SCENARIO 1

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 organization. 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 centers (called regional distribution centers,
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 meters divided into three temperature zones: frozen (25°C), 2°C (chilled)
and 12°C (semi-ambient). Each distribution Centre (DC) serves a group of between 100 and 140
retail stores. Delivery vehicles for composite depots can use insulated trailers divided into
chambers by means of movable bulkheads so they can operate at different temperatures. Deliveries
are made at agreed, scheduled times. Ambient goods such as cans and clothing are delivered
through a separate grocery distribution network which relies on a stocked environment where
orders are picked by store. This operation is complemented by a strategically located trucking
station which operates a pick to zero operation for fast-moving grocery on merchandise units that
can be placed directly on the shop floor.
So much for the method of transporting goods from supplier through to the stores, but how much
should be sent to each store? With such a huge product range today, it is impossible for the
individual store to reorder across the whole range (store-based ordering). Instead, sales of each
product line are tracked continuously through the till by means of electronic point of sale (EPOS)
systems. As a customer’s purchases are scanned through the bar code reader at the till, the sale is
automatically recorded for each SKU. Cumulative sales are updated every four hours on Tesco
Information Exchange (TIE). This is a system based on Internet Protocol that allows Tesco and its
suppliers to communicate trading information. The aim of improved communication is to reduce
response times from manufacturer to stores and to ensure product availability on the shelf. Among
other things, TIE aims to improve processes for introducing new products and promotions, and to
monitor service levels.
Based on the cumulative sales, Tesco places orders with its suppliers by means of electronic data
interchange (EDI). As volumes and product ranges increased during the 1990s, food retailers such
as Tesco aimed to destock their distribution Centre by ordering only what was needed to meet
tomorrow’s forecast sales. For fast-moving products such as types of cheese and washing powders,
the aim is day 1 for day 2: that is, to order today what is needed for tomorrow. For fast-moving
products, the aim is to pick to zero in the distribution Centre: no stock is left after store orders have
been fulfilled and deliveries to stores are made as soon as the product is picked, which increases
the stock availability for the customer. The flow of the product into the distribution Centre is
broken into four waves and specific products are delivered in different cycles through the day. This
means that the same space in the distribution Centre can be used several times over.

Question # 01: Describe the key logistics processes at Tesco. (250 words limits) [10]

Question # 02: What do you think are the main logistics challenges in running the Tesco
operation? (200 words limits) [10]
 SCENARIO 2

Nike has a central customer service Centre (distribution Centre) located at Laakdal in Belgium.
The Centre is 200,000 square meters in size and serves 45,000 customers in EMEA (Europe,
Middle East and Northern Africa) with footwear, apparel and equipment The Centre receives
products from supplier factories around the world for distribution to retail clients both before the
start of all four seasons each year, as well as during the season. Prior to the start of a season, when
work is at a peak, the workforce stands at some 2,300 operational staff. Off peak, that drops to
1,350 staff. Deliveries are very time critical, given the seasonal nature of the business. Retailers
demand in store availability on day one of a new season. The Centre is a clear example of a
company deciding to centralize receiving, storage and shipment to customers at one location in
Europe. The benefits including consolidation of inbound shipments, lower inventory levels and
better delivery service (in comparison to fragmented warehouses scattered around Europe). This
does not mean, however, that the logistics operations are standardized for all flows of goods and
all customers.

Question # 03: What are the reasons for a company, such as Nike, with a centralized distribution
Centre to ship some products directly to customers, not through the distribution Centre? (250
words limits) [10]

SCENARIO 3

Company XYZ  is one of the growing companies in FMCG. The company’s strategy is to
consistently focus on its core business and avoid unnecessary risks. Whereas being in FMCG, the
agile supply chain along with an efficient transportation and logistics has become crucial in this
highly competitive environment. For this, the company can either outsource transportation and
logistics services or it can manage its own transportation and logistics fleet.

Question # 04: You are required to discuss whether the company should outsource transportation
and logistics services or it should manage its own transportation and logistics fleet? Justify your
answer with reasons. (250 words limits) [10]