“The Evolution of Supply Chain Management in Retail Sector of Tesco and Analytical

Study for the Period of 2005-2011”

Chapter One: Introduction

1.1

Supply chain as a whole can be seen as the flow of water in a river: organizations located

closer to the original source of supply are described as being 'upstream', while those located

closer to the end customer are 'downstream'. The flow of the whole river is being concerned. In

other words, supply chain is a network, which for tangible goods covers purchasing of raw

materials, manufacturing, assembly and distribution of finished goods to the client (Burch, 2007 ,

14). The supply process acts as the bridge between core competencies and markets. The ability to

manage this process along with the strategic core is crucial to market success. There is a need to

contemplate the scope of strategic thinking and action at two sections. The first is the strategic

role of supply chain management, and the second is the benefit achieved from supply chain

management (Basu and Wright, 2007, 11). This research looks to study the evolution of supply

chain management in retail sector of Tesco .

Introduction

1.2

In today’s business world competiveness is the key to success experts and entrepreneur

worldwide looking for solutions that can bring all there major business major functionality under

one roof. The aim has been to drive minimize costs, maximize profits and make the business

environmentally sustainable (Wang, 2010. 6). One approach to achieve these goals and one that

has recently been the focus of the business academic field is the management of the business

through supply chain management.

Research Background

Blanchard (2007) describes a Supply Chain in the following words,

“A supply chain, boiled down to basics, is the sequence of events and processes that take

a product from dirt to dirt.”

In simple words, supply chain management is a holistic management of the business.

Instead of looking at each firm individually, the aim of the management when following the

supply chain management policies is to work for the benefit of all the members of the supply

chain (Basu and Wright, 2007, 11).

During the last few decades, supply chain management has been both fundamental and a

dynamic aim of organizations. By working to coordinate between the areas of manufacture,

consignment, and delivery of the goods required to meet their operational needs, firms using

tools of supply chain have been able to more easily meet the demands of their clients. However

as we enter the 21st century, supply chain management is transforming into what many experts

term as synchronized supply chains.

Through the supply chain policies, a business can make sure that it reduces costs through

the entire supply chain. This means that even the welfare of the customers, who under normal

policies are only concerned to gain the maximum amount of money for a given commodity, is

considered and thus managed . However, a supply chain may be very hard to manage because of

the complexity of operations that it faces .

Operations strategy is defined as "the total pattern of decisions which shape the long term

capabilities of any type of operation and their contribution to overall strategy". Slack et al.

(2004) also states that operations performance objectives relate to the interests of the operation's

stakeholders. Applying to Tesco, customer's satisfaction is particularly important to its business.

Therefore in order to satisfy its customers and contribute to competitiveness, Tesco's operations

performance objectives are mainly reflect on cost, quality, speed, dependability and flexibility

five aspects (Burch, 2007 , 3).

1.3

The research focused on Tesco as it is in the United Kingdom. This means that the

research has basically studied how effective supply chain management is in improving the

businesses in the United Kingdom (especially the retailing ones like Tesco).

Research Context

The point however is that the practices and the application of supply chain management

is not an easy process at all. The concepts and their uses is complex and need a lot of expertise

when it comes to management. However, ones applied, supply chain management can steer a

business towards new dimensions of success and this is precisely what has studied with respect

to Tesco i.e. how well the supply chain management helped Tesco to gain its current position.

1.4

Tesco’s supply chain improvements described indicate that supply chain management has the

potential to improve a firm's competitiveness. Tesco’s supply chain capability is as important to

a company's overall strategy as overall product strategy. Firm’s supply chain management

encourage management of processes across departments.

Problem Statement

1.5

Following are the major questions that are interrogated through the research paper:

Research Question

i) How and why Tesco starts to emphasis on supply chain management?

ii) What are the main concepts and policies of Tesco supply chain management?

iii) How change in supply chain management in Tesco effect the profitability?

iv) What complications, if any can arise because of the incorporation of supply chain

management into the Tesco retail and how Management overcomes those obstacles?

v) Is supply chain management critical to the success of retail business or is a

decentralized approach still recommended?

1.6

The aim and objective of the research would be focused on supply chain process and

methods implemented in current retail industry at Tesco. Also we would be looking at how

supply chain management have effect Tesco by carrying out an analytical study of supply chain.

The aims are:

Research Aims and Objectives

• To discuss role of supply chain management in Tesco & characteristics of its evolution.

