Supply chain is defined as the system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities transform inputs or raw materials in to finished products that are delivered to the end user or customer. Supply chain management is the combination of the enterprise strategies, business process and information technologies that integrates the suppliers of raw materials or components, the manufacturers or assemblers of the finished products, and distributors of the products or services into one cohesive process to include demand forecasting, materials requisition, order processing, order fulfillment, transportation services, receiving, invoicing, and payment processing.
When a firm sustains its profits that exceed the average of its industry, the firm is said to possess a competitive advantage over its rivals. Competitive advantage is the leverage point that one firm has over the other due to its difference, lower cost or rapid response in products and services. It is influenced by many factors, one of which is the supply chain management. It is very important to study this relationship due to increasing competition in the global market. World is shrinking due to information media and its becoming a global village. If a firm wants to operate in a global market, it has to plan and develop strategies for efficient supply Chain management.
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If the organizations don't respond to customers' demands and requirements immediately they may lose market share to a competitor. To respond quickly to customer needs and desires organizations have to develop good suppliers and distributors. Many firms have acquired the suppliers and distributors all over the world through forward and backward integration strategies to reach the markets well in time and before the competitors. So it's very important to have a solid supply chain in today's business environment if firms want to earn maximum profits and stay in business for a long time.
Evolution of SCM
Origin of Concept
In the early days, the supply chain management was considered comprising of logistics, transportation, purchasing and supplies. After the advent of the assembly line manufacturres start understanding the importance of SCM.
Integration of processes
Later in 1960s increased competition compeled the organizations to focus more on visibility, cycle time and cost reduction, and streamlined channels. as a result Supply chain management became one of the most powerful engines of business transformation. Production and manufacturing sector made SCM their top most priority. This phase is also known as the transformational ohase in the evolution of SCM. Organizatios start taking differetn steps to integrate supply chain and other business proceeses in the orgainzation. it lead to increase in effectiveness due to standardization of information across the enterprise. Integration fostered proper planning, demand forecasting and scheduling.
The new integration has a variety of activities that include:
â€¢ Integrated Purchasing Strategy
â€¢ Supplier Integration
â€¢ Supply Base Management
â€¢ Supply Chain Management
Globalization and Current Scenario
With passage of time globalization and specialization compeled the organizations to expand their of supply chains over national boundaries into other continents and formulat a global system. Now integrated and centralized supply chain planning exists world wide in all multinational organizations. The evolution led to an Internet-based application for Supply Chain Management.
Global sourcing enables organizations to reduce their costs and offer value added and cost effective products to customers. Now the organizations are using various soft wares and web based technologies to share information about product seasonality, promotional events and new product launches with its suppliers. Thus enhancing customer service levels and lowering supply chain costs.
Participants of supply Chain
There are three main participants in a supply chain which are
Suppliers: The organizations who provide goods and services to purchasing or manufacturing organizations.
Manufacturers: Companies involved in original production and assembly of goods and services.
Distributors: Those who are external entities and sell for suppliers or manufacturers.
In the global automotive industry, opportunities and risks are everywhere in emerging and mature markets alike. But while possibilities are plentiful, profitable growth is becoming more difficult to achieve and challenges from the supply chain to the retail environment can up-end even the best laid plans. Amidst this landscape, retail organizations must conduct their business, while at the same time adapting to new regulations, reducing costs, managing capacity and inventory, and controlling distribution and compensation costs.
Always on Time
Marked to Standard
There are many strategies involved in the growth of supply chain management. Mainly SCM strategies are evolved keeping the following factors in mind.
Planning and Scheduling
Logistics planning and Execution
Sales and customer Service
Overall supply chain management covers purchasing or manufacturing of goods, design engineering, process engineering, marketing, accounting, and quality control.
1.2 Evaluate supply chain strategies and assess the contribution they make to the achievement of key business objectives.
Supply chain management strategies are developed by the organizations to ensure overall effectiveness and competitiveness of the organization. It is an integral part of a firm's strategy. Proficient Supply chain management helps the organization to reduce costs and increase contribution margins. Different organizations adopt different supply chain management strategies depending upon their nature of business, customers, and organizational objectives.
Having satisfied and loyal customers is the main aspiration of every organization. A culture of thinking first for the customers fosters the employees to be more creative and caring. The crucial goal of the supply chain management should be to come up with the best products for the customers and also making it beneficial for the organization. The objective of SCM is to build a chain of suppliers that focus on maximizing values to the ultimate customer.
