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“The Evolution of Supply Chain Management in Retail Sector of Tesco and Analytical
Study for the Period of 2005-2011”
Chapter One: Introduction
1.1
Supply chain as a whole can be seen as the flow of water in a river: organizations located
closer to the original source of supply are described as being 'upstream', while those located
closer to the end customer are 'downstream'. The flow of the whole river is being concerned. In
other words, supply chain is a network, which for tangible goods covers purchasing of raw
materials, manufacturing, assembly and distribution of finished goods to the client (Burch, 2007 ,
14). The supply process acts as the bridge between core competencies and markets. The ability to
manage this process along with the strategic core is crucial to market success. There is a need to
contemplate the scope of strategic thinking and action at two sections. The first is the strategic
role of supply chain management, and the second is the benefit achieved from supply chain
management (Basu and Wright, 2007, 11). This research looks to study the evolution of supply
chain management in retail sector of Tesco .
Introduction
1.2
In today’s business world competiveness is the key to success experts and entrepreneur
worldwide looking for solutions that can bring all there major business major functionality under
one roof. The aim has been to drive minimize costs, maximize profits and make the business
environmentally sustainable (Wang, 2010. 6). One approach to achieve these goals and one that
has recently been the focus of the business academic field is the management of the business
through supply chain management.
Research Background
Blanchard (2007) describes a Supply Chain in the following words,
“A supply chain, boiled down to basics, is the sequence of events and processes that take
a product from dirt to dirt.”
In simple words, supply chain management is a holistic management of the business.
Instead of looking at each firm individually, the aim of the management when following the
supply chain management policies is to work for the benefit of all the members of the supply
chain (Basu and Wright, 2007, 11).
During the last few decades, supply chain management has been both fundamental and a
dynamic aim of organizations. By working to coordinate between the areas of manufacture,
consignment, and delivery of the goods required to meet their operational needs, firms using
tools of supply chain have been able to more easily meet the demands of their clients. However
as we enter the 21st century, supply chain management is transforming into what many experts
term as synchronized supply chains.
Through the supply chain policies, a business can make sure that it reduces costs through
the entire supply chain. This means that even the welfare of the customers, who under normal
policies are only concerned to gain the maximum amount of money for a given commodity, is
considered and thus managed . However, a supply chain may be very hard to manage because of
the complexity of operations that it faces .
Operations strategy is defined as "the total pattern of decisions which shape the long term
capabilities of any type of operation and their contribution to overall strategy". Slack et al.
(2004) also states that operations performance objectives relate to the interests of the operation's
stakeholders. Applying to Tesco, customer's satisfaction is particularly important to its business.
Therefore in order to satisfy its customers and contribute to competitiveness, Tesco's operations
performance objectives are mainly reflect on cost, quality, speed, dependability and flexibility
five aspects (Burch, 2007 , 3).
1.3
The research focused on Tesco as it is in the United Kingdom. This means that the
research has basically studied how effective supply chain management is in improving the
businesses in the United Kingdom (especially the retailing ones like Tesco).
Research Context
The point however is that the practices and the application of supply chain management
is not an easy process at all. The concepts and their uses is complex and need a lot of expertise
when it comes to management. However, ones applied, supply chain management can steer a
business towards new dimensions of success and this is precisely what has studied with respect
to Tesco i.e. how well the supply chain management helped Tesco to gain its current position.
1.4
Tesco’s supply chain improvements described indicate that supply chain management has the
potential to improve a firm's competitiveness. Tesco’s supply chain capability is as important to
a company's overall strategy as overall product strategy. Firm’s supply chain management
encourage management of processes across departments.
Problem Statement
1.5
Following are the major questions that are interrogated through the research paper:
Research Question
i) How and why Tesco starts to emphasis on supply chain management?
ii) What are the main concepts and policies of Tesco supply chain management?
iii) How change in supply chain management in Tesco effect the profitability?
iv) What complications, if any can arise because of the incorporation of supply chain
management into the Tesco retail and how Management overcomes those obstacles?
v) Is supply chain management critical to the success of retail business or is a
decentralized approach still recommended?
1.6
The aim and objective of the research would be focused on supply chain process and
methods implemented in current retail industry at Tesco. Also we would be looking at how
supply chain management have effect Tesco by carrying out an analytical study of supply chain.
The aims are:
Research Aims and Objectives
• To discuss role of supply chain management in Tesco & characteristics of its evolution.
