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Introduction
Logistics management has been the industrial success driver for a long time, and thus organisations have been investing on it over the last century. However, the current organisational supply chain management is focused on the increasing consumer expectations with regard to the choice and delivery of goods and services.
Due to the high competition brought about by globalisation across all industries, customers are in a position to demand higher quality and lower prices for goods and services. In a bid to maintain an intact client base coupled with continued profitability and viability, organisations have embarked on adopting different approaches in their logistic operations.
Therefore, this report compares and contrasts the logistics operations of two companies, viz. Tesco and Sainsbury, with regard to inventory management strategies, logistical operations, inventory management, transport mode polices, and IT systems. Conclusions and recommendations for the next five years of operation are also made for the two companies.
Logistics Elements
Logistics management involves the planning, implementation, and effective and efficient control of the flow of goods and services from their point of origin to that of consumption to ensure that the customers’ requirements are met (Wang 2013). The basic elements include warehousing, storage, and handling of materials, packaging, transport, and the control of information.
Management of Logistic Operations: Tesco vs. Sainsbury
Tesco
Tesco is one of the food retailers in the UK and it has thousands of stores worldwide, but over half of these stores are in the UK (Competition Commission 2010). The headquarters are located at Hertfordshire and the company offers offline and online personal finance services. The company has also been on a profit run for the last couple of years.
Tesco has recorded a significant growth over the last few years and one of the indicators of this growth is its profit before tax. Over the last financial period, the company had a growth of 14.5% in profits, which had improved from the previous year as it stood at 2.1%. However, the trend has been unsteady with the company pre-tax growing by 12.3% in 22010/2011 financial period and 8.7% in the 2009/2010 financial period.
A graph showing Tesco’s pre-tax growth between 2009 and 2013
Logistic operations
Centralisation
In the years around 1970, Tesco had a Direct to Store Delivery (DSD) where the manufacturers as wells as suppliers had the choice of delivering their goods in any store that they chose (Joseph 2013).
Centralisation was unachievable with this kind of warehousing and the product quality could not be guaranteed. In a bid to ensure that the company had control over the prices of goods, it adopted the centralised system to replace the DSD (Palmer 2004). The stores were interlinked with the head office, and stock could be obtained on time with quality guarantee.
Continuous replenishment
Tesco also adopted the continuous replenishment policy in the year 1999, which entailed a flow system and allowed multiple deliveries to be made (Wang 2013). The company also pioneered in the implementation of Factory Gate Pricing, which allowed the company to save on the prices of goods since the suppliers reduced the prices charged for transportation (Rushton et al. 2013).
Transportation Policies
Tesco is one of the companies in the UK with an efficient logistic operation. The company has traditionally been dependent on trucks on the highway to deliver the goods to the customers and the various stores, and these were utilised in the sourcing of goods from suppliers. It, however, introduced rail services late in the year 2011, and these were meant to reduce the traffic that the Lorries were creating by taking about 40,000 of them off the road.
The trains transport the goods from the company’s central depot to the distribution centres and stores, and goods from the suppliers are transported on the way back. For the purpose of this logistical venture, Tesco got into partnership with Direct Rail services and Stobart Rail (Tesco Case Study 2011). Some of the other transport modes that the company utilises in its logistic operations include shipping, air travel for regional and international centres, and vans for home delivery.
Warehousing, Storage and Packaging
The company also has a detailed logistics strategy, and this aspect is evident in the four main warehousing methods that it utilises within its supply chain. The first warehousing method applies for goods that can be stored at room temperature, and these warehouses are the regional ambient distribution centres (Tesco Case Study 2011).
These warehouses are used to store things such as groceries that are not moisture dependent or wet. The second kind of warehousing utilised is the bonded warehousing, and this form is utilised for goods that are regionally distributed. The third king of warehousing that is utilised by the company is the national distribution centres. These are spread all over the countries that the company operates, and they are used to store the goods that are deemed to be slow moving and that are durable.
These goods include textiles and other materials such as those used in hardware and construction. The last warehousing utilised are the composite distribution centres. These centres are temperature regulated to provide optimum conditions for the mainly fresh and perishable goods that are stored here. Frozen foods are also stored in these warehouses, and temperature controlled trucks and train carriages are used to distribute them to the outlet stores and other retail stores.
Information and Technology
The company has also been a leader in the use of technological innovations in the packaging process, and some of the major breakthroughs that it has made include the invention of a new material used in packaging of fresh produce to increase their shelf life. The technology has been applied in the arioso fresh produce that it has in its stores, and has doubled the shelf life. Packaging is also utilised in other products that the company stocks in its warehouse.
Facilities are a major contributor of supply chain management and Tesco has a number of methods to ensure that this driver has an impact on its performance. In a bid to facilitate the change, the company removed some of the processes in the supply chain that were deemed inefficient and the rest of the processes were changed to be more customer focused (Benton and McHenry 2010).
