Tesco Supply Chain Process and Issues

Business corporations especially those in the manufacturing and retail industries have a defined channel through which they access the raw materials they use in making products or in accessing the products which they sell.

All the steps involved in the creation of a product right up to its sale to a consumer are commonly referred to as the supply chain process. Tesco’s supply chain process includes product development, sourcing, and manufacturing, procurement of products, logistics, distribution centers, stores, order fulfillment, and product delivery.

Tesco was founded in 1919 when Jack Cohen began selling war-surplus groceries at Hackney, East London. However, the Tesco brand did not appear in the market until 1924 when Jack branded the tea supplies he got as such.

The brand was first floated in 1947 on the London Stock Exchange at a rate of 25 pence per share. It has since grown to become the 18th most impactful international retailer based on its operations at the start of 2022.

Tesco has expanded beyond its founding location in the east of London and as of this year 2023, the brand boasts over 4,400 stores in several countries including Ireland, Czech Republic, Slovakia, and Hungary. They also have over 336,000 employees whom they refer to as colleagues.

Additionally, it has grown beyond the sale of groceries to include additional categories and services including fuel, software, clothes, toys, telecoms, furniture, financial services, electronics, books, and internet services. The company has a market capitalization of £20.02 billion as of October 12, 2023.

Here, we shall discuss Tesco’s supply chain process, how the company manages this process, as well as some issues that have posed challenges to the effective functioning of its supply chain.

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The supply chain of Tesco outlines all the steps that aid the brand in providing its customers with various products that the brand sells in its stores. Tesco’s supply chain begins with product development and improvement and ends when the products are bought by consumers.

Although Tesco’s supply chain comprises a vast network of product manufacturers and suppliers, it is a straightforward process from sourcing to sales.

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Additional key suppliers of Tesco include Muller Milk and Ingredients, Noble Foods, OBI Seafoods LLC, Ontex, and Samworth Brothers Limited.

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Tesco’s supply chain processes

1. Product development and improvement
2. Sourcing and manufacturing
3. Procurement of products
4. Logistics
5. Tesco distribution centers
6. Tesco stores
7. Order fulfillment and product delivery

Although Tesco started purely as a retailer of products, it is currently one of the companies with vertical integration as it has delved into the manufacturing of some of the products sold at its stores.

Product development and improvement

Tesco’s supply chain process begins with product development. This is aimed at the development of products that meet the needs of its customers and extant market trends.

The brand has a dedicated team of product developers whose primary duty is to develop products based on consumer needs and market trends. They also oversee customer panels, benchmarking, user trials, and safety testing before the mass production of any new product.

The work done by the company’s product developers led to the creation of new products such as the baby food line which was launched by the brand in 2018.

Tesco also has a product improvement initiative through which it improves on existing product lines by considering several aspects such as responsible sourcing of raw materials, helpfulness to consumers, health, and quality standards.

The brand has a team of food researchers and chefs who constantly review food trends and bring new food ideas that serve and benefit the brand’s customers. This is done in collaboration with the nutrition team who ensure that the newly developed or improved products are of excellent quality, meet the brand’s and consumer’s expectations of health, and consist of the appropriate ingredients.

Sourcing and manufacturing

The supply chain process of Tesco includes the sourcing and manufacturing of certain products. These products comprise a wide range of product categories including meat and poultry, fruit and vegetables, bakery products, dairy, coffee and tea, confectionery, household, pet care, health & beauty, and wellness.

These products are made under the company’s brand name in Tesco factories where particular attention is given to the processing, labeling, and packaging to maintain high quality standards. Tesco considers the labeling and packaging of its products an essential step in informing consumers about product features and constituents.

In the brand’s food products, for instance, the ingredients used in making the product are clearly spelled out on the label. This is done so that consumers can know the constituents of what they are purchasing. It also serves as a means of informing consumers about possible allergens so that they can avoid purchasing products that contain products to which they are allergic.

Procurement of products

The procurement of products is part of Tesco’s supply chain process. Although the company manufactures the products sold under the Tesco Finest brand, some of the products sold under the Tesco Value brand and other brands are purchased from suppliers.

Tesco has a global supply chain team that is responsible for the sourcing and procurement of products from its teeming suppliers. In order to ensure the products from suppliers are of top quality and meet consumer expectations, the brand works closely with suppliers to meet these criteria.

