Tesco is the biggest retailer in UK now. Having operations in 14 countries with 2,291 stores spread globally, Tesco employs 296,000 people. Now their focus is on “Creating value for customers, to earn their lifetime loyalty” and strives to “be energetic, be innovative and be the first for the customer”. So the 21st customer has taken a great leap over “pile high, sell it cheap “strategy and demanding nature of the customer has forced Tesco to continuously improve

1. Supply chain management
TL2103
S.D.P.P Dissanayaka
121496B
TL2103
Supply chain of TESCO

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Contents
1. Company Profile
2. Environmental analysis of TESCO
3. Supply Chain & It’s Partners
4. Structure of TESCO’s Supply Chain Drivers
5. SWOT Analysis of TESCO’s Supply Chain
6. Recommendations to improve supply chain
7. How TESCO plans, forecasts and replenishes
8. Recommendations to improve gaps
9. References

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1. Company profile
Background
Tesco was founded by Jack Cohen in 1910.Jack Cohen Introduced his first private labeled
product TESCO tea. TESCO’s first store was started in 1929 and the main theme behind their
operations that time was “Pile it high and sell it cheap”. That was mainly based on economies
of scale of products. In 1947 it was a major event in TESCO’s history. For the first time they
went public. After a year they started their first self-service store.
In 1956 they revolutionized supermarket industry by opening first self-service supermarket.
In a hunger for expansion by the 1960’s Tesco acquired several store chains. Tesco’s “pile it
high, sell it cheap” philosophy changed with the growing customers distraction to it by
1970’s. Tesco’s Goodwill impaired when Imperial Tobacco Company considered acquiring
Tesco as a way to diversify. Then for over a decade Tesco faced a downturn in their business
which forced them to close down some of their stores.
Tesco today...
Tesco is the biggest retailer in UK now. Having operations in 14 countries with 2,291 stores
spread globally, Tesco employs 296,000 people. Now their focus is on “Creating value for
customers, to earn their lifetime loyalty” and strives to “be energetic, be innovative and be
the first for the customer”. So the 21st
customer has taken a great leap over “pile high, sell it
cheap “strategy and demanding nature of the customer has forced Tesco to continuously
improve.

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2. Environmental analysis of TESCO
PESTLE analysis examines the external environment and the global factors that may affect a
business. It can provide information on external pressures facing TESCO, and their possible
constraints on strategy.
Political
The concessions provided by the European Union can be used as a tool to diversify in to
other European countries. However when entering to these European countries, Tesco will
have to consider about the local governments and their regulations. There could be some
regulations to protect local supermarkets so it is important to analyze the political situation of
the country regarding new ventures.
Tesco can gain the support of the UK government as TESCO being a high employment
provider to the country. Wal-Mart in US is enjoying huge tax concessions by being the 3rd
largest employer in the globe.
Economical
The British pound is getting stronger, leading to supermarkets outside UK becoming weaker
to compete with their respective local competitors. This can be negating by supplying from
Wal-Mart through our established connections. Weakening dollar will enable Tesco to be
competitive in those markets.
Rising labor costs is a major concern in this business. To negate this influence TESCO can
source goods from low cost countries like china and India. Automation of services also
helpful to reduce labor costs.
The saturation of UK market is limiting the growth of TESCO, to avoid that they can move in
to emerging markets like India, China and European countries.
Social
The perception of customers and society towards a business plays a huge role in ensuring the
sustainability in the long run. Tesco needs to respect social values and the culture of the
society it operates. Though one business has superb business modal to succeed in relevant
location clear understanding of society is needed.
Wal-Mart has to stop sourcing from Bangladesh garment manufacturers after the catastrophe
of Rana palace. The value of understanding the social factor is that it will enable to penetrate
to the market. Introduction of Beef burger to Indian market by McDonalds became a failure
of the lack of knowledge in Indian society.

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Technological
The emergence of small firms which are operating online has huge impact on TESCO. The
online shopping has distracted to customers from TESCO supermarkets. The authority of
Amazon in retail online market is a classic example of technological influence over TESCO’s
business.
Automation is a trend in the global market in this decade. By automating packaging and
replenishment systems supply chain can be fastened to give an edge over competitors.
The initiative of launching movie-streaming site Blinbox and the Hudl tab can be used by
TESCO to compensate dropping sales of books and films. Big Data analysis also can be used
by TESCO in future.
Legal
Price controls imposed by regulatory bodies can be taken as major factors which have huge
impact on businesses like TESCO. The laws can control the two ends of prices. This will act
as a restriction to charge more and to avoid creating a monopoly through cost leadership.
The tariffs’ and special taxes by local governments on foreign supermarkets also play a huge
role in here. To avoid reputation losses and financial losses businesses will have to abide to
these laws. The safety standards on the working environment and the minimum level of
wages are also significant factors when handling these businesses.
Environmental
The impact on environment is a hugely discussed topic in the supermarket business.
Considering the number of stores of TESCO supermarket chain, the impact on environment is
very huge.
Carbon footprint of businesses has become huge attraction for customers. On the other hand
consumers like to choose the goods which have the minimum co2 output to the environment.
Environmental friendly packing and organic foods are becoming norm with this
environmental awareness. Tesco is withdrawing huge amounts of carbon dioxide in its
logistics. Environmental groups like Green peace can highlight this fact and tempt customers
to boycott TESCO. This can be avoided by taking measures to reduce carbon footprint.