Most of the outlets in the country also have gas stations and the company is considered as one of the major petrol-independent retailers in the United Kingdom. Some of the countries served include Czech Republic, Hungary, Poland, the Republic of Ireland, and Slovakia (Vankateswaran and Son 2010).
Inventory management
Inventory management is a significant part of any business enterprise, and Tesco has invested in this field to ensure that it stays competitive (Weele 2010).
The experience of shoppers can be subject to the availability of stock in a company and shoppers currently have the choice of different organisations from which to shop. Researchers have found that shoppers often visit other stores to shop for an item that is missing in the initial store that they shopped, and this aspect represents a loss in revenue for the company involved (Golgeci and Ponomarov 2013).
The most important aspect of supply chain in ensuring the availability of stock in industries is the management of inventory (Blackburn and Scudder 2009) and Tesco has embarked on this course. Other important factors in the logistic management include information accuracy, presence of product range, and substitution of demand (Yücela et al. 2009).
The determination of policy aimed at optimum inventory control has garnered importance over the last few decades with the company being one of the market leaders in this aspect.
One of the major policies adopted by Tesco is the Automated Store Ordering (ASO) system, which has ensured that the company replenishes its supplies to the customers’ convenience (Longo 2011). Automated store ordering is one of the latest developments in the supply chain management, but hitherto most industries utilised human interventions in their stores to make decisions on the availability of stocks.
The use of ASO within Tesco and its subsidiaries has allowed the improvement of efficacy and led to the development and introduction of Electronic Point of Sale (EPOS) technology (Vadalakis et al. 2011).Some researchers have described the basis of ASO as a technologically oriented service allowing the improvement of services within organisations’ supply chains (Vadalakis et al. 2011).
Other researchers have also compared ASO with other traditional approaches that were used in organisations to improve the delivery of services (Gaur et al. 2009).
In addition, ASO has ensured the improvement of availability of products and services. Tesco has utilised ASO for a number of years and it is frequently involved in the introduction of other services geared towards improving the availability of goods within its branches. In one of the researches done on Tesco’s inventory, the use of ASO was found to increase the, ‘variability of workload by 185% in the distribution centres’ (Potter et al. 2009: 5740).
The company has also been a leader in the adoption of technology in the supply chain, and it was the first to automate its checkouts in the retail stores. The company also developed the computerised stock control system in the 80s, which complemented the checkout systems already in place by then (Van Der Zee and Van Der Vorst 2010).
Tesco.com is a major component of the company’s information sharing attempts to the customers, and it has grown to operate over 250 stores across the UK since its inception (Potter et al. 2009). The services have also become important to the company’s customers and it is reported that over a million of them use the services (Burt et al. 2011). Therefore, the company remains a market leader in the use of transportation, inventory, and information in the growth and management of its supply chain.
Sainsbury
Sainsbury was founded in the year 1869 and for years, it was the largest food retail company ahead of Tesco and other companies in the industry (Dudbridge 2011). One of the areas that can be evaluated in the performance of the company is the bank subsidiary that it operates.
The company received £52.9 million in the last financial year, which was an improvement from the previous year’s financial performance of £40.3 million. The previous financial year’s profits also stood at £39.7 million, which was an improvement from the profits of the year 2011 that were £29.9 million (Wang 2013).
A graph showing Sainsbury’s pre-tax profits and after-tax profits in 2011 and 2012
Despite the positive performance, the company experienced challenges in competition with other companies and Tesco is one of the companies that overtook it in terms of size and performance.
The leadership has also demonstrated lesser strategy in the market over the last decade as compared to the previous years, and this aspect has forced the company to fall below other companies such as ASDA (UKPA 2010). The supply chain management has also not been adequate, and this aspect is one of the reasons that the company trails Tesco in the industry.
Logistics management
The company had used the out-dated logistic system that Tesco abandoned in the 70s, until the year 2001 when it adopted the strategies of network renewal, people and culture, partnerships and replenishment policy (Joseph 2013).
Transportation
Sainsbury has adopted a rather simple warehousing system and transport network. The company mainly utilises vehicles in the distribution of her goods between the distribution centres and the retail outlets. The main component of the fleet of vehicles is the long trucks that form the backbone of the transport system.
Smaller vans are also used in the transport of some other goods to and from the retailers. Some of the latest developments in the transport network that Sainsbury utilises are the Isotrack Vehicle Tracking Systems, and this aspect has enabled it to reduce fuel consumptions and carbon emissions. The other measure that Sainsbury took was to integrate its transport with the paragon software systems, and this move in combination with isotrack reduced the operational costs.
Warehousing
The company’s warehousing policy includes about 19 distribution centres across the UK, and these are used to store the different kinds of goods that the company distributes to the retail centres (Competition Commission 2010).
