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Whuk01 0211-40087163 74075 rev 5 supply chain uk

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  • 1. Supply chain analysis i [“Supply chain analysis of Tesco super market by comparing its supply chain in UK andThailand and finding ways to improve it so that Tesco occupies strong position in retail sector”] By [Author’s Name] [Faculty Name] [Department or School Name] [Month Year]
  • 2. Supply chain analysis ii Acknowledgement This research would not have been possible without the help of my research supervisorand my family so I would like to thank them for their utmost support throughout this research.
  • 3. Supply chain analysis iii DECLARATION I [type your full first names and surname here] hereby declare that the matter and theideas presented in this report is my own un aided word and the contents of this research have notbeen submitted earlier for any educational purpose. Signed __________________ Date _________________
  • 4. Supply chain analysis iv Abstract Extensive literature shows that supply chain management practices represent a criticalsource of sustained competitive advantage. According to (Copacino 1997, 52) emerging marketsare fuelling double-digit growth in the global retail market. In an increasingly consolidatedmarket, moving outside of the domestic region and into emerging markets can be a lucrativestep, although it is also a complicated and difficult growth strategy. Even within countries thesize of China, India and Russia, there are dramatic differences on a regional basis. "It is thegrowth of these countries that make them so appealing. The BRIC countries (Brazil, Russia,India and China) are showing two or three times the growth of the developed countries. Retailingis a crucial sector and major contributor to the UK economy. At a simple level, for the majorityof consumer goods and services it provides the link between production and consumption.Furthermore beyond the large omnipresent chains, exists a large body of independent businesses,which provide self-employment opportunities (competitive analysis of retail sector). U.K. retailsector e has higher number of women.
  • 5. Supply chain analysis v ContentsACKNOWLEDGEMENT...........................................................................................................................................IIDECLARATION........................................................................................................................................................IIIABSTRACT................................................................................................................................................................IVCONTENTS..................................................................................................................................................................VCHAPTER 1: INTRODUCTION................................................................................................................................1 Background..............................................................................................................................1 Statement of objectives............................................................................................................1 Research problem:-..................................................................................................................1 Objectives................................................................................................................................ 2 Validity and Reliability............................................................................................................2 Limitation of the research........................................................................................................3 Time Table of Research Activities.......................................................................................... 4CHAPTER 2: LITERATURE REVIEW....................................................................................................................5 Strategic objective in the supply chain ................................................................................... 7 Chain Management (SCM) .....................................................................................................8 Retail Sector...........................................................................................................................10 Principles for managing the supply chain .............................................................................14 Principle No. 1: .....................................................................................................................14 Principle No. 2: ....................................................................................................................14 Principle No. 3: ....................................................................................................................15 Principle No. 4: ....................................................................................................................15 Principle No. 5: ....................................................................................................................15
  • 6. Supply chain analysis vi Principle No. 6: ....................................................................................................................16 Principle No. 7: .....................................................................................................................16 Supply Chain Decisions.........................................................................................................21 Location Decisions ............................................................................................................... 22 Production Decisions ............................................................................................................22 Inventory Decisions ..............................................................................................................23 Transportation Decisions.......................................................................................................23CHAPTER 3: METHODOLOGY.............................................................................................................................25 Research Design.................................................................................................................... 25 Data collection, Analysis and Interpretation ........................................................................ 25 Sampling Technique..............................................................................................................25 Sample Selection & Size....................................................................................................... 26 Data Processing and Analysis................................................................................................26 Approach to data analysis .....................................................................................................26CHAPTER 4: DISCUSSION AND ANALYSIS......................................................................................................28 UK..........................................................................................................................................33 Thailand.................................................................................................................................35CHAPTER 5: CONCLUSION...................................................................................................................................47 Critical appraisal and Recommendation................................................................................47 Advantages............................................................................................................................ 47 Disadvantages........................................................................................................................48 Recommendation...................................................................................................................49REFERENCES............................................................................................................................................................51
  • 7. Supply chain analysis viiAPPENDICES.............................................................................................................................................................58
  • 8. Supply chain analysis 1 Chapter 1: IntroductionBackground According to Greasley (2009, 392) the Supply chain consists of series of activities thatmoves material from suppliers, through operations to customers. Each product or service willhave its own supply chain, which may involve many organizations in processing, transportation,warehousing and retail. The structure of a supply chain consists of upstream suppliers anddownstream suppliers. Upstream suppliers that supply the organization directly are termed as‘first tier’ and supplies that supply the first tier organization are termed as ‘second tier’.Upstream suppliers are component and subassembly suppliers. Downstream suppliers aredivided into tiers of customers for example; wholesalers and retailers. During the last threedecades, supply chain management has been both an important and a productive aim ofcorporations. By working to coordinate the production, shipment, and delivery of the goodsrequired to meet their business needs, companies have been able to more easily meet thedemands of their customers (EPIQ advanced supply management Articles).Statement of objectivesResearch problem:- An unmanaged supply chain is not inherently stable. Demand variability increases as onemove up the supply chain away from the retail customer; the effect occurs when there is lack ofsynchronization in supply chain members. Even a slight change in consumer sales will ripplebackwards in the form of magnified oscillations in demand upstream. Eventually, the networkcan oscillate in very large swings as each organization in supply chain seeks to solve the problem
  • 9. Supply chain analysis 2from its own perspective called bullwhip effect unplanned variability that causes “waste”. Iscommon in most industries, it results in increased cost and poor service. Greasley (2009.394)Objectives The aim of this research is: • Critically evaluate the applicability of Tesco’s supply chain management strategies in Thailand in context of current Retail Industry Practice. • Evaluating current UK Practice in relation to supply chain Management for Tesco Super market • Considering Trade issues and Laws related to Thailand in the context of supply chain. • Analyze the supply chain method with respect to super market.Validity and Reliability The concept of validity is described by a wide range of terms in qualitative studies. Thisconcept is not a single, fixed or universal concept, but “rather a contingent construct, inescapablygrounded in the processes and intentions of particular research methodologies and projects” (DenButter & Gand Linse 2008,76). Although some qualitative researchers have argued that the termvalidity is not applicable to qualitative research, but at the same time, they have realised the needfor some kind of qualifying check or measure for their research. For example, Creswell & Miller(2000) suggest that the validity is affected by the researcher’s perception of validity in the studyand his/her choice of paradigm assumption. As a result, many researchers have developed theirown concepts of validity and have often generated or adopted what they consider to be more
  • 10. Supply chain analysis 3appropriate terms, such as, quality, rigor and trustworthiness (Dekker 2003, 123). The researcherwill try to ask the appropriate and valid research questions from the interviewee. The term ‘Reliability’ is a concept used for testing or evaluating quantitative research, theidea is most often used in all kinds of research. If we see the idea of testing as a way ofinformation elicitation then the most important test of any qualitative study is its quality. A goodqualitative study can help us “understand a situation that would otherwise be enigmatic orconfusing” ( (Copacino 1997,52). This relates to the concept of a good quality research whenreliability is a concept to evaluate quality in quantitative study with a “purpose of explaining”while quality concept in qualitative study has the purpose of “generating understanding”( (Copacino 1997,52). While the terms Reliability and Validity are essential criterion forquality in quantitative paradigms, in qualitative paradigms the terms Credibility, Neutrality orConfirmability, Consistency or Dependability and Applicability or Transferability are to be theessential criteria for quality (Davis, 1993, 35). The researcher will ensure that the researchinstrument used in the research i.e. the qualitative research to be neutral and consistent acrossmultiple occasions of use.Limitation of the research Data is less representative - findings cannot be extended to wider populations with samedegree of certainty. Danger of bias in the research – As the research is carried out at the managementlevels, so there is a danger that managers will show some kind of bias.