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3. Supply Chain & its Partners
Tesco’s supply chain has evolved significantly in the last half decade. The transformation in
supply chain of Tesco can be categorized in to five main phases . Key issues related to these
phases are the major differentiating factors.
Direct to store delivery (1970s)
Suppliers were organized and had the control. There was no range in retailer or price .The
Tesco had minimum control. Stores were varied with the available supplies no standard.
Company was severely hit by operation checkout.
Centralization (1980s)
Manufacturers and suppliers had to supply their products to distribution centers of Tesco
rather than the stores. Outsourcing of supported functions started. There were wide ranges of
products available while establishing a sense of quality. Regulators put a price control for
retail selling. Tesco’s distribution centers were started catering to product line basis.
Composite (1980s & 1990s)
Tescos’ regional centers were developed to maintain temperatures specified for respective
products and also the vehicles were adjusted to maintain relevant temperature for products
when transporting to secure their quality and to avoid waste.
Frequency of deliveries to stores increased creating additional show space in supermarkets
with reducing need to have stocks in stores. The usage of store space was optimized and
productivity increased. Start of superstore made supply convenient. Quality was improved
significantly while reducing costs and the trend of holding inventory reduced to a minimum
level.
Vertical collaboration and lean supply chains (2000s)
This era was mainly focused on reducing the waste in the supply chain of Tesco by following
lean supply chain practices and concepts. Tesco was successful in making the value stream
simple and efficient while ensuring the transparency behind it. Since the efficient planning
stocks were not tied up longer in distribution centers. The ordering system for replenishments
was based on the customer demand. Tesco started agreements with supplier to support
technology developments and JIT environment. Logistics were considered as a flow and
goods were transported as shelf ready merchandises.

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Managing complexity (2000s)
Supply chain of Tesco became complex and mostly oriented towards a global supply chain.
Stores were developed with different sizes according to their location. Online shopping was
enabled by Tesco for their customers. Balance score card and steering wheel concepts were
introduced to Tesco to measure performances more effectively. RFID technology was starting
to use for fastening supply chain. Sustainability concepts were also introduced to company by
Tesco and using intermodal transport to increase cost advantage were main initiatives.
Supply chain of Tesco
The following diagram shows how supply chain of Tesco works
Even though this diagram shows supply chain of Tesco in a simple way, in realistic measures
it is more complex than this. In last year Tesco distributed more than 3 billion cases of goods
to their stores around the world. Their main target is to maintain flow of goods while
understanding their customers. They do through investigation about their suppliers and their
products. Supply chain division of Tesco coordinates ships, trains,trucks and planes in its
global supply chain .
Uk operations of the holds the majority of business for TESCO. There are 3,300 stores based
on UK supported by 310,000 employees. Tesco considers themselves as multichannel retailer
since they offer wide range of products for customers. Maintaining quality and delivering
new products to customers is their main target.

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Tesco’s supply chain excellence is based on three factors
 Increasing availability for their customers
 Using the scale of the business to reduce waste of food while ensuring quality and
freshness.
 Improving the overall efficiency through building stable business while maintaining
partnerships with their suppliers.
Tesco has four types of teams in their supply chain system in UK
1. The development and blueprint team
This group is mainly focused on ensuring availability while reducing the food waste.
Innovation is their main competitive advantage and they use supply chain analytical
problem solving methods. Last year they saved 100 million British pounds by using
supply chain analytics. They work together with suppliers and other supply chain
teams around the globe to develop and improve Group supply chain.
2. The supplier ordering team
Managing suppliers and buying teams to plan manufacture and supply of products for
Tesco is the main target of this group . They order more than 30 million cases of food
items weekly from their suppliers. Tesco is one of the largest supply chains of UK in
that sense.
3. The store ordering team
Maintaining the right level of stock in each venture is the main purpose of forming
this group. Store managers set their plans based on what customer demand to ensure
the satisfaction of customers here.
4. The security and loss prevention team
This team ensures the working environment of Tesco addresses the safety standards
to have safe environment around Tesco. The so called famous thefts in supermarkets
are their main target to manage.

