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NAME:

ID:
COURSE: Operations Management
COURSE TEACHER: Dr. Di Ling
TABLE OF CONTENTS
TASK 2.......................................................................................................................................................2
INTRODUCTION.....................................................................................................................................2
Background of Tesco PLC and its Supply Chain Management.........................................................2
LITERATURE REVIEW.........................................................................................................................3
Supply Chain Strategies........................................................................................................................3
Pull Process........................................................................................................................................4
Push Strategy.....................................................................................................................................5
Implementation of Push & Pull Strategies.......................................................................................6
Push and Pull Transactions..............................................................................................................7
Lean Supply Chain............................................................................................................................7
CASE SUMMARY....................................................................................................................................9
Current Supply Chain of Tesco PLC...............................................................................................9
Handling the Complexity of Supply Chain........................................................................................10
The Multi Format................................................................................................................................10
Internationalization of Tesco..............................................................................................................12
Analysis and Discussion......................................................................................................................13
Push and Pull Strategies for Tesco.....................................................................................................13
Lean Supply Chain (Tesco).................................................................................................................14
Facilities............................................................................................................................................14
Inventory..........................................................................................................................................15
Transportation.................................................................................................................................15
Information......................................................................................................................................15
Sourcing............................................................................................................................................15
Pricing..............................................................................................................................................16
CONCLUSION........................................................................................................................................16
REFERENCES........................................................................................................................................17
TASK 2
INTRODUCTION
The administration of business practices within an organization to bring about the maximum
level of efficiency can be termed as Operations Management (Kenton, 2018). All organizations
have goals and therefore to meet those goals, resources such as raw materials and human labor
are converted in such a way where it functions at maximum efficiency to meet those goals
(Kenton, 2018). Operations Management also incorporates balancing of costs with sales to bring
about maximum profit.

Supply Chain Management on the other hand is the management of flow of products inclusive of
all processes involved in transforming raw materials into finished goods (Fernando, 2020). At
the same time Supply Chain Management functions to actively streamline an organization’s
supply activities to give customer value and also to gain advantage over competitors (Fernando,
2020). The management of Supply Chain enables organizations to implement supply chains
which functions economically and efficiently to maximize profits. It incorporates every step
from manufacturing to development of a product to information systems required to undertake
such activities (Fernando, 2020).

This paper will focus on one of the top retailing companies in the UK called Tesco PLC and look
at its supply chain management process to do a comparative analysis on literature available in
Supply Chain Management. Furthermore, this paper would aim to discuss on points effective
planning and control for improvement of supply chain in Tesco Plc.

Background of Tesco PLC and its Supply Chain Management


Tesco PLC has transformed as a company in the last 30 years or so in such a way where it stands
as one of the more remarkable stories in the retailing history of Britain. It started as a bulk
storage selling cheap store to one of the biggest retailers in the entire world. Tesco PLC has
operations running in countries such as United Kingdom, Malaysia, China, Japan and Poland and
they are dominant in their home country which is Britain (Burt and Sparks, 2003). Tesco’s E-
commerce operations and loyalty scheme program is an example to the entire world. Tesco’s
global presence in current times is more than what their domestic operations has to offer and
their fundamental transformation is an example of adaptation due to changing customer demands
and exploiting global opportunities (Smith and Sparks, 2009). Their transformation story is a
sensation to the world but however, what is less emphasized on is their transformation of supply
chain management which is a direct contributor towards their overall transformation. It is
apparent however that supply chain processes of delivery small and similar items to smaller
stores all over the UK in the 1970s is very different to the supply chain design of a different to
the mass variation of different products being delivered in hypermarket such as Tesco in the
current world (Smith and Sparks, 2009).

Therefore, the following parts of the paper would examine theoretical literature of Supply Chain
Management as well as literature on Tesco PLC’s supply chain management regarding the way it
used to be and the way that it has evolved to meet the diverse customer demand of the modern
era.

