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Logistics is defined as a business planning framework for the management of material, service, information and capital flows. As required in today's business environment, It includes a series of increasingly complex information, communication and control system. (Logistix Partners Oy, Helsinki, FI, 1996). Depending upon the customer's requirements a detailed process of planning, implementing of ideas, managing the efficient and effective flow and storage of goods, prompt service, and related information from point of origin to point of consumption is carried out.
Logistics of an enterprise aims at helping and creating customer values at the lowest possible total cost with an integrated effort. It works towards the satisfaction of the customer requirements by facilitating relevant manufacturing and marketing operations. At an operational level, logistics managers seek to achieve a previously agreed upon quality of customer service through state - of - the art operating competency. This challenge is to achieve service expectations and cost expenditures in a manner that achieves business objectives.
The key elements of logistics in the Logistic management field includes : acquiring of raw materials and the distribution of materials to the end user. Managerial and strategic notions are the key processes involved in logistics management. (Rushton et al , 2006). The strategic elements refer to the long-term concerns and decisions about how the whole logistics process should be structured and what systems will be used to enhance logistics processes. Moreover the managerial aspects refer to decisions about sourcing, and finally making and delivering products and services within an overall game plan (Harrison and Hoek, 2005).
Logistics operation framework
An organization which needs relocation, needs to undergo some changes in order to suit its needs. These changes are mainly governed by elements which influence the primary activities involved in the logistics operations. These elements are:
Storage, warehousing and materials handling
Packaging and unitization
Information and control
The main reasons behind making the necessary changes to the distribution system as well as to the location of the storage depots are as stated below:
The termination of lease period.
Cost changes and inflation.
Construction of development areas or enterprise zones.
Introduction of new transportation network, for e.g. new motorways..
New transportation system, e.g. containers and freight-liners.
New and better technology, e.g. in vehicles or warehousing.
The many factors which effect the choice of location for a warehouse can be classified into 2 broad categories: broad in their effect, detailed in their effect. Factors which are broad in their effect will indicate only a general area in which the site should be located. Factors which are detailed in their effect will be more specific about the site. Other factors mostly depend on the purpose to which the warehouse will be put to use. Some of these important factors are :
It is generally better to locate the warehouses in closer proximity to the customers, so as to be able to provide a better customer service. Another reason for this approach would be economic concerns. Generally customer orders are smaller in quantity and need to be delivered in smaller vehicles and do not require a lorry load. As such these smaller vehicles are more expensive when compared to the trucks per tonne-kilometre. So bringing the warehouse closer to the customer reduces the number of trips as well as the distance needed to be covered by the smaller vehicles, thus leading to better cost management.
A warehouse meant for production orientation usually deals in bulk shipping i.e shipping in lorry or container loads to retailers or wholesalers or break bulk depots or for their own distribution depots. Location of this type of warehouses close to the end of the production line helps to reduce the cost involved in the movement of goods between the two points.
The nature of the product
The type of products being handled will have a profound effect on the number of warehouses as well as the type of warehouses required. For products which are perishable, it is very important to deliver the products to the customers before they are spoilt and as quickly as possible. These type of warehouses need to be small in size as they don't need to store a large amount of stock and they need to be in larger numbers. Warehouses serving as common stocking place for several street shops also need to follow the same principle. On the other hand, warehouses which handle consumer items which are durable and don't get spoilt in a short period of time do not need a fast deliver system and hence can be larger in size and fewer in numbers.
The road and rail networks always have a strong influence on the warehouse and its type. A good network has a direct impact on the speed at which the goods can be delivered in bulk and also have a direct bearing on stock holdings. For just in time operations, they play a major and crucial role.
Development incentives or rate "holidays" also influence the warehouse's locations but this kind of incentive only influences a local audience.
The type of warehouse
It may be possible to operate the distribution system using either conventional warehouses or highly automated warehouses. The latter are very expensive, as such there must be fewer of them.
The above points are crucial to companies in deciding the area of their choice as a potential site for the location of warehouses. There are other factors which also influence the choice of the site to be chosen. These are:
Cost of the local site and government response towards building construction and usage.
Accessibility and traffic congestion.
Building costs which include drainage, access to power and other supplies.
Auxiliary services including the availability of facilities for vehicle repair or the repair of specialized equipment.
Local communications e.g. travel facilities for employees.
The changes in logistics which Tesco needs to undergo taking into consideration the prospect of moving to a new location or locations are:
Warehousing- The entire operation has to undergo a change as there will be new employees and these new employees need to be given adequate training related to the operations of the warehouse and also handling of new equipment. Also the size of the warehouse might change depending on the available land size. The new warehouse needs to be put through several tests before operational so as to be sure whether the warehouse will be able to meet the objectives and achieve the needed throughput level and stock levels. Block stacking method must be used for the new operations so as make things easier for transportation of goods and also better and easier storage instead of loose coupling.