• To analyze what practices Tesco management incorporates in supply chain management
to make the operations of an organization cost effective.
• Supply chain management (as told in the background of research) works for the benefit of
all the members of the supply chain. The aim is to study how this is achieved
• To carry on an analytical review of Tesco last five year supply chain to be able to reject
the null hypothesis.
1.7
The purpose of this research is to study the supply chain evolution, supply chain process,
strategy and methods implemented at Tesco.
Purpose of the Study
1.8
This dissertation consists of five chapters including Chapter One, the Introduction, which
deals with background information, as well as giving a brief introduction to supply chain and
Tesco. Chapter Two provides the reader with an overview of the literature review, which first
covers the background and nd second looks at some specific advertising strategies in order to
construct a basis for conducting the research. Chapter Three refers to the methodology used, and
discusses the limitations to the research carried out. Chapter Four presents the findings of the
research together with the discussion of the conclusions reached. Chapter Five, the conclusion,
discusses the possible implications of this research for future studies.
Dissertation Structure
1.9
This chapter provided the background, context and purpose of the reseach. This
Operations Management plays a key role in achieving the main performance objectives of Tesco.
Whether the current operation objective is to improve customer service or to increase
profitability, the way in which Tesco utilises its resources will have a significant impact.
Summary
Chapter Two : Literature Review
Supply Chain Management is the process of supplier to manufacturer to wholesaler to
retailer to consumers. This process will be maintained by materials, information, and finances.
Coordinating and arranging are necessary skills. That are involved in the supply chain
management, the most important goal of the supply chain management is to reduce the
inventory. Assuming that products are available when necessary (Bevan, 2005, 56).
2.1 Introduction
Supply Chain Management plays a key role in achieving the main performance objectives
of Tesco. Whether the current operation objective is to improve customer service or to increase
profitability, the way in which Tesco utilises its resources will have a significant impact. As a
consequence, there have been a number of innovative developments in Supply Chain
Management that have sought to make use of Tesco resources in a significantly new manner in
order to make a big step change in performance (Bevan, 2005, 56) .
2.2 Importance of Effective Supply Chain Strategy
The Institute for Retail Studies's research (2003) reports that retail industry in the UK is
quite competitive, dynamic, and innovative in recent years. And grocery retailers such as Tesco,
Sainsbury's, Asda etc. are all compete on price, quality, range, and service in order to strive for
business success.
Tesco is engaged in retailing and associated activities. Co.'s Core UK segment consists of
four different store formats: Express, Metro, Superstore and Extra, as well as one trial format
called Homeplus. Co.'s Non-Food segment includes merchandise such as including electricals,
home entertainment, clothing, health and beauty, stationery, cookshop and soft furnishings, and
seasonal goods such as barbecues and garden furniture in the summer. Co.'s Retailing Services
segment consists of several operations, including Tesco Personal Finance, Tesco.com and Tesco
Telecoms. Co.'s International segment operates in 13 markets outside the U.K., in Europe, Asia,
including India, and North America (Shah, 2009, 76-80).
Tesco's recipe for growth is to build new stores, diversify into new countries, and to add
new products and services. Indeed, it has moved beyond groceries and far beyond the UK to
become a global retailer of general merchandise, as well as food. The strategy appears to be a
winning one for Tesco, which saw its sales rise from £51.5 billion in fiscal 2008 (ends February)
to £67.6 billion in fiscal 2011. Over that time, Tesco added more than 1,600 stores and saw an
steady increase in profits.
2.3 Tesco's Recipe For Growth
While about two-thirds of the company's sales are generated in the UK, fast-growing
Tesco is expanding faster away from home. In China, one of the world's hottest retail markets,
Tesco operates more than 100 hypermarkets, about a dozen convenience stores, and several
Lifespace shopping malls. The company's strategy is to invest £2 billion ($3.1 billion) to build 80
five-story Lifespace malls, which also house movie theaters and restaurants, and to add about 20
hypermarkets by about 2015. The British retailer is playing catch-up in China to US giant Wal-
Mart and France's Carrefour, which entered China nearly a decade before Tesco in 2004.