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4. Structure of TESCO’s Supply Chain
Drivers
Facilities
Tesco maintains very large number of distribution centers in its supply chain. These
distribution centers hold significant influence over the overall productivity of Tesco.
The above graph shows the main distribution centre locations of Tesco in UK. Recently
Tesco opened a new distribution facility in the Khon Kaen province in Thailand. It is the fifth
distribution centre of Tesco lotus in Thailand. On the other hand structure of Tesco stores’
also holds a major part in their supply chain driving factors.
There are mainly six types of stores in Tesco supply chain to serve customers. They are
express, metro , superstore , Extra , Hyper market and online stores.

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The following picture shows most frequent four types of stores operating in UK.
The 70,000+ Hypermarket is a new initiative where Tesco intend to serve large customer
base.

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Tesco metro provide solutions for urban population by having Tesco Metro with 10,000
square feet , while Tesco express serves customers in small spaces partnered with Esso. The
following graph is a comparison of various Tesco stores.
Inventory
Stores place orders once per week and for food items such as vegetables orders are being
placed daily manner. With the initiative of reducing food waste Tesco has passed the
inventory issues to distribution centers. This has enabled stores to use their space more
effectively with minimum inventory inside stores. The linkage has been created by transport
is such that frequent deliveries to stores are being made from distribution centers. RFID
technology has been used to manage inventory handling
Transportation
Transportation is a key area in Tesco where 30 billion product cases being delivered
worldwide annually. They use multimodal transport to ensure that their customers get what
they want at the price, place and time that they desire. Tesco handles all transportation in
house and they use supply chain analytics to plan their transportation effectively. While
transporting goods Tesco ensures that transport mode has the capability of securing the
quality of the product.
The effective planning of Tesco’s transportation has enabled them to cut carbon emission by
14% in their rail transport and shipping. The new rail services started by Tesco are reducing
10,000 CO2 and 40,000 Lorries annually. Those rail services are operating from Daventry to
Livingston and Livingston to Inverness. Both of the rail services are carrying 32 loads each
way while operating for six days per week.

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Information
Tesco uses automated data collection software’s to feed information in to its servers. Tesco
using Big data analytics since 2006, primarily focusing on its inventory management
services. These Big data analytics are helping them to understand sales patterns, customer
demands and to target customers more effectively. Number of sources have been use to create
information base about the customer so the buyer power has been reduced drastically. With
this initiative Tesco has the upper hand when dealing with customers. Tesco has developed a
model to understand link between weather and sales patterns. Using Google maps to
understand customer demand by identifying Vehicles Park in Tesco’s car park is another
initiative done by Tesco.
Sourcing
Tesco is sourcing from 70 countries to ensure the customers buy best quality products. They
manage end-to–end supply chain where they look in to products from their source and till
those products reach to distribution centers. Huge emphasis is given on reducing waste and
minimizes impact on environment by Tesco in all 12 global markets around the world.
There are three teams supporting the role of sourcing inside Tesco.
 Supply planning- Build end-to-end supply chain with suppliers to maintain access,
quality, speed and productivity in fast moving goods such as vegetables, food and
clothes.
 Logistics- Integrating third party logistic providers and distribution centers to deliver
efficient service in all markets.
 Business efficiency- This improves internal procedure so the sourcing will be
fastened and productive.
Pricing
Pricing has been done to attract customers and throughout the year Tesco tries to maintain
stable prices to have smoothness in their supply chain. Global sourcing strategy has enabled
them to give best prices for customers with the support of their economies of scale.

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5. SWOT Analysis of TESCO’s Supply
Chain
Strengths
 Number 1 supermarket chain in UK
 Strong financial power
 Highly valued brand name
 Cost leader in the market
 Third largest retailer in the world after Wal-Mart and Carrefour
 Global presence in 12 countries
 Using new technology and innovation
 Loyalty schemes
Weaknesses
 Global expansion reduces the focus on core business
 Highly depended on UK market (75%)
 Product recalls lead to loss of Goodwill
 High logistic costs.
 Continuous loss makings in last few years
 Lack of experience in smart phones and tablet markets.
 Bad debt from credit cards and household insurance claims
Opportunities
 Online presence- selling and marketing of FMCG
 Opening of new stores in growing markets like China and India
 Strategic partnership with local supermarkets to expand business
 Building strong product portfolio
Threats
 Fierce competition from Wal-Mart and Carrefour
 Tax implications affecting Tesco’s financials
 Customers objection against using Big data
 Innovation of other supermarkets like Asda
 Niche markets are being targeted by Lidl and AIdi
 Rising raw material costs