Packaging and Unitization- A good packing always ensures better delivery of the product and also enables the product to withstand bad handling and transportation issues. Transportation and handling differs from vehicle to vehicle i.e. handling and transportation is different for an aircraft as compared to that of a truck or a ship. This requires the products to be over-packaged. Also packaging techniques might differ from place to place, from market to market and the company has to take these factors into consideration. Also the type of material used in packaging or the shape of packaging might need to be changed so as to reduce the damage inflicted upon the product. This might lead to additional packaging also known as exterior packaging.
Inventory- changes in the inventory location will need them to ship larger quantities of products in a single consignment so as to keep the production in process and also to reduce the manufacturing costs. The inventory will now be put to use as now there is a longer haul of transporting goods from UK to other places. This might lead to less logistics in other parts of the system. This will also lead to longer production and stocking of the produced goods till delivered. This helps the company to take into account, situations where there is a sudden rise in the demand or failure of some other system in the logistics like transportation break down or unavailability of raw materials etc.
Transportation- change in location always result in a lot changes varying from transportation of raw materials from suppliers to transportation of manufactured goods to UK or the all around the globe. According to Gourdin, transportation plays a crucial part in any global logistics effort because of the long distances that can separate a company from its customers (Gourdin, 2001). This relocation will lead to increase in distance and hence more time before the product reaches the market. Another important factor will be the international laws, regulations, road and transportation rules which vary from country to country and are different from that of the UK
Information and Control- Information and control also play a major role in the logistics operation of a company. These depend on the level of operation and also depend on the type of operation or the phase of the logistics involved. For e.g. the information and control for transportation will be different from that of a warehouse or inventory. New information and control systems need to be deployed to help the company in controlling the logistics in a better way and more efficiently. They also provide a means to keep track of the goods and their delivery and also help in inter-department communications and organizations.
Appropriate Modes of Transportation
Generally a company resorts to more than one mode of transportation for providing better service and for the delivery of shipments more efficiently. The different modes of transportation in use are: truck or roadways, airways, railways, waterways and pipeline. These modes help in the delivery of the product on time.
The Truck or Road
Trucks transport more than 75% of the agricultural products, fish, frozen food like meat and other items. Many of the manufactured products and consumer goods and electronics like radios, television sets are transported primarily using trucks or other vehicles. They act as an excellent means of transport and are fast and reliable with minimal damage to the goods or loss of goods in transit. In Europe, trucks compete with air transportation for carrying small shipments whereas rail is used for larger shipments (Grant, 2006).
Shipments transported by trucks are known as TruckLoad(TL) or Less Than TruckLoad(LTL). LTL is used for transporting smaller shipments because of the quality of freight weighing less than the amount required for the application of a truckload price. On the other hand, truck carriers compete directly with the train transportation system for TL shipments for distances of 500 km or more. However truck carriers dominate the market for smaller shipments. LTL mode is generally used for shorter hauls of shipments.
Trucks are very flexible and versatile. This has been made possible by the network of about 3.5 million km of roads across 15 countries all over EU. This makes the truck versatile and enables them to transport products of varying sizes and weights over any distance. Also due to the better compatibility of the road transportation mode over others, truck carriage has become an important part of the logistics network. The trucking industry will continue to prosper as long as it can provide with efficient service rates, those between the rail and air, along with a faster means of service and transportation (Grant, 2006).
Double-deck trailers could be used to for transportation of goods both at the national and international level. This service, being a point to point one, will be of great use. Also road freight does not need the products or goods to be double handled. This leads to less or almost no damage to products before delivery. As such this acts to the advantage of the company.
In Europe, railways are one of the most dominant modes of transport. The railroads carried over 880,000 tones of goods across Europe in 2001 (Grant, 2006). According to Grant, railroads in Europe have approximately 1600 kilometers as the average length of haul (Grant, 2006). The rail transport generally lacks the versatility and flexibility of motor carriers because it is limited to fixed track facilities. One of the biggest disadvantage of rail transport is that it can only provide terminal to terminal service instead of point to point service like roads. Another disadvantage of rail transport is longer transit time and lesser frequency of service. Trains travel only at fixed scheduled times unlike roads which are more frequently available. Even though the rail transportation is cheap, it is slow and inflexible for service. Also rail transportation leads to double handling, which in turn leads to damage of products when shunting. At the end of the chain, for the goods to be transferred to the desired location, road transportation is used which leads to longer delivery times.
Europe has a vast system of navigable waterways which in turn leads to better accessibility to major cities and population centers. As such, waterways play an important part of transportation as the routes are relatively shorter between the origin and destination. As gathered from (Rushton et al, 2006), in Europe, the routes for sea transport are comparatively shorter, even though it depends to a great extent on the length of navigable waterways.
Sea freight is recommended mode of transportation for Tesco since this mode of transportation is the most inexpensive method for shipping commodities. Also this mode is flexible and that the service is regularly available along with a large number of liners and ships.
Air transport is one of the quickest mode of transport and provides an effective service in times of need. Although this is a quicker means of transportation, it can act to the disadvantage of the company due to the congestion at airports, handling issues, extra paperwork, custom issues and other delays which lead to the delay in the delivery process. But then biggest advantage is the lead time economy as this mode of transportation has a short lead time. This enables the goods to be transferred quickly to the destination irrespective of the distance. This adds additional flexibility as any market around the world can be reached in a short amount of time and with great ease.