Harmonization between SCM Strategies
Among other things the most important is the smooth coordination among different supply chain management strategies used by the organization. It involves
Low Cost Strategy
This SCM strategy focuses on getting the supplies at the lowest possible costs. Supplier selection decisions in this case are primarily made on cost basis. Processes used offer high average utilization. Suppliers having ability to design low cost products meeting functional requirements and short lead time are selected.
Effectiveness of SCM is enhanced through various marketing tools, negotiations good operations management.
Low inventory level
Minimizing inventory level can give one firm a competitive lead over the other by cutting costs and lead times and improves the services. This strategy compliments the low cost strategy. Also the organizations are realizing role of distributors and forward integration strategies and its significant effect on the market share of the organization.
Explore strategies used by TESCO to develop and maintain effective supplier relationships. Identify how Tesco fostered development of relationships with suppliers, using appropriate web based technology.
Establishing and Maintaining Supplier Relationships
Tesco has created a more constructive and less adversarial relationship with its suppliers. Recently a consultancy firm has rated Tesco as one of the best in fair dealings with the suppliers. It uses a number of techniques to maintain good relationship with its customers.
Tesco management believes that most of the business problems can be minimized by selection of good suppliers and maintaining first-class relationships with them. A major criterion for suppliers is their capability, quality and cost. But besides, the following supplementary aspects are considered:
Trust and Commitment
The organization exhibits trust and commitment towards its suppliers. This serves as foundation of successful relationships and compels the suppliers to have long term vision towards the organization. Effective and clear communication is ensured. Commitment with the suppliers overcomes the risk of abandonment during business downturns.
Top Management Support
Top management of Tesco is extremely committed towards expanding and improving its relationships with suppliers. It fosters boundary spanning relationships across both corporate boundaries and functions. Conflicting goals within and outside the organization are aligned to ensure appropriate supply chain relationships. Conflicting goals regarding supply i.e. inventory, timely deliveries, payable period and other service issues are smoothly balanced with top management commitment.
Top managers of Tesco keep on visiting suppliers to negotiate and guide them. Also certain supplier development activities like site visits, supplier recognition, training, and direct investments in the supplier's firm are initiated.
Organization strives to create a win-win relation with its suppliers. It is made sure that the relationship should be beneficial for both the parties involved. One sided benefits are not lasting and worth enough. The organization is incredibly loyal with its suppliers and spends time to help a supplier develop and does not change for a cheaper one.
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Steps are taken to make the culture of the suppliers' organization compatible with Tesco. Shared values and common reward systems are promoted. Promoting similar work behaviors and cooperation ultimately yields cost savings for both Tesco and suppliers.
Sharing of Information
Tesco facilitates sharing of fair and authentic information with its suppliers. The benefits of relationships arise from reducing the uncertainty associated with transaction oriented exchanges. Information sharing increases certainty and reduces needless interaction and enhances the quality of relationships. The organization keeps on sharing related information with its suppliers to help them better understand their needs and desires.
The information gave suppliers a much better understanding of their market and their customers.
It helps them to identify the different types and segments of customers in their markets. They can be able to tailor their marketing to meet customer needs.
The supply commitment is made with annual programs sharing the volume growth and expectations for the yearly deliveries. This way the suppliers can tailor their business marketing plans to improve their appeal to new customers.
Tesco rarely moves from one supplier to another. It believes in maintaining a long term relationship with a few dedicated suppliers. At the moment most of its suppliers have worked with the organization for six years or more. Tesco has committed to a supplier partnership approach because it has realized that its success depends on the success of our suppliers.
By forging long-term partnerships with suppliers the organization has been able to able constantly broaden and improve its product range. This strategy has resulted in having suppliers that develop new products, winning customers for Tesco and itself. The move toward tight integration of the suppliers and purchasers is occurring in both manufacturing and services.
The organization prefers to avoid lengthy and cumbersome procedure of contracts. They are used as guides rather than specifying all contingencies. Simple and flexible contracts enhance relationships. Tesco adopts more creative negotiation strategies that focus on delivering value for all parties, both supermarkets and their suppliers to continue successfully work together.
Tesco has made cross functional teams including the members of both the supplier and the organization that meet periodically to enhance their relationships. There are arrangements through which sales personnel of Tesco share the consumer feedback with the suppliers. Consequently suppliers are engaged in providing value-added services to the organization.