Elsewhere in Asia, Tesco is the market leader in Thailand and Malaysia. Seeking to
increase its presence in those two markets-- and in Singapore -- Tesco is one of a pack of more
than 10 bidders for about 60 stores in those countries owned by France's Carrefour. In South
Korea, Tesco recently increased its ownership share in Homeplus, its former retail joint venture
with Samsung, from 89% to 97%. In India the UK-based firm has an exclusive franchise
agreement with the retail arm of Tata Group to develop Star Bazaar hypermarkets there. In a rare
retreat for Tesco, the company is giving up on Japan, its smallest international division, after
eight years in the country. The retailer in 2011 announced it will sell its 129 stores there because
it hasn't been able to build a scalable business. Only about half the stores, which trade under the
Tesco, Tesco Express, and Tsurukame banners, are profitable.
Back at home, Tesco's rapid growth has earned it about a 30% share of the UK grocery
market and an 8.5% slice of the nonfood market. To win the hearts of cash-strapped consumers
and keep them in its stores, Tesco has expanded its own Tesco Value line of discount products
and its Tesco Finest brand -- both of which exceed £1 billion in annual sales. It is also cutting
prices on other items in an effort to keep shoppers from defecting to deep discounters, such as
ALDI and Netto Foodstores. Indeed, Tesco is facing even stronger competition from its chief UK
rival Wal-Mart-owned ASDA, which recently acquired the Netto chain of discount stores in the
UK. To bolster its One Stop convenience store chain in the UK, Tesco acquired more than 75
stores from privately owned Mills Group (boosting its store count to about 600 across England
and Wales) in early 2011.
The British retailer is also struggling in the US where it launched a new convenience
store chain -- loosely fashioned on its Tesco Express format in Europe -- called Fresh & Easy
Neighborhood Market in 2007 -- just prior to the onset of the deep recession. While the chain has
grown to number about 165 shops in Arizona, Nevada, and California, it lost nearly $300 million
through fiscal 2011 (ends February).
Tesco in 2011 acquired an 80% stake in the British video-on-demand (VoD) service
Blinkbox, which competes with Amazon.com's LoveFilm. Tesco entered the VoD market to
position itself for the next phase of Internet-driven home entertainment, even though the retailer
is a huge seller of DVDs. Previously, Tesco bought out its joint venture partner -- Royal Bank of
Scotland -- in Tesco Personal Finance (TPF) for about $1.9 billion in 2008. TPF, which was
formed in 1997, has grown to serve more than 6 million customer accounts and offers insurance,
credit cards, loans, mortgages, and savings products. The purchase is part of Tesco's strategy to
expand into the service sector, which is outpacing food in terms of growth. The timing of its
push into retail banking -- just ahead of the banking crisis in the UK -- was auspicious. Tesco is
enjoying increased demand for its banking services as distrust of traditional banks has grown in
the aftermath of big bank bailouts in the UK during the financial crisis. (Now TPF is seeking to
add checking accounts to its menu of services.) TPF is also getting into the auto and home
insurance markets via a partnership with the UK arm of Fortis Insurance (Shah, 2009, 76-80).
Tesco group has indicated significant progress in last years, which can be found in
figures from balance sheets. Profit and Sales of the Group in UK have doubled comparing with
recent four years to £2.28bn and £39bn. Looking further in to statistics of business there also is
increase in number of stores that had tripled to 2672 and amount of workers boost a 60% to
273.000 people. Another big step for Tesco was to launch non food products in its offer. This
appealed more people to come to big stores or website. It influenced culture of shopping; buying
products became a family event (Humby, Hunt and Phillips, 2007, 8-99).
Group Tesco with its growth decided to move to new business sectors. Now they provide
financial services, advertised under the slogan of simplicity. Tesco become virtual
telecommunication operator thanks to partnership with O2 (Singh, 2008, 47).
[Sparks, 2008]
To gain sustainable growth Tesco needs brand management to change perception of its
customers. Good, fresh and strong image will help to grow Tesco in retails as well as in other
business sectors that company is already present and is going to be present in Future.
To improve image Tesco group will have to:1. Redesigned logo and corp. website2.
Change stores interior3. Special advertising that emphasizes on experience, reliability, constant
innovation, and rightly priced products4. Advantage that brings customer5. Be present at
cultural, sports, charity events and shopping malls6. Increase quality of customer
serviceImproved image allows company to-gain loyalty of customers,-penetrate global market
more efficiently-launch in to new business sectors (with less risk after gaining trust and
recognition of customers)Another issue of Tesco is that Brand is not unified, some countries
have access to e-store or financial, travel services etc. and other nations don’t have access.
