Tesco's Supply Chain Management Practices - Essay Example

Tesco Supply Chain Management Practices Case Study To What Extent Can Tesco’s Supply Chain Practices Be Said to Follow Lean(I.E. Just In Time Principles? (Consider JIT As A Philosophy, A Planning And Control System, And An Inventory System.) Tesco began following the lean production principles from the years 1985 to the year 2002 when Graham Booth became its director in charge of their supply chain. The director had to adopt the lean production systems similar to the ones that were utilized by the Toyota Company in order to eliminate the occurrence of wastes in their production lines (Ohno, 2005). This approach by the Tesco was developed with the help of James Womack & Daniel Roos experts from the business school in Cardiff. They were the authors of the book known as ‘The Machine that changed the world’ which was in charge of introducing the concepts of lean production for the Toyota Company (Indu & Gupta, 2004). The experts found out that the company indulged in many unnecessary handlings whereby there would be improvements along with reductions in the costs the company incurred. They additionally found out that there were longer lead times, poor availability of products along with locations of stores. The company in turn established a system for continuous replenishment, which enabled their products to have immediate replenishment (Womack & Jones, 2006). They have also been reducing their handling of goods while also streamlining their flows. They were able to accomplish this by using dollies on wheels, which replaced shelves. The dollies could be sent from the suppliers and into their delivery Lorries and taken back to the stores. They helped in reducing the companies need for handling the products since their products were just being loaded at the end of the company’s production line and taken directly by wheels to their supermarkets (Ohno, 2005). This move helped the company in reducing their touch points for drinks by 150 locations along with the transit times. However, the multiple trips that were carried out resulted in higher costs for the company but these costs were covered by decreases in their inventory costs. The company also had agreements with other companies such as P&G, Unilever along with Coca Cola in order to alter their schedules for distribution (Womack & Jones, 2006). This in turn enabled them to reduce their lead times by fifteen days since the daily deliveries made through their wheeled pallets, which enabled the placement of their goods directly on the shelves of many of their outlets (Bicheno, 2008). The company’s holding of stock reduced greatly from over four to two weeks while their service levels also improved by over six percent. The company’s use of lean production methods in the above aspects helped them see their profits jump from 16,452 million pounds in the year 1998 to 37,070 million pounds in the year 2005 making them the biggest grocery within the United Kingdom (Indu & Gupta, 2004). Due to the company’s use of lean production systems, they were able to reduce their storage locations from five to two, their order entry locations from six to just one and their service levels from 98.5% to 99.5%. They were additionally able to reduce their throughput times from twenty to just five days, which represented a 75% reduction in their total inventory (Womack & Jones, 2006). The Tesco Company initiated a ‘step change’ curriculum, which was used for identifying the processes in their supply chains that required transformations. This program helped the company in eliminating several of the unnecessary procedures that enabled them to save about two hundred and seventy million pounds in the years 2004 to 2005. The changes that were implemented under the program additionally helped in simplifying the operations in their stores while freeing up their employees so that they could more effectively attend to their customer’s needs (Ohno, 2005). The company introduced operations across docks that involved goods being loaded into one Lorry into another thereby enabling them to eliminate their need for additional storage spaces. They in turn were able to reduce their inventories by a third as a result of these activities involving their supply chains (Bicheno, 2008). The introduction of their primary distribution processes that were utilized by the company helped them in utilizing their vehicles to their optimum levels through their backhauling. The processes made the company into saving costs while improving their deliveries while also reducing the times that they held stocks (Ohno, 2005). In supporting these processes, the company additionally introduced the mutual planning, forecasting along with replenishment plans that were vital in analyzing the demand patterns among their consumers. The move was advantageous to them as it led to a reduction in the costs of their inventories while enhancing their products availability (Bicheno, 2008). Tesco’s introduction of their continuous replenishment systems helped in cutting the costs they were incurring in supplying their products, making reductions in their lead times, improving the availability of their products while