Performance monitoring and past relation experience is very critical for ideal relationships. The organization has established a formal performance evaluation method for its suppliers. This helps in future decisions and guides suppliers to compete in a better way.
Problem Solving Systems
The organization has established problem solving procedures to reduce and prevent various conflicts. This is made possible through frequent communication at all levels of the customer and supplier organization. As a result suppliers are engaged in providing superior services to the organization.
Price is an important negotiating point, but it is not the only one. Both sides should focus on other variables such as storage, delivery and promotional investment.
Helping in tough times
Tesco empathize the needs of its suppliers and their problems. It gives its suppliers margin whenever commodity prices rise unevenly. But also keeps an eye on the situation. The moment prices of certain commodities become low the suppliers automatically reset the margins. This way Tesco has created a two way stream of trust and understanding.
Constant revising of policies
The management of Tesco keeps on revising the practices of SCM to maintain good relations with the suppliers. If because of other financial commitments the company squeezes its suppliers by extending their credit payment period. But afterwards regaining monetary stability, it helps its suppliers ease pressure from the credit crunch.
Searching innovative suppliers
Besides focusing on long term relations with a few suppliers, Tesco also keeps on searching for new promising and innovative suppliers. Even if the organization is not able to currently start the relationship with them, it manages to keep them interested enough as a safeguard. So that if one of its current suppliers goes out of business or is unable to follow criteria, it should a new supplier ready to immediately fill the gap and provide goods and services.
Tesco uses different distribution channels for its SCM. Mainly trucking, Air freights, water ways, rail and canal networks are used. because of increasing road congestion, fuel prices, and concern over carbon footprint, Tesco keeps on switching some of its supply chain to alternative modes. Tesco is extending its logistic practice to cover collection from suppliers (factory gate pricing) and the input to suppliers, in a drive to reduce costs
2.3 Evaluate the effectiveness of strategies used by Tesco
Effectiveness of Strategies
Because of use of the above mentioned strategies the organization has been able to maintain excellent working relationships with its suppliers. It is reaping the benefits of its relationships in various forms.
Increased market share The organization is experiencing increase in its market share. It has appeared as the biggest rival of Wal-Mart in United States.
Satisfied customers Because of consistent good quality service and the ability to provide the right products in right price at the right place the organization has very satisfied and loyal customer with their number increasing day by day.
Improved quality Tesco has bee able to maintain a quality standard in its products and processes.
Improved Procurement Procurement activities are now combined with various shipping, warehousing, and inventory activities to form an efficient logistics system. Procurement and logistic system has improved a lot in the organization because of proficient SCM. It is strategically sourcing its suppliers all over the globe. It explores new and promising ways to make arrangements for key raw materials. Suppliers are segmented on various basis and long term relationships are established with the selected ones.
Low cost The organization is able to offer low quality products to its ultimate customers because of selecting the suppliers which can make it possible. Another advantage to Tesco is that it has positioned itself as an organization which has every thing for every one i.e. targeting various segments at a time.
Great expansion Tesco is expanding its operations in different regions through its dynamic network optimization. New stores are showing good results so far.
Replenishment Because of well managed inventory, transactional logistics, real time track and trace, multi-modal shipment delivery and visibility, Tesco has made its replenishment procedure aver collaborative and integrated.
Profitable growth Long term supplier relationships and efficient use of web based technologies has enabled the organization to be more close to the customers and consequently achieve its business objectives and earn profits.
Competitive Edge the organization has developed a competitive edge through effective supply chain management system. it has its own fleet of two thousand trucks, twenty distribution centers and a satellite communication system. With the help of all these and its suppliers Tesco replenishes its store shelves an average of twice per week. While competitors' resupply every other week. Economical and speedy resupply means high level of product availability and reductions in inventory investment.
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It gained a first mover advantage when it launched Tesco.com, which is one of the biggest and most successful online retailers.Â This part of the business continues to grow market share and has provided a channel to sell non-food items and other areas of the business including finance.
3. Investigate how web-based applications contribute to the full integration of the supply chain at Tesco.
How web based systems facilitate integration of SCM
The internet provides global connectivity and a flexible platform for the seamless flow of information across the enterprise and between the firm and its customers and suppliers. It is the primary technology infrastructure for electronic commerce, electronic business, and the emerging digital firm.
