On The Meaning of "Supply Chain"

On the meaning of “supply chain”The term supply chain describes the whole production process, selling and handling process for products. Therefore, it does not only include the selling company, but rather all steps and companies that are needed for manufacturing, transporting, warehousing, selling and depending on the product maybe even recycling. General introduction to the importance and development of supermarket logistics Many logistical processes need to take place in order to make sure that customers are able to buy thousands of different products in supermarkets. The availability of every product is obviously very important in order to reach high profit margins and customer satisfaction, since customers might already get displeased if only one product is out of stock.Therefore, the complete control and knowledge about the supply chain and data about each product is a key factor for success in business.

Within the retailing sector there were and still are many changes ongoing regarding the logistical processes, in order to reach a very high product availability.According to Fernie and Sparks (2004) the manufacturers in the UK delivered their products to the different stores on their own before 1980. Since the 1980s the retailers began to build own distribution centres, which were used to merge the deliveries of the different manufacturers This was a key change within the supply chain, because the retailers got able to organise the supply of their stores by themselves and are therefore less reliant on the manufacturers, because they can keep a safety stock level of the most important products in the distribution centres.

Furthermore, distribution centres enabled the retailers to have a more centralized and thus easier overview of the warehouse stock (cf. Fernie/Sparks 2004: 16).Tesco PLC started doing so as well within the 1980s, whereat they replaced small distribution centres by bigger ones that were capable of managing products with different temperature levels. Furthermore, they upgraded their delivery vehicles in order to provide a simultaneous transportation at different temperature levels (cf. Harrison/ Van Hoek/ Skipworth 2014).In 1982 Tesco PLC also introduced computerised checkouts (cf. Tesco PLC website 2018), which obviously is an important step not only regarding the speed of checkouts, but also the whole supply chain in general, because it possibly enabled Tesco to directly measure their sales and therefore lightened the whole distributional and logistical process. Since the 1990s retailers began to take more and more control of the whole supply chain/ logistical processes of each product (rather than the manufacturers having the control) in order to achieve even better control of every logistical process (this even opens up the use of just in time principles) and therefore increase the customer satisfaction and the profit (cf. Fernie/Sparks 2004: 16-17).Such a development is for example visible within the structure of the German discounter “Aldi Süd”, whereat they nowadays control most of the logistical processes on their own. For instance, they promote their products in own flyers instead of letting the manufacturers do the advertising. Without having a near complete control of the supply chains the companies would be unable to accomplish certain objectives. Such objectives are for example the decrease of lead time, the increase of service level or even broader goals like the lowering of C02 emissions.

Tesco PLC being the biggest user of biofuel within the UK directly reflects importance of the importance of the development explained above, since they would not have reached this standing without having an own truck fleet that they can equip however they want to (cf. Harrison/ Van Hoek/ Skipworth 2014).Nowadays many companies are trying to implement or even already implemented online stores. This is obviously generating some problems, for example the need of new infrastructure that handles the online orders, delivery to the customers or unknown competitors that might only focus on online trading. Tesco started their selling online in 2000 with the launch of “Tesco.com”, where now more than half a million customers per week buy products (cf. Tesco PLC website 2018). According to Fernie and Sparks (2004) Tesco started with using their existing infrastructure to fulfil the online orders. So, in the beginning they did not introduce dedicated centres but rather used an instore-picking system. This was especially important for the introduction time of online shopping, since low amounts of customers did not justify the high costs that come with the launch of dedicated distribution centres.

Furthermore, instore-picking guaranteed a shorter delivery time, since every existing store was able to send out delivery trucks instead of sending them out from one dedicated centre, which would mostly likely not be located in the city centre like existing Tesco stores were (cf. Fernie/Sparks 2004: 18/19).With increasing numbers of online customers this strategy was adapted within 2006, whereat Tesco launched their first distribution centre that is completely dedicated to fulfilment of online orders. Additionally, to the hundreds of stores with an instore-picking system there are now several so called “dark stores” that completely focus on the online orders (cf. Thompson 2012).The advantages of these dark stores are obviously the focus on online, since the picking infrastructure can be automated within the stores and furthermore dedicated trucks can be used that can handle multiple deliveries and can therefore make use of economics of scale. In addition, the online selling enables Tesco to analyse the whole buying process and makes it possible to gather information about the decision-making process of customers that buy the products online, which then can be used to optimise marketing and supply. However, in summer 2018 Tesco shut down their online shopping site “Tesco direct” which was used to sell non-food goods, since operation costs were too high.

According to Charles Wilson (former CEO of Tesco UK&ROI, 2018) Tesco rather wants to focus on one online selling website (tesco.com) in order to provide an opportunity for the customers to buy grocery and non-grocery products on one website. Further, he confirmed that “it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future“ (cf. Rigby on internetretailing.net 2018). This once more shows how complex online retailing can be for experienced retailers like Tesco and that effective store-based selling does not guarantee an effective internet based selling system.Impact of Tesco´s diversification on possible logistical problemsTesco PLC has worldwide over 6800 stores that all come with different governmental regulations and structures that obviously have a huge impact on the business processes within Tesco, but even inside of the UK there are many different kinds of Tesco stores (cf. Tesco PLC website 2018). According to Tesco´s preliminary results of 2017 there are already 3433 stores within the UK. But the stores differ in size a lot, which assumingly makes planning and logistical processes more difficult, since for instance there need to be different trucks depending on store sizes and demand, but also location of the stores they deliver. For example, approximately 73% of all stores are under 3000 sq ft in size, while only contributing to 13,1% of Tesco´s total store area. However, around 5,3% of all stores (40001-60000 sq ft in size) contribute to 23,5% of the total area. This again reflects the difference of the store structure and therefore shows the need of different planning systems (cf. Tesco preliminary results 2017: 60-64).