Tesco - Supply Chain Management Case Study

Case Study:Lean Supply Chain Management,Tesco

The Tesco supermarket chain in Britain has been a pioneer in retailing for more than a decade. In the mid-1990s, as he looked at the opportunities for retailers provided by the emergence of lean logistics, Graham Booth, Tesco’s supply chain management director (now retired), had a very simple insight: A rapid replenishment system triggered by the customer would work in any retail format. What’s more, it would work even better if the same replenishment system, using the same suppliers, cross-dock distribution centers, and vehicles serving many stores, could supply every retail store format. Booth saw that there might be very little difference in real costs in supplying the same item through any store format.This was because the purchase price from the supplier could be negotiated for the whole network, not by format,and the same replenishment system making frequent milk runs to larger stores could also stop at small stores to share logistics costs. The cost disadvantage of smaller outlets, due to weak supplier leverage and expensive logistics, would largely disappear.

Booth approached Dan Jones and his research group, asking how Tesco could benefit from Toyota’s supplier logistics methods to reduce time and effort. Dan suggested “taking a walk”—examining a typical provision stream, in this case the one for cola soft drink products. He urged Graham to invite the other functional directors at Tesco—retail, purchasing, distribution, and finance—along with the operations and supply chain directors of Britvic, the company supplying the cola. On a cold day in January 1997 this group set out, walking back through the provision stream for cola from the checkout counter of the grocery store through Tesco’s regional distribution center (RDC), Britvic’s RDC, the warehouse at the Britvic bottling plant, the filling lines for cola destined for Tesco, and the warehouse of Britvic’s can supplier.

Along the way, Dan and his...