ASSIGNMENT 1
Note: This is an
Assignment. You may use illustrations and diagrams to enhance explanations.
Assignment must be in your hand writing. It must not be duplicated from other
students.
CASE STUDY
TESCO
Tesco is the UK's largest food retailer, with a sales turnover of
more than € 67.5 bill ion. 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 entered the
convenience store market with deals such as the 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 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 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 (-2Ye), + 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 $0 they can
operate at different temperatures. Deliveries are made at agreed, Scheduled
times. Ambient goods such 03$ 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 fest-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 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 promotion s, 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' aimed to destock
their distribution centers 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.
Questions
1 Describe the
key logistics processes at Tesco.
2 What do you
think are the main logistics challenges in running the operation?
ASSIGNMENT 2
Note: This is an
Assignment. You may use illustrations and diagrams to enhance explanations.
Assignment must be in your hand writing. It must not be duplicated from other
students.
CASE STUDY
Coors
Note: This case is loosely based on
the competitive situation of Coors and other beer manufacturers at the end of
the 1970s. The strategy part of the case is a “what-if” scenario analysis.
By the late 1970s, Coors enjoyed
superior margins and the largest market share of beer manufacturers for
consumers located west of the Mississippi River .
Still, there was considerable concern as to how sustainable this position was.
Thanks to the acquisition by Philip Morris of the Miller Brewing Company, there
was an advertising war occurring between Miller and its closest rival
Anheuser-Busch for consumers in the east. The war was costing both companies
dearly with little end in sight. In contrast, Coors mainly eschewed advertising
in favor of a word of mouth strategy. When they did advertise, they emphasized
the “Rocky Mountain Mystique” of their product. Despite this, Coors did not
price its product as a “super premium” beer. Its price point was similar to,
but slightly lower than Anheuser-Busch’s flagship beverage Budweiser and well
below A-B’s super premium brand Michelob.
Instead, Coors margin advantage
derived from its superior cost structure. Owing to returns to scale from its
massive Golden, Colorado California than the plant locations of its
rivals, which were mainly in the east and the Midwest .
The worry, of course, was that at some point in the future, these potential
rivals would build plant in the west and directly vie with Coors for dominance.
Plants took approximately two years to operate at full capacity from the time
that they were first built; therefore, Coors felt that there was a window of
opportunity for them to operate alone in the west in their present fashion.
Based on the results from the
marketing wars being fought by A-B and Miller, Coors observed that it was possible
to create relatively sticky customers at existing price points through
aggressive advertising. It was thought that, owing to their pre-existing
customer base, such a campaign would enable Coors to retain significant market
share even in the face of an incursion and a determined marketing campaign by
rivals. The downside was that mounting a campaign on the scale of Miller and
A-B was quite expensive.
In considering whether to build
plant in the west, A-B also needed to determine its potential market share
gains in the west. It was thought that, if Coors continued on its present path
of word-of-mouth advertising, building a single large plant in the west would
allow A-B to leverage its already considerable marketing to gain share at Coors
expense. The bottom line was that, under this scenario, such a plant build had
positive ROI. On the other hand, a determined marketing campaign by Coors,
either before or during the building of the plant, would significantly reduce
A-B’s anticipated gain in market share. This would lead to a breakeven or
possibly negative ROI situation for A-B. However, much of the expense in
building a plant was spent up front, therefore, A-B concluded that if it began
construction of the plant, it was only sensible to proceed to its completion.
The management team at Coors
determined that there were three main strategies it could follow. The first was
a pre-emptive advertising campaign designed to deter entry by A-B. The second
was a press release indicating that if any of the “big two” firms (A-B or
Miller) were to build plant, then Coors would undertake a massive advertising
campaign to reinforce in the minds of consumers the quality and value offered
by the Coors brand. The third strategy was to stay the course with their previously
successful word-of-mouth advertising campaign.
Question for Discussion:
1.
Analyze
the three scenarios using game theory and then recommend an action to Coors
management.
