Supply Chain Management of Tesco Supermarket

This report critically evaluates the supply chain methods and approaches used by Tesco supermarket. Tesco has used the supply chain strategies successfully to enable expansion in both local and international markets. The report discusses Tesco's supply chain structure, lean supply chain method, and competitive advantage from the supply chain. It also talks about Tesco's strategic alliances, outsourcing contracts, and subcontracts with other companies to increase capacity and reduce operation costs.

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Task 1
Tesco supermarket
The report critically evaluates the supply chain methods and approaches used by Tesco
supermarket. Tesco has used the supply chain strategies successfully to enable expansion in
both local and international markets (Simpson, 2017). The supermarket has adopted various
methods that ensure cost reduction, quick delivery to the market and a good competitive
advantage in the retail industry. The supermarket has tailored the supply chain to align with
the core objective of creating value to earn a lifetime of loyalty (Moore, 2014). Therefore,
Tesco heavily relies on innovations in the supply chain to manage the receipt of materials and
delivery to the customers with ease. The supermarket intends to reduce the costs of supply
with the adaption of innovations and new technology.
Tesco supply chain structure
The supermarket has developed an efficient supply chain system that enables the reduction of
costs and increases the speed of delivery (Armstrong, 2016). The supermarket employs the
cross-docking approach improve the supply chain. Therefore, for the successful application
of cross-docking in the delivery of materials to the many branches spread across Europe, the
supermarket has purchased a fleet of trucks. The trucks carry supply from point of reception
from the suppliers and deliver to the various branches. The trucks receive the amounts of
materials immediately after the suppliers deliver and transport to the specific branches
depending on the demand (Blome, 2017). Additionally, the trucks carry the products when
already sorted meaning that the branches will directly put the products on the shelves for the
customers to buy. The approach assists the supermarket in many ways since the products do
not require storage before transport. Therefore, the supermarket manages the suppliers
through an enterprise resource plan system that accurately identifies the demand from each

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branch. The suppliers get the information about the demand in time and supply immediately
to satisfy the demand (Brito, 2014). The suppliers should not supply more or less than the
specified amounts. Therefore, the suppliers ensure high-quality delivery with strict
observation of time and quantity. The failure to observe the quality, time and quantity factors
results in a shortage in the branches, which causes customer dissatisfaction. For example,
when the suppliers supply less than the demanded quantity, the customers do not get enough
products on the shelves for purchases. The customers leave the supermarket and buy from
other competitors, which presents a loss to the supermarket (Fred R. David, 2016). Therefore,
Tesco manages the suppliers of raw materials to ensure that the customers get value at all
times. Additionally, the supermarket has contracted other logistics firms to assists in the
delivery of products to the various branches. The transit companies’ help during high demand
for products such as during the festive season since the supermarket lacks adequate capacity.
Therefore, the supermarket ensures that the customers continually get the necessary products
on the shelves (Ishola, 2016). Tesco has operated the supply chain with success over the
years to become a leading customer satisfier. The customers find all the products on the
shelves in the right quality and quantity. The cross-docking enables the supermarket to stock
fresh vegetables and animal products due to the direct delivery from the suppliers (Juneja,
2018).
The supermarket also uses the lean supply chain method that reduces wastage along the chain
of delivery. The main wastages include time and costs incurred in the delivery of materials
caused by unnecessary procedures placed in the supply chain (George Nacouzi, 2016). The
existence of intermediaries results in an increased supply chain system due to the holding of
goods at each point before moving to the next. The intermediaries also increase the costs of
products before reaching Tesco supermarket. Therefore, Tesco has developed a lean supply
strategy to reduce the wastage caused by the intermediaries. The strategy involves the direct