  • 11. Supply chain analysis 4Time Table of Research Activities Research on the topic 20th Aug – 25th Aug 2010 Literature Review 1st Sep – 15th Oct 2010 Interviews 15th Nov – 14h Dec 2010 Data Coding and Analysis 1st Jan – 10th Feb 2011 Report Presentation 1st March 2011- 20th March 2011
  • 12. Supply chain analysis 5 Chapter 2: Literature Review Literature is reviewed on the feature of retailing industry under globalization, U.K. retailmarket characteristics, and supply chain operations. According to (Cooperand Slagmulder 2003,14) Building sustainable supply chains is notjust about counting carbon emissions, Rather, it is about choosing development and productionpatterns that can still function "in 50 years time”. There are four "core principles" that any foodmanufacturer or retailer needs to keep in mind for a sustainable supply chain. First development,needs to become sustainable, second, the three "key dimensions" of sustainable development -economic, social and environmental - must have equal priority. Food retailers, too, have begunserious efforts to develop environmentally-sustainable supply chains. On the other hand, Tesco, aUK-based international supermarket group, insists there is also a strong commercial reason todevelop sustainable supply chains. "The supply chain is the big prize," According to (Cooper andSlagmulde 1999, 32), the future many of our customers are going to care about this: and this willbe an area of competitive advantage." Last year, Tesco started looking both upstream anddownstream in its supply chain. The company had achieved big environmental improvements inits own distribution activity (Copacino 1997, 52) and in order to expand the company supplychain process Tesco recently announced that it was looking at the prospects of online shoppingin Thailand. After a bit of experimenting, Tesco also recently launched Club card, a loyaltyprogramme, one of the first in Thailand - and the data gleaned from this will help it establish andmarket its online offer (Anonymous, 2009). Extensive research has been carried out in findingbetter ways of managing the supply chain and optimizing its performance. According to(Cooperand Slagmulder 2003, 12), (Cooperand Slagmulder 2003, 14) and (Cooperand
  • 13. Supply chain analysis 6Slagmulder 2003, 12) suggests that there are seven basic principles in managing a supply chain.They are: 1. Segmenting the customers according to their demands. 2. Customizing the logistics network through more robust logistics planning. 3. Listening to signals of market demand and planning the production according tothem. 4. Differentiating products closer to the customer avoids product obsolescence. 5. Sourcing strategically from suppliers who share the common goals improves thesupply chains efficiency. 6. Developing supply chain wide common technology strategy improves interactionbetween the supply chain partners, 7. Adopting a common supply chain wide performance measure directs all thesupply chain partners to work towards a common goal. According to (Harland, 1997, 219) suggests that there are six pillars that have to be builtfor the success of a global supply chain planning process. They are: 1. Integrating supply chainplanning activities. 2. Establishing uniform business policies. 3. Unified supply chain planninginformation systems help in reducing the costs. 4. Establishing planning centres of excellence. 5.Shared performance measurements facilitate evaluating partner contributions and worker skills.6. A process based organizational structure supports global supply chain planning by improvingcommunication throughout the supply chain. High levels of competition in international markets and our country have led companiesto the conclusion that to survive and thrive in harsh environments, it is not enough to improvetheir operations and integrate their internal functions, it is necessary go beyond the boundaries of
  • 14. Supply chain analysis 7the company and initiated exchange of information, materials and resources with suppliers andcustomers in a much more integrated, using innovative approaches that benefit, together with allstakeholders in the supply chain.Strategic objective in the supply chain Increase participants ability to make decisions, formulate plans and outline theimplementation of a series of actions: (Davis, 1993, 35) • The significant improvement in the productivity of the logistics systemoperational • To increase service levels to customers • In the implementation of actions that lead to better management of operations anddevelopment of lasting relationships of great benefit to suppliers and key customers of the supplychain. (Cooperand Slagmulder 2003, 12 ) (Loading dept. )
  • 15. Supply chain analysis 8 "In the future, competition will not be business to business, but rather supply chainsupply chain."Chain Management (SCM) The management of the supply chain (SCM for short in English, Supply ChainManagement), is emerging as the combination of technology and best business practicesworldwide. Companies have improved their internal operations are now working to achievegreater savings and benefits by improving processes and information exchanges that occurbetween business partners. (Cooperand Slagmulder 2003,14) A successful supply chain delivery to final customers the right product at the right placeat the right time, the required price and the lowest possible cost. Best SCM programs share common features, first of all, have an obsessive fixation oncustomer demand. Instead of forcing the products to market quickly sold may or may not meetthe demands of customers or be complete financial failure, this type of initiative is plotteddevelopment objectives and producing products that are demanded by customers, minimizing,the flow of raw materials, finished products, packaging materials, money and information at eachpoint of the product cycle. These objectives have been sought by industrial companies for several decades and hasexperienced management and successfully implemented modern techniques such as Just In Time(JIT), Quick Response (QR), Efficient Customer Response (ECR)-Managed Inventory Provider(VMI) and many more. These are the tools that help build a structure of robust supply chain. From the cost point of view, is where you perform the best benefits, a recent studyshowed that the total costs of the supply chain become 75% of operating budget expenditures.
  • 16. Supply chain analysis 9 MIT recently did a study which showed that companies that have successfullyimplemented these programs achieve benefits such as we can tell (Cooper and Slagmulde1999,32 ), inventory reductions of up to 50%, 40% increase in on-time delivery, 27% reductionin cycle Product accumulated, doubling inventory turns, reduced 9 times the missing, and 17%increase in sales. Another study by a consulting firm found that these companies typically achieveexcellent results in reducing operating costs, improve asset productivity and be more efficient inresponding to changing market demands. What do you call this in the language of finance?, Return on Assets, "and the language ofbusiness" for some, survival, for others, leadership. In the last decade companies have implemented a range of programs designed to reducethe cost of operating, doing business concepts such as downsizing, reengineering, outsourcing,etc. and helped restore the competitiveness of entire industries. During this period the focus was to increase profitability, cost-cutting rather thanincreasing sales. This cannot be brought up to certain limits, todays businesses, operations arethinner and healthier looking to grow, and are repositioning the concept of supply chain as alever for growth. The question then arises, Why not?, But how?. Smart managers recognize twoimportant things. First, think about your supply chain as a whole, all the links involved inmanaging the flow of goods, services, information and funds from the vendor of your client toclient. Second, continually seek tangible results, with a focus on sales growth, asset utilizationand cost reduction.
  • 17. Supply chain analysis 10Retail Sector The food system consists of broad sectors that include production, processing andmanufacturing, distribution, and retail. The retail sector is the part of this system that is closest tothe consumer. Although processors/manufacturers were once quite powerful, exertingtremendous influence over retailers and consumers, this dynamic is shifting toward greaterretailer power. The leading retailers make up a large and increasing percentage of sales for thelargest food processors. Wal-Mart, for example, sells more than 10 percent of the products madeby Dean Foods, General Mills, Kellogg, Kraft, Campbells, Tyson, and Pepsi. This gives Wal-Mart the leverage to demand low wholesale prices, as well as exacting packaging and deliveryrequirements, from its suppliers. Leading retailers are also more effectively encouragingconsumers to behave in ways that enhance their profits, using means such as store design andshelf placement. Their increasingly sophisticated marketing strategies also include discounts forcustomers who use loyalty or rewards cards—these enable the collection of massive amounts ofdata and highly targeted advertising efforts. Food retailing was dominated by supermarkets from the 1950s to the 1990s. Thesupermarket format originated in the United States and is characterized by: 1) a reliance oncustomers to self-service and line up to check out; 2) a larger store size and higher number offood items (currently 15,000+) than most other formats; 3) low markups from wholesale prices;and 4) high sales volumes (currently $2 million or more annually). Many of these innovationswere facilitated by the development of a national highway system and refrigerated trucking,which lessened dependence on railroads and encouraged more self-distribution by retailers. Byshipping directly from manufacturers, supermarkets were able to negotiate price discounts based
  • 18. Supply chain analysis 11on volume. Until recently, more than 75 percent of food sales in the United States were madethrough supermarkets and grocery stores, and the average person was estimated to spend 2percent of their life in these retail outlets. Supermarkets and grocery stores are facing increasing competition from other retailformats including hypermarkets/supercenters (a combination supermarket and department store,pioneered by the French firm Carrefour in the 1960s), wholesale buying clubs, conveniencestores, inexpensive department stores (e.g., dollar stores), and specialty retailers (e.g.,natural/organic markets, ethnic markets). They are also affected by a trend of increasingexpenditures for food consumed outside the home, particularly at fast food restaurants. Thedifferentiation unfolding in the retail sector reflects a shift from mass production andconsumption to a model more highly targeted to particular groups of consumers (based on age,socioeconomic status, ethnicity, or other differences), or even to individuals. The entrance of Wal-Mart into food retailing has had a dramatic effect on the retailsector. Wal-Mart began selling groceries in a supercenter format in 1988, and in little more thana decade it became the leading food retailer in the United States. The corporation also operates achain of wholesale buying clubs (Sams Club) and introduced a chain of smaller-format grocerystores (Wal-Mart Neighborhood Market) in 1998. Wal-Marts involvement in food retailinghelped to trigger a wave of consolidation in the 1990s, particularly in North America andEurope, as other retailers merged or made acquisitions to remain competitive. It is estimated thatthe top 3 firms control 80 percent of grocery sales in Australia, the top 4 firms control 75 percentof sales in the United Kingdom, the top 5 firms control 50 percent of sales in the United States,and the top 30 firms control 33 percent of sales globally.