• To analyze what practices Tesco management incorporates in supply chain management

to make the operations of an organization cost effective.

• Supply chain management (as told in the background of research) works for the benefit of

all the members of the supply chain. The aim is to study how this is achieved

• To carry on an analytical review of Tesco last five year supply chain to be able to reject

the null hypothesis.

1.7

The purpose of this research is to study the supply chain evolution, supply chain process,

strategy and methods implemented at Tesco.

Purpose of the Study

1.8

This dissertation consists of five chapters including Chapter One, the Introduction, which

deals with background information, as well as giving a brief introduction to supply chain and

Tesco. Chapter Two provides the reader with an overview of the literature review, which first

covers the background and nd second looks at some specific advertising strategies in order to

construct a basis for conducting the research. Chapter Three refers to the methodology used, and

discusses the limitations to the research carried out. Chapter Four presents the findings of the

research together with the discussion of the conclusions reached. Chapter Five, the conclusion,

discusses the possible implications of this research for future studies.

Dissertation Structure

1.9

This chapter provided the background, context and purpose of the reseach. This

Operations Management plays a key role in achieving the main performance objectives of Tesco.

Whether the current operation objective is to improve customer service or to increase

profitability, the way in which Tesco utilises its resources will have a significant impact.

Summary

Chapter Two : Literature Review

Supply Chain Management is the process of supplier to manufacturer to wholesaler to

retailer to consumers. This process will be maintained by materials, information, and finances.

Coordinating and arranging are necessary skills. That are involved in the supply chain

management, the most important goal of the supply chain management is to reduce the

inventory. Assuming that products are available when necessary (Bevan, 2005, 56).

2.1 Introduction

Supply Chain Management plays a key role in achieving the main performance objectives

of Tesco. Whether the current operation objective is to improve customer service or to increase

profitability, the way in which Tesco utilises its resources will have a significant impact. As a

consequence, there have been a number of innovative developments in Supply Chain

Management that have sought to make use of Tesco resources in a significantly new manner in

order to make a big step change in performance (Bevan, 2005, 56) .

2.2 Importance of Effective Supply Chain Strategy

The Institute for Retail Studies's research (2003) reports that retail industry in the UK is

quite competitive, dynamic, and innovative in recent years. And grocery retailers such as Tesco,

Sainsbury's, Asda etc. are all compete on price, quality, range, and service in order to strive for

business success.

Tesco is engaged in retailing and associated activities. Co.'s Core UK segment consists of

four different store formats: Express, Metro, Superstore and Extra, as well as one trial format

called Homeplus. Co.'s Non-Food segment includes merchandise such as including electricals,

home entertainment, clothing, health and beauty, stationery, cookshop and soft furnishings, and

seasonal goods such as barbecues and garden furniture in the summer. Co.'s Retailing Services

segment consists of several operations, including Tesco Personal Finance, Tesco.com and Tesco

Telecoms. Co.'s International segment operates in 13 markets outside the U.K., in Europe, Asia,

including India, and North America (Shah, 2009, 76-80).

Tesco's recipe for growth is to build new stores, diversify into new countries, and to add

new products and services. Indeed, it has moved beyond groceries and far beyond the UK to

become a global retailer of general merchandise, as well as food. The strategy appears to be a

winning one for Tesco, which saw its sales rise from £51.5 billion in fiscal 2008 (ends February)

to £67.6 billion in fiscal 2011. Over that time, Tesco added more than 1,600 stores and saw an

steady increase in profits.

2.3 Tesco's Recipe For Growth

While about two-thirds of the company's sales are generated in the UK, fast-growing

Tesco is expanding faster away from home. In China, one of the world's hottest retail markets,

Tesco operates more than 100 hypermarkets, about a dozen convenience stores, and several

Lifespace shopping malls. The company's strategy is to invest £2 billion ($3.1 billion) to build 80

five-story Lifespace malls, which also house movie theaters and restaurants, and to add about 20

hypermarkets by about 2015. The British retailer is playing catch-up in China to US giant Wal-

Mart and France's Carrefour, which entered China nearly a decade before Tesco in 2004.

