The issues faced with Supply Chains

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Tesco is grocery largest retailer in Britain. Tesco is leading grocery retailer worldwide (Europe, US, South East Asia). Tesco is a third top grocery retailer, with operations in 14 countries. Tesco operating 4331stores globally and employees over 470000 people worldwide. It has many different type of stores Tesco extra (24 hour), Tesco super store and Tesco metro (located in town centre), Tesco express (attached to garages) and Tesco Home plus (non food store). The group of Tesco plc sales grocery food, non food items such as electrical goods, books, home ware, sport equipment, clothes, patrol, financial services and telecommunications. Tesco is committed to reducing the prices and offering best value for customers. Form March 2008 to February 2009 sales were 59.4bn, United kingdom sales 41.5bn, international sales 17.9bn, Group non food sales 12.5bn, retail services sales 3.4bn and it is experienced sales growth of 21%.

TASK 1: Explain the evolution of chain supply management and its growing contribution to business objectives.

P -1.1 Describe and analyze the stages in the evolution of supply chain management.

Supply chain is the processes of moving goods/services from the customer order through the raw materials stage, supply, production and distribution of products or services to the customers. Managing these events in this process is known as supply chain management. Management must take into account coordinating all the different pieces of this chain as soon as possible without losing any of the quality of customer's satisfaction, while still keep in low costs. Now each company racing to get right product to the right place at the time and in low cost.

"Supply chain management is the management of the interconnection of organizations that relate to each other through upstream and downstream linkages between the process that produce value to ultimate consumer in the form of products and services".

Operations Management, Authors Nigel Slack, Stuart Chambers, Robert Johnston,

Fifth Edition 2007

Stages in the Evolution of Supply Chain Management:

The evaluation of the chain supply management moved from disparate functions of logistics, purchasing, transportation, supplies and physical distribution to focus integration, cycle time reduction, visibility, information, and digital channels. Latest new integration has a variety of operations such as supplier strategy, supplier partnership, purchasing strategy, supply base management and simply web base supply chain management. The success of operations having corporate vision that change throughout firm's internal and external links or interfaces. Organizational structures and functional areas within organizations have transformed significantly over the past four to five decades.

The transformations occurred in three phases. 1- Decentralization (functional, departmental) 2- Centralization (corporate planning, purchasing) 3- A combination of phase 1 and phase 2

Phase 1: represents the World War II 1939 to 1940 till late 1980s supply chain was set each functional linear, individualized processes and department planned operated individual linked warehouse, manufacturers, retailers, wholesaler and consumers together in the chain.

Phase 2: represents the incremented changes occurred late 1980s to late 1990s. The adoption and spread information of advanced planning and scheduling systems. Organization and business enterprise that entered into new information technology sectors and implementation was done became more integrated. Internet and Web base technologies become more popular. In 1980s, organizations and manufacturing resources planning was developed, brought systems that could be used for planning all manufacturing resources, including those related to financial planning, operational planning, business planning , production planning and capacity requirements planning.

In 1988, supply chain management took a major changes increased. Sanjiv Sidhu, founder of Dallas, Texas based i2 Technologies, developed a new type of software that was based upon the "theory of constraints" Sidhu's product would allow businesses or factories to communicate internally, with each other and with headquarters to get better the flow of orders and materials. By 1997, this software had developed into internet base. Other organizations have since developed expertise in both specific industry, such as consumer goods and organizations working process, or planning in supply chain, such as exactions and tracking orders and materials.

Thomas, H. Davenport, L.P. Wilson, J. (2003). what's the Big Idea:

Creating and Capitalizing on the Best management.

Phase 3: This phase is a combination of phase 1 and phase 2. This era of supply chain management bring it greater transformation which took place from linear to supply chain network. Where supplier and customers collaborate to extract and share information and value within organisation. Enterprise Resource Planning systems continued to develop into 21st century with development of internet based work together in supply chain and other departments.

P -1.2 Evaluate supply chain management strategies and assess the contribution they make to the achievement of key business objectives.

Distribution Network Configuration: Number of people involve and location, suppliers (mission), production facilities, distribution centers, warehouses, customers. Business customer's industrial and individual.

Distribution strategy: operation control (centralized, decentralized or shared), delivery scheme e.g. shipment, direct store delivery, posted or curies. Distribution is very import role in organizations and good distribution can be achieving variety of supply chain objective ranging from low cost to high profit. If distribution network not good, then companies lose market and profit.

