element of efficient consumer response that takes as its starting point on how best to serve consumers.

Instead, SCM is a management concept that integrates the management of supply chain processes in term of supplier management, inventory management, distribution management, channel management, payment management, financial management, as well as sales force management (O’Brien, 1999, pg. 330). Stair and Reynolds described that SCM helps to determine what suppliers are required for the value chain, what quantities are needed to meet customer demand, how the supplies should be processed or manufactured into finished goods and services, and how the shipment of supplies and products to customers should be scheduled, monitored, and controlled. In addition, they’ve also mentioned that the value chain is a series of activities as illustrate in Figure 1:

According to Figure 1, each department is different from its nature because some departments produce and distribute products whereas some departments produce service to customers. Therefore, all departments are now integrated as one system by adopting SCM system even though each department has been controlled by their individual system respectively.

Furthermore, most of these systems nowadays are designed to use the Internet. It facilitates managers in supervising entire supply chain regardless the location of the activity whether at their own facilities or another organization that located at same location or thousands miles away (Oz, 2004). Hence, this system enables all parties (i.e. suppliers, distributors, manufacturers, and customers) to see the same information, any changes of the information from any party will vary the information from other parties simultaneously.

3.0 Implementation of SCM in Tesco’s business operation

Based on the financial report 2009 of Tesco PLC, the group sales and earning per share had increased by 15.1% and 9.7% respectively. Apparently, Tesco had utilized SCM system in its business operation very well, such as conducted survey to more than 6,000 suppliers to seek the feedback on the relationships and more than 90% of their suppliers agreed that Tesco made payments on time, committed to meet customers’ requirements, are professional and treat them with respect (Leahy and Mcllwee, 2009, pg 128). As duly payments were made by Tesco, most of the suppliers are willing to supply goods and products priority to Tesco so that Tesco won’t encounter shortages in products in order to serve customer better.

Indeed, Tesco has indirectly maintained a good relationship with its supplier and this is a good sign for Tesco to operate its business smoothly with compliance of SCM systems. To achieve good relationship with merely several suppliers is much easier than to maintain good relationship with hundred or even thousand of suppliers like what Tesco did all the time. As such, Tesco can order products from its suppliers at the lowest price due to the large amount of order and had maintained a good relationship towards its suppliers and indirectly helps Tesco accomplish its business objective i.e. minimize costs while maximize profits.

As a result of few thousand products available in Tesco, most of the products have expiry date such as foods, drinks and so on. It’s impossible to note down all the expiry dates of every single product, that’s the reason why Tesco implements SCM to overcome such problems because it helps Tesco to integrate stock systems with suppliers so that its suppliers will know when is the exact expiry date of the product they supplied respectively and therefore prompt action will be made by them. It improvises the efficiency level of Tesco to serve customer better.

4.0 Pitfalls of implementing SCM systems

However, nothing is perfect in the world not excluded SCM systems. Therefore, there are several pitfalls of implementing SCM systems in Tesco PLC. Lee and Billington (1992) mentioned that there are many pitfalls in SCM and one identified pitfall is the incorrect assessment of inventory costs (Lee and Billington 1992, cited Beamon 1999). These pitfalls are sometime inevitable by Tesco such as viruses (Trojan), failed to maintain good relationship with suppliers, surplus in demands while a deficit in supply, lack of training of SCM systems, overoptimistic demand forecasts, and many others (O’Brien and Marakas 2008).

Virus infection, this is a very common case that is happening around everybody. However, viruses able to affect the entire system and mess up everything in the system, or even destroy the entire system in merely few minutes if Tesco failed to prevent its infection. One of the virus, called ‘Trojan’, is a critical virus that most organizations afraid of. Besides virus infection, sometimes it’s hard to maintain good relationship with suppliers due to the difference cultures, languages, conflict in bargaining of price and some other factors.

5.0 Conclusion

As a result, it is necessary to implement SCM systems in Tesco’s business operation in order to excel in its business performance. The primary thing that Tesco’s managements have to comply is maintain a good relationship with suppliers in term of payment, polite respond and so on. Similarly, the way we treat our suppliers is what we anticipate our customers to treat us back with same manner. The main contribution of SCM system is that, it integrates all network of supply chain from individual network to one network so that they can share information as long as the network is connected no matter how far they are.

6.0 Recommendations

As a Chief Executive Officer (CEO) of Tesco PLC, I am pleased to give some recommendations as to improve in business performance. Hence, there are several things that management has to concern about. First, conduct survey on suppliers regarding their services toward us and collect feedback from them so that we can improve our service based on their feedback so as to maintain good relationship with suppliers. Second, IT department must enhance on fire-wall and anti-virus systems to prevent from virus intervention as we know that the consequences of being infected by virus in our SCM system are extremely horrible. Finally, providing training on SCM systems is necessary to entire management. Thus, managers have to encourage and motivate employees to take part in the training in order to avoid one of the pitfalls.

In a nutshell, applying information technologies in organization is absolutely needed because it could replace manpower and save time-consuming. However, it depends on how organization utilizes it whether implement it wisely or not.

References

Anon, (2010), History of Tesco, [WWW] Available from: http://www.po2b.com/Tesco.htm [Accessed: 25th March 2010].

Beamon, B.M. (1999), “Measuring supply chain performance”, International Journal of Operations & Production Management, Vol.19 No.3, pp.275-292.

Laudon, K.C. & Laudon, J.P., (2010), Management Information Systems – Managing the Digital Firm 7th Ed., New Jersey, Pearson Prentice Hall.

Leahy, S.T. and Mcllwee, L., (2009), Tesco PLC – Annual Report and Financial Statements 2009, [WWW] Available from: http://www.tescoplc.com/annualreport09/downloads/ [Accessed: 2nd April 2010].

O’Brien, J.A. (2009), Management information Systems – Managing Information Technology in the Internetworked Enterprise, New York, McGraw-Hill.

O’Brien, J.A., and Marakas, G.M., (2008), Management Information Systems 8th Ed., New York, McGraw-Hill.

Oz, E., (2004), Management Information Systems 4th Ed., Massachusetts, Thomson Course Technology.

Stair, R.M. and Reynolds, G.W., (2008), Principles of Information Systems – A Managerial Approach, Massachusetts, Course Technology.

Wilson, N., (1996), “Supply Chain Management: a case study of a dedicated supply chain for bananas in the UK grocery market”, Supply Chain Management: a case study, Vol.1 No. 2, pp. 28-35.