Milk Supply Chain Management at Tesco - Case Study Example

Milk supply chain management at Tesco s Submitted by s: Introduction In the past few years, possessing excellence for sustainability in the current multifaceted age that is characterized by cut throat competition is important for all businesses, apart from being able to manager their operations and quality in the best way possible. The management of quality and operations is a collective aspect that covers management of operations, supply chains, E-business and Lean among other aspects. In this regard, Tesco is the biggest retail chain in the United Kingdom and in every retail industry, quality as well as the supply chain are critical to success, which also applies to Tesco. In Tesco’s case, customers are the most vital component, therefore to ensure that they stay loyal and they feel valued, Tesco has come up with its own definition of a quality and supply chain founded in the buying behaviours of the customers, the economy as well as culture. For all businesses, regardless of whether they deal in services or tangible products, the supply chain functions as the backbone of the company. For a business to be successful, it has to balance agility, adaptability and alignment so that it can have a competitive advantage over other businesses operating in the same industry. Quality is a wide term that can be considered in numerous ways with the definition varying from one industry to another. Fulfilling the needs of the customer, remaining durable and reliable, excelling beyond the benchmarks and production based on requirements and specification of products among other aspects are examples of the definitions that define quality. Milk supply chain management at Tesco For a long time, dairy farmers have had a difficult time and have been recurrently facing losses in their endeavours, but in 2007, Tesco made the decision to do something about it and created the Tesco Sustainable Dairy Group (Tesco plc, 2015). This group consists of six hundred and fifty farmers who supply fresh and filtered milk as well as single milk, and extra thick cream products to Tesco. Tesco meet the delegates of the Group every four times a year to discuss projects, get a better comprehension of the supply chain and arrange prices. Among the most significant activities carried out by the Group is to make sure that the prices paid for milk supplied to the company by the Group members is fair to them (Smith, 2012). Through using a cost tracker, Tesco estimated the cost associated with production of milk between 2013 and 2014 to be about forty pence for each litre. This was determined based on the yearly costs of the farmer that were submitted to independent consultants who examined the data. Founded on this information, both TSDG and Tesco can have a basis for settling on the price of milk after a which a figure for family labour that is yet to paid is included while other income streams like sales of cows and subsidies are discussed separately (Fredenburgh, 2014). Tesco operates closely with the dairy farmers who supply their products and holds yearly conferences for them along with regional conferences all over the country (Tesco plc, 2015). The company meets its farmers on a face to face basis to continually monitor the manner in which the Groups serves them. This has created a situation where the farmers are happy and proud with the way the Group deals with their issues. Tesco further runs a Dairy Training of Excellence for its dairy suppliers where it provides training courses and seminars so that the farmers can share ideas and share their knowledge. Production of approximately eight thousand litres of milk per annum can be a daunting task for a dairy cow, and this makes it imperative that Tesco as a company ensures that the farmers’ cows remain as healthy as possible. To achieve this, Tesco has established a dedicated agricultural team, which is responsible for development and implementation of its strict Livestock Codes of Practice. The company also collaborates with independent professionals like vets to make sure that the improvements are always being done. To ensure that the suppliers are following the stipulated codes, the farmers who belong to the TSDG are consulted each year by independent auditors. Tesco sets the standards for improvement every year while at the same time monitoring the critical aspects such as hygiene, lameness and health of the cows in the farms (Jack, 2010, p. 82). This enables the farmers who are part of the groups to make comparisons of their performance with the other members while allowing Tesco to target any assistance and resources to the farmers who require it the most. Tesco raised the price that it pays farmers by four pence for each litre after farmers complained of meltdowns in their industry of operation. The decision to increase the prices that are paid to farmers was informed by a survey that had been conducted by the Milk Development Council which revealed that seventeen dairy farmers left the industry each week in the previous year, which had been the highest level for thirty six months (Clover, 2007). As a result, it had been estimated that the production of milk would decline by seven percent. Therefore, Tesco decided to purchase all its milk directly from the farmers based on the new arrangements. Through the arrangement, Tesco pays processors for collection and processing of the milk, however, it is the names of the farmers that remain on the contracts with Tesco. When Tesco made this decision, eight hundred and fifty farmers were offered contracts that included an opening price of twenty-two pence per litre which was four pence more that the lowest prices usually paid by the processors. The new contracts were supposed to last for a year after which they could be reviewed twice yearly. Tesco also launched “local choice” milk