Essay: Supply Chain & Logistics Relationship Analysis - Tesco UK

Learning outcomes assessed:

1. Discuss the purpose of the Supply Chain and explain the impact of Supply Chain decisions on the success of the Organisation.
2. Illustrate innovation in online business models and communications approaches.
3. Explore and analyse Best Practice in Logistics and Supply Chain Management.

Supply Chain and Logistics

Supply chain and logistics are two important parts of an effective business system. A supply chain ensures the flow of materials from the producer to the retailer such that there is always a steady supply of products that are demanded by the customers. On the other hand, logistics is the transportation model that is used by business organizations to transport raw materials from the supplier to the manufacture and products from manufacturer to the retailer (Christopher 2016). The transportation of the goods is important to ensure the inventory of the retailer is always stocked up by the delivery from the suppliers.

In this report, the relationship between supply chain and logistics has been analyzed with emphasis on Tesco UK and several other aspects like use of ERP and best practices for reducing costs of logistics have been discussed in detail.

Tesco is a UK based retail chain that details with the sale of groceries and other merchandises with branches spread all over Europe as well as Asia. Tesco operates through supply chain and also has an ecommerce department that delivers products to the customers directly to their addresses. Initially starting as a groceries supplier, Tesco now deals with clothing, electronics, books, furniture, software, petrol, finance services, internet and telecom services making it one of the most diversified business organizations in the whole world. Hence, the company requires an integrated system that will enable the company to have centralized control over all the business departments.

Supply chain management is a business philosophy that is mainly based on the movement and flow of the materials from one point to another until it is sold the customer for a suitable price. On the other hand, logistics is defined as the process by which the product is moved from one point to another in the entire supply chain (Jacobs, Chase and Lummus 2014). The two terms can explained further using the following example.

Let there be a shirt to be sold to the customer from a particular garments shop. Now, for the preparation of the shirt, the fibers are extracted at a nursery. Then it is sent to the processing centre for preparation of thread after which, the threads are sent to the clothes processing centre for the development and dyeing of the clothes. After the clothes are dyed, they are then sent to the factory for the preparation of the shirt. Finally, the shirts are sent to the retailer for sale at a suitable price. This entire cycle of activities is together known as supply chain as the material / product is delivered from one centre to another as a supply.

The Role of Logistics in the Procurement Process of Tesco UK

On the other hand, logistics consists of the process through which the material or product is transferred from one point in the supply chain to another. For instance, during the supply chain of a shirt, the shirt is transferred from the factory to the retail shop through supply trucks (Hugos 2018). This delivery process is known as logistics and it requires additional costs other than the actual supply chain.

Hence, it is evident that supply chain and logistics are not the same thing but logistics is an essential part of a successful supply chain system (Boonjing, Chanvarasuth and Lertwongsatien 2017). However, logistics also incurs additional expenses that add to up to the cost of the material that is to be delivered from the supplier to the seller.

For Tesco UK, logistics play a very important role in the supply chain that is used by the company to procure the goods that are being sold in their retail stores. In addition to the contract with various logistics services, Tesco has a large number of distribution centers that procure the goods and materials from the manufacturers and distribute them to various retail stores (Stadtler 2015). However, with the increasing costs of logistics as well as production, Tesco has recently been forced to shut down many of the distribution centers. As a result, the supply chain of the company has been significantly affected although the operational costs have also been decreased by a good margin as the intermediate distribution logistics costs have been removed.

Effective logistic management is an important factor behind the determination of customer satisfaction for a particular business organization. The main function of logistics is to deliver the right products to the retailer who provides the services or products to the customers. However, customer satisfaction is increased significantly if their demands are met successfully without making them to wait for the response from the company (Monczka et al. 2015). This particular situation can be explained in a simplified manner through the following example.

In a particular retail store, let there be a high demand for a particular design and colour of a product so much that a trend has started for the same. As a result, it is expected that most of the customers will seek to buy that particular variant of the product and their satisfaction will increase if they get them easily (Fernie and Sparks 2014). In this situation, the function of the logistics will be to supply that particular product to the store from the supplier in such a frequency that the stock at the store does not dry up before the next lot arrives. Meanwhile, if the stock is empty in the store for a certain point of time, the customer satisfaction will slowly start to decrease.

Effective Logistics Management and Customer Satisfaction

This scenario is also effective to Tesco UK as they sell a variety of products and often rely on the sale of on-demand products in order to earn high values of profits. Hence, effective logistics management is necessary in order to maintain high customer satisfaction and also maintain the existing customer base of the company (Schönsleben 2016). In addition to contributing to customer satisfaction, effective logistics management is also required to manage the operational costs so that the company does not have to bear too much additional expenses in the business operations. Furthermore, effective logistics management will enable the company to have control over the secondary distribution process that in turn ensures proper quality of products are delivered to the retail store at the right price such that the company can earn a good value of profit from the sale of the on-demand items and products (Papadopoulos et al. 2016). With proper quality, cost and availability of the on-trend products and items, customer satisfaction can easily be increased as well as high amounts of profit can be generated from the sales.

