Tesco is the UK’s largest food retailer, with a sales turnover of more than 67.5 billion. While
it has some 638 stores in central Europe, and some 636 in the Far East, most are in the
United Kingdom and Northern Ireland, where it has nearly 1,800. This number has increased
rapidly as Tesco entered the convenience store market with deals such as the Tesco Express
alliance with Esso to run grocery shops at petrol stations. The product range held by the
stores has grown rapidly in recent years, and currently stands at 65,000 stock-keeping units
(skus) depending on the size of the store as Tesco broadens its presence in the ‘non-food’
market for electrical goods, stationery, clothing and the like. This massive range is
supported by 3,000 suppliers, who are expected to provide service levels (correct time and
quantities) of at least 98.5 per cent by delivering to Tesco within half-hour time ‘windows’.
Volumes are equally impressive. In a year, some 2.5 billion cases of product are shipped
from suppliers to the stores.
Tesco states that its core purpose is ‘to create value for customers to earn their lifetime
loyalty’. Wide product range and high on-shelf availability across that range are key
enablers of that core purpose. So how do you maintain high availability of so many skus in
so many stores? This question goes to the heart of logistics management for such a vast
organisation. Logistics is about material flow, and about information flow. Let us look at
how Tesco deals with each of these in turn.
An early reform for supermarket operation was to have suppliers deliver to a distribution
centre rather than to every store. During the 1980s, distribution to retail stores was
handled by 26 depots. These operated on a single-temperature basis, and were small and
relatively inefficient. Delivery volumes to each store were also relatively low, and it was not
economic to deliver to all stores each day. Goods that required temperature-controlled
environments had to be carried on separate vehicles. Each product group had different
ordering systems. The network of depots simply could not handle the growth in volume and
the increasingly high standards of temperature control. A new distribution strategy was
needed.
Under the ‘composite’ distribution system, many small depots with limited temperature
control facilities were replaced by composite distribution centres (called regional
distribution centres, RDCs), which can handle many products at several temperature ranges.
The opportunity is to provide a cost-effective daily delivery service to all stores. Typically, a
composite distribution centre can handle over 60 million cases per year on a 15-acre site.
The warehouse building comprises 25,000 square metres divided into three temperature
zones: frozen (-25°C), +2°C (chilled) and +12°C (semi-ambient). Each distribution centre (DC)