LITERATURE REVIEW

Supply Chain Strategies


A successful business has a lot do with how efficient their supply chain management is in terms
of day to day operations (Sunil Chopra and Meindl, 2016). Examples of great companies such as
Walmart and Amazon are heavily dependent on various sophisticated supply chain techniques of
logistics to run their business (Sunil Chopra and Meindl, 2016). Therefore there is always room
for various innovation is supply chain design. Since supply chain is a process of procurement of
material goods to finishing the product and delivering to the customers, successful companies
heavily rely on this process being as efficient as possible (Sunil Chopra and Meindl, 2016) . The
management of supply chain dictates how and when a product should be manufactured, where it
should be stored at each stage of production and when it should be present in the shelves of retail
stores or shipped directly to customers (Sunil Chopra and Meindl, 2016). Even though it sounds
like a simple process, but it can be quite complicated as a lot of delays and other issues can arise.
Furthermore, a look at classical supply chain management approach of ‘Push’ and ‘Pull’
strategies are going to be discussed and better understand which design is suited for the different
kind of companies.
Pull Process

A pull process in terms of supply chain management refers to the manufacturing process where it
is driven by customer demands (Sunil Chopra and Meindl, 2016). To put it more simply, in this
kind of supply chain, inventory of any sort is accumulated after confirming a demand for it. One
of the biggest advantages of pull strategy is the reduction of wastage that may occur due to a low
demand. At the same time, a big disadvantage of it could occur when the company comes across
heavy demand of a particular product which they cannot meet due to lack of inventory (Sunil
Chopra and Meindl, 2016). A good example of a pull strategy could be that of an auto repair
shop. If a customer came in with a car that required a particular part to be replaced, the repair
shop would then place an order for it and replace it when it arrives.

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Push Strategy

Push strategy is the exact opposite of pull strategy and its advantages and disadvantages are
reversed (Sunil Chopra and Meindl, 2016). Here, one of the 6 supply chain drivers that is
‘logistics’ are driven by forecast of future demands aggregated. A good example of a push
strategy would be that of a clothing retail store. Before the winter season, these companies would
start producing warmer clothes predicting that they would sell during the upcoming winter
season. Here no actual demand existed but the production was done on prediction of sales. Even
though having higher stock of products that are going to sell can be valuable to many businesses,
but there are several big disadvantage as well (Sunil Chopra and Meindl, 2016). A company may
accrue variable expenses, discounting, divestment, inventory shortages and inventory
oversupply, reschedule production cycles, accruing high levels of debt are among the more
common disadvantages of push strategy.

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Implementation of Push & Pull Strategies

In real life, a company does not solely rely on either of these processes but rather a mix of it, of
which one process may be prioritized over the other in different circumstances (Sunil Chopra and
Meindl, 2016). In a very competitive world of modern day businesses, every company has
multiple streams of reaching out to customers and therefore require a very sophisticated supply
chain where every part, starting from sourcing of raw materials to delivering the finished product
to the customer needs complex designs. However, a rough outlook of factors to consider a supply
chain process is outlined below:

 To understand the availability of raw materials is crucial. Even before the production of a
particular product is initiated, it is important to know how and where the raw materials
for that particular could be acquired at the most minimum price (Sunil Chopra and
Meindl, 2016).
 A production of a particular product requires for raw materials to be processed in a
factory to produce finished goods. These steps could be different for different companies
depending on the kind of products they sell (Sunil Chopra and Meindl, 2016).
 In certain cases, finished goods could be sent all across different retail shops or could be
sent to the customers directly (Sunil Chopra and Meindl, 2016).
 Every organization has a basic outline of what the supply chain process looks like and
push and pull strategies could then be implemented accordingly. Amazon and Walmart
are great examples of revolutionary supply chain designs and much research has been
taken into account to build their supply chain networks (Sunil Chopra and Meindl, 2016).