Elsewhere in Asia, Tesco is the market leader in Thailand and Malaysia. Seeking to

increase its presence in those two markets-- and in Singapore -- Tesco is one of a pack of more

than 10 bidders for about 60 stores in those countries owned by France's Carrefour. In South

Korea, Tesco recently increased its ownership share in Homeplus, its former retail joint venture

with Samsung, from 89% to 97%. In India the UK-based firm has an exclusive franchise

agreement with the retail arm of Tata Group to develop Star Bazaar hypermarkets there. In a rare

retreat for Tesco, the company is giving up on Japan, its smallest international division, after

eight years in the country. The retailer in 2011 announced it will sell its 129 stores there because

it hasn't been able to build a scalable business. Only about half the stores, which trade under the

Tesco, Tesco Express, and Tsurukame banners, are profitable.

Back at home, Tesco's rapid growth has earned it about a 30% share of the UK grocery

market and an 8.5% slice of the nonfood market. To win the hearts of cash-strapped consumers

and keep them in its stores, Tesco has expanded its own Tesco Value line of discount products

and its Tesco Finest brand -- both of which exceed £1 billion in annual sales. It is also cutting

prices on other items in an effort to keep shoppers from defecting to deep discounters, such as

ALDI and Netto Foodstores. Indeed, Tesco is facing even stronger competition from its chief UK

rival Wal-Mart-owned ASDA, which recently acquired the Netto chain of discount stores in the

UK. To bolster its One Stop convenience store chain in the UK, Tesco acquired more than 75

stores from privately owned Mills Group (boosting its store count to about 600 across England

and Wales) in early 2011.

The British retailer is also struggling in the US where it launched a new convenience

store chain -- loosely fashioned on its Tesco Express format in Europe -- called Fresh & Easy

Neighborhood Market in 2007 -- just prior to the onset of the deep recession. While the chain has

grown to number about 165 shops in Arizona, Nevada, and California, it lost nearly $300 million

through fiscal 2011 (ends February).

Tesco in 2011 acquired an 80% stake in the British video-on-demand (VoD) service

Blinkbox, which competes with Amazon.com's LoveFilm. Tesco entered the VoD market to

position itself for the next phase of Internet-driven home entertainment, even though the retailer

is a huge seller of DVDs. Previously, Tesco bought out its joint venture partner -- Royal Bank of

Scotland -- in Tesco Personal Finance (TPF) for about $1.9 billion in 2008. TPF, which was

formed in 1997, has grown to serve more than 6 million customer accounts and offers insurance,

credit cards, loans, mortgages, and savings products. The purchase is part of Tesco's strategy to

expand into the service sector, which is outpacing food in terms of growth. The timing of its

push into retail banking -- just ahead of the banking crisis in the UK -- was auspicious. Tesco is

enjoying increased demand for its banking services as distrust of traditional banks has grown in

the aftermath of big bank bailouts in the UK during the financial crisis. (Now TPF is seeking to

add checking accounts to its menu of services.) TPF is also getting into the auto and home

insurance markets via a partnership with the UK arm of Fortis Insurance (Shah, 2009, 76-80).

Tesco group has indicated significant progress in last years, which can be found in

figures from balance sheets. Profit and Sales of the Group in UK have doubled comparing with

recent four years to £2.28bn and £39bn. Looking further in to statistics of business there also is

increase in number of stores that had tripled to 2672 and amount of workers boost a 60% to

273.000 people. Another big step for Tesco was to launch non food products in its offer. This

appealed more people to come to big stores or website. It influenced culture of shopping; buying

products became a family event (Humby, Hunt and Phillips, 2007, 8-99).

Group Tesco with its growth decided to move to new business sectors. Now they provide

financial services, advertised under the slogan of simplicity. Tesco become virtual

telecommunication operator thanks to partnership with O2 (Singh, 2008, 47).

[Sparks, 2008]

To gain sustainable growth Tesco needs brand management to change perception of its

customers. Good, fresh and strong image will help to grow Tesco in retails as well as in other

business sectors that company is already present and is going to be present in Future.

To improve image Tesco group will have to:1. Redesigned logo and corp. website2.

Change stores interior3. Special advertising that emphasizes on experience, reliability, constant

innovation, and rightly priced products4. Advantage that brings customer5. Be present at

cultural, sports, charity events and shopping malls6. Increase quality of customer

serviceImproved image allows company to-gain loyalty of customers,-penetrate global market

more efficiently-launch in to new business sectors (with less risk after gaining trust and

recognition of customers)Another issue of Tesco is that Brand is not unified, some countries

have access to e-store or financial, travel services etc. and other nations don’t have access.

