Sunday 23rd Oct 2016 - Logistics Manager

Sleeping with the enemy

One in four of the gaps on the shelves at Tesco is because of short deliveries by suppliers, according to supply chain director Tony Mitchell. As a result both have lost out on sales, so it is no surprise that a key focus is to improve relationships with suppliers.

Mitchell told delegates at the IGD Summit that Tesco tackled this by “working with the suppliers which have a good track record with us to help us improve our ways of working”, and making sure that “the suppliers who are struggling to get service right with us are brought in much closer with specific action plans and regular review meetings to get things back on track.”

After a year of analysing its availability to customers, it found most of its difficulties were down to the de-centralised ordering process it was operating under.

Despite its centralised system, individual stores were running their own inventory, which was causing a lot of errors in the system. It turned out that 50 per cent of its product wasn’t being counted correctly, and stock records were corrupted. “Promotions were all over the place,” said Mitchell.

To remedy this, Tesco had to “lay out each process end to end”, and then decide how it could simplify its supply chain. Mitchell said this meant ensuring “each part of the chain knew its part extremely well and trusted the other parts to do theirs”.

Ultimately, the idea was to improve the central processes to the point where the stores felt they could not do better and were happy to leave it to the centre. But it meant narrowing the responsibility of the individual stores.

A plan was made outlining what the stores should take care of. This involved counting products accurately, recording out-of-stocks, and completing changes to merchandise plans. The centre would then manage events, plan for the weather, control promotion ordering and improve the systems.

The retailer developed a gap scanning process that captures all its store gaps twice a day and re-orders products more quickly. The system will also benefit suppliers, as the scanner will improve on shelf availability.

A major challenge for retailers is the weather – ice cream sales go through the roof on hot days and collapse when it is cold. Mitchell said that after collating five years worth of weather data, Tesco has produced a weather model that forecasts the sale of more than 350 weather-sensitive product areas and produces sales uplifts for the ordering system by 12 weather regions. Other developments include an improved sales forecasting engine in its ordering system, which has improved availability. It has also shortened lead times for fresh food products by up to 18 hours, and pushed its stock sharing processes back as late as possible.

One of the biggest logistics challenges for Kimberly-Clark is that paper products, such as Kleenex, are among the lowest value per cu m on shelf. Smaller orders are problematic as they force distribution costs up and don’t make the most of the truck’s capacity. European supply chain director Peter Surtees, said that to deal with these issues it joined up with other CPG manufacturers, to help offset the costs of making smaller deliveries. Surtees reckons that the first step towards successful collaboration is to find the right partner. This means that the two must be commercially and culturally compatible. The company put this into practice and teamed up with Unilever.

The partnership has been trialled in the Netherlands where the two companies combined their deliveries which offset costs and reduced the number of trucks on the road.

The result was that weekly deliveries went up from one to three. Store inventory was reduced by 60 per cent and out-of-stocks reduced by 30 per cent. Eighty per cent of the deliveries in The Netherlands were done through collaborative opportunities. Surtees said the company is now looking for additional partners for the UK.

“Businesses are bulging with their environmental credentials,” said Sainsbury’s zone managing director (East) and ECR co-chair, Diane Carter. The industry is responsible for a quarter of the UK’s lorry miles, a fifth of greenhouse gases, and more than 50 per cent of vehicles on the roads. “If we don’t own up and take responsibility, the government will,” she said.