The company also has clear standards that suppliers must adhere to concerning responsible sourcing, origin, industry, and legislative standards, as well as product quality. To ensure that suppliers keep up with these standards, Tesco maintains long-term business relationships with most of its suppliers.

For instance, British bakery, Warburtons, has supplied the brand with bread and bakery products as far back as the 1990s.

Tesco also employs the services of external auditors who are experts within various industries including, meat, dairy, thermal processing, cosmetics, electrical, engineering, toys, textiles, etc to regularly access and ensure that industry standards are met or even exceeded by suppliers.

Logistics

Tesco’s supply chain process also includes logistics; it includes the transportation of products from the brand’s factories and suppliers to Tesco distribution centers and onwards, to its stores. Logistics is an important aspect of the supply chain process because it determines the rate at which inventory gets to distribution centers as well as how fast stores can refill their shelves to meet consumer demands.

Before Tesco established distribution centers which currently serve as collection hubs for its products before their onward transportation to the store, the company utilized the Direct to Store Delivery (DSD). This entailed having products directly transported from the manufacturers straight to Tesco stores.

Now that Tesco operates distribution centers, goods move from manufacturers to distribution centers before they get to stores, and subsequently, to consumers.

Tesco uses a combination of air, ship, rail, and truck transportation to get products delivered to its distribution centers and retail stores. The company also maintains long-term working relationships with a significant number of freight companies to ensure the smooth running of its logistics operation. Some logistics partners of the brand include XPO Logistics, Wincanton, DHL, and C.H. Robinson.

Tesco distribution centers

Tesco distribution centers are an intricate part of its supply chain, they are the midpoint between suppliers and stores. The brand aggregates the products from its factories and suppliers at these distribution centers and it is from here that stores get their supplies.

The company has both national and regional distribution centers that support the aggregation and movement of clothing, groceries, and general merchandise through Tesco’s supply chain.

Tesco has 23 distribution centers in the United Kingdom and others in the other countries where they operate. Some of these distribution centres are built and owned by Tesco while others are owned by other companies but serve the brand through partnership deals.

For instance, logistics provider Tibbett & Britten (T&B) operates a distribution center at Crick which exclusively serves as an aggregation point for over 6,500 different product lines for Tesco.

Tesco distribution centers are strategically located to ease product movement and reduce the time taken to transport products from manufacturers to the distribution centers as well as from the distribution centers to its retail stores. Distribution centers are mostly located near ports, rail lines, or major transportation routes.

Tesco stores

Tesco’s supply chain process also consists of its stores where its colleagues interact with consumers and these consumers get to make purchases. The brand trains its colleagues to provide the best possible customer service possible. They are also trained on proper product handling and food safety as stated below:

All store colleagues are trained in food safety and hygiene and, depending on their role, receive further training and refresher training on a scheduled plan. For example, colleagues who work in the fresh foods and produce departments will also have product training to help them understand the great quality of our products and how to look after them. Store colleagues then put this training into practice on a daily basis ensuring all safety and legality checks are completed.

The store support teams also provide some ‘What Good Looks Like guides’ for colleagues, to help them look after the products and feel confident in answering customer queries. Colleagues have a ‘Would I Buy It’ assessment to ensure the quality of the product meets the customer expectations while they are in the care of the store.

Tesco

The brand believes that by effectively training its staff, it adds value to the company by enhancing customer satisfaction through helpful conversations about products and ensuring the smooth running of Tesco’s supply chain process in the stores.

Tesco operates different store formats such as supermarkets, hypermarkets, Tesco Express, and one-stop. These store formats differ in size, the number of products available, and the locations where they can be found.

For instance, Tesco Express stores are average-sized at 200 square meters and are mostly located in residential areas or busy city-centre districts. They carry fewer products than hypermarkets and supermarkets with their products being mainly daily essentials, processed food, biscuits, fizzy drinks, sweets, chocolates, and crisps.

Order fulfillment and product delivery

Apart from physical stores where customers can walk in to make direct purchases, customers can order products online. Thus, Tesco’s supply chain process also includes order fulfillment and product delivery for these online orders.

Tesco has made online shopping possible for its consumers as far back as 1984 when Mrs. Jane Snowball ordered groceries from the brand through Videotex. The brand has since improved its online shopping platform by creating Tesco.com where consumers can access thousands of products under different product categories including clothing, groceries, toys, prescription drugs, and food.

