Tesco is the UK's largest food retailer, with a sales turnover of more than 67.5 billion. It has

more than 2000 stores in Central Europe, Far East, in the United Kingdom and Northern Ireland.

This number has increased rapidly as Tesco entered the convenience store market with deals

such as 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 65,000 stock-keeping units (skus)

depending on the size of the store. This massive range is supported by 3,000 suppliers, who are

expected to provide service levels (correct time and quantities) of at least 98.5% by delivering to

Tesco within half-hour time windows. Volumes are equally impressive. In a year, some 2.5

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 life-time 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.

Logistics Management at Tesco

An early reform for supermarket operation was to have suppliers deliver to a warehouse

(distribution centre) rather than to every store. The network of depots simply could not handle

the growth in volume and the increasingly high standards of temperature control.

Material Flow System

Under the 'composite' distribution system, many small depots with limited temperature control

facilities were replaced by composite distribution centres, 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 60 million cases per year

on a 15-acre site. The warehouse building comprises 25,000 square metres divided into three

temperature zones: frozen (-25C), +2C (chilled) and +12C (semi-ambient). Each distribution

centre serves a group of between 100 and 140 retail stores.

Information Flow System

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 Protocol that allows Tesco and its suppliers

to communicate trading information.

Based on the cumulative sales, Tesco places orders with its suppliers by means of electronic data

interchange (EDI). As volumes and product ranges increased, Tesco aimed to destock their

distribution centres by ordering only what was needed to meet tomorrow's forecast sales. For

fast-moving products, the aim is to pick to zero in the distribution centre: no stock is left after

store orders have been fulfilled and deliveries to stores are made as soon as the product is picked,

which increases the stock availability for the customer. The flow of the product into the

distribution centre is broken into four waves and specific products are delivered in different

cycles through the day. This means that the same space in the distribution centre can be used

several times over.

Questions:

1. Draw a network map of Tesco's supply chain and describe the key logistics processes at

Tesco.

2. Comment on the material and information flow of Tesco.

3. What do you think are the main logistics challenges in running the Tesco operation?