Amazon is one of if not the biggest online retailer in the world and they handle billions of dollars
of inventory every year. Both pull and push strategies is a big part of their management process.
Their warehouses are all strategically placed where they are moving closer to main cities and
metropolitan areas to cut down on lead times (Sunil Chopra and Meindl, 2016). From the
perspective of the products they sell first hand, they use a push strategy where the forecast
demand. Since Amazon is a multi-seller platform, when they are selling third party products,
they use a pure pull strategy so that there is no risk of excess inventory in case of demand fall
(Sunil Chopra and Meindl, 2016).

Push and Pull Transactions

In this part of the paper, a pull and push transaction will be discussed in order for better
understanding of how money is collected under each strategy (Sharma, 2018). When a pull
transaction takes place, a merchant pulls the money from the customer’s account via a debit
transaction. So when an order is made, a merchant then requests for funds to be debited from the
customer’s account for the sales transaction to be proceeded. A push transfer on the other hand is
the opposite of this (Sharma, 2018). Here the customer desires to make a payment and pushes the
money to the merchant’s account and then the merchant is notified that a transfer of fund has
taken place and then they initiate the sales transaction. When comparing the two, a push
transaction happens instantaneously in contrast to a pull transaction which could take longer. A
push transaction is also safer, has better scalability, has better security and has faster settlement
when compared to a pull transaction (Sharma, 2018).

Lean Supply Chain


During this time of globalization, many view supply chain as an extended enterprise that links
firms situated in different locations for the purpose of gaining competitive advantage (Smith and
Sparks, 2009). As per the suggestions of Jagdev and Browne (1998) a supply chain is a part of
the lifespan of an entire product where it starts from handling of raw materials to manufacturing
to distribution to being handed over to the customer and then it being recycled as wel l. In
modern times, more emphasis is being given on efficiency of supply chain than ever before on
day to day operations. Irrespective of that, many companies fail to achieve the correct metrics of
performance measurements and therefore fails to integrate this in their supply chain
management. Therefore, in order to fulfill the customer orders and achieve the supply chain
goals more efficiently than other competitors, a supply chain needs to be involved in a
continuous learning process. According to Sunil Chopra and Meindl, (2016) an organization can
achieve competitive advantage by aligning organizational strategies with organizational
operations otherwise referred to as achieving strategic fit. Therefore to understand the
competitive nature of supply chain among competitors, supply chain performance needs to be
measured (Sunil Chopra and Meindl, 2016). Another aspect of measurement lies between supply
chain strategy and competitive performance to achieve strategic fit. In a study conducted by Soni
and Kodali (2011) it could be witnessed that the choice of competitive strategy and a direct
impact on supply chain performance. The study further suggested that the degree of alignment
between organization’s strategy, organizational culture, competitive situation and leadership all
affected the performance of the business.

The Lean philosophy is one of the most sought after initiatives taken on by bigger businesses
from around the world in terms of adopting to the increasing competition in the global market
(Smith and Sparks, 2009). The idea behind lean supply chain approach is to reduce cost through
the elimination of non-value adding activities within a firm to create a highly efficient supply
chain system that manufactures finished goods at pace with customer demand without creating
much waste (Shah and Ward, 2002). This philosophy is adapted by business around the world
particularly for those seeking to minimize waste and increasing performance. According to
(Gunasekaran, Patel and McGaughey, 2003) companies that seek to utilize a continuous
improvement process for the purpose of enhancing competitiveness in their supply chain have
failed. This is due to the inability to develop performance measures needed to integrate the
supply chain fully to bring about efficiency and effectiveness. Given the complex nature of
supply chain measures and market competitiveness, it is often difficult to develop a measurement
though it is critical to do so.
CASE SUMMARY

Tesco PLC has been very successful especially in the last 30 years or so by adapting to lean
supply chain strategies and utilizing classical approach of push and pull process for supply chain.
In this part of the paper, an in-depth information will be provided on Supply Chain of Tesco PLC
in contrast to the literature laid out in the previous chapter.