Before internet using traditional setup, the organizations had to face difficulties and delays in SCM systems for purchasing, materials management, manufacturing, and distribution. It was not easy to efficiently share vast amount of information with suppliers and distributors because of compatible technology platforms and standards. Tesco has been able to streamline its business operations particularly its SCM system. The organization gained the following benefits because of effective utilization of SCM.
Use of E-commerce
Use of Ecommerce in SCM enables the organization to exchange electronic purchase and sale transactions with its suppliers and with individual customers. Integrated SCM has enabled the organization to decide when to produce, what to produce, and when to store, and move.
Tesco is using internet and other digital technology for organizational communication and coordination, collaboration with business partners, and management as well as for Ecommerce transactions. The organization is extensively using various web based technologies to manage its internal processes and relationships with suppliers and other external entities.
The organization keeps on frequently adding web tools such as blogs, forums and ratings and reviews to its websites. This way Tesco can maintain close internal ties internationally with a very low cost. The SCM system is integrated with other key processes of the organization because of web technologies. Orders can now be rapidly communicated.
Coordination among Activities
Web technologies enable the organization to exchange important information with its suppliers about availability of materials and components, delivery dates for shipments of suppliers, and other production requirements.
Tesco is also utilizing web based systems to share details with distributors about inventory levels, the status of orders being fulfilled, or delivery dates for shipments of finished goods. Shipments can be easily tracked.
The organization can check inventory availability and monitor inventory levels. This has reduced inventory, transportation, and warehousing costs for the organization.
Tesco can plan production based on actual customer demands and changes in behavior. Also it can now rapidly communicate changes in product design.
Order processing has now become a part of SCM earlier which was considered a part of accounting and sales. It is the one area where operational efficiency is achieved trough use of internet. It has reduced organizations costs and enhanced customer service.
Synchronization of activities
Tesco has synchronized its SCM and distribution activities to cut down costs and boost its efficiency having material flow continuously from multiple manufacturing centres to multiple distribution channels. The organization keeps on updating its systems for warehouse management and transportation management trough efficient use of web based systems.
It is the web which assists the orgnization to get accurate market knowledge to respond according to the market demandsa and offer the best and broadest range of house brands from any retailer.
Tesco has operated on the internet since 1994 and was the first retailer in the world to offer a robust home shopping service in 1996. Tesco.com was formally launched in 2000. It also has online operations indifferent countries of the world. Grocery sales are available within delivery range of selected stores, goods being hand-picked within each store. Tesco offers an internet-based DVD rental service, which is operated by love film and a music download service.
Use of web and internet has enables Tesco to create operational interaction among the different regions i.e. North America, Europe, Asia/Far East, and Rest of World. Extensive use of internet has enhanced communication capabilities of the organization to look for opportunities across different regions to create synergies. For example, if a particular product is short or too expensive in one region, the organization has a liberated space to locate that product in another region.
Web services facilitate the rapid and automatic flow of information through a global network, which helps the organizations to easily explore new endeavors. It has facilitated the organization to efficiently work internationally to set up and enhance the mutually beneficial "win-win" partnership relations with its suppliers.
Suppliers are internationally sourced, and Tesco gains scale economies from its large buying volumes.Â This has enabled the company to keep prices down and supported its low price strategy aimed at the broad consumer market. Tesco has looked to increasing efficiency and effectiveness.Â Cost savings have been sought from the supply chain, through better use of IT, and from policies and management of suppliers to ensure the greatest value to the business and customer.
The web applications have allowed the organization to integrate its business transactions efficiently. This way the acquisition of data between the organization and its supply chain partners has become much more simple and feasible. Organization encounters low information-sharing and information-linking costs.
Study the policies, strategies and systems used by an organization for
Tesco is known as pioneer in efficient use of web based technologies. The organization uses a number of web based processes. The organization keeps on frequently adding web tools such as blogs, forums and ratings and reviews to its websites. Information technology has revolutionized the retailer, not only in stock-control and distribution worldwide, but also in terms supplier management.Â It has enabled better retailer-manufacturer innovation, facilitated in shortening of decision making and greater knowledge sharing. This way Tesco can maintain close internal ties internationally with a very low cost. SCM in Tesco has been built by using intranets, extranets, special SCM software and a number of web based programmes. Some of them are discussed below.
