Introduction
The importance of a functional department to an organization determines its creation. For a long time, procurement was seen as the firm’s transactional unit. However, several companies combine procurement with cost reduction and supplier management (SCM) to improve competitiveness. As a major brick-and-mortar and online retailer, Tesco Plc has structured its procurement department to control costs and enhance strategic sourcing/purchasing processes. This study examines the procurement function’s contribution to Tesco’s competitive advantage in Europe.
Procurement Processes
Tesco’s network of shops can contain over 20,000 products, both food and non-food. The goods are acquired quickly from various vendors that satisfy the retailer’s quality and capacity criteria. It offers a 10-step procurement strategy for businesses where several phases are involved in the procurement process. Tesco’s buying practices follow the approach of suppliers sending goods and information to a local warehouse for distribution to retailers (Adeniyi et al., 2020). Tesco’s shops get an estimated 2.1 billion goods each year. Strategic supplier relationships are important for retail shelf availability and Tesco had 26 suppliers’ depots in the 1980s. The depots were tiny, uneconomical, and could not handle fresh goods. Fresh fruit and vegetable depots were created to store supplies that required varying temperatures and capacities. For instance, a conventional fresh food depot may service over 50 shops and hold over 80 million pallets (Rane & Potdar, 2020). Suppliers deliver food to depots in insulated trailers with thermal chambers. The retailer’s and suppliers’ smooth information flows guarantee on-time delivery to refill the shelves.
Due to the vast product variety, re-ordering and inventory management may be difficult. Hand-ordering may not work, hence Tesco monitors shelf stock using an EPOS system. The Tesco Exchange of Information (TIE) synchronizes inventory levels with scannable barcodes, alerting a store’s inventory unit twice daily. The TIE informs the suppliers who restock the inventories while at the same time technology also helps introduce new goods and promotions. Based on short-term sales forecasts, the store utilizes a digital system to order new goods from suppliers. The ordering replenishes the depots for the following day’s sales. For example, today’s stock will be sold tomorrow, while yesterday’s will be sold today (Bienhaus & Haddud, 2018). After all, shops have received their orders; no excess inventory is kept for fast-moving items. So, by selecting suppliers, the depot may run efficiently without waste or delays. The shelves are restocked twice daily to meet shifting demand.
Strategic Sourcing
Tesco evaluates procedures, techniques, and sources to generate value for the business—evaluating buying budget, suppliers, and transactions to meet SC objectives. Tesco works with suppliers to save money and increase buying power. Tesco offers Sustainable Farming Groups two-year contracts to supply beef or mutton to its shops. These efforts will help the store develop solid supplier connections (Cho et al., 2019). They also serve as a benchmark for demand and production. To improve its banana supply chains, the store collaborates with banana growers.
Tesco also works with vegetable suppliers to guarantee freshness and timely delivery. The store works with MMUK, citrus, and grape-producing business to guarantee the speedy delivery of fresh fruit to consumers. Suppliers may supply fresh fruit straight to Tesco’s depots throughout Europe based on demand predictions. Customers get fresh fruit with such an extended shelf life. Another example of joint ventures is in the meat industry (Cho et al., 2019). Tesco’s long-term partnership with Hilton, where Tesco sources pork and beef from, promotes international expansion. Conversely, Hilton’s intention to build a new hotel in Poland is motivated to increase its EU market share.
Sustainable Procurement
Tesco’s ‘4F Plan’ aims to achieve carbon neutrality by 2050 and includes using larger cages to transport totes to reduce carbon emissions. In addition, larger vehicles and better logistic/route planning have increased distribution and reduced emissions. Tesco, therefore, engages in environmentally friendly buying where the retailer ships goods to its shops by rail and ship. Tesco, for example, now transports its containers by rail between Bremerhaven and its UK facility, saving millions of euros. The shop gets its clothes from Sri Lanka and Pakistan. Tesco’s Clothing Manufacturing Standard promotes quality and fair working conditions. This approach aligns with the triple bottom line’s social component.
It aims to preserve socially responsible behaviors while enhancing working conditions. A three-year fruit supply chain analysis revealed Tesco’s “push/unilateral approach” to social sustainability. It requires suppliers or partners to adhere to socially responsible principles rather than collaborative/bilateral involvement (Maytandi & Abbas, 2020). This strategy has the disadvantage of allowing for misunderstandings that harm Tesco’s reputation and supply chain management. The ‘management by goals’ strategy used by competitors like Waitrose is preferable in achieving shared goals requires inter-firm communication and collaboration.
Supply Risk
Controlling supply risks, which include system, financial, forecast, and delay concerns, prevents SC failure. Batching purchases, a technique that increases order volatility, may create supply risk. A bullwhip effect occurs, when purchasing does not match end-customer demand. The supplier chosen depends on the product; Tesco, for example, sources food from local vendors (Woohyoung et al., 2020). This approach avoids interruptions and keeps inventory levels optimum and high-volume items are multi-sourced, whereas low-volume items are sourced alone. The company can prevent disruptions and maintain efficient inventory flow.
Conclusions
Procurement is a vital activity and the key to success in any company that either deals with the provision of services or the purchase of goods. Tesco’s purchasing and supply management processes are customer-focused and therefore consider what the customer needs more than the company’s profit margin. Managing inventories effectively and procuring bulk products reduce supply chain risk. Tesco sources excellent products for its shops using technology, strong supplier relationships, and direct involvement to fulfill customer demand and sustainable procurement restrictions.
References
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Cho, M., Bonn, M., Giunipero, L., & Divers, J. (2019). Restaurant purchasing skills and the impacts upon strategic purchasing and performance: The roles of supplier integration. International Journal of Hospitality Management, 78, 293-303.
Maytandi, A., & Abbas, M. (2020). Does e-procurement prevent corrupt activity in the public procurement process? Jurnal Pendidikan Ekonomi Dan Bisnis (JPEB), 8(2), 143-153.
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