Global company should provide the same standard product. There is difference of quality

Tesco’s products in United Kingdom and Poland. To gain sustainable growth Tesco has to

localize in global scale, also increase the net of stores in European countries, as well as launch

other services in order to penetrate them better. In Future internet will be medium that is as

obvious as TV today. Tesco should invest in e-retail now since it brings lots of profit. Costs of e-

store are much lower, than regular store, amount of visitors might be much higher since there is

not distance limitations, customer doesn’t loose time standing in queue, doesn’t have to spend on

gas going to store. It’s very convenient for supply and demand side. Tesco should launch e-stores

first in countries where internet is already widely spread then move to countries where is not so

popular to make people to get used to doing shopping online. The sooner Tesco will be available

online the more customers it will reached in future (Tesco Plc, 2009, 56-101).

According to Slack et al. (2004), Supply Chain Management Strategy is defined as "the total

pattern of decisions which shape the long term capabilities of any type of operation and their

contribution to overall strategy". Slack et al. (2004) also states that Supply Chain performance objectives

relate to the interests of the operation's stakeholders. Applying to Tesco, customer's satisfaction is

particularly important to its business. Therefore in order to satisfy its customers and contribute to

competitiveness, Tesco's Supply Chain performance objectives are mainly reflect on cost, quality, speed,

dependability and flexibility five aspects (Tesco Plc, 2009, 56-101).

With regard to pricing, Tesco every week check over 10,000 prices in Asda, Sainsbury's

and Morrisons stores to guarantee its customers have low prices every day . And it also took

steps to reduce cost in order to ensure that the way they work is better, simpler and cheaper. For

instance, the reason of Tesco has an effective supply chain is because of implementing an

appropriate information technology G.O.L.D. application suite successfully. This software

provides Tesco with complete control over warehouse stack. Moreover, the automatic order

proposals and warehouse optimisation procedures facilitate a fast and flexible business with

minimal logistic costs .Therefore, by doing things cheaply, it will allow Tesco to reduce its price

in order to gain higher volumes or increase their profitability on existing volume levels

externally. And internally, cost performance is helped by good performance in the other

performance objectives (Tesco Plc, 2009, 56-101).

[Simons, 2007, pp 70-81]

As Slack et al. (2004) points out that quality is a particular important objective to all

Supply Chain, as quality is an important aspect of customer satisfaction or dissatisfaction and

quality Supply Chain could both reduce costs and increase dependability. For a grocery retailer,

quality could mean goods are in good condition, the store is clean and tidy, decor is appropriate

and attractive and staffs are courteous, friendly and helpful etc., so according to our research

with Tesco store manager, he stated that Tesco has put more staff into stores and distribution

centers in order to improve its availability and service. Moreover, Tesco also launched Clubcard

that the information provided by it enables Tesco to better understands their customers (Tesco

Plc, 2009, 56-101).

In addition, Tesco delivered new system of hand-held computers for their staff in all of

UK stores, which is to provide key information on the sales floor, simplifying their stock and

order operation for customers. And they also have tested self-service checkouts in order to help

reduce queuing and congestion. All These system has helped to improve speed, quality and

flexibility of their staff response to customers' queries. In general, according to above analysis,

the five Supply Chain performance objectives are interacted with each other, Tesco need to take

account of all of them when they deliver their operation strategies. More importantly, each of

these performance objectives is also influenced by the competitive factors, so according to Slack

et al. (2004), 'order-winning' and 'qualifying' are two factors that could determine the relative

importance of competitive factors. For Tesco, according to our research, cost (low price) and

flexibility (innovative products and services) are two order-winning factors that directly and

significantly contribute to their success business. Quality, dependability and speed are qualifying

factors for Tesco, as all these factors not the major competitive determinants of their winning

business, but they are those aspects of competitiveness where Tesco's operation performance has

to be above the particular level that customer perceived (Tesco Plc, 2009, 56-101).

Operation planning and control are an important part of the organisation. Planning is a

formalisation of what is intended to happen at some time in the future. And control is the process

of coping with changes in these variables (Slack et al., 2004, 101-109,214-269).

2.4 Supply Chain Planning and Control

Capacity planning and control reconciles the required availability for an operation's

products and services with the operation's capacity to deliver them (Slack et al., 2004, 101-

109,214-269). Capacity concerns with the major facilities, machines, manpower, and supplies of

the organisation. These are all the resources which need to be planning and control.