Current Supply Chain of Tesco PLC

A lean approach when it comes to supply chain occurs when the focus is more on the simplistic
design of the supply chain where everything is transparent with efficiency in mind (Smith and
Sparks, 2009). However, when looking at the design of Tesco’s supply chain, the situation is far
more complex in that. According to Smith and Sparks (2009) Tesco had a total of 29 distribution
centers had a warehouse area of 8.45 million square feet with a yearly case volumes of 1.93
billion and their centralized distribution accounted for 95% of their total distribution. Out of the
29 distribution centers mentioned 23 of those anre now run in-house by Tesco and the rest were
contracted out to DHL and Wincanton (Smith and Sparks, 2009) . They had 9 national
distribution centers in combination with 10 regional distribution centers and had 11 temperature
controlled centers as well as one composite distribution center. They also had 5 consolidation
sites to manage non-food and slow moving groceries(Smith and Sparks, 2009). They also had
further 17 shared consolidation centers that were run by different outsourced companies. Their
network is operated with over 2000 vehicles and 4000 trailer run units. Within this network they
extensively handle transits of 12 million plastic crates, 382,000 dollies, 1.6 million roll cages,
76,000 half pallets, 210,000 soft drink trays and 23,000 banana merchandizing units (Smith and
Sparks, 2009). This obviously is a very large-scaled supply chain network if not run efficiently
would cost the company a lot of money. To achieve maximum efficiency, a lot of focus has been
given towards the development of distribution centers and depot operations (Smith and Sparks,
2009). A lean and flow principles can be witnessed in the recent transformation of interlinkage of
such elements. The performance of the supply chain is strictly monitored by the company which
includes a steering wheel approach (Smith and Sparks, 2009).
Handling the Complexity of Supply Chain

The evolution of supply chain from the perspective of Tesco laid out in the previous section is a
major contributing factor for Tesco to modernize its supply chain where particular focus has
been drawn towards the operations in the UK. As a result of this, lead times have been drastically
reduced to the stores from the suppliers and as a result inventory holding was also reduced by a
large margin (Jones and Hill, 2002). Jones and Hill, (2002) further pointed out that the
improvement of supply chain is a massive contributor towards the current dominance of Tesco
PLC especially in the UK. Their supply chain was far better than that of the competitor’s such as
Sainsbury and ASDA (Smith and Sparks, 2009). A massive structural change could be witnessed
in the basic configuration of Tesco’s supply chain when compared to how it was in the early
days (Smith and Sparks, 2009). However, the simultaneous progression of Tesco to becoming a
multi-format, multi-sector superstore based company was also another contributing factor
towards its dominance. In the year 1997, Tesco PLC laid out a 4 pillar passed system which
were: Tesco UK, Retail service, Non-Food and Internationalization. During that time, Tesco was
a food retailer based in the UK. A decade later, this strategy enabled Tesco to become a
dominant force in the retail sector. With massive changes to the supply chain management of
Tesco, they were able to meet a number of challenges that came along the way (Smith and
Sparks, 2009). These changes were changing the store format and its strategy in the UK along
with building a successful e-commerce based shopping experience for shoppers at home.

The Multi Format

In current times, Tesco is a retailer with multi formats ranging from ‘Extra’ Hypermarkets to a
smaller ‘Express’ convenience store scattered all around the UK. This variation brought about a
change to operational strategies (Smith and Sparks, 2009). The ‘Extra’ hypermarkets have a 24
hours service in many locations where service levels and quality of products have been
enhanced. The Non-Food section of Tesco has become a bigger proportion compared to other
stores that offer only those products (Smith and Sparks, 2009). A vast range of products,
standard of service and operating time has put enormous pressure on the supply chain
management that was originally designed to serve a simpler model. Their adaption of stockless
strategy from a composite strategy allowed to cope up with the increasing complex nature of
their business.

Image Source: Smith, D. and Sparks, L. (2009). Logistics and Retail Management: Emerging Issues and New
Challenges in the Retail Supply Chain. 3rd ed.