Mode of transportation: Mode of transportation mean which resources use for deliver goods and services to customers e.g. motor carrier, Turk load, parcel, railroad, ocean freight, air freight, post, pipeline and telecommunication.

Trade off in logistical actives: All the above well co-ordinate. So low cost is achieved in logistic expense.

Information: It is important to share valuable information, inducing demands, financial, forecasts, inventory, transportation, and potential collaboration, e.g. RFID network track shipments which help customers or stores those items when available to shop.

Inventory management: quantity and location of inventory including raw material. Now informational technology makes it easier on supply chain. Scanners collect all the data at the sales point and electronic data interchange (EDI) allows these data to be share same time in supply chain and different departments of the organization. This technology especially in the grocery markets very helpful because these technologies save time and cost as well.

Work in progress: managing in chain supply how much work in progress and how much goods or services finished.

Cash flow arrangement: Arrangement of payment terms, the methods of exchanging funds across entireties within the supply chain. Cash flow is very important in organization, without cash flow business can't run. Cash is main resource in financial departments of the growing organizations and organizations have to sales goods & services and collect money from customers and have to pay supplier and employees.

Task 2: Explore strategies used by TESCO to develop and maintain effective supplier relationships.

P -2.1 Identify the strategies used by TESCO with regard to the development of relationships with suppliers, using appropriate web based technology.

Tesco have thousands of suppliers from all around the world. The suppliers are different ranging from small companies to multinational companies. Suppliers deliver from single items to large amount of goods. Tesco provide its customer's good quality, choice and value for the money and hence Tesco wants to have strong and constructive relationship with the suppliers. Tesco build long term relationship with the suppliers, as Tesco recognizes that its success is linked to its suppliers. Tesco also share sales information with suppliers online via web base technology 'Tescolink' or Electronic Data Interchange (EDI). EDI used by mostly businesses to exchange and transfer electronic repetitive business transactions e.g. bills, order and credit approval between business partners or suppliers. Tesco use fair terms and conditions with supplier to get the best value for customers. Suppliers are required to meet Tesco expectations on quality and value on hygiene, environmental, animal welfare and labour standards.

Within the operation's of supply chain, one of the key issues is how should manage the relationship with the suppliers and customers. It is important to have some framework which helps us to understand the different ways in which supply chain relationship can be develop. Supplier relationship have gained considerable in recent years, research in purchasing and supply chain management focuses on strategic parts such as supply chain relationship.

The growth in e-commerce has established broad classification of supply chain relationships. This happened because internet companies have focused on one of four market sectors defined by who is supplying who. There is four type of relationship in the supply chain.

1-Businesses to business (B2B) relationships are most common in supply chain context; include e-commerce using electronic media to support truncations between individual and companies e.g. Tesco information exchange with suppliers.

2-Businesses to consumer (B2C) relationships are online retailer's e.g.

3-Consumer to business (C2B) relationships are involve consumers posting needs on the web and stating price they are willing to pay e.g. online airline ticket or

4-Customer to consumer (C2C) relationships includes the online exchange and action service offered by some companies e.g.

Here we deal business to business (B2B) relationships. Tesco generally consider these points to develop their relationship with suppliers.


Communication is very important for businesses to build the relationship with supplier and customer. Electronic Data Interchange (EDI) technology make easier to contact anywhere in world and communicate with them. Tesco used web link (EDI) service to communicate with suppliers. Tesco communicate their business with the supplier direct and indirect, the method of communication is indicating of the richness and complexity of the information flow. Direct communications are those requests or action from the other party and indirect communications are information exchanges expectation with no reaction. Tesco communicate supplier's face to face basis that business is discussed and make strategy how supply goods and transactions take place.

Electronic Data Interchange (EDI)

EDI used by mostly to exchange and transfer electronic repetitive business truncations e.g. bills, order and credit approval between business partners or suppliers. Internet base Electronic data interchange technology is very important for businesses day by day. Tesco EDI technology control different department e.g. inventory, supply chain, payments and check out stock. Tesco deal with thousand companies, EDI help to transmission the data different companies.

Trust & Respect

Trust has been defined as belief that another organization will not perform unexpected actions that will result in negative outcomes for the firm.

(Anderson & Narus, 1990)

Tesco aim is treat people how we like to treated. Tesco treat all suppliers with respect to build trust with each other. In recent years web base EDI help to improve the level of trust in buyer and supplier relationships.

Web base techniques

Tesco used internet web base technology to connect with suppliers to improve business. High speed internet connection broadband enable Tesco to collaborate with suppliers, sharing sales information, plan, forecaster, and share consumer data.

