Tesco is one of the World’s leading retailer with operations in United Kingdom, Korea, Poland, Czech Republic and Slovakia, Hungary, Malaysia, Japan, China and the United States. She became increasingly significant on the international stage. The supply chain transformation has underpinned to this retail success story.
Tesco adopted a common operating model across its worldwide business, admitting it to spread and support key supply chain and replenishment applications when it expanded into new countries. Tesco leveraged a common model across multiple countries and strong willingness to accept local market without losing its core identity, this allowed Tesco think globally and act locally (Smith and Sparks 1993 and Gustafsson et al 2006).
There were four main improving stages in distribution and supply chain strategies in Tesco that could be demonstrated; Direct to store delivery, centralization, composite distribution and vertical collaboration and ‘lean’ supply chains (Fernie & Sparks, 2009).
Direct to store delivery (DSD): This process operated in mid-1970s.The direct delivery by the manufacturers and suppliers to the retail shops whenever they wanted. Shop manages operated in own interest. These made central control and standardization more difficult. A requirement of alternative in approach to supply and distribution occurred as the new corporate business strategy took hold (Fernie & Sparks, 2009).
Centralization: This process was applied to move away from DSD in 1980. The introduction of centralization compelled suppliers to meet Tesco’s operational demands and gave control over the supply of products to stores within a lead time of maximum of 48 hours. Suppliers were forced to deliver into the distribution centers of the supply network. This allowed faster stock turn, better lead time and reduced inventory cost.
Moreover, the organized network of centralized distribution centers was linked by computer to stores and head offices. Buffer stock level and operations stock was reduced. However, this created problems of high logistic cost due to the increased delivery frequency, running of empty or un-full vehicle and increased labor cost on more frequent receiving. Nevertheless, outsourcing was the key component of the revised supply chain network. It allowed making comparison between Tesco’s operated centers and outside contractors, to measure the practices between two parties and drive efficiency (Fernie & Sparks, 2009).
Composite Distribution: This integrated strategy of supply was implemented in 1990, in ongoing improvement process. It enabled chilled, fresh and frozen products to be distributed by multi-temperature warehouses and vehicles through a common system. Special designed vehicles with individual temperature control compartments were used to delivery any combination of these products. According to Fernie and Sparks (2009, pg.,151), “The move to composite led to the further centralization of more product groups , the reduction of stock holding, faster product movement along the channel, better information sharing, the reduction of order lead times and stronger code control for critical products. This composite structure became the backbone of the supply network.” Tesco international business growth and the new methods of working, the composite nature of centers became regional distribution centers (RDC) gradually.
Vertical Collaboration and “Lean” Supply Chains: Jones and Clarke (2002) stated that there were lots of chances for improvement even in the best-run value streams. A famous...