SYSTEMS AND OPERATIONS MANAGEMENT 4
contact with the producers to get the necessary products without involving intermediaries in
between. The suppliers produce products according to the demand placed by the supermarket
(Krishnan, 2018). Additionally, the producers also perform other tasks such as branding and
sorting the products for Tesco supermarket. The branded and sorted products make it easy for
the supermarket to perform cross docking since the products arrive in conditions ready to
stock on the shelves. Moreover, the supermarket ensures that the producers have signed
performance contracts that require the production of high-quality products (Dobes, 2016).
Additionally, the producers must observe time since the supermarket’s supply chain strategy
relies on the timely delivery of products. The supermarket has succeeded in the reduction of
waste since currently most of the products arrive on time and at reduced costs (Mark Pagell,
2018).
Furthermore, the supermarket also manages the supply of products to the customers through
timely delivery of high-quality products. For example, the supermarket understands the need
for the customers to buy fresh animal and farm products (McShane, 2016). Therefore, the
supermarket has designated a department to ensure that the customers get the necessary
products. The department signs contracts with the farmers to deliver the required farm
produce in the right quality and time (Nick, 2017). Therefore, the supermarket employs field
officers who ensure that the farm produces reach the supermarket in time to satisfy the
customer demand. The supermarket ensures that the products received do not fall short of the
actual demand in the market. The customers access the products by physically visiting the
supermarket or by making orders directly from the Tesco website. The Tesco website allows
the customers to demand and pay for the products. The supermarket then delivers the
products to the customer’s residence within the shortest time possible (Olsen, 2018).
Additionally, the supermarket has contracted other logistics companies to perform the
delivery services. However, the supermarket prefers delivering products directly to the

SYSTEMS AND OPERATIONS MANAGEMENT 5
customers since the use of intermediaries increases the costs of products (Rebecca
Stekelorum, 2018). Therefore, the supermarket requires the parties contracted to supply the
products to have enough capacity and ability to maintain low prices and high-quality.
Therefore, the supermarket ensures that the customers get full satisfaction from the products
using the direct supply chain. Over the years, the supermarket has experienced a rise in the
number of customers buying the products due to the quick delivery of products at low costs.
Therefore, Tesco has experienced an increase in the revenue and customer loyalty.
Tesco competitive advantage from the supply chain
The supermarket has enjoyed a great competitive advantage by staying one foot ahead of the
competitors. The supermarket has employed technological innovations that other retailers in
the market have failed to match. Therefore, the supermarket enjoys various advantages such
as the reduction of operation costs from adopting cross-docking (Ref. Mattord, 2018). The
cross-docking method ensures that the products move directly from the suppliers to the
shelves without storage in between. The direct stocking of shelves succeeds since the
producers’ sort and brand products on behalf of the supermarket (Russell R. S., 2014).
Therefore, the branded products go straight to the shelves, which reduces the costs of
building or renting warehouses. The supermarket ends up reducing the cost of products,
which attracts many customers resulting in an increase in revenue and customer loyalty. On
the other hand, the competitors continue using the traditional product warehousing system,
which causes an increase in the costs of products. Therefore, the competitors lose customers
to Tesco in search of similar products that sell at low prices (Sahoo, 2018).
Additionally, the supermarket achieves better customer satisfaction by ensuring the
availability of products on the shelves at all times. The supermarket contacts the suppliers
with the accurate amount of demand in the market. The producers respond by producing the
right amount of products to provide the supermarket with adequate capacity according to the

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demand. The communication with the suppliers creates competitive advantage since the
customers get satisfaction, which creates loyalty (Sieh Lee Mei Ling, 2015). Therefore, the
supermarket enjoys a greater competitive advantage than the competitors who lack a method
of communicating with the producers to increase the products to satisfy the increased
demand. The competitors using the traditional systems fail to meet the demand and suffer
from shortages and empty shelves, which disappoints the customers. The disappointed
customers lose faith in the ability of the competitors to satisfy demand, which results in
moving to Tesco. Therefore, Tesco experiences a continuous rise in the number of customers
buying the products resulting in more revenue and popularity. The increased popularity, in
turn, reduces the supermarket’s marketing costs since most customers do word of mouth
marketing. Therefore, Tesco has risen to become a leader in the retailing industry (Simon
Milton, 2015).
Task 2
The supermarket has entered into various relationships within the industry to ensure success
in the supply chain. The supermarket has streamlined the connection with the suppliers and
consumers to enable the easy matching of the supply with the demand. Additionally, the
supermarket has introduced technological tools that the supply chain parties use to
communicate and supply products (Simon Milton, 2015). The supermarket aims at
developing a competitive advantage through the reduction of the cost of supply and
satisfaction of the customer demands. Therefore, the strategic department plans the
integration of the competitive advantage versus the necessary cost debate into the supply
chain. The supermarket aims at the reduction of all unnecessary costs in the supply chain,
which cause a rise in the final selling price of the products (Smet, 2018). However, the
supermarket reduces the unnecessary costs while still maintaining the quality of the products
in the supermarket. Tesco has various methods of increasing the competitive advantage while