Business expansion

Tesco share the plans, ideas and information with supplier to develop their business to grow. Tesco also help the supplier to develop business plans to deal with current economic recession challenges and provider all suppliers Tescolink, online (EDI) sales information. This Electronic Data Interchange helps suppliers to know what customers needs and wants.


Commitment refers to willingness of suppliers or partners to exert effort on behalf of relationships, suggestion that the relationship is stronger and geared towards long term goals.

Mohr and Spekman, (1994) "Characteristice of partnership attributes, communicate behavior and conflict resolution technique" Strategic Management Journal, Vol.15, No.2, P135.

Tesco committed to meet customer requirements by building good relationship with suppliers. Internet EDI make easy to make commitment in business without wasting time and less cost. According to Morgan and Hunt 1994, commitment is related to relationship benefits and termination cost, which would suggest that usage of e-commerce, would have an impact.

"The commitment trust theory of relationship marketing" Journal of Marketing, Vol. 58 No.3, p20.

Supply deadline

Tesco provide the suppliers online sales information to help them to delivering the orders in good time, to meet the customers demand. Tesco also use RFID technology to which point items and what time available in the stores.


Tesco is very reliable at paying on time their suppliers to build the strong relationship. As Tesco use EDI for to manage their supply chain. EDI helps them in determine issues where they need to pay and when they need to pay.


Satisfaction refers to positive feelings that result from an overall organization assessment relationship. E-commerce has positive influence on the relationship satisfaction. Tesco have supplier satisfaction survey in 2008, over 2300 supplier responded the survey.

The survey confirmed that Tesco has good values and standards. The survey shows;

91% say we (Tesco) treat them with respect

93% say we are professional

92% say we are clear in our dealing with them

90% say we reliable at paying on time

92% say we are committed to meeting customer requirements

92% say we maintain high quality standards

(Tesco Corporate Responsibility Report 2009)

Improve efficiency

Tesco use EDI technology to accurate information on stock will help to purchase and buy exact quantity needed. RFID also help to improve tracking shipment, payments, bills, invoice, orders and delivery.


Internet made fast and easy sent information each other. Tesco use e-mailing system with suppliers and other departments to get quick response. E-mail saves Tesco and supplier time and money.

Inventory planning

The inventory planning control shows information to efficiently manage the flow of materials and market demand for your products. EDI help inventory planning to make sure about stock or martial have and what need them. The inventory process also utilizes people and equipment, coordinate internal activities and communicate with consumers.

Focus and react

EDI provides accurate information about the stocks and sales. This helps Tesco to focus on it and react quickly to change in customers demand. Supplier use online web "Tescolink" which helps supplier to make on time delivery.

Enterprise resource planning (ERP)

ERP system which is normally intends to manage all the information and functions of business. EPR also share company stores data with suppliers. ERP Company share database that may be centralized or distributed. This also helps to analyses real time information about the sales, orders and market trades.

P -2.2 Evaluate the effectiveness of strategies used by TESCO.

"Now, more than ever, is the time to show leadership, supporting our customers and our staff as they face challenging economic circumstances, and tacking the issues that matter to communities and society".

Terry Leahy Chief Executive Tesco, 2009

Employee relationship

A good employee relationship is play very important role to achieve business objectives and goals. Organization should determine to constantly look to improve employee relations, keep employees happy will increase productivity and morale. This should also increase sales and profit. Tesco treat employee individual because one method does not work in managing the all employee. Tesco create a culture of respect and trust, where employees want to be respected for their work individually. Tesco give the power their employees to make decisions and take responsibility. This take them work better and face the challenge ahead. Tesco also encourage the employees to learn from the mistakes and errors.

Relationship with suppliers

Tesco strategy with suppliers is very clear and they want strong and construction relation with them. Tesco aim is treat people how we like to treated. Tesco also recognizes that over success is linked to its suppliers. Tesco use EDI to share the sale information with suppliers and help them how to grow their businesses. EDI also help electronic repetitive business truncations for example bill, order and sales. Tesco build strong relationship with supplier using fair term and conditions. Supplier also need to meet Tesco expectations on quality, value on hygiene, environmental, animal welfare and labour standards. Supplier relationship have gained large number of objectives in recent years, research in purchasing and supply chain management focuses on strategic parts such as supply chain relationship.

Distribution strategy

Most product focused companies need to establishing most appropriate distribution strategies is a major key for success, Good distribution strategy increase sales and profits. But many companies fail to establish or maintain the most effective strategies, this take company's loss the contracts and orders. Tesco used effective strategy to manage their distribution channels, this takes it goods and services available to customers on time.