which it sources from one hundred and fifty farms owned by different families, and this milk is made available to consumers only in the counties where counties where it is produced while retailing at a slightly higher price that the standard milk. The buy direct program by Tesco, which is considers as the biggest, is not the first that has provides farmers with prices that are higher than the market price for the best quality or constant supply. Tesco believes that the new set of measures with provide farmers in Britain with an exceptional opportunity to work with the company, create closer relations with the consumers and increase the growth of the business. Additionally, it allows the company to better comprehend the challenges that farmers experience as producers (Abbots and Lavis, 2013). This followed investigations from the competition commission concerning allegations that retailers, especially supermarkets were using the excessive purchasing power to maintain low prices and this was harmful to the choices of the consumers as well as quality. The Milk Development Council which functions using levies that result from milk that is sold consider this initiative as one that provides farmers with the motivation to continue with their dairy farming activities. This is because, initially, the morale and potential for production of milk nationally had declined by more than a billion litres in a span of twenty four months. Furthermore, the number of farmers that had considered leaving the dairy industry had reached its highest level in three years and numerous farmers were not sure whether they should expand their activities. Through this initiative, Tesco seeks to be clear concerning its mil supply requirements through the coming years and since it wants to retain the current level of supply in the future, it has to be clear so that farmers can be motivated to make more investments. Tesco has been commended for this pioneering deal and farmers have been delighted by the fact that the retailer endorses the need to have more responsibility over the entire milk supply chain while creating an adequate and meaningful collaboration with them (Shah, 2009, p. 125). Additionally, Robert Wiseman Dairies, that is responsible for about sixty percent of the milk that the Tesco sells also considers the program positively and considers it as an example that should be emulated by the other large retailers. Further, Tesco uses RFID tags to monitor and track its delivery of milk to various distribution plants as well as stores (Jung, Chen and Jeong, 2007, p. 42). This demonstrates that next stage for the plans that Tesco has in regards to RFID, that entail the use of permanent radio tags on transport items which are returnable, like trolleys and cages that are utilized in instances when goods are ferried from the distribution points to the retailer’s stores. The RFID unit of delivery phase is a component of the initial trials that were conducted by the Tesco on radio frequency identification technology that started in 2003 and entailed using disposable tags to monitor good of a high value that were vulnerable to theft. Tesco started testing the RFID tags with Robert Wiseman Dairies on several milk cages which were used to some trial stores. The tags are read as the key indicators in Tesco’s supply chain including instances when trolleys leave, when they reach the Tesco stores and when they are moving from one floor to the next. This tags have the ability to monitor the delivery and path taken by every trolley that is delivering milk and the retailer is seeking to introduce this form of tracking it its entire supply chain and all its shops and depots in the UK. Conclusion Tesco is works with its business partners as well as milk suppliers in order to understand the future for the production of milk as well as come up with ways that will improve the milk supply chain such as making improvements to the tagging initiative using RFID. The retailer believes that there are numerous areas that the milk supply chain can be improved in order to make it better for the suppliers as well as the consumers (Bourlakis and Weightman, 2004, p, 58). Meeting the needs of the dairy farmers, who are the suppliers and the consumers continues to be the main aim of Tesco as far as the milk supply chain is concerned. Bibliography Abbots, E. and Lavis, A. 2013, Why we eat, how we eat,: Ashgate Pub. Limited, Farnham, Surrey, England. Bourlakis, M. and Weightman, P. 2004, Food supply chain management, Blackwell Pub, Oxford, UK. Clover, C. 2007, Tesco to pay more for milk and buy direct. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/news/uknews/1547577/Tesco-to-pay-more-for-milk-and-buy-direct.html [Accessed 13 Jun. 2015]. Fredenburgh, J. 2014, Milk price increase for Tesco sustainable dairy group - Farmers Weekly. [online] Farmers Weekly. Available at: http://www.fwi.co.uk/business/milk-price-increase-for-tesco-sustainable-dairy-group.htm [Accessed 13 Jun. 2015]. Jack, M. 2010, Dairy Farmers of Britain, Stationery Office, London. Jung, H., Chen, F. and Jeong, B. 2007, Trends in supply chain design and management, Springer, London. Shah, J. 2009, Supply chain management, Pearson Education, Upper Saddle River, N.J. Smith, P. 2012, The Supply Chain for Milk - rain, grass, cows and a lack of flexibility. [online] Spend Matters. Available at: http://spendmatters.com/uk/supply-chain-milk-rain-grass-cows-lack-flexibility/ [Accessed 13 Jun. 2015]. Tesco plc, 2015, Tesco plc. [online] Available at: http://www.tescoplc.com/index.asp?pageid=696#ref_foodnews [Accessed 13 Jun. 2015]. Tesco plc, 2015, Tesco plc. [online] Available at: http://www.tescoplc.com/index.asp?pageid=17 HYPERLINK "http://www.tescoplc.com/index.asp?pageid=17&newsid=952"& HYPERLINK "http://www.tescoplc.com/index.asp?pageid=17&newsid=952"newsid=952 [Accessed 13 Jun. 2015]. Read More