Global company should provide the same standard product. There is difference of quality
Tesco’s products in United Kingdom and Poland. To gain sustainable growth Tesco has to
localize in global scale, also increase the net of stores in European countries, as well as launch
other services in order to penetrate them better. In Future internet will be medium that is as
obvious as TV today. Tesco should invest in e-retail now since it brings lots of profit. Costs of e-
store are much lower, than regular store, amount of visitors might be much higher since there is
not distance limitations, customer doesn’t loose time standing in queue, doesn’t have to spend on
gas going to store. It’s very convenient for supply and demand side. Tesco should launch e-stores
first in countries where internet is already widely spread then move to countries where is not so
popular to make people to get used to doing shopping online. The sooner Tesco will be available
online the more customers it will reached in future (Tesco Plc, 2009, 56-101).
According to Slack et al. (2004), Supply Chain Management Strategy is defined as "the total
pattern of decisions which shape the long term capabilities of any type of operation and their
contribution to overall strategy". Slack et al. (2004) also states that Supply Chain performance objectives
relate to the interests of the operation's stakeholders. Applying to Tesco, customer's satisfaction is
particularly important to its business. Therefore in order to satisfy its customers and contribute to
competitiveness, Tesco's Supply Chain performance objectives are mainly reflect on cost, quality, speed,
dependability and flexibility five aspects (Tesco Plc, 2009, 56-101).
With regard to pricing, Tesco every week check over 10,000 prices in Asda, Sainsbury's
and Morrisons stores to guarantee its customers have low prices every day . And it also took
steps to reduce cost in order to ensure that the way they work is better, simpler and cheaper. For
instance, the reason of Tesco has an effective supply chain is because of implementing an
appropriate information technology G.O.L.D. application suite successfully. This software
provides Tesco with complete control over warehouse stack. Moreover, the automatic order
proposals and warehouse optimisation procedures facilitate a fast and flexible business with
minimal logistic costs .Therefore, by doing things cheaply, it will allow Tesco to reduce its price
in order to gain higher volumes or increase their profitability on existing volume levels
externally. And internally, cost performance is helped by good performance in the other
performance objectives (Tesco Plc, 2009, 56-101).
[Simons, 2007, pp 70-81]
As Slack et al. (2004) points out that quality is a particular important objective to all
Supply Chain, as quality is an important aspect of customer satisfaction or dissatisfaction and
quality Supply Chain could both reduce costs and increase dependability. For a grocery retailer,
quality could mean goods are in good condition, the store is clean and tidy, decor is appropriate
and attractive and staffs are courteous, friendly and helpful etc., so according to our research
with Tesco store manager, he stated that Tesco has put more staff into stores and distribution
centers in order to improve its availability and service. Moreover, Tesco also launched Clubcard
that the information provided by it enables Tesco to better understands their customers (Tesco
Plc, 2009, 56-101).
In addition, Tesco delivered new system of hand-held computers for their staff in all of
UK stores, which is to provide key information on the sales floor, simplifying their stock and
order operation for customers. And they also have tested self-service checkouts in order to help
reduce queuing and congestion. All These system has helped to improve speed, quality and
flexibility of their staff response to customers' queries. In general, according to above analysis,
the five Supply Chain performance objectives are interacted with each other, Tesco need to take
account of all of them when they deliver their operation strategies. More importantly, each of
these performance objectives is also influenced by the competitive factors, so according to Slack
et al. (2004), 'order-winning' and 'qualifying' are two factors that could determine the relative
importance of competitive factors. For Tesco, according to our research, cost (low price) and
flexibility (innovative products and services) are two order-winning factors that directly and
significantly contribute to their success business. Quality, dependability and speed are qualifying
factors for Tesco, as all these factors not the major competitive determinants of their winning
business, but they are those aspects of competitiveness where Tesco's operation performance has
to be above the particular level that customer perceived (Tesco Plc, 2009, 56-101).
Operation planning and control are an important part of the organisation. Planning is a
formalisation of what is intended to happen at some time in the future. And control is the process
of coping with changes in these variables (Slack et al., 2004, 101-109,214-269).
2.4 Supply Chain Planning and Control
Capacity planning and control reconciles the required availability for an operation's
products and services with the operation's capacity to deliver them (Slack et al., 2004, 101-
109,214-269). Capacity concerns with the major facilities, machines, manpower, and supplies of
the organisation. These are all the resources which need to be planning and control.