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6. Recommendations to improve supply
chain
The SWOT analysis can be directly applied for Tesco to make recommendations on their
supply chain.
Use strengths to maximize opportunities
Online presence is a must when considering the customers trend towards online shopping.
Amazon is grabbing the Tesco’s customers hence it is strategically important to have online
business. Even though Tesco currently is a e-grocer they need to sustain the growth and
widened the market share in online selling. Tesco can use their strong financials and brand
name to achieve significant portion of the market. In online business trust considers as
competitive advantage. With Tesco’s strong brand name they can achieve trust of customers.
When expanding it’s operations to Asia Tesco can use their experience in supermarket
business which gained by operating in 12 countries around the globe. Technology and
innovation can attract new customers in to Tesco stores supported by strong brand name.
Use strengths to minimize threats
Tax implications can be negotiated with UK government because Tesco is providing large
number of jobs to UK citizens. With their strong connections they can use a political lobby to
have favorable conditions for their operations.
Niche markets can be targeted by Tesco through having another model of stores with the help
of their strong financials. In order to compete with innovation and technology Tesco can
allocate portion of their revenue for R&D division and system updates. Customer objection
against big data can be resolved through giving assurance for them about not selling it to third
party. Tesco’s loyal customer base will appreciate Tesco’s effort of providing better service
and neglect the use of Big data. sing raw material cost also can be resolved by having
partnerships with low cost destinations like china and Asia using Tesco’s strong brand name.
Use opportunities to minimize weaknesses
Opening stores in China and Asia can minimize Tesco’s dependence on UK market. This will
enable Tesco to reduce their risk of through diversification in to another market. The high
logistics costs involved can also be reduced with partnering up with the local suppliers in
these emerging markets. Cost advantages obtained can be used to reduce material cost then
pass that benefit to customers. This reduction in costs will enable Tesco to handle their recent
financial losses.

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Online presence will help Tesco to increase focus on core businesses by reducing logistics
costs. This will be happened, because online selling disable the need for transferring goods to
stores from distribution centers. So Tesco can focus their resources more on handling core
business.

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7. How TESCO plans, forecasts and
replenishes
In order to make plans, information flow is an essential feature. Following graph shows how
information flows in Tesco.
Information obtained through customers ,suppliers ,distributors and manufacturers all being
collected by Tesco and analyzed using mathematical models like regression analysis. They
also highly engaged in Big data analysis where all information gathered has been fed to
software’s to realize possible and potential patterns and relationships. Information is updating
at real time through customer information obtaining software and planning and forecasting
have been carried out effectively.

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Continuous replenishments are a key in Tesco’s business. They move around 30 million
product cases weekly from their supplier’s o stores.
Without leading to shortage in supply Tesco provides customers with supplies sourced from
70 countries around the globe. Private labeling is a key in their replenishment process.

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RFID technology
Tesco started using RFID technology in 2003. This
gave the ability for Tesco to track products, especially
when shipping, transporting and handling online
operations. This provides unique identification and
security. In same way this brings great controlling
ability for Tesco to manage every aspect of their supply
chain. This is leading to achieve lower costs, speed in
processing and high employee productivity.

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8. Recommendations to improve gaps
In the supply chain of Tesco they lack the access to Asian suppliers. If they can extend their
presence in developed countries in Asia to the countries which are emerging as strong giants
they can lower their costs and expand their market. On the other hand having central logistic
centre in Asia will enable them to achieve economies of scale.
In order to continue Tesco’s dominance in the market while responding to expanding
consumer market, it is essential to increase the number of stores. Measuring the number of
stores opened per quarter will be good measure of growth. This will enable Tesco to compete
with hard discounters and small cost leaders through economies of scale. Furthermore these
new stores can be used to target niche markets which are currently not accessible for Tesco.
Tesco business associates with large moving number of goods. So in order to avoid accidents
and to have safe environment for workers accidents can be measured daily. This will force
workers to follow protective measures and managers to inspect them
By being driven by logistic operations Tesco needs to monitor and evaluate fuel efficiency of
the vehicles. This can save money and also spread the eco friendly business procedures
Customer complaints can be used as an Index for the quality of services offer by Tesco. It is
vital to improve services and secure loyal customers. By enhancing Tesco’s services to
reduce weakness highlighted by customers Tesco can satisfy customers while building
relationships with customers.
The main reason for drop in numbers of customers who are visiting stores is the time waste.
By quickening the payment procedure, customers will be satisfied. On the other hand this will
tempt them to spend more time in the restaurants and gyms build by Tesco attached to
supermarket.
So we can finally conclude that Tesco needs to lower their costs by following the supply
chain strategies highlighted in this report and avoid making further losses. The plus points in
supply chain can be improved further while considering the opportunity for moving to
emerging markets like China and India. This way Tesco will be able to sustain their
operations for long time while providing services to the consumers around the globe.

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9. References
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