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maintaining the necessary costs only. The methods include entering into contractual
agreements with the supply chain players. The supermarket has entered into strategic
alliances with the suppliers of raw materials. The strategic alliance allows the supermarket to
use the resources held by the producers. For example, the supermarket uses the producer’s
resources to brand sort product to allow the direct placing on shelves (Suzanne de Treville,
2016).
Additionally, through the strategic alliances, the supermarket easily uses the same
technological platforms. The platforms include such as the enterprise resource planning
system that allows easy ordering and supply of products. The system identifies the accurate
requirements of products at the supermarket and notifies the producers who supply the exact
amounts of products. Therefore, the supermarket does not face challenges in the receipt of
products from the suppliers (Tarry, 2016). The enterprise resource plan also assists when
communicating with the customers due to the ability to place orders. The enterprise resource
system receives the orders from the customers and communicates to both the supermarket
and the suppliers. The communication with the suppliers and the supermarket enables the
quick addressing of shortages by the suppliers. Therefore, the supermarket does not incur the
costs of buying from other expensive suppliers to satisfy demand (UK, 2017).
Moreover, the strategic alliances enable the supermarket to negotiate prices with the suppliers
and the customers. The negotiations include the setting of economic discounts and low prices
for the goods (Grunig, 2013). Therefore, the supermarket ends up buying products at low
prices, which translates to selling at low prices to the customers. Therefore, the supermarket
gains the competitive advantage in the retail industry since the customers look for affordable
and high-quality goods. The strategic alliances ensure that the supermarket only incurs the
necessary costs in the sale of goods to the customers (Boag, 2018).

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Additionally, the supermarket enters into outsourcing contracts to increase the capacity and
reduce operation costs (Boag, 2018). For example, the supermarket has outsourced other
logistic companies to undertake customer delivery activities. The outsourcing enables the
supermarket to save costs since undertaking the activities would cost huge expenses from the
purchases of trucks and employing delivery personnel. Therefore, the supermarket outsources
other companies so that the products maintain the same price as when the customer could
have physically bought from the shop. However, the customer pays the added transportation
fee to the outsourced company, which means that Tesco maintains the same prices of goods.
Therefore, the supermarket enjoys a stronger competitive advantage compared to the
competitors who charge products higher due recover the delivery costs incurred. As a result,
Tesco incurs low operating costs due to the inexistence of delivery costs. Furthermore, the
supermarket eliminates the unnecessary cost of delivering products to the customers
(Maloney, 2015).
Additionally, the supermarket enters into subcontracts with other companies to increase the
capacity during peak seasons (Mandviwalla, 2015). The supermarket incurs a high demand
from the customers, which sometimes the major suppliers fail to fulfil. Therefore, the
supermarket subcontracts other suppliers to avail the products for a specified period. The
subcontracts specify a price for the goods that result in the supermarket selling at lower prices
than the competitors. The subcontracted companies should agree to use Tesco’s enterprise
resource planning systems and produce branded and sorted products. Therefore, the
supermarket experiences smooth operations during the peak season due to the availability of
products. The companies contracted during the peak period helps the supermarket to maintain
the customers due to the ability to satisfy demand. Consequently, the supermarket reduces the
costs incurred when losing customers to the competitors (Mandviwalla, 2015).

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Furthermore, the supermarket maintains a strong presence in the market due to the ability to
sell products at low prices even during high demand (Cherry, 2017). The low prices
throughout the year cause an increase in customer loyalty, which reduces the supermarket’s
costs such as marketing expenses. Other competitors in the market lack the ability to
subcontract other suppliers during the peak seasons, which causes shortages and high prices
during the peak season. Therefore, the customers shop at Tesco where the prices favour the
income and have the ability to satisfy the demand. Additionally, with the subcontracts, Tesco
has the ability to reduce the unnecessary costs of buying products from other suppliers who
charge high especially during the peak season (Andrianova, 2018).
Furthermore, the company has entered into supply networks where the supermarket interacts
informally with other suppliers and customers. The networks allow the supermarket to deliver
products to the customers and inventory smoothly to the local and overseas branches
(Gleeson, 2018). The informal networks include the agreements to ship products together
with other retailers that have branches in regions similar to Tesco. The agreements offer an
advantage to the supermarket by reducing the costs of supply. A good example of the
informal agreements involve using the same trucks with other retailers having branches in the
region of delivery. The sharing of trucks reduces the costs incurred when transporting a few
goods than the size of the truck. Therefore, the retail shops communicate and carry the
products together in the same truck. Another example happens during overseas shipping of
products where the shops use the same shipping container to save costs arising from not
filling the containers. Therefore, the supermarket reduces the freight charges and taxes
charged at the port of the destination country (Christopher Paul, 2018).
Furthermore, the networks allow the supermarket to enter into agreements to use exclusive
trade routes to supply the products. Some companies get exclusive rights to use certain routes
not allowed to Tesco due to the regional trade agreements (Blome, 2017). Additionally, the