Transportation Model for International and National Operations
For the distribution of goods within a nation, Tesco has been successfully using the intermodal transportation policy using rail, road and canal as the primary means of transportation. It follows a hub and scope model, where goods are stored in central warehouses and transported to local warehouses upon demand. The inventories at both the central warehouse as well as at the store are monitored by a central information processing unit. Inventory reports and results are generated on the go, i.e. on real time basis in the local stores. As such this enables real time tracking of problems at the local stores like shortfall of supplies or some safety issues and immediately intimates the warehouse, thus enabling immediate and efficient action. This leads to immediate stock dispatch thus meeting the customer needs in time. Freight management system is put in place which makes sure that the least cost incurring transportation is selected. [Bearnon, B.M (1998)].
For the distribution of goods overseas i.e. internationally, Tesco should try to standardize their suppliers in the international market. A hub and scope model, like in the above scenario can be adapted and implemented. The location of warehouses can be strategically placed near the shores, allowing them to act as docking units, thus ensuring that the supplies can be maintained via the sea transportation method which is comparatively cheaper. Also the number of dock units necessary as well as the number of labourers needed to work and maintain the place must be balanced to maximize profits for the entire supply chain. Now the central warehouses can be established depending on the local stores as well as the docking units. This is like an extended hub and spoke model, where the goods are transferred from the dock units to the central warehouse and then from the central warehouse to the final destination i.e. the local stores.
Monitoring and Control System for the new supply chain
According to Rushton et al (2006) "monitoring and controlling of logistics and distribution operations are often approached in a relatively unsophisticated and unplanned way". They also emphasize the fact that those control measures are only considered and implemented when there is a crisis situation, merely as form or method to manage the imminent crisis. But Tesco must develop and adapt a more formal approach for better results.
Market situation, product strategies, competitive environment
Strategic business objectives
Ability to progress
Innovation and learning
et al (2006)
Critical success factors
Balanced scorecard approach is a broad business approach which translates the strategic mission of a business operation into tangible objectives and measures. Key performance indicators are developed to strike a balance between the 2 important parts of any business organization: external measures necessary for shareholders and customers, and internal measures for critical business processes, business innovation and improved learning. This approach could be of great importance to Tesco, from the financial perspective, since this takes into consideration the company's relationship with its customers and shareholders and hence it is aimed at improving the profits and meeting other necessary financial objectives. The customer perspective aims at improving the relationship of the company with the existing customers and introducing incentives for them, while trying to add new customers to its already existing customer base. The primary purpose of the internal perspective is to improve the operations of the company and provide it with a competitive base in the market. On the other hand, business innovation and learning is aimed at generating new and innovative ideas for Tesco and to respond quickly to the customer needs and concerns. The critical part is used as the basis for generating effective critical costs and performance measures, thus enabling the company to monitor and control its business operations better in all the important areas and the areas which are crucial to the company's development and improvement.
This is another monitoring model that can be used by Tesco to monitor the company's cost performance. It is a hierarchical model and consists of different levels of hierarchy: competitive advantage, strategy implementation and process definition. This is a complete process oriented approach and the main aim is to benchmark the process, refine it and improve the operational processes. This also aims at identifying and introducing important measures to monitor the company costs as well as the company performance, whether it has been successful in meeting the preset targets.
Benchmarking is the process where a company constantly measures and monitors its business performance with that of other companies or leading organizations like competitors which will help the company to obtain information to identify the shortcomings and implement improvements Benson (1998) cited from (Rushton et al, 2006). Like every other company, Tesco should also implement a benchmarking policy which will be of great benefit to itself. This will act like a performance measure and throw light on new business process used by other companies as well as provide valuable insight into their business model and policies. This will also help Tesco in discovering its own shortcomings and flaws and thus help them in sorting out their own problems. But one important question for Tesco would be "Which company should be chosen as a benchmark ?" The answer to this lies in the fact as to where does Tesco wants itself to be benchmarked. Also it is possible for Tesco to choose multiple benchmarks for different operations like a different benchmarked company for warehousing, a different one for packaging, a different one for order processing and so on. This is give the company a versatile pool of the best marketing standards currently prevalent in the market. The following steps or points must be borne in mind while benchmarking: analyse and define the present performance for the currently existing activities which the company plans to benchmark, determine the necessary level of performance which is needed for the activity, finally determine what kind of improvements can be implemented and how can they be implemented helping the company to achieve the desired goal state. The benefits of benchmarking at Tesco can be maximized by linking itself with other organisations and with good networking with similar companies and work on a mutual gain basis.
The report thus focuses on the critical evaluation on the changes in the supply chain operations especially international logistics and Information Technology up gradations in order to maintain consistent service delivery. Tesco can achieve the maximum supply chain profitability by adapting as per the legal and culture of the overseas countries, by maintaining global monitoring and controlling mechanisms to track the cross continent movement of goods. By adapting to international logistics and high scale information technology systems, Tesco has the potential to replicate its success in the UK on a global platform as well.