The brand also has dedicated stores that specifically cater to online orders and their delivery to consumers. The brand uses a rapid delivery option which guarantees product delivery between 20 to 60 minutes after an order is placed. This rapid delivery service is known as Whoosh and is operated directly by the brand.

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Tesco supply chain issues

1. Product withdrawals and recalls
2. Responsible sourcing of raw materials and products
3. Labor shortages
4. Changes in consumer habits
5. Global supply chain disruptions
6. Inflation

Every business has its own share of challenges that impact its operations, listed above are some Tesco supply chain issues that we shall discuss below:

Product withdrawals and recalls

Product withdrawals and recalls are part of the issues that affect Tesco’s supply chain. Although the withdrawal or recall of a product might be detrimental to a brand and its supply chain, it becomes necessary based on several issues including posing health risks, design defects, labeling errors, or other safety concerns.

When products get recalled, it poses additional pressure on the supply chain particularly the aspect of logistics. This is because these products have to be returned to the stores and distribution centers and subsequently to the product manufacturers.

Within this year 2023, Tesco has recalled about 19 products in different categories including food, toys, and lightning. The brand states that it is actively working with its product manufacturers and suppliers to ensure that it reduces the number of product recalls that occur in its business operation.

Additionally, to ensure the safety of consumers and adequate information on product withdrawals and recalls, Tesco has a dedicated website where it publishes information about affected products. They also make withdrawals and recall announcements on their social media pages. They also communicate recalls through the Food Standards Agency or other stakeholders.

Tesco also works with all relevant authorities in the countries where it operates as well as their store colleagues to ensure that consumers who have purchased affected products return them to avoid any harm that may result from using the product.

Responsible sourcing of raw materials and products

The increased outcry of environmentalist on the dire effects of the irresponsible use of natural resources as well as the emission of harmful substances due to the mass manufacturing of products is one of the issues that multinational companies have to solve within their supply chain.

Being a global retailer, Tesco’s supply chain is also affected by this issue of sourcing raw materials and products responsibly and sustainably. This includes ensuring that farmers use sustainable farming practices, avoid the use of harmful chemicals, and all other practices that might be harmful to the environment.

It also includes using biodegradable materials for packaging or using packaging that can be easily recycled. Tesco has shown significant commitment toward the responsible sourcing of products and the reduction of plastic use in its product packaging.

Tesco solves this supply chain issue through continuous audits of the production processes of its suppliers as clearly stated on its sustainability page thus:

Prior to any site manufacturing Tesco products, Tesco Technical Teams assess each site’s commitment, culture, capacity and capability to produce safe, legal and quality products, ensuring all relevant processes and controls are in place. This is verified through an approval audit where a site must attain an acceptable grade against all of the requirements within the relevant Tesco Standard.

Once a site is approved, Tesco continues to monitor site compliance conducting audits at supplying sites, on an ongoing basis through our audit programme. Further to this our Tesco Technical Teams support sites in driving continuous improvement.

However, it is not only direct suppliers that we audit, at Tesco we understand the complexity and associated risks within entire supply chains. With this, we conduct Nurture programme audits at fresh produce audits at grower farms on the responsible use of pesticides in farming, we conduct animal welfare and meat traceability audits, and we conduct packaging, tannery and mill audits within textile industries, to name a few.

Tesco

As Tesco’s supply chain continues to evolve in line with evolving sustainability requirements, the brand continues to maintain high-quality standards; this is done through its Responsible Sourcing Team. The team works closely with suppliers to ensure that their operations are done in a way that protects the environment and ensures that human rights are respected.

Labor shortages

Labor shortages have been a prevalent issue all across the world since the changes and disruptions that came along with the pandemic between 2019 and 2020. In the United Kingdom States in particular, where Tesco has most of its stores, Brexit also contributed to the labor shortages.

Currently in 2023, CNN Business reports that there is a shortage of labor to fill available jobs in the retail, agricultural, and construction industries. The job shortage has been attributed to several factors including ill health, early retirement, and a reduction in immigration.

Tesco has worked to solve the supply chain issue of labor shortage by ensuring that they retain workers and attract new ones to fill available positions.

The brand has done this by providing an avenue for career advancement through several training initiatives. They also offer competitive wages, flexible working hours, and other perks in a bid to attract and retain labor.