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prohibition could occur due to the agreements with the suppliers and the intermediaries along
the route used by the products. The agreements could mandate the intermediaries not to deal
with other retailers. Therefore, Tesco experiences problems supplying to customers through
the supply chain routes, which calls for the need to enter into informal agreements to join the
network of traders who use the route. The supermarket enters into such agreements to ensure
that the products flow through the supply chain despite the various barriers put by the parties
(Nevile, 2016).
As a result, Tesco experiences a smooth flow of products to the customers, which increases
the competitive advantage. Therefore, the customer competes strongly in the market without
fail since the other retail players fail to match the standards set by the supermarket.
Additionally, the supermarket eliminates the unnecessary costs incurred in the supply of
products. Furthermore, the supermarket could end up holding exclusive rights to access
various chains of supply that the competitors do not. The exclusive rights reduce the costs
incurred when supplying the products to both local and international branches (Jacobs, 2015).
Task 3
Tesco supermarket has experienced various technological advancements in the supply chain
system (Krishnan, 2018). The technology advances have assisted in smooth lining the supply
chain and ensuring better relations with the customers. Additionally, the various strides in
information systems have enhanced communications between the suppliers and customers,
which has resulted in the reduction of the costs and time spent on deliveries. The technology
advancements have enabled the creation of a sync between the demand and the supply in the
market meaning that the customers immediately get information about the market demand.
Furthermore, the market gets accurate information about the market requirements thus
reducing wastage (George Nacouzi, 2016).

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Tesco has utilised the technological advancements to develop a better supply chain than the
competitors have (Mark Pagell, 2018). The application of information systems helps in
developing systems that make it easy to predict trends in the market. The prediction happens
in such as understanding the future market demands. Therefore, the supermarket makes plans
to meet the demand accordingly. For example, during the peak season, the systems predict an
increase in demand and the supermarket makes plans to increase the inventory. On the other
hand, during a low demand prediction, the supermarket organises to reduce the inventory
demanded from the suppliers. The predictions given by the information systems benefit the
supermarket by preventing wastage during the low season and shortages during the high
seasons. The low season wastages occur since the supermarket orders more products that the
buyers’ can buy while the shortages in high seasons arise from low demand than the supply
(Nigel Slack, 2013).
Additionally, new technologies assist in tracking and informing on the levels of inventory
(Tarry, 2016). The tracking systems assist to provide security for outbound logistics. The
tracking technology gives both the supplier and the customer timely information about the
location of the goods. Therefore, the goods reach the customers on time and prevent route
deviations to deliver to the wrong customers. Likewise, the information system has developed
systems that manage inventory by notifying the procurement team in the event of shortages.
The systems record additions and withdrawals from the warehouses and later give detailed
reports about the usage of the stock (Ref. Mattord, 2018). Additionally, the inventory
management systems manage the movement of the products using formulas such as the LIFO
and FIFO methods. The information systems adopt any of the methods depending on the type
of products stored. For example, the system could use the FIFO method for perishable goods
to prevent damages and losses.

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Therefore, the technology has played a role in managing inventories and linking up with the
suppliers to ensure the delivery of accurate amounts to meet demand. Additionally,
technology has reduced human labour in the supply chain system due to the automatic
transfer of information and performing arithmetic computations to come up with accurate
amounts of the order levels, lead times and economic order quantities. Therefore, Tesco
cannot undermine the importance of technology in the supply chain especially with the
efficiency and effectiveness achieved. Additionally, with the no storage policy adopted by the
supermarket, the technology plays a very important role in ensuring quick communication
about the exact demand (Simon Milton, 2015).
The various technology advancements in the supply chain include the enterprise resource
plan. The enterprise resource planning software integrates the various core business parts
such as the manufacturing, inventory, scheduling, distribution, customer relations and
financial management (Peltz, 2012). All the activities happen through a single software where
the supply chain employees access the various services. The software gives real-time
information about the demand by customers and the amounts that the customers can deliver.
The enterprise resource planning system has the objective of connecting all the departments
and the activities to a single software that improves the transparency. Moreover, the system
increases the efficiency in the operations by reducing complications caused by the distant
between suppliers and the customers. The system eliminates the complications by allowing
the speedy flow of information about quantity and prices through the internet (Brito, 2014).
Moreover, the system results in improvements in the company’s productivity due to the
availability of raw materials in time to prevent delays in production (Dobes, 2016). The
system allows the supermarket to demand the exact amount of goods as requested by the
production team. The information reaches the suppliers on time, which results in quick
supply immediately. Therefore, the supermarket continues to produce products to fill the