The company started construction of a central depot in the year 2012, and this depot would be connected to both a major highway and a rail network. The warehouse would cover an area estimated at about 1 million square ft, which would serve as the only major depot for the company, with the other distribution centres getting some of the goods from here.
Storage and Distribution
Sainsbury had traditionally used the centralised distribution that was also used by Tesco, and manufacturers would deliver their goods here. This system started to fail at the beginning of the millennium, and they had to adopt a different system. The latest of the storage systems used by Sainsbury is the Automated Storage and Retrieval System, and the company utilises special sortation systems and conveyors (Competition Commission 2010).
Some of the other components in the company include the primary consolidation centres, fulfilment factories, k Line depots, frozen food depots, and specialised distribution centres (Vadalakis et al. 2011). The company also outsources its logistic providers, and some of these include the Excel Logistics.
The company also embarked on expansion policies and one of the first of these policies includes the acquisition of Bells Stores, which increased its stores and profitability. The company also invested in transportation in its supply chain with the introduction of major changes and collaboration with other companies to ensure efficiency (Long et al. 2011).
Inventory Management and Technology
The inventory management has also become a major concern for Sainsbury and one of the major steps that it has taken include the adoption of technology on the supply chain.
The company, even though not the first in the industry, introduced a number of online services that were meant to improve its performance on the global front (Vadalakis et al. 2011). Consumers can now shop online and engage in business transactions over this platform and this aspect, according to Terzi and Cavalieri (2010), is an effective method of ensuring better performance.
Sainsbury has developed a strong network of suppliers with assurances of fresh and quality foods. The company also has an Internet-based shopping service where customers can access various products and services throughout the day.
However, the number of stores that have adopted the service is fewer as compared to those adopted by Tesco, which stands at only 165 in number. The company has also invested in a number of services for its customers including baking services that it provides. The outlets are also known to offer a variety of services, which are mainly related to hospitality.
Comparison
This essay puts Tesco as the market leader in the industry in the UK, and the company has managed to overtake Sainsbury in the last few years. The strategies that the company adopted can be considered as having put them in the leadership of the industry. The company was able to change their out dated strategies timely enough to avoid being irrelevant and remove any inefficiencies in their logistical operations.
Sainsbury, on the other hand, was relatively slower in the adoption of system upgrades and new technology in the logistics management and this is one of the reasons that it trailed the other market leaders.
However, the company has put these changes in place, and it could be competing on the global arena in the next number of years. They have replaced their traditional systems to match those of Tesco, and this has made them worthy competitors. Companies should be able to adopt changes as fast as they are available (Potter et al. 2009; DeHoratius et al. 2010).
Another important aspect of logistics management in any industry is the transportation and availability of services to customers in the right time and quality (Kayakutlu and Buyukozkan 2010). Customers also need a variety of products to be offered in the same place for convenience and organisations that are able to achieve this goal have a reported better performance.
Tesco has managed to provide varying types of services including the gas services that it provides to its customers and the different types of goods available in its stores. Sainsbury offers varying types of goods and services in its branches, but these goods and services are not as many compared to those that Tesco offers. This aspect is one of the reasons why some customers who used to frequent Sainsbury have shifted to Tesco, thus leading to its dominance in the industry.
Despite the above differences, the two companies have a well-performing supply chain that is geared towards the provision of adequate goods and services to their customers. The two companies have engaged in the promotion of the participation of all the players in their supply chains, and this aspect is considered as one of the most innovative ways of increasing performance of the supply chain.
Conclusion
From the analysis of this paper, the logistic policies adopted by Tesco were important in the propulsion to the top of the industry. On the other side, Sainsbury was slow in the adoption of strategies to this effect, leading to the marked slow improvement and a fall in the industry dominance.
This aspect shows that industries should be fast in adopting technologies in their logistical operations to be in a position to compete effectively. Out-dated practices should be replaced with new one, and this should be timely enough. The companies are now competing with each other on the same platform, and the changes made by Sainsbury have made it a strong competitor of Tesco.
Recommendations
A number of recommendations are possible for the two companies in the report. These companies should be in a position to make decisions in their supply chains in terms of production, inventory, location, transportation, and information. They should create master production schedules by taking in account the capacities that their stores and organisations. These production schedules should also be balanced in terms of quality, workload, and equipment available.
In the inventory, the two companies should invest adequately to ensure that they are predictable and that their supply chains are certain, which can be done through the adoption of policies aimed at increasing customer confidence. They should also invest in different parts of the country and provide goods and services that are appropriate for the target markets.
Transportation is also an important aspect of the supply chain and appropriate partnerships with the transport companies should be entered. The path taken by both companies in adoption of technology in their operations is commendable; however, they should ensure that the latest technology is available to their customers.
List of References
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