From humble beginnings, Tesco has grown to become the UK's largest supermarket chain. Over ten years ago, Tesco set its sights on becoming the Toyota of the grocery business. Since then the company has become renowned for its best practices in supply chain management (SCM), which included lean management and the use of RFID technology. The company has got an advantage over its competitors by incorporating innovation in its supply chain like point of the sale data, continued replenishment triggered by customer demand, primary distribution, cross dock distribution centre and use of single vehicle to serve several stores.
Tesco was founded in 1910 by Jack Cohen, who invested his serviceman's gratuity of £30 in a grocery stall. The first private label product introduced by Cohen was Tesco Tea. The name Tesco was a combination of the initials of the tea supplier - TE Stock well and the first two letters of Cohen's name. Tesco opened its first store in 1929. Cohen was influenced by the supermarket culture in America and tried to introduce the concept in the UK. The company's driving force was the idea: 'Pile it high and sell it cheap.' In 1947, Tesco went public and a year later, Tesco self-service stores were started. In 1956, the first Tesco self-service supermarket was opened. In the 1960s, Tesco went on an expansion spree and acquired several store chains. The Retail Price Maintenance (RPM) Act8 in Britain prohibited large retailers from pricing goods below a price agreed upon by the suppliers. To overcome this obstacle to price reduction, Tesco introduced trading stamps which were given to customers when they purchased products; they could be traded for cash or other gifts. RPM was abolished in 1964, and from then on, Tesco was able to offer competitively priced products to its customers. The first Tesco superstore, with an area of 90,000 square feet, was opened in 1967. By the 1970s, Tesco's 'Pile it high, sell it cheap' philosophy no longer appealed to shoppers. As people got richer, they started demanding expensive and luxury items. The poor performance of Tesco even led to the saying 'doing a Tesco,' which meant snatching defeat from victory. Tesco's image took a further beating when Imperial Tobacco Company which had considered acquiring Tesco as a part of its diversification strategy, did not go ahead with the deal as it felt that Tesco might damage its corporate image. To arrest the downslide in its fortunes, Tesco's management went in for an overhaul of its stores during the decade. Several stores were closed down to concentrate on the superstores. The smaller stores that still remained were refurbished to make them more customer-friendly. Tesco diversified into operating petrol pumps in 1974. In 1975, Tesco offered price discounts through a scheme called 'Checkout at Tesco.' By 1979, the company's turnover had reached £1 billion. In 1985, lan MacLaurin become Tesco's first CEO from outside the Cohen family. MacLaurin streamlined Tesco's operations, closing most of the smaller stores and opening large 30,000 square foot stores in the suburbs. Tesco also introduces a centralized distribution system, added fresh food and its own label for food products. These were successful moves. In the 1990s, the UK supermarket industry faced of 16.7 per cent, behind Sainsbury's at 19 per cent. The other major competitors were Asda and Safeway. Several warehouse stores like Costco and discount stores like Aldi, Lidl and Netto also entered the UK. In 1997, Tesco's marketing director, Terry Leahy, become the new CEO. He had introduced new pricing policy of lowering prices to match those of Asda, which resulted in Tesco's prices begin 4-5 per cent lower than those at Sainsbury's and Safeway.
3.0 DEFINING ISSUES
3.1 SUPPLY CHAIN MANAGMENT
Supply chain management is a business administration strategy that aims at the improvement in efficiency of cash flow through information sharing and...