  • 19. Supply chain analysis 12 Food retailing is an increasingly international business, with the leading firms in NorthAmerica and Europe rapidly dominating markets in Latin America, Africa, and Asia. Thisinterest in expansion is a result of slowing sales in highly industrialized nations. Much of theirgrowth in foreign countries has occurred through acquisitions of existing supermarket chains buthas also included opening new stores. Even firms that do not sell globally do source food fromall over the world to ensure an adequate supply of food (such as out-of-season fresh produce)and, increasingly, to secure the lowest possible prices for a given commodity. By establishing their own distribution networks and supply chains, retailers exert a highlevel of control over the food production process. These companies develop their own standardsfor growing, harvesting, and processing fresh produce, often requiring more stringent safetypractices than government regulations. Control over processed food production is increasing aswell, through the growth of private label or store brand products. Retailers enter into contractswith manufacturers to package products with the store brand that are typically sold at lowerprices than comparable name-brand products. The quality of these private label foods is muchimproved compared with early generic products, and sales are growing much faster in thissegment than name-brand items. These trends have resulted in relatively low prices for consumers, as retailers haveengaged in cost-cutting strategies and increased the efficiencies of their operations. Anotherbenefit is the increasing diversity of food that is available year-round. In addition, theconvenience of ready-to-eat meals and markets open 24 hours a day has enabled consumers toreduce the amount of time spent on planning and preparing meals.
  • 20. Supply chain analysis 13 The retail sector has also faced criticism, however. The low prices for consumers, forexample, are partially at the expense of producers, who lack sufficient bargaining power and maysell at below the cost of production. Access to low-priced, nutritious food is not equitablydistributed either. A number of retail food chains in the United States have shut down inner-citystores and opened new locations in growing suburbs. Some urban areas may have abundantconvenience stores and fast food restaurants but few options for fresh produce. Retailers havealso been accused of encouraging sprawl, excessive energy consumption in the production andtransport of food, mistreatment of animals, antiunion activities, and in some instances, pricefixing. Recent concern with rising obesity rates has led to claims that food retailers encourage theconsumption of unhealthy but profitable foods. Retailers have implemented a variety of efforts to attempt to address these criticisms.U.S. companies including Hannaford and SuperValu have introduced nutrition labeling programson their store shelves to help customers identify foods that are more or less healthy than others.In the United Kingdom, Tesco is labeling some of its private label products with their carbonfootprint—the amount of carbon dioxide produced in their production. Wal-Mart has touted itscommitment to reducing energy consumption and reducing waste. Ninety percent of the leadingsupermarket chains in Europe have removed genetically engineered ingredients from their stores,and many of the largest retailers in the United States have banned milk produced with agenetically engineered growth hormone for their store-brand dairy products.
  • 21. Supply chain analysis 14Principles for managing the supply chain Andersen Consulting has proposed a list of 7 principles for managing the supply chain,based on the experience of initiatives to improve supply chain in more than 100 industrialcompanies, distributors and retailers. The implementation of these principles, we can balance the needs of an excellentcustomer service with the requirements of profitability and growth. In determining whatcustomers want and how to coordinate efforts across the supply chain to meet these demandsfaster, cheaper and better. (Davis, 1993, 35)Principle No. 1: • Segment your customers based on service needs of different groups and adapt thesupply chain to serve these markets profitably. • Traditionally, we have segmented customers by industry, product or sales channeland we have given the same level of service to each customer within a segment. • An efficient supply chain customer groups for your service needs, regardless ofwhat industry it belongs and then tailor services to each of those segments.Principle No. 2: • Adapt the network of logistics service requirements and profitability of customersegments. • When designing the logistics network must focus intensely on the servicerequirements and profitability of the identified segments. The conventional approach of
  • 22. Supply chain analysis 15monolithic networking is contrary to the successful management of the supply chain. (CooperandSlagmulder 2003, 12 ) • Even less conventional thinking about the logistics emerges in certain industriesthat share customers and geographical coverage, resulting in redundant networks. By changingthe logistics of complementary and competitive industries under the ownership of othercompanies, savings can be achieved for all industries.Principle No. 3: Be attentive to market signals and align demand planning accordingly with the wholesupply chain, ensuring consistent forecasts and optimal resource allocation. The sales and operations planning must cover the entire chain, looking for the timelydiagnosis of changes in demand, detecting patterns of change in processing customer orderspromotions, etc.. This intensive focus on demand leads to more consistent forecasts and optimalresource allocation. (Cooperand Slagmulder 2003,14)Principle No. 4: • Search differentiates the product as close as possible to the customer. • It is no longer possible to accumulate inventory to compensate for errors in salesforecasts. What we must do is to postpone product differentiation in the supermarket process aspossible about the customer.Principle No. 5: • Strategically manage the sources of supply.
  • 23. Supply chain analysis 16 • By working more closely with major suppliers to reduce the cost of materials andservices, we can improve margins both for ourselves and for our suppliers. • The concept of squeezing suppliers and make them compete and not how toproceed, now the trend is "win-win"Principle No. 6: Develop a technology strategy for the entire supply chain. One of the cornerstones of successful management of the supply chain is the informationtechnology that must support multiple levels of decision making and provide a clear view of theflow of goods, services, information and funds.Principle No. 7: • Take performance measurements for all channels. • Measurement systems in supply chains do more to monitor internal functions,measurements must be taken to apply to each of the links in the chain. The most important thingis that these measurements contain not only financial indicators but also help us measure thelevels of service, such as the profitability of each customer, each type of operation, business unit,and ultimately, for each order. These principles are not easy to implement, and require certain skills that in some casesare not naturally found in the logistics professionals. It takes a group effort, multifunctionalskills, with ace, quality facilitators to integrate the divergent needs of supermarket and sales,quality and price, cost and service and financial and qualitative measures.