Tesco is using a virtual meeting platform known as Cisco TelePresence. It facilitates distant communication. Also the organization use more interactive online conferencing techniques. Tesco introduced Cisco WebEx, a web conferencing platform which allows users to collaborate and share information with their colleagues anywhere in the world. Its exciting part is that that the Staff members cannot only share information from their desks but can also give the control of their desks to the other members. This method has proven to be very proficient, time saver and cost effective. It has enhanced the quality of the meetings and facilitates better understanding of the issue.
Electronic Data Interchange
The organization is using EDI electronic data interchange, which enables better processing of transactions with suppliers. Also it has web system in place to directly share the sales data with the suppliers and automatically placing the orders.
Tesco has launched loyalty card known as Club card which provides the grocer with detailed information about its customers. This resulted in increased sales. Also very often Club card vouchers are mailed out, putting "coupons in shoppers' hands in the run-up to boost sales.
Data Mining Setup
Tesco uses information gleaned from Dunnhumby, a British data mining firm of which it has majority control, to manage every aspect of its business, from creating new shop formats to arranging store layouts to developing private-label products and targeted sales promotions. This has given the organization an unrivaled ability to manage vast reams of data and translate that knowledge into sales. Efficient use of web and data management modules has given the organization an unmatched ability to operate multiple retail formats from very small convenience stores to giant hypermarkets.
Warehouse Management System
Its web based warehouse management system tracks and controls the flow of finished goods from the receiving dock at the distribution centres to the end customers. The system has cross docking capabilities to reduce the labor costs in the warehouse. This system also directs the movement of goods based on immediate conditions for space, equipment, inventory and personnel.
Transportation Management System
Transportation management system examines customer orders, factory schedules, carrier rates and availability, and shipping costs to produce optimal lowest cost delivery plans. These plans are generated on daily basis and are updated in every few minutes. Tesco system has an automated interface to negotiate deliveries in its carriers. Also the organization has arrangements to electronically send signals to carriers which serve as requests to bid a shipment. These signals are transmitted over the web and carriers transmit back automatically.
Tesco has consolidated its distribution centres and is using web to coordinate shipments and to reduce billing and invoicing costs. As a result there is no bull whip effect.
Radio Frequency Identification Systems
Tesco requires from its suppliers to use RFID radio frequency identifiaction tags on its all product shipments. This has enhanced ability to manage its supply chain more precisely.
Tesco has introduced collaboration tools to its intranet. It has developed a discussion forum, blogs and a wiki where web pages content can be freely edited by anyone. These tools are different from the TelePresence platform. They are not co-dependent and serve a very different purpose. Wikis and blogs are for many to many relationships simultaneously.
Four core business areas are identified to particularly benefit from the collaboration tools would deliver as end result. These areas include trade planning, space, range and display (SRD); innovation and promotions. Opportunities for collaboration have also been grouped into four areas - innovation, decision making, knowledge sharing and operational excellence. For instance, trade planning and SRD are best suited to the knowledge-sharing process, while promotions are linked to decision making and operational excellence.
For now not only are these technologies allowing Tesco staff to communicate more effectively, and more productively, but they are contributing to the business goals of saving money and reducing its carbon footprint too.
The organization has recently implemented an extensive planning supply and demand matching optimization tool using the Internet. Every two days a global supply and demand match for over forty thousand products produced in various factories worldwide is carried out. Seventy percent of their customer orders are now online; they provide real-time order status information. Their system has factory-level planning optimization with global inventory visibility.
Web based SCM facilitated the managers of tesco to collaborate online on forecasts. Also they can tap into suppliers' systems to determine whether inventory and production capabilities match demmand for the organization's needs.
Web helps to coordinate component replenishment work so that warehouses remain stocked with the minimun amount of inventory in the pipeline. It provide detailed coordination of scheduling based on analysis of changing factors, such as customer orders, equipment outages, or supply interruptions. Demand forecasting is routinely updated by sales representatives based on the latest customer information and eventually by the end customers themselves.
This use of web based technologies was intended to result in lower procurement costs, lower inventories, less Bullwhip Effect, and more profits for the organization. Inventories are lower due to the reduction of the bullwhip effect, and also because materials are easier to source with shorter lead times given a greater number of potential suppliers.
It can be said that the use web and web based transactions has not only optimized business processes in Tesco but actually it has transformed all systems. It has made the SCM system extremely quick and efficient. This way the organization has not only been able to keep its current customers happy but is also bringing in new customers day by day.