Cash flow strategy

Cash flow refers to how cash is coming in and how much cash going out from business. It is important to monitor cash flow for business. The recession has taken its toll on the United Kingdom economy with the cash flow problems. Tesco have found ways to maintain health cash flow position in recession and still continue growth.

Tesco cash flow summary

Feb 09

Feb 08

Feb 07

Net Operating Cash Flow




Net Investing Cash Flow




Net Financing Cash Flow




Net Change in Cash




Depreciation &Amortization




Capital Expenditures




Cash Dividends Paid




Communication strategy

This strategy includes information that is the flow of facts and figures and communication which presentation of objective information sent to employees and suppliers. Tesco challenge was in designing communicate with employees and suppliers. Now, Tesco use online web Tescolink to provide the information suppliers and employees easy and fast.

P -2.3 Identify effective systems used by TESCO for proper relationship maintenance.

Social relationship with employees

Social relationship with employees is play important role in business. Tesco need to listen employees voice, gave them promotions, provide them healthy and safe environment at work. Tesco take part in events or parties e.g. Easter day, Christmas and New Year party.

Customer maintenance

Taking care of customers is the responsibility of organization, when they buy product and after purchase as well. It is important to take care of customers and gave them satisfaction products or services. Simply put maintenance gives access to continuous innovation and improvement.

Customer credit facilities

It is good for customer to give them Credit facility for limited period e.g. 28days or 14days to pay their bills, this help customer and sales will increase but make carefully decision for credit, which customer able to pay back on time.


Tesco provide staff training and development skills to retain a workforce. This help Tesco home grown managers understand their business culture and make them value leaders. Promoting make staff hard worker, when they promote they feel good.

Quality products or services

Quality product or services help business to grow. Tesco need to provide quality products or services their customer. This takes Tesco to grow and increase sales.

Treat your customer properly

Treat your customers well, be honest, respect them, quickly respond, and be open and accessible. It is really simple to make happy customers, happy customers will buy more from you and tell more people about you, this increase sale.


Be honest with customers and suppliers, when you make orders and pay bills. When you need replace the orders and payments on time and don't cross deadline. Deliver on time customer products or service. If you provide on time products or services, sales will increase.

Task 3: Investigate how web-based applications contribute to the full

integration of the supply chain at Tesco.

P3.1: Evaluate how web-based technologies assist integration of different parts of the supply chain/ network.

Many changes experienced in all areas of business, introduction of computer technology brought unique changes in the ways businesses manage their work processes. Computer also has been playing very important roles in the flow of information, not only within the single organizations and also between other departments and organizations.

Today more than ever latest technologies and internet enable information sharing across supply chains. Those technologies are Electronic Data Interchange (EDI), Internet web-base (WWW), Intranets and extranets. Internet based supply chains are faster and cheaper, and also offer customers more information about the products/services.

Some general strategies have been discovered for constructing a virtual supply chains, a rough outline for the future of business. It is clear massage so far that we won't be relying on a single online strategy. Internet supply chain will be a different means of communicating and doing business with customers and suppliers. Business processes re-engineering suppliers, buyer's relationship and SCM suggests various possible components that must receive attention from managerial when managing supply relationships. Internet technologies also help that department in businesses.

Raw material



Managing human resource

Managing invoice


IT department




Data base management




Customer relationship management

Electronic payment

Security management

P3.2: Demonstrate how web-based technologies have contributes to the effective management of the supply chain in an organization and evaluate its effectiveness in this.

Innovations in the information technology have an irresistible effect on the developments of the supply chain management. Because of these innovations, partners in the different stages of the supply chain can efficiently manage their relationship to maximize supply chain performance translating to get better productivity. The key role of web-base technology in the supply chain management is its ability to provide a convenient place for sharing information through the different modes of communications especially the internet.

If we just have a look on the views shared in the Annual European Logistics Summit in Brussels 2001, it is easy to understand the digitization of business progresses from the first phase of stand-alone e-commerce front ends and online marketing to the second phase of connecting business value chains, a key technological and management challenge of "c-commerce" (collaborative commerce) is weaving together a complex mesh of public and private links for supply chain management.

One of the key impacts of c-commerce is to break down traditional barriers within the company between its departments, geographical units and employees, and on the outside to connect the company seamlessly with its customers, suppliers, distributors and business partners.

According to Alexander Renz, business development manager for SAP.

"The pressures of hyper-competition and the possibilities of global sourcing make it increasingly important for a company to design and practice adaptive SCM".

