Analysis of Logistics Networks: Tesco, Aldi, Lidl (MGT4590)

This essay provides an in-depth analysis of the logistics networks of Tesco, Aldi, and Lidl, three major retail supermarkets operating in the UK. The analysis begins by examining the evolution of Tesco's logistics, contrasting its shift from Direct to Store Delivery to a centralized system and implementing Continuous Replenishment. It then explores Aldi's lean logistics approach, including its Just In Time (JIT) model, highlighting its flexibility and cost-saving measures, while also acknowledging its inventory-related challenges. The essay also discusses Lidl's no-frills strategy, emphasizing cost-effectiveness and its impact on logistics operations. The second part of the essay assesses how each company's strategic plan aligns with its logistics and distribution operations. It examines Tesco's customer-centric approach, Aldi's focus on low prices and large inventory, and Lidl's emphasis on competitive prices and private labels, detailing how these strategies shape their respective logistics networks. The essay concludes by summarizing the contrasting logistics strategies of the three retailers and their alignment with their strategic business plans, offering insights into their efficiency, productivity, and profitability.

Logistics and operation
management

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
Analysis of Logistics networks of TESCO, ALDI and LIDL.....................................................3
LO2..................................................................................................................................................5
Alignment between Company's strategic plan and its logistics network operations...................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Logistic network analysis deals primarily with transportation and is used to analyse the
strengths and weaknesses of different transportation modes. Logistics network analysis identifies
and studies various production volumes, supply sources , inventory levels etc. for all
organisation's sites in reference to the network limitations present. It also generates a
transportation plan with the singular objective of identifying most efficient and cost effective
transportation modes for particular segments of network (Murphy and Knemeyer, 2018). In this
report we study the logistics network of three companies, evaluate their advantages and
disadvantages and study how company's business plan aligns along with its distribution and
logistics operations. The three companies we evaluate are all retail supermarkets operating in
UK- TESCO, ALDI and LIDL.
LO1
Analysis of Logistics networks of TESCO, ALDI and LIDL
Logistic Network Analysis of TESCO: Up until 1970, TESCO used to operate using Direct to
Store Delivery (DSD) logistic model, under which suppliers and manufacturers could choose the
location of store to which they wanted to make delivery. After that TESCO opted to implement a
centralised system in place of DSD for logistic operations. Tesco has also implemented a
Continuous Replenishment policy in 1999 which allows suppliers to make deliveries multiple
times and provides TESCO with a flow system. In addition to this, TESCO's administration also
has developed a logistics strategy which adheres to most industry standards for planning and
implementing a proper logistic network.
Advantages provided by TESCO's logistics network are numerous, its operational change
from an aged Direct to Store Delivery (DSD) to a better centralised systematic model was done
in order to have provide TESCO with better control over their prices of goods, services and
maintain required product quality throughout its various stores. Implementation of Continuous
Replenishment policy at TESCO, allowed manufactures and producers to make multiple
deliveries to various stores either from warehouses, depots or manufacturing plants (Christopher,
2016). This allows TESCO to sell even greater numbers of products without running out of
inventory of stored goods and products.

As TESCO operates using a centralised logistics network model, there can be potentially
very high costs associated in cases where accidental errors occur in inventory control of goods,
products or in estimation of their storage period. In these cases TESCO would have to pay
addition potentially high prices to make a rush delivery of those products in order to compensate
and rectify previous mistake. Frequency of these errors during TESCO's operations decides the
efficiency and benefits of switching to centralised system over DSD.
Logistic Network Analysis of ALDI: ALDI's logistics network is very different to TESCO's and
is based on the various choices that UK market provides to retailers in terms of product choice
and price variations to better satisfy customers. As ALDI operate in bulk volume along limited
lines, ALDI's logistic network strategy is to implement higher degree of flexibility to its logistics
operations. ALDI runs its logistics operations by using lean logistics supply chain management
model. The logistics functioning of ALDI are named Just In Time (JIT), which decreases the
amount of products stored in warehouses.
ALDI's flexibility in logistics operations due to logistics strategy has proven to be
advantageous as it increases product availability and ALDI's bargaining power capacity while
reducing input manufacturing costs. ALDI's lean logistics management model helps decrease
costs associated with input materials, labour, production time and work spaces. Just in Time
(JIT) logistic functions regulating amount of products stored in warehouses, were also
implemented at ALDI in order to minimise product contamination, wastage and the costs
associated with it (Lai and Cheng, 2016).
ALDI's use of lean logistics management model provides its own issues with regard to
problem of inventory, high implementation costs. As the model tries to reduce ALDI's stocking,
carrying costs, it encourages ALDI to stock up on low amounts of goods in warehouses, making
ALDI highly dependent on the services of suppliers for the delivery of products effectively and
efficiently. The initial implementation of this model also has high costs attached to it.
Logistic Network Analysis of LIDL: LIDL have identified and implemented the no-frill strategy
as the the optimum strategy for their logistics network operations which stipulates elimination of
insignificant product features in order to reduce prices charged. LIDL has reduced its innovation
and introduction of new goods, services and a large portion of investments made goes directly
into identifying and implementing further cost saving measures. LIDL's logistics strategy also