ERP is an integrated business module that involves the aid of technology rather than only involving manual processing. An ERP system has a number of useful sub-modules like CRM, SCM, PLM, SRM and others that not only increase the efficiency of the business operations but also the effectiveness of the system to produce error free results during the business related operations (Leon 2014). Since the development of the ERP system, it has been able to replace manual participation in the business processes as it can perform many types of operations like budget management, accounting, processing of business data and others when proper instructions and algorithms are used. In other words, instead of a manually managed system, which is prone to errors, an entirely automated management system is used with minimum requirement for manual handling. In addition, the entire business process including all its modules and requirements are integrated into one common system that also decreases the operational cost of the system significantly.

ERP system can also benefit Tesco UK significantly if the implementation process is done in the right manner. Currently, there are a number of problems that Tesco faced related to its business processes that are listed and explained as follows.

No Centralized Control – Currently, the business systems and modules of the company are managed separately. For instance, there are separate departments for logistics and sales management and there are no proper integration and as a result, no coordination between the two departments (Tarhini, Ammar and Tarhini 2015). Hence, maintaining business continuity has become a tough task for Tesco with the increase in the number of stores and departments of the company. This situation can be avoided by integrating the entire system into one with establishment of a centralized control over the organization’s business processes.

Benefits of Implementing an ERP System for Tesco UK

High Operational Costs – Due to the lack of integration between the various departments of the company, the operational costs are also very high. For two related business processes of the company, two operations are separately conducted whereas they could have been easily completed by conducting both of them together. Furthermore, due to lack of coordination between the departments of Tesco, each department makes contracts with different vendors or suppliers at different prices (Seethamraju 2015). If the ERP system can be established, it will integrate the entire system in such a way that the operations will be rearranged and performed as per requirements. Furthermore, with integration of the departments, the contracts will be made with one or two particular suppliers at fixed rates without having the experience high amounts of losses.

It is evident that ERP system will significantly benefit the business of Tesco by reducing operational costs that the company currently faces. Furthermore, with the development of ecommerce of the company, the implementation of the ERP system can be very much useful in integrating the ecommerce department to the retail chain, which is necessary to maintain business continuity. With the sales in both retail and online, the system needs to update the inventory such that they are no confusions regarding the availability of the stock (Tian and Xu 2015). For instance, if the inventory is not updated as per the sales, there may be a situation when the online portal of Tesco.com shows stock for a particular product (let it be a tourist bag) is available in the inventory whereas the customer is unable to purchase the same bag due to lack of supply. This will significantly decrease the satisfaction of the customer as he will seek to buy the product from a different company. The ERP system will easily solve this problem and will perform all the processes independently without the requirement for manual management. Furthermore, in cases of lack of stock, the ERP system will automatically report to the logistics department to provide supply on immediate basis thus establishing business continuity within the organization.

There are a number of best practices that Tesco UK can follow in order to reduce their logistics costs and increase the efficiency of their business operations. Some of these best practices are listed as follows.

Safety Practices – Logistics involve transportation of tons of goods in heavy vehicles that also include a lot of labor from the workers in loading and dispatching the vehicles. Hence, safety practices are to be done to ensure the health safety of the workers of the logistics department (Bing et al. 2016). Safety hazards and accidents will incur significant additional costs that will increase the overall logistics cost as well.

Current Issues Faced by Tesco UK

Management of Labor – Reduction of labor costs is an important attribute in reducing the overall logistics cost. Instead of option for extra labor, the company should choose effective labor that will require lesser manpower but more and efficient output (Gonzalez and Jabbour 2017). This will also reduce the labor costs even after providing additional incentives and other benefits to the efficient workers.

Use of Technology – Technology can be effectively used to enhance the logistics department and reduce the overall costs of logistics (Oliveira et al. 2015). Use of communication devices and other technical tools can increase the efficiency of the logistics workers by 30%, thus increasing the quantity and quality of the overall output.

Conclusion

This report depicts supply chain management and logistics in detail and establishes the relationship between them in detail. It has been found that Tesco UK functions using a supply chain business but due to lack of sufficient management of logistics, the company has encountered high amount of losses. With the best practices of logistics management suggested, the company should be able to recover the losses and establish an effective business system. Furthermore, introduction of the ERP system will also integrate the entire business system of the company with the development of a centralized and automated control of the all the operations.

References

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