  • 24. Supply chain analysis 17 It should expand the understanding of other areas of the organization; you have toimprove understanding of the functions of purchasing, product planning, marketing, sales andsales promotion, and also must develop a more intimate knowledge of their customers. Remember that the supply chain begins and ends with the customer. (Cooper andSlagmulde 1999,32 ) Additionally, it is important that professionals are knowledgeable about informationtechnology. The computer is not a function of additional support to the supply chain, rather it isthe enabler, the means by which many links are integrated into a single string. Information technology should help in three different categories: First must support operational activities, decision-making short-term, management ofdaily transactions, order processing, shipping, warehouse movements, etc. Second, it mustsupport the planning and decision-making medium-term support such as demand planning,master scheduling of production, and in general the optimal allocation of resources. Finally, information systems must support the strategic analysis tools by providingmodulation and other tools that synthesize the information for planning scenarios to helpmanagement assess the distribution centers, suppliers, outsourced services, etc. (Collins 2003,42) Implementing The Second-Generation Tray In Tesco’s Supply ChainTesco is one of the leading food retailers in the world (see Seth and Randall, 2005). It hasbecome the number one food retailer in the UK (Hurt and Sparks. 2003) and now hasstores across Eastern Europe and Asia. As a leading retailer, it has been subjected to
  • 25. Supply chain analysis 18considerable investigation by researchers and analysts. Within this, the transformation ofTesco’s distribution has been particularly studied, and it is within this context that the casestudy is developed. Readers wanting further information on the Tesco distribution systemsshould refer to the earlier work of Smith and Sparks (Smith. 1998; Smith and Sparks,1993, 2004; Sparks. 1986) and the references in those readings.The case study presented here has been developed and researched in two ways. Oneof the authors (David Smith) was involved in the implementation of the system and so is aparticipant researcher. Subsequent to the case he has been engaged in research andconsultancy on logistics broadly for various clients and has thus also developed a morereflective view of the activities In which he was once engaged.The Tesco case study is an example of the rapid implementation of a national strategyfor recycling packaging. The impending EU legislation, in the early l990s, on packagingrecycling schemes, with its financial penalties forced retailers and suppliers to conduct astrategic review of their practices for disposing of secondary packaging at the retailstore. The existing system saw secondary packaging either thrown away or recycled ina cumbersome way. Tesco, as a leading food retailer, decided to act quickly to getahead of the legislation and implement a radically new approach for its stores and suppliers.The context for this development within the Tesco supply chain has several aspects that arcworth documenting before getting into the detail of the case study. Within the store productrange, there had been strong growth in the chilled fresh food categories. The logistics andsupply chain processes had speeded up to provide customers with fresher product that lastedlonger in the home. This focus on the rapid handling of fresh foods from supplier to retail shelfresulted in much less stock being held in the supply chain, as lime spent standing still was timetaken from the shelf-life available to the consumer. At the retail store there was an examinationof the labor costs of putting product on shelves, and new methods were devised to help retail
  • 26. Supply chain analysis 19staff works more effectively. These trends formed the background for the Tesco development ofa second-generation plastic tray and a national network of recycling service units. The timetable of events was compressed to get ahead of the legislation deadlines, andcan be divided into three phases. The first phase, 1990-92, involved the board decision toproceed. The second phase,1992—94, was the implementation of the national recycling network with the second-generationplastic tray. The third phase, 199S-97, was the continued effort to grow the recyclingbusiness using the plastic tray.The first phase, from 1990 to 1992, involved the board decision to proceed with a newapproach for disposing of secondary packaging by the retail stores through the settingup of specialized recycling service units that would recycle the plastic and cardboardand clean the increasing volume of plastic trays so they could be reused by thesuppliers. This strategy repositioned the impending EU legislation on recycling from athreat into a business opportunity. The board’s decision was based on an assessmentof the costs and benefits. There were the costs of change and implementation that wereset against the penalties being imposed by the EU legislation. The benefits were to befound throughout the business, retail, commercial, logistics, suppliers and theenvironment. Retail were able to work more productively in store using the plastic trayfor displaying products, especially fruit and vegetables. The commercial divisionprioritized which product groups would benefit from lower costs in using the plastic trayrather than corrugated secondary packaging. Logistics improved their handling stackingusing the plastic tray. Suppliers paid less by using the plastic tray. The environmentalbenefits contributed to the reputation of Tesco as a company acting as a good citizen.The implementation phase, from 1992 to 1994, was intense and compressed to gelahead of the legislation deadlines. The national network of recycling service units
  • 27. Supply chain analysis 20needed to be located next to the composite distribution centers that handled the freshfood product range. All the cardboard and plastic that used to be disposed of locallythrough the store waste compactors, as well as the plastic trays, was going to becollected from the stores by the composite delivery vehicles on their return journeys.Suppliers would then be able to collect the trays they needed after their deliveries to thedistribution centre. It was decided to give the contract for the operation of theserecycling service units to one contractor as part of the Tesco strategy to benefit fromapplying best practice throughout the network. There was a standard design for all therecycling service units. This design needed to balance the capacity and space for theoperation in order to keel) the costs of the land and building as low as possible. Recycling service unit operation and the second—generation plastic tray The purpose of a recycling service unit (RSIJ) is to minimize the volume ofsecondary packaging that has to go into landfill by recycling and reusing as much aspossible. Corrugated hoard and plastic wrapping arc recycled back to industry. Theplastic trays are reused many times within the supply chain. At the end of their life theyare shredded, forming raw material for manufacturing of new plastic trays or pallets.The processes that take place at a recycling service unit vary for the different categoriesof cardboard, plastic wrapping and plastic trays. They are sorted on their arrival from thestores into the different sections for recycling or washing. The plastic wrapping andcardboard are placed into separate compactors that create bales that are then recycled.They are sold into the marketplace as a national contract, which results in better pricesthan they had before with each store negotiating separately.
  • 28. Supply chain analysis 21Supply Chain Decisions We classify the decisions for supply chain management into two broad categories --strategic and operational. As the term implies, strategic decisions are made typically over alonger time horizon. These are closely linked to the corporate strategy (they sometimes {it are}the corporate strategy), and guide supply chain policies from a design perspective. On the otherhand, operational decisions are short term, and focus on activities over a day-to-day basis. Theeffort in these types of decisions is to effectively and efficiently manage the product flow in the"strategically" planned supply chain. (Chakraborty,Majumder and Sarkar 2010,18) There are four major decision areas in supply chain management: 1) location, 2)production, 3) inventory, and 4) transportation (distribution), and there are both strategic andoperational elements in each of these decision areas.
  • 29. Supply chain analysis 22 Location Decisions The first step in creating a supply chain is the determination of the geographicalplacement of the product, the warehousing facilities and the sourcing points. The locations whichare determined at this level must be available for a long term. After the initial decisions like size,number and location is determined, the product flow can be formed easily keeping in view thelocations. The location decision is of high importance for the firm as it directly affects therevenue of the firm, the cost of the product and the service level. These should maximize thefirm profit and help the firm to achieve break even very quickly. The variable factors like taxesand duties imposed by the government, the local content, the distribution cost and the productionlimitation must all be taken into account before the final decisions. The location decisions alsohave operational level implications.Production Decisions The decisions regarding the production are also included in the supply chainmanagement. The producer must determine what to produce, how to produce and for whom toproduce and how much to produce. And then the supplier allocation to the plants, plants todistributors and then finally to supermarket for customer. These decisions affect the revenues,cost and customer service level of the producer. These decisions lay down the actual path ofproduct flows and assume the existence of these facilities. The capacity of the supermarketfacilities is another critical issue and usually it depends on the degree of vertical integrationwithin the firm. The detailed operational scheduling is focused by the operational decisionswhich include the construction of master production schedules, the scheduling production onmachines and the maintenance of the equipment. The factors like quality control and the workload balance are included in other considerations. (Chopra and Sodhi 2004, 53)
  • 30. Supply chain analysis 23Inventory Decisions Inventory decisions are related to techniques through which the inventories are managedin the supermarket. All stages of supply chain deal with the inventory management. Theinventory may be in the form of the raw materials; semi finished and finished goods or evenworks in process as well. Inventory holding has a huge cost i.e. about 20 to 40 percent of theiractual cost that is why it is very important to manage the inventory to save their cost. The topmanagement always remains concerned about the inventory and as a result goals are set by themto manage the inventory. Hence the researchers have approached the management from anoperational perspective. The push and pull strategies, the setting of safety stock level and controlpolicies are made up by the upper management to manage the stock. The primary determinantsof the customer service level are these levels and hence they have high importance.Transportation Decisions The most important decision of supply chain management is the choice of mode for thegood delivery. Inventory decision is closely linked to transportation decision. The firm mustchoose such a system which ensures fastest and most efficient delivery. The fastest way ofdelivery is by air but it is very expensive and will increase the cost of the good and the decreasethe revenues of the firm. The shipment through railway may be cheap but railway managementcharge higher for the goods security and holding. Hence the customer service level and thelocation of the customer is very important in choosing the transportation means. About thirtypercent of the overall cost of the good is allocated for the transportation cost hence the firmshould take all the decisions rationally. (Chakraborty,Majumder and Sarkar 2010,18)
  • 31. Supply chain analysis 24
  • 32. Supply chain analysis 25 Chapter 3: MethodologyResearch Design From the given nature of this research, qualitative methodology that uses interviews withconcerned stakeholders is chosen as a research methodology. According to Lake (2010)“Qualitative research is method of advertising research that emphasizes the quality of meaning inconsumer perceptions and attitudes; for example, in-depth interviews and focus groups.Data collection, Analysis and Interpretation The data will be collected from the following sources for qualitative research: • Interviews with employees of Tesco, suppliers and customers and Telephonic interview with key suppliers were taken to find how Tesco manages relationship with them. • The interviewing methods include Personal interviews, Email surveys, and web page surveys.Sampling Technique Due to the nature of research, Purposive sampling method is proposed for this research.According to Denscombe (2007) with purposive sampling the sample is ‘hand picked’ for theresearch. The researcher already knows something about the specified people or events anddeliberately select suppliers, employees, managers who have exposure of supply chainmanagement and business processes and they are likely to produce most valuable data. Dane
  • 33. Supply chain analysis 26(1990) points out the advantage of purposive sampling is that it allows the researcher toconcentrate on people or events, which have good grounds in what they believe, will be criticalfor the research. Almost like detective, the researcher follows a trail of clues, which leads theresearcher in a particular direction until the questions have been answered and things can beexplained (Robson 1993, 99).Sample Selection & Size Suppliers – 10 of the suppliers in UK and Thailand will be interviewed to explore theirprocess and how Tesco manages relationships with them. Customers – 50 customers will be interviewed to explore their satisfaction against theavailability of product of their need on continuous basis and its cost. Employees – 25 of employees will be interviewed to explore how frequently the supplyof the products comes and time duration.Data Processing and Analysis Once the data from the above stated research methodology is collected, analysis of datawill be started. Mills (1994) emphasizes on the fact that it is best to begin analysing the data assoon as the initial data has been collected.Approach to data analysis • Questionnaire survey of suppliers of Tesco in UK and Thailand. • Telephone interviews with key representatives of selected set of suppliers. To probe how the Tesco manage relationships with these specific suppliers.