The change to a stockless status from a composite one is outlined in the table above. In context
to supply chain, two components of the table are worth mentioning (Smith and Sparks, 2009).
First of all, the location and the scale of the formats are of great variance and this had pressurized
the supply chain to evolve quickly. Secondly it could be witnessed that Logistics and retail
management of non-food items were introduced here as well (Smith and Sparks, 2009).
Therefore, many of the hypermarkets were developed through the extension of older stores by
extending space for non-food products. This brought about another challenge in the supply chain
as the locations were more based around busy high streets. Therefore if they were unable to cope
with new handling system the cost would have been much greater. With all the network and data
that Tesco had at its disposal, they were able to adapt the supply chain accordingly even though
the inventory levels had gone up. Non-food items have a very different kind of supply chain
management and therefore a complete overhaul of it was done in UK and elsewhere as well
where separate distribution centers dealt with those issues (Smith and Sparks, 2009).

Internationalization of Tesco
Tesco is a dominant force in the UK and is a subject of fascination among business professionals
and academicians (Smith and Sparks, 2009). At the same time, they are a global force as well
and they started the internationalization process back in 1994 when the first entered Hungary and
then expanded to other European countries further going into Asian markets (Smith and Sparks,
2009). The internationalization process required Tesco to adapt to different solutions for
different markets using various formats and customer tailoring products to fit that particular
market. In various countries, Tesco operates with the multi format approach and also a multi-
channel retailer where they provide home delivery services for countries such as Korea and
Ireland (Smith and Sparks, 2009). ‘A Tesco Operating Model’ was created were all necessary
systems and processes were run by a system with a support center that exists in India (Smith and
Sparks, 2009). This allowed Tesco to have more floor spaced in the global context than they
have in UK where they are dominant force and the profit generated internationally is greater than
that of the UK as well. With different formats of shops and products in different countries their
supply chain system is highly adaptable. In cases of Hungary and Ireland for example, the
composite supply chain model proved to be effective based on the same logistics partner but
however, in other situations a rethinking of supply chain and its technology was necessary. Back
in 2003 Tesco opened up the largest distribution center in Korea based on the UK composite
model. At the same time they opened up other centers in countries like Czech Republic, Poland
and Hungary. In Ireland, they developed a new composite site. As the internationalization of
Tesco continues, a continuous innovation and change of supply chain processes is adapting under
the ‘Tesco Operating Model’ (Smith and Sparks, 2009).
Analysis and Discussion

Push and Pull Strategies for Tesco

According to Fisher (1997) there are two different kind of products and they are functional
products and innovative products. Everyday items in Tesco, especially food items that are fast
moving daily essentials are terms as functional products. They are usually food items such as
milk, eggs and other groceries. Characteristics of these products are that they have long product
life cycle, low product variety, high and steady demand, low profit and required shorter lead
times. On the other hand Fisher (1997) stated that innovative products exist that basically follows
the opposite principles to functional products. These products are usually new in the market and
are non-food items mostly technological in nature. Good examples are televisions, smartphones,
computers etc. The characteristics of these products are such that they have shorter product life
cycle, high lead times and greater margin of profit.

Source: Fisher, M.L. (1997). What Is the Right Supply Chain for Your Product? A Simple Framework Can Help You
Figure out the Answer. Harvard Business Review.
Tesco is a very good example of a company that deals with both these kind of products. They
have a food section for essential items that has products such as eggs, milk, vegetables, meat etc.
and they have a very steady demand. Tesco has been historically known to start off with selling
only these products which requires a push strategy and highly efficient supply chain design.
Highly efficient supply chain design essentially cut costs in all aspects and depends on historic
data to forecast sales. Since demand is steady, Tesco has adapted to a push strategy to fulfill this
mission.

On the other hand, Tesco has a large non-food section where they sell technological products
such as smartphones, computers, financial services, clothing items etc. all which requires them to
be a responsive supply chain design. A responsive supply chain design in essence means that
they have to adapt and change quickly by responding to customer demand and can be very
expensive to set up such supply chain. Some aspects (not all) has to be developed through pull
strategies where they respond to demand once it is there.