Paul Henderson, (supply chain development manager at Nestle UK) observed

"There has been no mountain of hype in e-SCM as compared to the dotcoms.

E-Chains have attracted growing and steady interest".

Ton Den Dam (regional e-business manager for Dell) told,

Dell's SCM solution ( has reduced inventory turnover to 5.1 days. "85 per cent of our suppliers are on this site".

All this means companies must choose vendors that demonstrate compatibility with the company's values, cultures and beliefs. This will automatically whittle down the number of potential partners - but also reveal only the committed ones. Thus, Cisco gives the bulk of its business to a few strategic partners like Solectron.

"Online order tracking and audit trails assist us smoothen shelf availability, mostly for supplies during pre-weekend spikes" said Carl McInerney, Coca Cola customer order management services controller.

The magnitude of impact of e-SCM on a company will depend on the IT maturity of its industry category (more in high-technology and retail than agriculture and heavy industry), its inertia based on existing legacy systems, and whether the goods in question are critical to its value proposition (e.g. raw materials, which will require a mix of private and public channels) or indirect (e.g. office supplies, which can be easily procured from commodity public exchanges).

Jon Higgins, IT director of, explained that the changes relate directly to making life better for customers. " now supplies far more than a weekly grocery shop to a large proportion of our customers. By bringing fulfillment under our control we can ensure a consistently high level of service across all product categories while streamlining our own operations. We wanted to continue to operate on Microsoft technology and the Manhattan Associates solutions have proven versatility in a multi-channel retail environment, the ability to scale easily and adapt to a constantly evolving business model. The fact that they can also be integrated with, and complement, our existing enterprise systems, provides us with the total visibility and control we are seeking across our supply chain that enable us to drive operational efficiencies at the same time as optimizing customer service".

The biggest long-term benefit of Web-Base using highly scalable Microsoft technologies is that it accelerates the supply chain, reduces, out of stocks and helps to retain customer loyalty. With a reliable, scalable platform, Tesco has reduced IT management costs. The real-time, up-to-date metrics give managers a vision of individual store performance, giving them the information to take corrective action where required much more quickly. The most importantly, with the basics in place, it provides a strong support for other real-time applications, including labour monitoring, and inventory management. Web base technologies also help Tesco to delivering efficiency improvements, shorter delivery times, and high levels of availability, responsiveness and customer service as its business grows.

Task 4: Investigate the effectiveness of systems, policies and processes for

Web-based transactions.

P4.1: Evaluate the policies, strategies and systems used by an organization for web-based transactions.

Tesco remains the market leader in online retailing and have opened many different portals to cater the variant need of the customers. With a profit rising of 21 percent through online operations Tesco is committed to serve its potential customers (Mari, 2009). Following is the excerpt of policies, online strategies and systems which deals with web based transaction in context of supply chain management.


Tesco policies regarding the web based transactions are customer specific and defined to accommodate the customer in every possible way. Some of the policies have been mentioned as:

Tesco exercise a online privacy policy for the customer as the information obtained during the transaction will remain private. It will not be passed to any other online portal.

A reserve of Pre authorization fee (£2) policy is being in practice which is removed after the delivery

Safe and secure transaction system is used in which there are no hidden charges. In case of non- availability or damage to item, full refund policy is being exercised.

Future policy of Tesco includes the centralization of supply chain management system of different online stores (Thomas, 2009). It will save time for the data input, explain the different cost involves and produces economies of scale.


Tesco online strategy which has enabled Tesco to win European Supply Chain Excellence Award for Retail & Distribution is the launch of Tesco direct (supply chain standard, 2009). The salient features of this strategy are:

Telephonic and online ordering for customers

Express and home delivery options

Integration and order management

Stock and effective warehouse management

Operative information management


As according to (Microsoft BizTalk server, 2009) Tesco have managed to develop such an efficient online ordering system that can process 5000 orders per hour. Miscellaneous advantages brought by this system are outlined as follows:

Expansion of current catalogue of products & services due to greater processing speed

Lower maintenance cost due to reliable hardware configuration

Accepting orders from range of multiple offline and online channels

The prime objective of any organization is to increase its sales to higher level. In this regard Tesco have deployed a strategy to cater more and more POS (point of sales). With the collaboration of Sysrepublic real time integrators (providing online solutions to retailers) Tesco have brought about an online solution which will enable to deal with 1500 transaction per second (retail industry case study, 2009). This will not only increase profitability but also monitor stock availability, promotion tracking and customer services related issues.