Tesco Logistics Strategy

TESCO CASE STUDY

Integrated Logistics - GM0506

HT2016

GROUP 11

Table of Contents

Introduction        

Structure and Purpose        

Background        

LOGISTICS AT TESCO        

An ANT Analysis        

Key Logistics Processes at Tesco        

Marketing Strategy and Logistics Processes        

Sustainability and CSR at Tesco        

Supplier Involvement        

Sustainability: A recent study of Tesco’s status (2000-2015)        

Tesco Business Model and Image        

Recommendations and Conclusion        

Using Social Media to Push Trends        

Relationship Improvements with Suppliers        

Estimation of Tesco’s Future Business Performance        

References        

Introduction

Tesco PLC is a multinational retailer of grocery and general merchandise headquartered in Hertfordshire, England. It provides a high product availability in large hypermarkets and smaller convenience stores while at the same reaching out to a huge customer base through e-commerce (Tesco, 2015a). Tesco have stores in 12 countries across Asia and Europe with the largest market share in the UK, with an estimated share of around 28.4 % (Tesco, 2015c). Tesco is one of the largest retailers in the world that are now facing some challenges with their financial performance, which has been constantly weakened by a series of events that started from the first half of 2013 (Nakamura & Suzuki, 2015).

Tesco increased its market turnover exponentially from 1997 (£13.89bn), and reached its highest peak in 2012 (£63.81bn). Tesco not only survived the global economic recession from 2008 to 2010, but also assured its position in the market. However, bad timing when entering the US market and problems in Japan and China have resulted in a downturn for Tesco since 2014 and onwards. This has taken a great toll on Tesco’s financial strength with a 16% decrease in total (Tesco, 2015d; Tesco, 1997e).  

Structure and Purpose

This report will provide a deeper presentation of the current logistical processes at Tesco and how they are connected to marketing, Corporate Social Responsibility (CSR) and the overall business strategy. Furthermore, it will provide an overview of the current challenges that the organization is facing as well as some suggestions on how to cope with them.  

The purpose of this report is to:

·         Describe the key logistical processes and challenges at Tesco

·         Analyse the connection between the logistic, marketing and CSR strategies

·         Describe the relationship between the overall business strategy and the logistics      processes through theories and models provided in the course

·         Provide suggestions on how to cope with common challenges  

The report is initiated by providing a brief background of Tesco PLC and its main logistic processes and challenges. Part two is initiated by CSR and marketing strategies of the organization in relation to logistics. Further, an analysis of the overall business strategy will be conducted and compared with logistics theory and models. Finally, the report will provide a section with improvement recommendations for coping with the challenges mentioned in the report.

Background

With around 7,000 stores in 12 countries, British Tesco stands as one of the largest food retailers in the world. Its success is due to high growth rates in the 1980’s and 1990’s, which saw a significant rise in the number of stores in the United Kingdom, which still to this day makes up most of the annual profits of the company. A shift in the logistics policies of the company reformed the structure of the processes Tesco relies on. These processes now revolve around twenty-six depot units. Each of these takes then care of a number of stores, relying on storage areas at different temperatures (Tesco, 2015a).

Today, Tesco bases its operations on further distribution centres such as Fresh distribution centres, grocery distribution centres, and global merchandise distribution centres, according to the type of goods stored (Tesco, 2016). A new system for categorizing the stores was also created, sorting the four types of Tesco supermarkets by location, size and range of products. At the same time, new trials concerning biofuels and alternative fuels were implemented, in correspondence with new sales-tracking electronic paths. Despite the improvements in logistic performance that followed the centralization Tesco underwent, the retail company lost part of its edge over the marginal competitors.

Tesco’s vision has long been to ‘make what matters, better, together’. The message that the company wants to transmit concerns their – more or less proven – wish to contribute positively to all the stakeholders and its environment, other than profitability. In fact, corporate social responsibility is a recurring theme in Tesco’s strategies (Harrison, 2014). It is their dedication to CSR that led, according to them, the developments in the logistic chain that we have witnessed (some of which are described above), including a shift towards digitalization, for example with home delivery upon online orders (Fernie and Sparks 2014). Burt and Sparks (2003) go as far as arguing that the supply management chain at Tesco has historically played a key role in determining the success of the retail giant in the UK market. This paper investigates and analyses the insights of these aspects.

Logistics at Tesco - Overview

Tesco has oriented itself more and more towards a vertical integration, as a result of their corporate will to diminish inventory stocks and storage hours (SOURCE). This is also possible thanks to a certain reliance on technology. The flow of products wasn’t in fact the only one to be subjected to reform in the nineties: a new system of information was implemented, so that information could flow continuously from the sale to the customer, to the purchasing department, to the supplier. Big data is essential to Tesco: every four hours the system elaborates the information gathered and proceeds to transmit it to the in-house buyers. Lower stock maintained and frequent movements from suppliers guarantee a degree of efficiency for Tesco, which relies more and more on environment- and storage-smart options. Technology represents today the basis of Tesco’s logistic processes: two platforms, TescoLink and TescoDirect connect the company smoothly to the supplier side of the operations.