plans for the creation of a new logistics centre to expand its distribution network and logistics
capabilities while implementing no frills strategy.
Using the no frills strategy for logistics operations, LIDL can better control the prices of
their goods, services to keep them as cost effective as possible while maintaining quality. No
frills strategy also incentivise reduced investment into improved logistics technologies as the first
priority of this approach is to reduce costs. This strategy also encourages LIDL to distribute
products to various stores through the use of single large distribution centre in order to reduce
operational logistics costs associated.
LIDL's implementation of no frills strategy for logistics operations while advantageous
to its operations can offer its own disadvantages such as high stocking costs associated with
storing large amounts of products in warehouses (Mangan and Lalwani, 2016). With high
stocking figures comes increased product wastage due to spoilage, accidents or contamination of
goods and additional costs associated to it.
LO2
Alignment between Company's strategic plan and its logistics network operations
TESCO: TESCO during its operations has created and implemented a strategic business plan
describing their trading and logistics policies with various suppliers primarily on the basis of
optimising customer satisfaction. TESCO's policies identify four vital principles during
negotiating with suppliers: Values- TESCO tries to negotiate with suppliers who share their
values and ethics, Monitoring- TESCO monitors the working environment of supplier in order to
maximise productivity and efficiency, Improvement- rather than haggle over prices and costs
TESCO tries to improve long term relationship between suppliers so both parties can profit in
long term and Transparency- TESCO demands transparency from suppliers in order to have
open, honest and productive work environment.
TESCO has been able to use their strategic business plan to improve upon their logistics
operations in order to maximise productivity, profitability and most importantly for TESCO
customer satisfaction metrics. Prior to 2011 (Logistics operation: Tesco and Sainsbury Report.
2019), TESCO used trucks to facilitate the delivery of goods and services to customers and other
TESCO stores ,while same trucks were also used during procurement of products from suppliers.
However, due to rising fuel prices, traffic on highways increasing timing costs of logistics,

TESCO decided to switch to rail services post 2011. In order to better implement this change,
TESCO partnered with Direct Rail and Stobart Rail services and constructed a central depot as
their hub, linking it with various TESCO stores and distribution centres effectively improving
their logistical operations while saving costs in the long run.
ALDI: ALDI's business plan encourages the company's to put major emphasis on maintaining
low prices and large inventory of goods and services. This strategy is quite distinct from
TESCO's business plan which primarily emphasises customer satisfaction. This business plan
has guided and shaped ALDI's functioning and logistical operations. As a consequence of having
huge inventory and limited lines, ALDI's logistics need to be flexible in order to decrease
product and operational costs.
To fulfil this business plan ALDI has acquired multiple smaller firms to improve its
supply chain and logistics operations. Gilt is an acquisition which helps ALDI manage vehicles
for its vast logistical operations (Speranza, 2018). ALDI has also collaborated with other firms
such as APP, PSI to improve their logistical productivity. ALDI has also implemented Just In
Time method of inventory management strategy to minimise stocking wastage.
LIDL: LIDL's strategic business plan is quite similar to that of ALDI and has been created based
on the company's belief of providing good quality products at competitive prices to consumers.
LIDL's business plan tries to maximise productivity and profitability by reducing the number of
Stock Keeping Units(SKUs) in its stock and by selecting widely used and popular product lines.
This business plan encourages the sale of private labels through the use of small product lines
which can provide LIDL with increased assortment of products. As a result of large amount of
goods purchased, their costs can be decreased because of bulk manufacturing.
To implement their business plan, LIDL implemented automatic pick and pack
technologies at their distribution centre. LIDL has also implemented lean management strategies
in their operations to reduce product price and operational wastes. Rather than acquire firms,
LIDL hire their services based upon their priorities for their operational and logistical
functioning.
CONCLUSION
Logistic network analysis is primarily used by an organisation to determine the capacity
and prime geographical location of total number of production sites, depots and warehouses

required with regards to their network limitations present. Through this report we learn about
contrasting logistical networks of TESCO, ALDI and LIDL along with their advantages and
disadvantages. We also get to understand the company's strategic business plan and how this
plan aligns with company's logistical and distribution operations to increase efficiency,
productivity and profitability.

REFERENCES
Books And Journals
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Lai, K.H. and Cheng, T.E., 2016. Just-in-time logistics. Routledge.
Mangan, J. and Lalwani, C.L., 2016. Global logistics and supply chain management. John Wiley
& Sons.
Murphy, P.R. and Knemeyer, A.M., 2018. Contemporary logistics.
Speranza, M.G., 2018. Trends in transportation and logistics. European Journal of Operational
Research. 264(3). pp.830-836.
Online
Logistics operation: Tesco and Sainsbury Report. 2019.
[ONLINE] available through: <https://ivypanda.com/essays/logistics-operation-tesco-and-
sainsbury>