  • 34. Supply chain analysis 27• Interviews with the employees of Tesco.• Interview with the customers.
  • 35. Supply chain analysis 28 Chapter 4: Discussion and Analysis Before changing the goods in the supermarket lying in a shelf, there are several overcomeobstacles such as traffic. A few years ago put Scala Logistics Consulting on behalf the UKDepartment of Transport an research showing that the rush British roads had become lesscrowded, The main reason for this decline is The Sunday opening of supermarkets. Around 18%of primary and fourth of secondary supply now takes place on weekends. The study showed alsothat the traffic is still the reason for 22% of delays in food and 17% in the supply of beverages.Other factors include availability of drivers and issues when collecting the goods, but the mainculprits are "a business problem or "an unknown delivery problem , this is generally for 61%and 69% in beverage industry. Cafes, bars and restaurants were included, which are smaller andless easily accessible than the large supermarkets, but are nevertheless surprisingly highnumbers. It seems customers borrowing more to this situation than logistics organizations, but toall fronts in the supply chain space for improvement. "A can of soda has almost a whole years tothe supermarket shelf to achieve.” The supermarket industry has been investigating more thanten years various possibilities for improvement. Some, at first sight promising options do notmeet the met expectations, the best example this is online shopping. Initiatives initially yieldedsavings (Such as B2B auctions), came to nothing because sellers withdrew as due to ever lowerprices. The argument that larger firms standardized products for European regions createseconomies of scale and in emerging markets remains the time being so, but mature markets willfind that progress will stagnate and sometimes decrease. Almost one year on to my shelf Tooptimize the entire logistics chain should look at the total picture Supply Chain for supermarkets5 4 and are working effectively together. Take a can of soda. When Jones and his team a
  • 36. Supply chain analysis 29commodity analysis performed in one of the largest supermarkets in Europe, they discovered thatthe route of the mine (including metal, packaging and purchasing of ingredients) to the shoplasted 319 days. That is almost a whole year, while the actual supermarket and filling the can, butin two hours confiscated in todays uncertain times, people look more than ever into the future.Financial analysts and journalist’s dur- Ven no longer predict the future with certainty and havedifferent possible scenarios for 2009 without to comment on the likelihood of the options, well-same with the weatherman says that tomorrow it may rain or dry. There is a scenario that thefiscal and monetary authorities manage to stem the financial crisis, a where this fails and avariant that confidence quickly restored after the break failed. Choose what it is. Meanwhile, hitthe global financial crisis is the real economy where products are made and visible services aredelivered. Luxury Brands are heavy tide- the meet. Discounters such as Aldi and Lidl alreadywinning field the major international supermarket chains Tesco and Carre- four. No-nonsensebrands are expected in 2009 good. Typically this is that the U.S. Campbell Soup Company onSeptember 29, 2008, when the U.S. Congress first rejected bailout of Wall Street, as anycompany listed on the Standard & Poor 500 index increased in value, while the rest are allcrashed. According to marketing consultancy interbred biological products also victims of thiscrisis. In December 1, special of NRC Handelsblad says director Fritzs degree from Jumbo, thesupermarkets themselves will have to send more organic products. A recent survey of financialDirectors of the University of Tilburg that issues such as sustainability and corporate socialresponsibility significantly decreased in priority Seren, companies and organizations such trendsand uncertainties far better handling and robust strategies for the future formulate future underdifferent circumstances bring success. Scenario planning is currently entered in supply chainmanagement, so it can be derived from several recent well- shins and ongoing research projects.
  • 37. Supply chain analysis 30Ernst & Young recently released the report "Transport & Logistics 2015" , while Capgeminilook beyond one year in the report The Future Supply Chain 2016 ". The MIT Center forTransportation Logistics & Yacht in Boston and have each chose to year 2020 with theirrespective projects Logistics 2020 and "Supply Chain 2020". Ernst & Young outlines threepossible future scenarios for The Dutch Transport & Logistics. After determining therelationships between the trends from a cross-impact matrix and the weighting of the trends withan impact uncertainty score, we used a simplified field called anomaly relaxation method tocreate the scenarios to come. In the most positive scenario, the position of Rotterdam and Shiphollow progressed in the other two which deteriorated. In The worst case congestion increased.Ernst & Young find the New Golden Eeuw scenario (positive) a desired scenario for the year2015 because it economic activity in general and that of transport and logistics are particularlyencouraged. Road freight, port must somehow still cleaner and more efficient and (sustainable)earnings of the sector should be better communicated to politicians and public. Ernst & Youngreview the scenarios currently in the business. The first comments it seems that most companiesbelieve in the doormod- deren scenario. The report "The Future Supply Chain 2016" of theGlobal Commerce Initiative and Capgemini shows developments which have a major impact onthe supply chain, such as scarce becoming energy, limitations on CO 2 emissions and aconsumer ment that demands more for the same or fewer resources. The narrow, regional linksbetween producers, suppliers and consumers Euregio Maas-Rhine forms the north-a "logisticsfocal Trading fruit and vegetables. The fruit and vegetable sector is still dominated by thecompetition rentiefactor and price pressure from retailers on the margins of producers andtrading. Faced with these factors for both entrepreneurs sides of the border of the Euroregion areincreasingly looking for solutions to their costs simultaneously to minimize safety and quality
  • 38. Supply chain analysis 31standards to raise themselves positive positioning in the market. Through this tough competitionlast veranderingspro- processes as a business specialization, optimization and scaling on. Forthese reasons logistics concepts are in the trade of fresh produce from central to optimizingprocesses. Companies in the (global) compete to survive, their goods will have to optimize flowsand information flows in such a way that all, caused by borders, obstacles can be taken. Morerelationships are more common while institutionalized. With this technology benefits, but alsorequires a high degree of trust between trading partners, and that is not taken for granted. Theproject "Cross-border integrated quality management systems in the fruit and vegetables "said inthis context for all the companies a flat- available form, in which technical solutions in a publiclyavailable framework developed, tested and could be implemented. Based on existing traderelations in 2003 formed a consortium consisting of the main fruit and vegetable traders in theEuregio Rhine-Meuse north and public and private advisory. Scientific guidance andcoordination of the project was in the hands the universities of Wageningen (NL) and Bonn (D).Under the authority of the pro- project manager GIQS eV, a research and development projectinitiated. The aim of this project was the cross-border harmonization of quality programs andimprove supply chain quality management in production and marketing fruit and vegetables inthe. This is the optimization of information exchange between the program managers on the onehand and within existing trade and on the other side. During the application period, but alsothroughout the duration of the project concentration processes in companies continued, asexpected. This was eventually the number of partners within the consortium. It is precisely theseprocesses that show how you trade in fruit and vegetables are able to adapt, were clearlyinfluenced the final content of the project, with some accelerating, but partly retarding effects.Such developments within the project not only the characterization equalization of the market are
  • 39. Supply chain analysis 32written. As in The project partners were brought together to represent the entire, were allinteractions of an integrated chain. This meant coordination and settlement is not always easy,but the project results show that precisely the completeness of the chain a significant contributionto the transferable reliability of the results to the entire industry. The total project encompassesseveral aspects that result in this report be and the potential for optimization for different users indifferent links in the chain offer. Current problems in the project recognized and analyzed are inthe course of the project duration of 40 months to the now widely available lit- re solution. Thedemonstrated practical and use-oriented tools to improve the quality should contribute to thechain partners within the Eugenio Rhine-mamas-north adopt them, sustainable use and furtherdevelopment throats, and thus itself a long-term competitive advantage. Fruits and vegetables arehighly perishable and delicate; fresh produce significant demands on knowledge, technology andlogistics in a company and the entire chain. Because of production cycles and weather conditionsand the productivity of vegetables Vegetables vary, and goods and quality products cannot bepredicted, especially because of the large number of very different products all have theirspecific requirements and risks. For several years the development of industry is increasinglyconfronted with an increasing awareness of health consumers thus directly affects the buyingbehavior of these consumers and also on the purchasing behavior of small and large stores suchas super- market concerns. Chains are therefore increasingly forced to trade in fresh fruit andvegetable information on the quality and safety of the products too far- object, or at leastavailable at the moment that a customer request. A major challenge for the fruit and vegetablesector, are in this context the implementation of the EU regulation 178/2002 VO. Due to theincreasing demands of consumers, now require all super- certification of companies market theirfruit and vegetable suppliers to ensure that the consumer demands are met. In 2003, all vegetable
  • 40. Supply chain analysis 33and ALDI fruit producers called the International Food Standards (IFS) to use. In early 2004followed Metro AG, and since September 2004 should also suppliers of the EDEKA group thesestandards. On the Dutch side was a similar trend place, particularly where Europe GAPcertification was a requirement of the customers. That this have put forth demands are shown bythe additional introduction of a Food Standard exclusively for the logistics industry in thesummer of 2006. Due to the fact that the Most are fruit and vegetable growers at level healthrisks arising are standards for this circuit introduced before 2003.UK The four major super markets which include the much famous Tesco, Asda, Sainsburyand Morrison dominate the UK food retailing Industry. The sales from these units comprise oftwo third of UK retail foods. Product rationalization has been accompanied by retailconcentration in the recent years. It is driven by the implementation of the category managementpost ECR. In those categories supplier rationalization is dominated by private labels such asmeat, dairy products freshly produced. The transaction cost has been recognized by UK supermarkets. They believe that it can reduced by having fewer suppliers. Dealing with fewer,sophisticated and large suppliers helps in reducing the risk that is associated with food safety andquality. On the other hand it is a fact that few supermarkets have the controlled access toconsumer means and thus they influence the buying power of the consumer. It is because For themanufacturers, suppliers and the entrepreneur the distribution from these outlets is veryimportant. It is important for the supplier because no other mean of distribution can offer similarbenefits and perk to the supplier.