Supply chain management is concerned with managing the flow of materials and
information between the Supply Chain which form the strands of 'chains' of a supply network
(Slack et al., 2004, 101-109,214-269). Supply chain management needs consider and satisfy end
customers.
The current Tesco supply chain network is well documented (IGD, 2003b). The Supply
Chain performance is now much more rigorously monitored, mainly through the 'steeling wheel'
approach widespread throughout Tesco. Any distribution centre steering wheel focuses on
Supply Chain which include safety and efficiency, people which include appointment,
development, commitment and values, finance which include stock results and operating costs,
and the customer which includes accuracy and delivery on time (Fernie and Sparks, 2004, 44).
Also Tesco measure these performance at all levels, quality standards are maintained and
enhanced (Shah, 2009, 76-80).
Developments in depot operation and location have been considerable in recent years as
has the focus on achieving an effective and efficient operation. The components and the
operations of this network have undergone significant change. The inter-linkage amongst these
elements has been transformed by the lean and flow principles. Performance is rigorously
monitored, including through the 'steering wheel' approach widespread throughout Teseo. The
distribution centre steering wheel in 2005 focused on operations (safety and efficiency), people
(appointment, development, commitment and values), finance (stock results, operating costs) and
the customer (accuracy, delivery on time). The effect overall has been to build a supply chain
system that is much admired worldwide (Shah, 2009, 76-80).
Tesco is an extremely successful company and a major part of its success has been due to
its distribution network, Tesco has successfully applied lean distribution and just in time strategy
into their distribution network. Using just in time within their distribution network gives Tesco a
competitive advantage over its competitors by reducing inventory costs and improves
scheduling. It also insures proper protective maintenance and stress quality in all phases of
production from quality by suppliers to quality within Tesco. But it is not enough to only look at
the internal capabilities of Tesco for that reason the value network is useful in understanding
inter-organisational links and relationships. Tesco has an enormous supplier power which gives
them competitive advantage and makes the entire link between the supplier and Tesco an
important strategic capability. Tesco leaves the responsibility at the supplier, so they can focus
on their stores, online shop and the most valuable area, the consumers. The suppliers make Tesco
profitable and give them the kind of differentiation and advantage that makes them the market
leader in the UK (Shah, 2009, 76-80).
Information and communication technologies have come to play a crucial part in the
world of business in recent years. Theorists have proposed that for business Supply Chain,
logistics and supply chain practitioners to be competitive in the industry they need to be efficient
and effective. In order to be efficient and effective it is important to invest in the application of
electronic technology because the application of relevant modern technology will assist logistic
organisations to deliver goods and services of the right product, in the right quantity, in the right
condition, at the right time, at the right place, at the right cost and for the right customer. The
application of relevant technology must be efficiently and effectively managed. Business
revolution in logistics and supply chain has been brought about by the use of electronic
technology. Information and communication technologies have helped businesses in the supply
chain to be integrated so that processes and activities in the supply chain have been able to be
properly coordinated with the assistance of electronic technology. Common electronic
technologies available are barcode systems, electronic points of sale (EPOS) and electronic data
interchange (Pryke, 2009, 34-43).
Another information and communications technologies Tesco use is Electronic Point of
Sales (EPOS). This type of technology in particular has revolutionised the process of paying for
products because it is used for the scanning of goods which takes a note of the product, price and
records the transaction. This system can recognise when a product needs to replenished which
for Tesco is an advantage because it provides them with an instant record of transactions at the
point of sale. Therefore replenishment of products can be coordinated in real time to ensure that
stock-outs are minimised. It also speeds up the process of dealing with customers when a large
number of products are bought. This also relates to Tesco’s club card system which rewards
customers with discounts for continuing to shop with them where they collect points each time
they spend money in the store. This is an extremely useful advantage because the cards with the
customers personal details is linked to their actual purchases therefore allowing Tesco to obtain
much needed marketing information about their customers (Tesco , 2010, 11-19)
The role of large chain supermarkets is rapidly expanding, as suppliers of goods and
services to consumers and the building of local and international economies. The current tariff
laws of the United States make it a lot easier for foreign born grocery chains to operate within
the United States. The extent to which they do this is highly refuted because supermarkets have
an array of effects on markets and economies. However they can provide jobs and services to the
region, but they can also drive pre-existing markets out of business if they fail to compete or
meet supermarket standards. Supermarket chains influence traditional chains of distribution and
production through homogenization of services and products (Pryke, 2009, 34-43).