For instance, the brand increased hourly pay for its colleagues up to 3 times in 2022 alone. Currently, in 2023, the hourly wage has further been reviewed through a negotiation between the brand and the Union of Shop, Distributive, and Allied Workers (USDAW).

The negotiation was initiated to ensure that Tesco colleagues earned a living wage and resulted in an increase in the hourly wage by 72p to £11.02 per hour. This increase came into effect by April 2, 2023.

Additional perks that Tesco colleagues enjoy include free food in-store canteens, a salary advance scheme, and a discount of up to £1,500 a year off their shopping. They also benefit from an Employee Assistance Programme, Tesco Retirement Savings Plan, and a reward package that offers them shares (ESOs).

Using these combined approaches, Tesco has been able to effectively reduce the impact of labor shortage in its supply chain.

Changes in consumer habits

The product choices as well as how consumers want to shop keep changing and evolving from time to time. For instance, in the 90s most people visited physical stores to shop, they also mostly bought food items that required minimal preparation and short cooking time. This encouraged the establishment of supermarkets with a lot of packaged food options.

From the early 2000s until now, the trajectory has changed with a lot of consumers seeking healthier organic food options. Consumers also seek more convenience by wanting to shop without having to leave their homes, schools, or workplaces.

These changes in consumer habits have had an impact on Tesco’s supply chain by changing the products they sell as well as the channels they use in selling. Since its inception, Tesco has put its customers at the center of its business model by ensuring that their needs are met.

One example of this customer-centric approach is the creation of a nutrition team. This team works hand-in-hand with the Technical and Development Teams to create food and drinks that are of excellent quality, comprising of ingredients customers expect and challenging the levels of calories, sugar, fat, and salt where appropriate.

Tesco has also reduced the time it takes to get fresh produce from suppliers to stores by about 2 days in a bid to maintain product freshness and reduce food waste within Tesco’s supply chain. These changes were aimed at making healthy food options available to consumers.

The brand also has an easily accessible website which people can utilize to shop at their convenience. The website has also been highly optimized with excellent search filters to help customers select products suited to their peculiar health requirements and dietary needs including products with low salt, high fiber, vegan, low sugar, etc.

The company’s prompt delivery service further aids its digital operations as customers can get their shopping delivered right to their doorstep in a matter of minutes.

Additionally, in a bid to drive more sales and consumer loyalty, Tesco uses a reward program where a customer gets awarded one point for every £1 spent on making a purchase from the brand. In these ways, Tesco has been able to manage the supply chain issues that arise due to changing consumer choices.

Global supply chain disruptions

Since the pandemic of 2019/2020 which led to the global shutdown of economies, the global supply chain has experienced several disruptions. The disruptions ranged from inadequate transportation vessels, short supply of products, inadequate supply chain personnel, higher freight costs, etc., and have lingered in most industries until now.

In 2021 for example, Tesco’s supply chain was affected by the industry-wide shortage of HGV drivers in the United Kingdom. This led to a shortage of a wide variety of products with a number of stores having empty shelves. To tackle this issue, Tesco offered HGV drivers a joining bonus of £1,000 as an incentive to attract drivers and curtail this supply chain issue.

Additionally, Tesco contracted one of the leading providers of end-to-end supply chain management software, E2open to rearrange its procurement process and business operations. According to the President and Chief Executive Officer (CEO) of E2open:

From procurement to logistics to payment, our expansive, integrated platform will provide Tesco with the highest level of visibility into their global supply chain, reducing costs and improving efficiency while providing greater oversight to help avoid consumer shortages.

Michael Farlekas, Presodent and CEO, E2open

These proactive measures helped Tesco overcome the global supply chain disruptions such that by the end of 2021, the company reported a revenue of £57,152 million from product retail which was an increase compared to the previous year at £57,023 million.

Inflation

Tesco’s supply chain issues include inflation. This has led to an increase in the prices of products as well as a decline in the purchasing power of consumers.

Inflation has led to the falling out of Tesco with some of its long-time suppliers such as Mars and Heinz. These suppliers wanted to increase the prices of their products in line with the increasing costs of ingredients, transportation, energy, and natural disasters that have affected food crop production.

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Last Updated on November 2, 2023 by Nansel Nanzip Bongdap