  • 41. Supply chain analysis 34 In Nov 99 a retailer made an attempt to pass the cost of an in store promotion to thefarmers and this act highlighted the excessive retailer power. £20,000 donation was asked fromthe suppliers and the growers who had direct supply contract for the promotion and thatguaranteed the availability of its key product. Bills excess of several hundred thousand poundswas filled by few suppliers. NFU criticized the retailers in questions and said that the entiresupply chain demand can’t be met the producer and it should not be expected by him too and italso said the industry was going through a lot of hardship so the producer should be expected tomeet the demand. NFU was assured by the retailers that supplier funds were taken on theirconsent. According to NFU the smaller growers would come under a lot of pressure to contributein this current competitive environment and might even fear commercial reprisals. When thiswas reported to the commission of competition, they started to study the market practices whichincluded the supplier and the supermarket relations. A suggestion was made by the commissionof competition that a defined code of conduct should be introduced in the market to keep a checkand balance in the industry. This initiative would foster the relationship of supplier and retailer inthe UK. It was found by the commission that the renowned retailers were carrying out fewpractices which directly affected the supplier competency. These practices included asking theselected supplier for discounts and imposing charges and changing the original contracts withoutthe consent of the supplier. According to the commission such practices were influencing themarketing practices and affecting the competition as well. Hence suppliers would be reluctant toinvest in the market and will not be encouraged to launch new brands which will ultimatelyaffect the quality of the products and consumer choice as well. Another fact emerged from the
  • 42. Supply chain analysis 35study that few of these practices benefitted the major supermarket buyers as compared to smallerretailers. In March 2002, a code of practice was introduced in the market and it was imposed onthe four food retailer giants called tesco, sainburry, asda and safeaway. Three key elements werethe part of this code of conduct which included that they giants should study the market andrespond as soon as possible to satisfy the customer, all the supply chain participant of all thesectors would gain benefit if they would work together and will go for product innovation. Thelast statement said that all the partners involved in trading must treat each other fairly andreasonably.Thailand The role of supermarkets on international markets is rapidly expanding, as suppliers ofgoods and services to consumers and the building local and international economies. The extentto which they do this is highly refuted as supermarkets have an array of effects on markets andeconomies. Whilst they provide jobs and services to the region, they can also drive pre-existingmarkets out of business if they fail to compete or meet supermarket standards. Supermarketchains influence traditional chains of distribution and production through homogenisation ofservices and products. In the examination of international food chains, it is clearly evident the extent to whichsupermarkets can control markets. Dominate international supermarket chains include the UnitedKingdoms, Tesco, the United States, Wal-Mart, and French-based, Carrefour. Wal-mart is thelargest company in the US with 496, 857 full-time employees and annual sales of $66, 465, 100000 (as of 2/04) and is also the worlds largest retailer. According to Wikipedia , Carrefour "is
  • 43. Supply chain analysis 36the second largest retail group in the world in terms of revenue and sales figures after Wal-Mart".Tesco, according to one newspaper article , "Is the second-largest retailer in Europe and the thirdin the world. It has 2,365 stores around the world and its annual turnover is more than US$68billion per year." Clearly these three supermarket retailers have a significant role in theirrespective countries economies and markets. This dominance also extends internationally. Growth of supermarkets is occurring rapidly over the globe, which is affecting theproduction and distribution of foodstuffs in numerous ways. The table below clearly outlines themajor global supermarkets across the globe. Carrefour, Ahold and Metro have the greatestinternational dominance, yet sales still dont reach the height of Wal-mart. Therefore, it is boththe economic power and global power of supermarkets which affect their ability to restructureglobal food production and distribution. Supermarkets have not had a particularly significant effect on international trade. This isdue to numerous factors, such as consumers favouring local goods and regional tastes orpreferences. This is especially evident in Australia, with the figures below. The import of processed foodstuffs significantly lower than raw foodstuff as can be seenin Graph 2. It is evident that imports are much lower than exports as Australian demand tends tofavour Australian grown and made foodstuffs. Supermarkets also are more inclined to sell locallyproduced goods as transportation costs are then minimised and stores can avoid typicalprotection barriers, such as tariffs on imported goods. Most trans-national companies of manufactured goods, such as Nestlé and Kelloggs,have supermarket plants located worldwide, thus are influencing the patterns of production.Plants are located near markets in order to supply goods quickly and cost effectively to the
  • 44. Supply chain analysis 37consumers. Thus international goods are being produced locally. According to Regmi, A. et. al.processed goods account for $3.2 trillion, effectively ¾ of all food sales, but only 6% are tradedgoods. Such companies contribute to local economies through jobs and the sourcing of resourceslocally. However, this can be attributed to the distribution of supermarkets, as these internationalgoods typically supply to supermarkets. Therefore, the supermarkets and international foodcompanies are synergistically related in regards to the distribution and sale of internationalgoods. Supermarkets tend to have a greater role in the production and distribution of processedgoods, as opposed to fresh groceries , especially in the new markets in developing countries. Saleof processed goods is proportionally higher than the saw of raw goods. For example in Brazil,the share of supermarkets is 75% in the retail of foods, however the share of sale of rawgroceries accounts for only 25% in Sao Paulo . This is largely due to consumer preferencesfavouring traditional street markets and vendors. These smaller retailers are also often able to sellat lower prices as they typically have lower expenses in regards to wages, rent and taxes .Therefore, consumers have a greater role in the determination of the success of supermarkets andfood distribution. Agricultural produce is more widely traded than processed goods. Supermarkets aim toprovide fresh, high quality produce throughout all seasons. Therefore international trade is higherfor fresh produce. Whilst supermarkets do tend to favour locally produced goods, if the itemcannot be supplied at a constant high quality and quantity, supermarkets will source the goodsfrom elsewhere. Also, trade protection levels tend not to be as high on raw commodities asprocessed goods, for example Canada, the European Union, Japan and the United States have notariff on the importation of cocoa beans, however chocolate products command tariffs between
  • 45. Supply chain analysis 3815-57% accordingly. It is more common for supermarkets to source fresh produce internationallywhen necessary. Supermarkets can influence the distribution of goods, through the provision ofraw groceries, when local farmers are unable to provide according to demand. Thus, influencingdemand and supply, and reducing the role of traditional local markets. In determining the distribution of supermarkets, the brand name and reputation ofsupermarkets are important to the success of the company. Consequently, all aspects ofproduction must reach the same standards of quality and uniformity across all stores. Thedemand on producers to supply such products has increased rapidly. An article from the NewYork Times discusses the escalating demand on small farmers. These farmers "lacked theexpertise, as well as the money to invest in the modern greenhouses, drip irrigation and pestcontrol that would have helped them meet supermarket specifications." Therefore it isincreasingly difficult for small farmers from developing nations to enter these markets as theycannot produce to the same standards as those with greater economic resources. These small farmers are also loosing control as decisions will be left to supermarkets onhow and what produce is grown. This dramatically alters the traditional production methods offarmers. Often supermarkets have standards on produce to be grown in environmentallysustainable ways, which can be costly so small, ill-equipped traditional farmers. Also, paymentmethods change with supermarkets as goods are paid for through a set contract, as opposed tocash on delivery, therefore some farmers are left waiting up to 60 days before being paid. Manysmall farming enterprises have formed coalitions to exchange with supermarkets in an effort tomaintain supermarket demands . However, if local farmers cannot compete or achieve qualityand quantity standards set by supermarkets, they are severely damaged economically. This also