Supply chain management is concerned with managing the flow of materials and

information between the Supply Chain which form the strands of 'chains' of a supply network

(Slack et al., 2004, 101-109,214-269). Supply chain management needs consider and satisfy end

customers.

The current Tesco supply chain network is well documented (IGD, 2003b). The Supply

Chain performance is now much more rigorously monitored, mainly through the 'steeling wheel'

approach widespread throughout Tesco. Any distribution centre steering wheel focuses on

Supply Chain which include safety and efficiency, people which include appointment,

development, commitment and values, finance which include stock results and operating costs,

and the customer which includes accuracy and delivery on time (Fernie and Sparks, 2004, 44).

Also Tesco measure these performance at all levels, quality standards are maintained and

enhanced (Shah, 2009, 76-80).

Developments in depot operation and location have been considerable in recent years as

has the focus on achieving an effective and efficient operation. The components and the

operations of this network have undergone significant change. The inter-linkage amongst these

elements has been transformed by the lean and flow principles. Performance is rigorously

monitored, including through the 'steering wheel' approach widespread throughout Teseo. The

distribution centre steering wheel in 2005 focused on operations (safety and efficiency), people

(appointment, development, commitment and values), finance (stock results, operating costs) and

the customer (accuracy, delivery on time). The effect overall has been to build a supply chain

system that is much admired worldwide (Shah, 2009, 76-80).

Tesco is an extremely successful company and a major part of its success has been due to

its distribution network, Tesco has successfully applied lean distribution and just in time strategy

into their distribution network. Using just in time within their distribution network gives Tesco a

competitive advantage over its competitors by reducing inventory costs and improves

scheduling. It also insures proper protective maintenance and stress quality in all phases of

production from quality by suppliers to quality within Tesco. But it is not enough to only look at

the internal capabilities of Tesco for that reason the value network is useful in understanding

inter-organisational links and relationships. Tesco has an enormous supplier power which gives

them competitive advantage and makes the entire link between the supplier and Tesco an

important strategic capability. Tesco leaves the responsibility at the supplier, so they can focus

on their stores, online shop and the most valuable area, the consumers. The suppliers make Tesco

profitable and give them the kind of differentiation and advantage that makes them the market

leader in the UK (Shah, 2009, 76-80).

Information and communication technologies have come to play a crucial part in the

world of business in recent years. Theorists have proposed that for business Supply Chain,

logistics and supply chain practitioners to be competitive in the industry they need to be efficient

and effective. In order to be efficient and effective it is important to invest in the application of

electronic technology because the application of relevant modern technology will assist logistic

organisations to deliver goods and services of the right product, in the right quantity, in the right

condition, at the right time, at the right place, at the right cost and for the right customer. The

application of relevant technology must be efficiently and effectively managed. Business

revolution in logistics and supply chain has been brought about by the use of electronic

technology. Information and communication technologies have helped businesses in the supply

chain to be integrated so that processes and activities in the supply chain have been able to be

properly coordinated with the assistance of electronic technology. Common electronic

technologies available are barcode systems, electronic points of sale (EPOS) and electronic data

interchange (Pryke, 2009, 34-43).

Another information and communications technologies Tesco use is Electronic Point of

Sales (EPOS). This type of technology in particular has revolutionised the process of paying for

products because it is used for the scanning of goods which takes a note of the product, price and

records the transaction. This system can recognise when a product needs to replenished which

for Tesco is an advantage because it provides them with an instant record of transactions at the

point of sale. Therefore replenishment of products can be coordinated in real time to ensure that

stock-outs are minimised. It also speeds up the process of dealing with customers when a large

number of products are bought. This also relates to Tesco’s club card system which rewards

customers with discounts for continuing to shop with them where they collect points each time

they spend money in the store. This is an extremely useful advantage because the cards with the

customers personal details is linked to their actual purchases therefore allowing Tesco to obtain

much needed marketing information about their customers (Tesco , 2010, 11-19)

The role of large chain supermarkets is rapidly expanding, as suppliers of goods and

services to consumers and the building of local and international economies. The current tariff

laws of the United States make it a lot easier for foreign born grocery chains to operate within

the United States. The extent to which they do this is highly refuted because supermarkets have

an array of effects on markets and economies. However they can provide jobs and services to the

region, but they can also drive pre-existing markets out of business if they fail to compete or

meet supermarket standards. Supermarket chains influence traditional chains of distribution and

production through homogenization of services and products (Pryke, 2009, 34-43).