maintain accuracy in their orders (Womack & Jones, 2006). The RFID technologies that were later on adopted by the company helped in easing the tracking of products as they were transported and offered more information along with security than the previously utilized bar codes. It aided in the promotion of faster processing of their goods, lowering their costs while it improved the efficiency of their employees by readily availing their goods (Bicheno, 2008). The technology adopted greatly assisted the company helped in the measurement along with control of each aspect in the company’s supply chain. It additionally helped in promoting the quicker processing of their goods, lowering costs while improving their employee’s productivity. Finally, the RFID technologies also helped in ensuring that their products were readily available to their customers (Indu & Gupta, 2004). 2. What Are the Main Differences between Operating JIT in Retailing and in Manufacturing Operation’s? When operating JIT in manufacturing many numerous advantages are achieved in the company’s activities. This includes the ability of overproducing their products incase their demands increase, reduction of the waiting times as goods are transported from their manufacturing locations to other locations, reductions in their transportation costs and shorter processes that help them in producing goods (Bicheno, 2008). They also experience reduced inventories in their operations, improved mobility of their manufactured products to the desired outlets and a reduction in the supply of defective products (Ohno, 2005). The JIT systems additionally help in improving the quality of products made in their manufacturing operations in less time than they could previously be able to produce them. Finally, the systems aid in the manufacture of goods that have fewer defects, are of higher qualities while breakdowns in their operations are dealt away with (Indu & Gupta, 2004). On the other hand, when utilizing JIT systems in their retailing operations, the company ensures that their products are readily available to their consumers at all times. This is mainly achieved using their systems for replenishing their stocks that is usually triggered by their customers (Womack & Jones, 2006). They also help in the speedy transportation of the goods to their supply points while also helping the company in reducing the costs that they incur in the processes (Bicheno, 2008). In addition to the above benefits that are reaped in their retailing operations, the JIT systems additionally, help in reducing the ordering cycles that the retailers go through by utilizing the speedy delivery systems (Ohno, 2005). The JIT systems also help in increasing the outlets for the company’s products through the sale locations that are introduced with the systems. The additionally locations for sale help the company in increasing their sales while reducing their inventory costs (Indu & Gupta, 2004). 3. What Challenges Does The Increased Internationalization Of Both Its Suppliers And Its Markets Present For Supply Chain Management In Tesco? The increased internationalization of the company’s suppliers makes the company’s management encounter confusion in selecting which suppliers they ought to purchase from and at what price they will do so. The company also has to come into numerous agreements with various suppliers across international borders despite the fact there could be barriers in the law to their activities (Bicheno, 2008). These barriers could include the taxes imposed, the greater costs involved in transporting these supplies from one location to another since the distances they have to travel are always on the increase. The company’s management encounters problems in negotiating for the prices charged for their supplies and determining the quality of their supplies (Ohno, 2005). On the other hand, the internationalization of its markets presents various challenges to the management of Tesco Company. This is because the Company’s management has to determine what quantities to supply to these markets in order to adequately satisfy their customer’s needs, the prices to charge and additionally costs of putting up new locations for selling their products (Womack & Jones, 2006). The company also incurs greater inventory and transportation costs in supplying their products across the international products (Bicheno, 2008). Finally, they also face challenges in determining which products they should supply to various their different market segments over time. They are however on the verge of overcoming these difficulties through their adoption of various technologies such as their systems for continuous replenishment along with RFID systems (Indu & Gupta, 2004). References Bicheno, J. Q. (2008). The Lean Toolbox. Buckingham: Picsie Books. Indu, P & Gupta, V. (2004). Planning and Control: Case Study Exercise, Tesco’s Supply Chain Management Practices. Retrieved on May 11, 2012 from, Ohno, T. (2005). Toyota Production System: Beyond Large Scale Production. New York: Productivity Press. Womack, J.P and Jones, D.T. (2006), Lean Thinking: Banish Waste And Create Wealth In Your Corporation. New York: Simon and Schuster. Read More