  • 46. Supply chain analysis 39leads to the importation of goods if local farmers cannot provide according to demand. Methodsof production have changed due to the influence of supermarkets. The growth of supermarkets in developing countries has risen rapidly over the recentdecade. Coinciding with the growth of supermarkets is the decline in traditional markets. Smallfarmers producing goods of edible quality, but not supermarket quality, are further loosing out tosupermarkets through loss of potential markets and current markets. The popularity ofsupermarkets has grown most significantly in developing and lower income countries, as can beseen in the two diagrams below: Sources: T. Reardon and J.A. Berdegué, "The Rapid Rise of Supermarkets in LatinAmerica: Challenges and Opportunities for Development," Development Policy Review, Vol.20, No. 4, September 2002, pp. 317-334. D. Hu, T. Reardon, S. Rozelle, P. Timmer and H.Wang, "The Emergence of Supermarkets with Chinese Characteristics: Challenges andOpportunities for Chinas Agricultural Development," Development Policy Review, Vol. 22, No.5, September 2004, pp. 557-586 It is clear from these two tables that the highest growth of supermarkets is in lowerincome countries, such as Latin America and Asia. According to the IFPRI, "In Brazil...supermarkets share of food sales went from 30% in 1990, to 75% in 2000" and "between 1999and 2001 supermarkets share of retail food sales rose from 35 to 43% in Thailand" . It is clearthat developing countries are seeing a rise in supermarket dominance according to demand fromthese regions. This demand for supermarkets in this region affects the production anddistribution of foodstuffs. These multi-national supermarket chains have the greatest influence on world agriculturaltrade, as these companies typically determine where goods come from and their distribution.
  • 47. Supply chain analysis 40Popularity of supermarkets can be attributed to their ability to produce high quality goods atlower costs. This is due to the ability of these companies to use their buying power to force downprices and impose difficult quality and safety standards on local producers. Whilst this doesbenefit the consumer as they have greater market choice more affordably, this can severelydisadvantage existing markets by undercutting prices to such an extent they can no longercompete. Consumer rights can then be threatened by the undermining of traditional foodmarkets, limiting them to supermarkets. However, it is the consumer that determines thedistribution of supermarkets according to demand; therefore the consumer plays a superior rolein the determination of production and distribution of foodstuffs. Due to the economic power of international supermarkets, they can influence nationalgovernments in order to influence patterns of production. Supermarkets have large control overpoorer countries economically, as often these global corporations net profits exceed the totalrevenue of developing countries. This leads to corporations having increasing control overgovernments. According to 1 World Communication , "In 1998, total government revenues inBangladesh amounted to $3.872 billion... Wal-Marts sales in 1998 amounted to $137.6 billion",whilst this figure is only a crude analogy, it highlights the differences in monetary powerbetween countries and corporations. In this example, the economic gain Bangladesh is in aposition to receive due to cooperating with such companies is seen as a driving force inrestricting labour laws. By insuring wages are kept low in these countries, foreign investmentgrows due to cheap resources. This however leads to the exploitation of labour markets in theproduction of food for supermarkets and the changes in production methods. Supermarkets are also able to exploit farmers, as competition to supply for supermarketsis stiff, thus affecting traditional methods of production. As the raw cost of goods does not
  • 48. Supply chain analysis 41increase as quickly as the retail cost of goods many farmers do tend to loose out to these multi-billion dollar supermarkets. According to a parliamentary report from Australia , with theexample of frozen peas, "In 2000 farmers were receiving 40 cents a kilogram for their frozenpeas and in 2003, three years later, they were receiving the same 40c a kilo... although their costsof production had gone up significantly over those three years. The retailers though, were getting$2.60 in 2000 and their price went up to $3.10 for the same kilo in 2003." It is evident from thisexample that supermarkets have greater market control over producers, therefore significantlyaffecting production and prices. The growth of international supermarket chains are effecting theproduction and sale of goods theough the imense economic power they command. These international supermarket chains influence what produce is grown and bought in acountry. According to Corporate Watch the influence on Asia markets is changing traditionaldynamics. Previously Asian farmers sold directly to customers at the markets, whereas now, newprocedures and restrictions are being introduced in order for farmers to sell in thesesupermarkets. Traditionally farms were small individual enterprises, whereas now they are beingforced into acting as conglomerates in order to negotiate more effectively with supermarkets.These corporations also influence what is grown, as farmers will change their crop in order tomake money according to what is in demand. Therefore, supermarket corporations affecteconomies and agriculture on a local scale, internationally. Consumers, however, are embracing the choice, quality and variety offered bysupermarkets. The following table shows the percentage of retail food sales throughsupermarkets, with most continents over 50% (Asia and Africa have lower sales as supermarketsare less concentrated in these regions). There are typically a greater number of stores wheresupermarket sales are higher. Such as in Europe, there are over 100, 000 stores and 80% of
  • 49. Supply chain analysis 42foodstuffs purchased in them, compared to Southern Africa with just over 3, 000 stores, and only20% of foodstuffs are purchased from these stores. Therefore, the distribution of foodstuffs isdetermined by consumer tastes and demand and dictate to supermarket companies the locationsof stores. The growth in international supermarkets has resulted in greater choice and quality forconsumers. It has also led to greater economic investment in areas through retail and productionof foodstuffs. Whilst some farmers are forced out of the food production market, others arebenefiting extensively through greater market access and a constant demand for goods. Whilstfarmers can loose some power in decision making by working with supermarkets, their economicpositions are improved through these connections. The production of goods is determined bylocation and availability of goods. Therefore regardless of a stores location, local producersbenefit from supermarkets providing they can supply to specified supermarket standards andquality levels. Whilst not all people benefit from the breakdown of traditional markets tosupermarket chains, supermarkets typically bring foreign investment into the area and providenew opportunities to communities. Therefore, whilst the role supermarkets play in the world canbe seen as imperialism, through their dominance and impact on production, it is the consumershowever, that determine what is sold and where stores are located. Supermarkets empowerconsumers and provide new opportunities, especially in developing nations. All the ten people interviewed suggested that their names should be kept confidential.Hence only the respondents names have been kept confidential and their responses have alsobeen presented in the researchers own words. The questions along with the answers have beenpresented below:
  • 50. Supply chain analysis 43Q. Please briefly describe the services provided by your company? According to most of the respondents, the services which were provided by theircompany included supply chain and logisticsQ. Do u believe that supply chain is one of you are company core competency? How? The respondents believed that yes the supply chain is one of their core competencies as itensured customer satisfaction. Being only in the logistics business the respondents answered thatthere company uses the critical path method when distributing their products into the market.And many of them also answered that their company follows the cost saving and time savingmethod. Some of the respondents also said that they have their own store in the major areas ofthe city.Q. Are you aware of your competitors supply chain activities and what is your organizationdoing in this regard? The respondents said that they were aware of the competitor’s activities of supply chainand they were changing their strategies to sustain in the market for a long term. They areplanning to open up new stores in the near future to become the biggest retail industry giant.Q. In your opinion how company can improve its supply chain process? A company can improve its supply chain process only through coordination with thesuppliers and with effective management. If the management of any business is done properlythen it can compete with anyone in the market.
