INDIVIDUAL ASSIGNMENT QUESTIONS Case Study: TESCO Tesco is the UK's largest food retailer, with a sales turnover of more than 67 billion. While it has some 2,100 stores in US, central Europe, Ireland and the Far East, and over 2,300 in the UK alone. This number has increased rapidly as Tesco entered the convenience store market with deals such as the Tesco Express alliance with Esso to run grocery shops at petrol stations. The product range held by the stores has grown rapidly in recent years, and currently stands at 60,000 stockkeeping units (SKUs) as Tesco broadens its presence in the 'non-food' market for electrical goods, stationery, clothing and the like. This massive range is supported by 2,500 suppliers, who are expected to provide service levels (correct time and quantities) of at least 98.5 per cent by delivering to Tesco within half-hour time 'windows'. Volumes are equally impressive. In a year, some 2.1 billion cases of product are shipped from suppliers to the stores. Tesco states that its core purpose is 'to create value for customers to earn their lifetime loyalty'. Wide product range and high on-shelf availability across that range are key enablers of that core purpose. So how do you maintain high availability of so many SKUs in so many stores? This question goes to the heart of logistics management for such a vast organisation. Logistics is about material flow, and about information flow. Let us look at how Tesco deals with each of these in turn. An early reform for supermarket operation was to have suppliers deliver to a distribution centre rather than to every store. During the 1980s, distribution to retail stores was handled by 26 depots. These operated on a single-temperature basis, and were small and relatively inefficient. Delivery volumes to each store were also relatively low, and it was not economic to deliver to all stores each day. Goods that required temperature-controlled environments have to be carried on separate vehicles. Each product group had different ordering systems. The network of depots simply could not handle the growth in volumes and the increasingly high standards of temperature control. A new distribution strategy was needed. Under the 'composite' distribution system, many small depots with limited temperature control facilities were replaced by composite distribution centres (called Regional Distribution Centres, RDCs), which can handle many products at several temperature ranges. The opportunity is to provide a cost-effective daily delivery service to all stores. Typically, a composite distribution centre can handle over 30 million cases per year on a 15-acre site. The warehouse building comprises 25,000 square metres divided into three temperature zones: frozen (- 2SOC), + 1 C (chilled) and + 12C (semi-ambient). Each distribution centre (DC) serves a group of between 80 and 100 retail stores. Delivery vehicles for composite depots can use insulated trailers divided into chambers by means of movable bulkheads so they can operate at different temperatures. Deliveries are made at agreed, scheduled times. Ambient goods such as cans and clothing are delivered separately. Increasingly, retailers like Tesco are introducing factory gate pricing. Instead of suppliers' vehicles delivering goods piecemeal and waiting at DCs to be unloaded, retailer's vehicles can simply drop off a trailer, pick up another, and be back on the road. In this way, retailers can use their scale to negotiate lower transport costs and to make further BSCL301 Individual Assignment 1 economies by increased use of two-way loads. So much for the method of transporting goods from supplier through to the stores, but how much should be sent to each store? With such a huge product range today, it is impossible for the individual store to reorder across the whole range (store-based ordering). Instead, sales of each product line are tracked continuously through the till by means of electronic point of sale (EPOS) systems. As a customer's purchases are scanned through the bar code reader at the till, the sale is automatically recorded for each SKU. Cumulative sales are updated every four hours on Tesco Information Exchange (TIE). This is a system based on Internet technology that allows Tesco and its suppliers to communicate trading information. The aim of improved communication is to reduce response times from manufacturer to stores and to ensure product availability on the shelf. Among other things, TIE aims to improve processes for introducing new products and promotions, and to monitor service levels. Based on the cumulative sales, Tesco places orders with its suppliers by means of electronic data interchange (EDI). As volumes and product ranges increased during the 1990s, food retailers such as Tesco aimed to destock their distribution centres by ordering only what was needed to meet tomorrow's forecast sales. For fast-moving products such as types of cheese and washing powders, the aim is day 1 for day 2: that is, to order today what is needed for tomorrow. For fastmoving products, the aim is to pick to zero in the distribution centre: no stock is left after store orders have been fulfilled. This means that the same space in the distribution centre can be used several times over. And deliveries to stores are made in three waves. Frozen and ambient grocery products for example are distributed to stores at three different times through the day. The first wave is delivered to stores by 8.00am, the second wave in the afternoon, and a third wave in the evening. This helps to improve product availability at stores throughout the day, and thus support increased demand.

Q2. Critically evaluate the major logistics challenges in running TESCOs operation.

(5 M 1. Answer each question separately based on your learning and knowledge on operations management. It is recommended to use additional resources and use it to provide a clear detailed answer for each question. Minimum of 800, maximum of 1000 words for the whole assignment