A store-based picking model provided substantial benefits in terms of speed of
implementation and national coverage. It also used existing resources more fully and allowed the
supply network both to see the activity occurring and to capture this activity in existing processes
of reordering and store delivery. At a local level the key components included ensuring picking
processes were efficient based on store layouts and that home delivery by local vehicles was also
efficient and effective (Humby, 2007, 435-466).
The outcome of this has been the world's largest internet grocery operation, offering in
the United Kingdom effectively national coverage through local stores but tying in to the
national product supply network. In 2007, 294 stores were used for internet picking, with 1,860
local delivery vehicles. This is not to say that this is the only model in the future. In 2007 Teseo
began to pick out of a dedicated (tesco.com only) store in Croydon, London for some internet
supply orders. Demand in this area could not be met from local store picking and so a dedicated
store was developed (not a warehouse pick). It may be that in some areas a dedicated faculty
makes economic sense (Tesco , 2010, 11-19).
Home delivery by internet ordering for food/grocery has subsequently been supplemented
with an extensive internet site offering a huge range of food and non-food products. This site
offers far more products than one carried in 'normal' stores and provides local customers access
to an enhanced range. In 2006, Teseo launched a catalogue (Teseo Direct) aimed at non-food
home shopping, which now runs to over 10,000 product lines, again focusing on providing
products to customers as and when they wish to order them, and as and when they wish to
receive them. Consumers can place orders by phone or online and have them delivered to the
home or available for pick-up at the local store. In-store kiosks are also now being trialled
(Pryke, 2009, 34-43).
TESCO's real strategic store internationalization began in 1994 with entry into Hungary
but soon expanded into other central European countries. First steps were then made into the
Asian market, both as a reaction to the Asian economic crisis of the 1990s, which meant assets
were cheap, but also due to a more positive sense of the scale of the market opportunities in
China and Japan, for example. Over time the countries in which Teseo operates have changed
slightly. Withdrawals from some markets have been made (Palmer, 2004, 5), recognizing the
lack of scope to become the market leader and/or the desire to invest elsewhere . In some cases,
these withdrawals have been made as part of asset-swaps with other leading global retailers, each
recognizing their own strengths in particular markets. During this time Teseo also re-entered
Ireland through a major acquisition, though it is still not represented in continental western
Europe (Humby, 2007, 435-466).
2.5 Internationalization
The strategic approach to store internationalization has seen Teseo develop different
solutions for diverse markets, using distinct formats and tailoring the product and service offer to
the local market. In many countries it operates as a multi-format and even multi-channel retailer
(home shopping is available in Ireland and Korea) and focuses on the core values and brands of
the business. Behind the scenes people, processes and systems have been enhanced and rolled
out initially as 'Teseo in a Box' and more recently as the Teseo Operating Model.
As can be readily understood, the internationalization of Teseo at store level brings
supply chain issues as well. At the same time, Teseo buys products on a global basis and this also
has to be 'fitted in' to the everchanging pattern of supply and demand. With formats and products
varying by country and with time, the need is for a supply system that can be adaptable. In some
cases, eg Ireland and Hungary, the composite model has been effectively exported to these
countries, often with the same logistics service partners. Ln other situations there is an attempt to
rethink the supply system and the technology needed and use this as the platform moving
forward (Pryke, 2009, 34-43).
For example, in 2003/4, based on the UK composite model, Teseo opened the largest
distribution centre in Asia at Mokchon, Korea. It also opened major centres in Poland and the
Czech Republic, extended a centre in Hungary (and added another fresh food distribution centre)
and developed a new composite site in Ireland. As internationalization continues, so the
infrastructure and the processes in the supply chain need to keep pace with or even lead the
developments. The processes are now embedded in the Teseo Operating Model, but new
faculties to meet expansion needs are required (Wang, 2010, 111-132) .