  • 51. Supply chain analysis 44Q. Do you consult before the changes in any of the activities of supply chain and logisticsactivities? The people who are experienced in the field are consulted before any change in processtakes place. Before making any change, feasibility report is presented to the board and only whenthey approve of it the strategy is implemented.Q. What are the performance drivers and desired outcomes of your company on a day to daybasis? The basic aim of the company is to become the largest retail industry giant and in order toachieve this goal the company employees and the management is working day and night to makethat dream come true. The only thing that gets the management going is the efficiency of theemployee without which the company is nothing.Q. How much time does it take for a product or service to be delivered or distributed from pointof production to point of consumption? It takes maximum 48 hours for a product to reach to the point of consumption in case offast moving consumer goods and in case of durable goods the time can extend up to 1 week.Q. By what ways do you gather the need of timely distribution? Through effective coordination with the supplier, the objective of timely distribution isachieved.Q. What strategies will u implement in the supply chain process in the near future?
  • 52. Supply chain analysis 45 In the near future, the process of supply chain will be done with the help of moreinnovative software’s which will reduce the time factor and increase the efficiency factorpositively.Q. Are you a regular visitor to the Tesco store? If so how many days in a week do you go forshopping. Most of the customer said that they were the regular customer of Tesco. They said thatthey were satisfied with the Tesco facilities and usually they visited Tesco supermarket morethan two times for grocery purpose. Few of the respondents said that they visited once in twoweeks. The overall response of the respondents was that they were satisfied with the services andusually opted for Tesco when they wanted to buy grocery.Q. Are you able to find all the products and items required by you at all the times in the store? The regular customers of the supermarket said that they found all their required goodsfrom Tesco whenever they visited. Only few said that once in a while they found goods missingwhich is acceptable due to uncertainties.Q. Are you satisfied with the overall service provided in the store? The regular customers of the supermarket were of the opinion that Tesco services areexcellent and they were satisfied with the services. According to the majority of the respondents,they found all the required goods under one roof which actually helped them in saving their time.Q. Any further comment
  • 53. Supply chain analysis 46 According to customers, the services of Tesco are excellent. They said that they werecontent with the services. For the customers, Tesco is name of quality and excellence. They saidthat Tesco provided them opportunity to get all the basic items under one roof.
  • 54. Supply chain analysis 47 Chapter 5: Conclusion Overall, Tescos operations strategy is its long-term goal. It is important for Tesco to havean operational strategy because it establishes the types of goods and services the company willoffer its target market, and how Tesco are going to get advantages over its competitors. Tescomade good planning and control in its capacity, supply chain and quality. Besides, in order tomake improvements in operation, Tesco measures quality, speed, dependability, flexibility andcost. Although they have made some improvements, there are still some disadvantages in itsoperation.Critical appraisal and RecommendationAdvantages • Tesco is in a rapidly changing dynamics of the retail industry, there are two order-winning factors that made Tesco win over other supermarkets in U.K.: cost and flexibility. • For an operation such as Tesco, firstly, the cost objective can be seen as the mostimportant objective, because all of the other performance objectives affect cost. According toTesco PLC Profile (2004), around 60% of Tescos costs are the cost of buying materials andservices, around 15% are staff costs and 30% are technology and facilities costs. Therefore,Tescos costs are dominated by the cost of buying its supplies. Tesco makes use of informationtechnology running an effective supply chain to reduce cost. • Secondly, flexibility is Tesco aims to be better than its competitors at this area.That means Tesco could offer their customers a wide range of goods, Tesco has an own teamwho works on creating new products and they do market research, decide the most appropriateform of packaging for a product, and test the new product.
  • 55. Supply chain analysis 48 • Fully employed new technologies are also the advantages of Tesco, which hasrevolutionized Tescos operations management. For example, "Computer controls ordering formthe suppliers to distribution and store design. CAD (computer aided design) is used to plan boththe stores and how they fit in to their environment and also inside the store, so no space is wastedand products are all placed in the right position"(Infoconomy Ltd, 2005). This makes thecustomers shopping experience easier and less stressful as all of one type of product in the sameplace.Disadvantages Although Tesco has two factors superior to other competitors, the rest of performanceobjectives still need to be improved. The quality inside the operation is important. If someonemakes a mistake within the operation, time and money must be spent correcting this makes. Forinstance, a customer went to Tesco, there was special offer for the plums, the original prices was77p, that day was 36p, so the customer bought them and check out, but the receipt showed theplums is 98p, so the staff made the mistake and they put plums in the wrong place where sold theoranges. These kinds of mistakes people found a lot in Tesco, which can lead to irritatedcustomers and lower revenue for the operation. Speed is also important inside the operation. According to the customers, in Tesco metro,some products are often sold out but it is not as quickly as possible to deliver the materials, somade customer disappointed about the service and go to other supermarkets. Tescosdependability objective is not satisfactory, in Tesco metro, it is not open 24 hours a day andcustomers often can not buy the expected food in the evening.
  • 56. Supply chain analysis 49 There is some drawbacks of capacity planning and control, for example, "they keepoutput on one level, which means that the same number of staff would operate all the time, sothat they produce the same output period" (Krajewski & Ritzman,2002). For instance, manypeople are shopping in the store on Friday and weekend, customers are waiting in the long queueand 6 staff serving them, however, Sometimes there are few people in the store, it still have thesame number of staff, it would be a waste of resource and influence efficiency of service.Recommendation Tesco has a wide of operation and wants everyone to buy their products. Tescos aim is toget full time loyalty from their customers and to carry on increasing the value of their goods.Therefore, they should perceived and applied the five performance objectives properly, not onlypay more attention to cost and speed, but also quality, speed and dependability. To increase thevalues and improve service, Tesco should improve and train staffs at all levels. This helps themrun operations more efficiently as all staff is fully trained and therefore they will do their best todo their jobs. Tesco should utilize capacity planning and control appropriately, when the operationsmanagers are going to make their inventory decisions, there are three factors they mustconsiderate: 1) how much they order 2) when to order 3) how they are going to control thesystem (Slack, 2001). The most common model used to figure out when the stock needsreplenishment, are the Economic Order Quantity Model (EOQ): "EOQ= (2CoD/Ch) ^1/2, Co=ordering costs, D=units per year, Ch=holding costs" (Slack, 2001)
  • 57. Supply chain analysis 50 Technology is also another important aspect, as we know technology is developing dayby day, so keeping up to date and using new and efficient technology helps Tesco act moreefficient on its operation.
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  • 65. Supply chain analysis 58 APPENDICES Proposed Questionnaire for Suppliers, Employees and Customers (interview) An Exploratory study corporate comparison of Supply Chain Analysis for Tescosupermarket in U.K. and Thailand and ways to improve on it so that Tesco occupies top positionin retail sector A research is being conducted out as a requirement for the degree of “Masters inBusiness Administration” at Birmingham City University. Your responses on the followingquestions will help the researcher to compare and improve the supply chain for TESCOsupermarket. Name: Company Name: Designation: Department: Contact Email Address: Date: Q1. Do you want the researcher to disclose your name in his research? No YES Q2. Please briefly describe the services provided by your company? Q3. Do u believe that supply chain is one of you are company core competency? How? Q4. Are you aware of your competitors supply chain activities and what is your organisation doing in this regard? Q5. In your opinion how company can improve its supply chain process?
  • 66. Supply chain analysis 59 Q6. Do you consult before the changes in any of the activities of supply chain and logistics activities? Q7. What are the performance drivers and desired outcomes of ur company on a day to day basis? Q8. How much time does it take for a product or service to be delivered or distributed from point of production to point of consumption? Q9. By what ways do you gather the need of timely distribution? Q10. What strategies will u implement in the supply chain process in the near future? Q11. Any further comments? Thank you for your time and comments. ( THIS QUESTIONNAIRE WAS GIVEN TO RECEPTION OF THE COMPANY ANDTHEN THE ANSWERS OF THE RESPONDENTS WERE ANALYZED INDIVIDUALLY.THE MOST REPEATED ANWERS WERE THEN FORMULATED AND PRESENTED INTHE REPORT.)
  • 67. Supply chain analysis 60