A store-based picking model provided substantial benefits in terms of speed of

implementation and national coverage. It also used existing resources more fully and allowed the

supply network both to see the activity occurring and to capture this activity in existing processes

of reordering and store delivery. At a local level the key components included ensuring picking

processes were efficient based on store layouts and that home delivery by local vehicles was also

efficient and effective (Humby, 2007, 435-466).

The outcome of this has been the world's largest internet grocery operation, offering in

the United Kingdom effectively national coverage through local stores but tying in to the

national product supply network. In 2007, 294 stores were used for internet picking, with 1,860

local delivery vehicles. This is not to say that this is the only model in the future. In 2007 Teseo

began to pick out of a dedicated (tesco.com only) store in Croydon, London for some internet

supply orders. Demand in this area could not be met from local store picking and so a dedicated

store was developed (not a warehouse pick). It may be that in some areas a dedicated faculty

makes economic sense (Tesco , 2010, 11-19).

Home delivery by internet ordering for food/grocery has subsequently been supplemented

with an extensive internet site offering a huge range of food and non-food products. This site

offers far more products than one carried in 'normal' stores and provides local customers access

to an enhanced range. In 2006, Teseo launched a catalogue (Teseo Direct) aimed at non-food

home shopping, which now runs to over 10,000 product lines, again focusing on providing

products to customers as and when they wish to order them, and as and when they wish to

receive them. Consumers can place orders by phone or online and have them delivered to the

home or available for pick-up at the local store. In-store kiosks are also now being trialled

(Pryke, 2009, 34-43).

TESCO's real strategic store internationalization began in 1994 with entry into Hungary

but soon expanded into other central European countries. First steps were then made into the

Asian market, both as a reaction to the Asian economic crisis of the 1990s, which meant assets

were cheap, but also due to a more positive sense of the scale of the market opportunities in

China and Japan, for example. Over time the countries in which Teseo operates have changed

slightly. Withdrawals from some markets have been made (Palmer, 2004, 5), recognizing the

lack of scope to become the market leader and/or the desire to invest elsewhere . In some cases,

these withdrawals have been made as part of asset-swaps with other leading global retailers, each

recognizing their own strengths in particular markets. During this time Teseo also re-entered

Ireland through a major acquisition, though it is still not represented in continental western

Europe (Humby, 2007, 435-466).

2.5 Internationalization

The strategic approach to store internationalization has seen Teseo develop different

solutions for diverse markets, using distinct formats and tailoring the product and service offer to

the local market. In many countries it operates as a multi-format and even multi-channel retailer

(home shopping is available in Ireland and Korea) and focuses on the core values and brands of

the business. Behind the scenes people, processes and systems have been enhanced and rolled

out initially as 'Teseo in a Box' and more recently as the Teseo Operating Model.

As can be readily understood, the internationalization of Teseo at store level brings

supply chain issues as well. At the same time, Teseo buys products on a global basis and this also

has to be 'fitted in' to the everchanging pattern of supply and demand. With formats and products

varying by country and with time, the need is for a supply system that can be adaptable. In some

cases, eg Ireland and Hungary, the composite model has been effectively exported to these

countries, often with the same logistics service partners. Ln other situations there is an attempt to

rethink the supply system and the technology needed and use this as the platform moving

forward (Pryke, 2009, 34-43).

For example, in 2003/4, based on the UK composite model, Teseo opened the largest

distribution centre in Asia at Mokchon, Korea. It also opened major centres in Poland and the

Czech Republic, extended a centre in Hungary (and added another fresh food distribution centre)

and developed a new composite site in Ireland. As internationalization continues, so the

infrastructure and the processes in the supply chain need to keep pace with or even lead the

developments. The processes are now embedded in the Teseo Operating Model, but new

faculties to meet expansion needs are required (Wang, 2010, 111-132) .