Lean Supply Chain (Tesco)


As the paper stated previously, Tesco is one of the most successful retail company in the UK and
around the world. A great contributing factor for Tesco’s success can be largely attributed to its
supply chain and distribution network where a lean strategy has been implemented. With the
implementation of JIT (Just in Time) strategy for most of their product line, Tesco has gained
competitive advantage over Sainsbury and ASDA in the United Kingdom. The lean
implementation of Tesco can be witnessed in the 6 drivers of supply chain discussed below:

Facilities
Tesco has a large number of distribution depots within its supply chain. The DCs have a very
important influence on the efficiency and productivity of Tesco. On the other hand, Tesco stores
play a large role in the supply chain factor as well. They have six different kind of stores and
they are ‘Express’, ‘Metro’, ‘Superstore’, ‘Hypermarket’ ‘Metro’ and ‘Online stores. Their
product ranges from food to all kinds of ‘nonfood’ items and different supply chain strategies are
required to meet up with varying demands. Through literature discussed in the earlier section of
this paper, the lean philosophy is visible in this driver of supply chain.
Inventory
For food items, all Tesco stores order once a week for non-food products and for food products,
orders are placed on a daily basis. Since they have a lean philosophy in the supply chain,
reducing food waste is a big part of their operations. Therefore the inventory factor has been
differed to distribution center which enabled them to use the store spaces more effectively with a
minimum amount of inventory present within the store. Since the distribution centers are
conveniently located, they are able to frequently replenish items using RFID technology to
manage inventory once again portraying the usage of lean philosophy.

Transportation
Transportation of Tesco is modern day marvel where 30 billion different product cases are
delivered worldwide annually. Tesco uses a multi modal transport system to ensure that they
meet customer demand at the lowest price possible, once again applying the lean philosophy. All
of their products are distributed in-house and they use supply analytics effectively manage their
transportation.

Information
One of the most crucial driver of supply chain, Tesco uses software that gives them automated
data from the company servers. Since 2006, Tesco has been known to use Big Data Analytics to
understand sales pattern, consumer behavior and demands. Therefore they are able to tell when
the products are running out, when to replenish them, what could be the alternative demand for a
product and so on. These are all indicators of lean supply chain philosophy.

Sourcing
Tesco is known to source products from 70 different countries to meet customer demand and
provide value and quality. Their superior supply chain management system allows them to track
each product from the manufacturing phase till the finished product ends up in the hands of the
customer. Once again the lean philosophy is present in this driver as well.
Pricing
Tesco is able to provide the customer with the lowest price possible in the entire market. Initially
when the company was able to deliver at these prices, they have been caught up in controversy
about eliminating small competitors who could not put up with such pricing. However, from the
perspective of lean philosophy it could be witnessed that the company is able to purchase in large
quantities and therefore produce the best price for the customers.

CONCLUSION

Supply chain management is the process of managing the sourcing of raw materials to the
manufacturing stage, to distribution, selling to customer and recycling of byproducts as well. In
this paper, a focus has been drawn towards supply chain management and some of its basic
principles which even by the standards of the modern world is very relevant. The initial part of
this paper focused on some of the classical approach to supply chain management which has to
do with Push and Pull strategy. Furthermore, an elaborative discussion was done under lean
management discussion various literature from different authors. Tesco Plc is one of the biggest
retailer in the UK and also around the world. They were chosen as the company to analyze their
implementation of classical approaches such as push and pull processes to more complex
implementation of lean philosophy. As discussed in this paper, it could be seen that Tesco PLC
has come a long way in terms of being a food retail store to a retail giant in a span of 30 years.
Much of its growth could be associated with the supply chain management of the company. The
latter part of the paper discusses how classical approaches has been adapted through push and
pull processes in Tesco using the famous matrix of Fisher (1997). At the end of the paper, the 6
driving forces of supply chain were discussed to portray Tesco’s lean philosophy in supply
chain.
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