In November 2007, Teseo finally opened its much heralded Fresh and Easy stores in
California and Nevada. Years in the planning, this US entry is intended to achieve 200 stores by
February 2009 and to eventually develop into a major chain. Based on extensive consumer
research with US families and a trial store built secretly, Fresh and Easy stores average about
10,000 sq ft and hold around 3,500 product lines. They focus on providing faster, easier
neighbourhood retailing with an emphasis on fresh food and fresh prepared meals at affordable
prices. Environmental, neighbourhood, employment and organic credentials are stressed. Fifty
stores had opened by the end of February 2008, with expansion into Arizona, although a 'pause'
in development was announced in April 2008 to reflect on the learning from these early
developments.
It is too early to judge the success or otherwise of this US venture, but it has attracted
considerable attention. The store format is different to Teseo stores elsewhere. Whilst the Teseo
name is not used, its operations are based on the Teseo Operating Model, but with reduced
complexity. The in-store processes are simplified, including extensive display-ready packaging,
self-checkout and automated replenishment. The systems are advanced, linking processes to the
service centre in India. This simplification has reduced payroll and other costs (Pryke, 2009, 34-
43).
In supply terms, the Fresh and Easy operation is a little different to other Teseo
operations, partly because the model of practices and processes has been built up from scratch,
though it does rely on core processes from the Teseo Operating Model. For example, there has
been a degree of co-location of production with distribution. UK suppliers with particular
expertise have co-located production facilities at the head office and distribution hub (Riverside,
CA), so as to react quickly to demand. Whilst this is not unknown in, for example, Japan, the
attempt here is to move towards a low-touch, lean operation and to rethink traditional
approaches. There is extensive recycling of packaging, use of returnable crates and retail-ready
merchandizing and packaging. The emphasis is on fully automated, one-touch replenishment
supported by deep shelves. At Riverside, pick-by-line has been introduced and various
environmental initiatives, eg solar power, developed (Stites, 2007, 4). Store stock levels and
availability were initially poor, however (Uwins, 2007, 55) and the distribution systems
performance has had to improve as the store development programme has moved on.
The sizes of the stores are 10,000sq ft selling around 3,500 items (Telegraph). The stores
are much smaller than supermarkets such as Wal-mart, which shows Tesco are not prepared to
go in direct competition with them. Furthermore, Tesco have invented a new format in America;
convenience retailing as we know it in the UK - a small shop selling a wide range of fresh, top-
up groceries - does not exist in the US, where a convenience store means a petrol station selling
cigarettes, doughnuts and little else (Telegraph). Tesco predicts Americans will prefer the
convenience of a smaller store providing it caters for their needs. By Tesco being the first major
competitor in the ‘convenience’ market, they can have ‘first picks’ on store locations, suppliers,
employees and partners. This concept is known as first mover advantage . However, perhaps the
reason no other company has broken into the market before is because it is not profitable or not
in demand (Wang, 2010, 111-132) .
A strategic alliance can be defined as cooperative agreements between potential or actual
competitors. Tesco announced that they would form an alliance with Safeway, an American
supermarket, and share profits. The strategic alliance will facilitate Tesco’s entry into the foreign
market by renting stores from Safeway in prime locations. If Tesco purchased the buildings and
the project was unsuccessful, losses would be much higher than if they rented them. Therefore, a
strategic alliance allows companies to share the fixed costs and reduces the risks involved in
entering new markets. Furthermore, the USA has different property laws to the UK and so can be
confusing to follow the law-with an American company in alliance their knowledge can be
transferred to Tesco and vice-versa. However, strategic alliances can be risky too. If Safeway go
bankrupt and have to sell its stores, terminating the contract, it puts Tesco in a vulnerable
position of either purchasing the stores it rents or move elsewhere. Either way, it will cost the
company money (Pryke, 2009, 34-43).
Overall, Tesco's Supply Chain Management Strategy is its long-term goal. It is important
for Tesco to have an operational strategy because it establishes the types of goods and services
the company will offer its target market, and how Tesco are going to get advantages over its
competitors. Tesco made good planning and control in its capacity, supply chain and quality.
2.6 Summary
Besides, in order to make improvements in operation, Tesco measures quality, speed,
dependability, flexibility and cost. Although they have made some improvements, there are still
some disadvantages in its operation.
The future retains numerous distinct scenarios for Tesco. The business has currently
developed into a worldwide business. One of their likely future strategies could be dedicated to
gathering a spectacular clientele service, as they have currently developed enough. As cited
previous, Tesco is the market foremost in the UK. To sustain this location it is significant to
advance its services all the time. Tesco will require advancing its product variety by proposing
more non-food items.
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