SYSTEMS AND OPERATIONS MANAGEMENT 13
shelves without experiencing shortages. Furthermore, the supermarket enjoys benefits such as
increased customer satisfaction and revenues. The increased customer satisfaction arises from
the ability of the system to understand the customer demands and order quickly to satisfy
demand. Therefore, the customers do not experience delays, which results in high
satisfaction. Additionally, the ability of the system to ensure that the supermarket’s shelves
are always stocked with products results in further customer satisfaction. Consequently, the
increased customer satisfaction increases the revenues at the supermarket. The reason for
increased revenues lies in the continued purchases done by the customers after shopping once
and getting full satisfaction (Ishola, 2016).
The supermarket could privately develop the enterprise resource plan or purchase from firms
that specialise in the software (Suzanne de Treville, 2016). An example of such firms include
the SAP Company that deals with high-end enterprise resource planning systems. The
development involves the participation of experts and the end users who give guidelines
about the development of the system. For example, Tesco should participate in the
development of the enterprise system to ensure customisation in a way that will benefit both
the supermarket and the customers.
Additional technology in the retail market includes the supplier relationship management
system, which plays the role of managing interactions between the company and the suppliers
(Nigel Slack, 2013). The system enables timely communications about the demand in terms
of quality, quantity and the costs. Therefore, the system results in the accuracy of the amounts
received by the customers due to the development of a sync between the supplier and
customer operations. The system identifies the usage of the inventory items and gives timely
reports to the suppliers. The system then notifies the suppliers when the inventory reaches the
re-order level, which prevents shortages in the customer operations.

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Further technology advancements include the customer relationship management system,
which ensures efficient interactions between the suppliers and the customers (Ref. Mattord,
2018). The CRM allows proper communication between the customer and suppliers on issues
such as demand, prices and time of delivery. The system allows the customers to post the
inventory requirements on the system and the suppliers get the information in time. The
suppliers then make the deliveries depending on the notified demand and time. The customer
relationship systems have led to the success of E-procurement activities where the consumers
demand goods online and wait for the delivery. The E-procurement system allows the
customers to pay for the goods using safe electronic payment methods. Therefore, the
customers have a better experience when making and paying for the orders.
Moreover, the system allows transparency between the customers and the suppliers by
enabling constant communication (Blome, 2017). The communication system allows the
customers to raise complaints easily without trouble and the suppliers work to solve the
problems. Additionally, the system allows the customers and consumers to tailor the
operations to meet the specific needs of each party. For example, the suppliers could
communicate a price ideal for the two parties to enable the customer to sell products at low
prices to the customers.
Furthermore, the retail store has a material requirement planning software that manages the
movement and handling of materials at the supermarket (Tarry, 2016). The software focusses
on the materials in the inventory to ensure that the amounts in the stock match the demand for
production. The material requirement plan ensures that the stock held meets the quality,
quantity and cost required by the company. The system reports any shortcomings present in
the products such as poor quality and low quantity. The production team reacts to the
notifications by halting the use of the materials, which causes the realisation of high-quality
output (Smith, 2018).

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Additionally, the notifications prevent losses to the company since the company only
purchases the right quality and quantity of materials (Smet, 2018). Therefore, the
supermarket experiences continuous production without bottlenecks caused by material
problems. Furthermore, the system communicates with the suppliers to deliver products on
time when needed, which allows efficient operations without involving much human labour
in the placing of orders and determining the order levels.
Further technological advancements include the material tracking devices for managing
inbound and outbound logistics (Jacobs, 2015). The tracking devices alert the customers and
suppliers of the geographical position of the products in transit. The suppliers install tracking
devices on trucks and containers before despatcher to the customer’s premises. The tracking
devices send timely notifications to the suppliers and customers informing about the distance
covered and the time remaining to deliver the products. The tracking devices enable the
parties to communicate and ensure that the products follow the correct and short roots to
avoid additional costs that accrue when the delivery follows wrong and long routes.
Additionally, the tracking devices increase the safety of products in transit since the tracking
devices report any deviations from the required route, which prompts for the undertaking of
the necessary actions.

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