In November 2007, Teseo finally opened its much heralded Fresh and Easy stores in

California and Nevada. Years in the planning, this US entry is intended to achieve 200 stores by

February 2009 and to eventually develop into a major chain. Based on extensive consumer

research with US families and a trial store built secretly, Fresh and Easy stores average about

10,000 sq ft and hold around 3,500 product lines. They focus on providing faster, easier

neighbourhood retailing with an emphasis on fresh food and fresh prepared meals at affordable

prices. Environmental, neighbourhood, employment and organic credentials are stressed. Fifty

stores had opened by the end of February 2008, with expansion into Arizona, although a 'pause'

in development was announced in April 2008 to reflect on the learning from these early

developments.

It is too early to judge the success or otherwise of this US venture, but it has attracted

considerable attention. The store format is different to Teseo stores elsewhere. Whilst the Teseo

name is not used, its operations are based on the Teseo Operating Model, but with reduced

complexity. The in-store processes are simplified, including extensive display-ready packaging,

self-checkout and automated replenishment. The systems are advanced, linking processes to the

service centre in India. This simplification has reduced payroll and other costs (Pryke, 2009, 34-

43).

In supply terms, the Fresh and Easy operation is a little different to other Teseo

operations, partly because the model of practices and processes has been built up from scratch,

though it does rely on core processes from the Teseo Operating Model. For example, there has

been a degree of co-location of production with distribution. UK suppliers with particular

expertise have co-located production facilities at the head office and distribution hub (Riverside,

CA), so as to react quickly to demand. Whilst this is not unknown in, for example, Japan, the

attempt here is to move towards a low-touch, lean operation and to rethink traditional

approaches. There is extensive recycling of packaging, use of returnable crates and retail-ready

merchandizing and packaging. The emphasis is on fully automated, one-touch replenishment

supported by deep shelves. At Riverside, pick-by-line has been introduced and various

environmental initiatives, eg solar power, developed (Stites, 2007, 4). Store stock levels and

availability were initially poor, however (Uwins, 2007, 55) and the distribution systems

performance has had to improve as the store development programme has moved on.

The sizes of the stores are 10,000sq ft selling around 3,500 items (Telegraph). The stores

are much smaller than supermarkets such as Wal-mart, which shows Tesco are not prepared to

go in direct competition with them. Furthermore, Tesco have invented a new format in America;

convenience retailing as we know it in the UK - a small shop selling a wide range of fresh, top-

up groceries - does not exist in the US, where a convenience store means a petrol station selling

cigarettes, doughnuts and little else (Telegraph). Tesco predicts Americans will prefer the

convenience of a smaller store providing it caters for their needs. By Tesco being the first major

competitor in the ‘convenience’ market, they can have ‘first picks’ on store locations, suppliers,

employees and partners. This concept is known as first mover advantage . However, perhaps the

reason no other company has broken into the market before is because it is not profitable or not

in demand (Wang, 2010, 111-132) .

A strategic alliance can be defined as cooperative agreements between potential or actual

competitors. Tesco announced that they would form an alliance with Safeway, an American

supermarket, and share profits. The strategic alliance will facilitate Tesco’s entry into the foreign

market by renting stores from Safeway in prime locations. If Tesco purchased the buildings and

the project was unsuccessful, losses would be much higher than if they rented them. Therefore, a

strategic alliance allows companies to share the fixed costs and reduces the risks involved in

entering new markets. Furthermore, the USA has different property laws to the UK and so can be

confusing to follow the law-with an American company in alliance their knowledge can be

transferred to Tesco and vice-versa. However, strategic alliances can be risky too. If Safeway go

bankrupt and have to sell its stores, terminating the contract, it puts Tesco in a vulnerable

position of either purchasing the stores it rents or move elsewhere. Either way, it will cost the

company money (Pryke, 2009, 34-43).

Overall, Tesco's Supply Chain Management Strategy is its long-term goal. It is important

for Tesco to have an operational strategy because it establishes the types of goods and services

the company will offer its target market, and how Tesco are going to get advantages over its

competitors. Tesco made good planning and control in its capacity, supply chain and quality.

2.6 Summary

Besides, in order to make improvements in operation, Tesco measures quality, speed,

dependability, flexibility and cost. Although they have made some improvements, there are still

some disadvantages in its operation.

The future retains numerous distinct scenarios for Tesco. The business has currently

developed into a worldwide business. One of their likely future strategies could be dedicated to

gathering a spectacular clientele service, as they have currently developed enough. As cited

previous, Tesco is the market foremost in the UK. To sustain this location it is significant to

advance its services all the time. Tesco will require advancing its product variety by proposing

more non-food items.

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