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One of the main purposes behind conducting this study is to critically evaluate the international supply chain administration exercise of the selected three companies which are Tesco, LIDL, Aldi. Based on the study proper administrative implication for the selected firms will also be discussed in detail. The two context that has been selected for the study are order fulfilment and inventory management and Global Sourcing.
For the UK retail industry to facilitate proper procurement, transportation, and shipment of products from all over the world, global supply chain management (SCM) procedures are essential. Retailers may improve their customer satisfaction, decrease costs, become more competitive, and respond to shifting market demands while lowering their risk of supply chain interruptions by implementing global SCM methods (Randall, 2011).
Theories related to order fulfilment and inventory management that will be used in the study will include the Economic Order Quantity (EOQ) model, and for Global sourcing the main theory will include the Total Cost of Ownership (TCO) approach. The essay discusses the importance of these theories for achieving efficient and effective supply chain management in the context of order fulfilment, inventory management, and global sourcing.
In this segment of the study a brief idea will be provided on the three selected companies which are :
Tesco is a well-known international retailer with a significant market share in Central Europe, the UK, and Asia. Tesco recorded revenue of £57.9 billion in 2021, with about 81% of the income coming from the UK. Via partnerships and joint ventures with regional merchants, such as its relationship with Thailand's CP Group, the company has been extending its presence across Asia. Tesco committed to growing its worldwide presence by announcing its intention to open 750 convenience stores in Thailand over the following three years in 2021 (Times,The Economic, 2023).
on the other hand, the two German budget supermarket giants LIDL and Aldi have both recently increased their global reach. With a market share of 6.1% in the UK as of 2021, LIDL has a significant foothold in Europe and operates in 32 countries worldwide. Since 2017, the business has been growing its operations in the US; at present, over 140 outlets are open across 9 states. As of 2021, Aldi had a market share of 7.7% in the UK and operates in more than 20 nations. Since 2011, the company has been growing its presence in Australia, and there are already more than 500 outlets open there. With a similar emphasis on offering high-quality goods at moderate rates, LIDL and Aldi have both found success in the internal business sector (WILLEMS,MICHIEL , 2023).
Tesco, LIDL, and Aldi are three of the most prominent global supermarket chains with a significant presence in the UK and around the world. Despite sharing the same industry, these companies differ in their global supply chain management (SCM) practices, which impact their performance, customer satisfaction, and profitability.
Tesco, LIDL, and Aldi all prioritize efficient SCM practices to manage their global operations effectively. The three companies have a significant focus on supply chain optimization to reduce lead times, costs, and improve operational efficiency. They use modern technology, such as automated warehouses, to streamline their supply chains and reduce the risk of stockouts. Additionally, Tesco, LIDL, and Aldi all use a combination of centralization and decentralization to manage their global supply chains (Tsinopoulos, 2010). Some of the other similarities identified in the selected three companies are discussed in detail:
Despite sharing some similarities, Tesco, LIDL, and Aldi differ in their SCM practices in various ways. One of the most significant differences is in their global sourcing strategies. Tesco has a long-established global sourcing strategy, with a significant focus on sustainable sourcing practices. In contrast, LIDL and Aldi rely on a more flexible and dynamic global sourcing strategy, allowing them to react quickly to changing market demands (OCED, 2013).
Another key difference is in their inventory management practices. Tesco and LIDL use a combination of forecast-based and demand-driven inventory management to ensure optimal inventory levels. Tesco, for example, uses continuous replenishment programs to keep inventory levels low and ensure the availability of products. In contrast, Aldi uses a more conservative approach to inventory management, relying on lean inventory levels to keep costs low. Finally, the three companies differ in their approach to sustainability (Ukeoma, 2022). Tesco has a long-standing commitment to sustainability, with a significant focus on reducing its carbon footprint and using renewable energy sources. LIDL and Aldi have also made strides in sustainability, with both companies making significant investments in renewable energy sources and reducing their carbon footprint. However, their sustainability practices are generally less established than Tesco's. Also, some additional differences in the GSCM practices of the three companies are discussed in detail below:
The literature on order fulfilment and inventory management in global supply chains is characterized by a debate over the best practices for managing these processes in the retail sector. Proponents of efficient order fulfilment argue that it can result in lower costs, improved customer satisfaction, and increased profitability. However, critics argue that overemphasis on efficiency can lead to reduced product quality, decreased flexibility, and increased risk. One of the key challenges in order fulfilment and inventory management in global supply chains is maintaining an optimal level of inventory while minimizing the costs of holding inventory. Efficient inventory management requires retailers to forecast demand accurately and to maintain adequate inventory levels to meet customer demand without incurring excessive costs. However, balancing inventory levels with demand is particularly challenging in the retail sector due to the short product life cycles, high SKU (stock keeping unit) count, and seasonal demand fluctuations. Effective inventory management also requires retailers to have visibility into their entire supply chain to identify potential bottlenecks and risks.
Global sourcing, the practice of sourcing goods and services from suppliers around the world, is another area of debate in the retail sector. Proponents argue that global sourcing can lead to lower costs, access to new markets and suppliers, and improved quality control. Global sourcing can also allow retailers to take advantage of comparative advantages in different regions, resulting in lower costs and increased efficiency. However, critics argue that global sourcing can lead to increased complexity and risk in the supply chain, as well as negative environmental and social impacts.
One of the key challenges in global sourcing is managing supplier relationships effectively. Retailers must identify and evaluate potential suppliers, negotiate terms and contracts, and monitor supplier performance. Effective supplier management requires retailers to have clear communication channels with suppliers, to establish trust and transparency in their relationships, and to collaborate with suppliers to identify and address potential risks and challenges in the supply chain.
The debate surrounding the best practices for order fulfilment and inventory management in global supply chains is a complex issue with differing viewpoints among scholars. On one hand, some scholars argue for the importance of lean inventory management practices to achieve efficiency and cost savings. For example, Nguyen et al. (2019) found that lean inventory management practices such as just-in-time (JIT) delivery and demand forecasting can lead to increased efficiency and cost savings in supply chains. Similarly, Mendoza et al. (2018) found that implementing a lean supply chain strategy can improve product quality and customer satisfaction. However, other scholars have raised concerns about the risks associated with overemphasizing efficiency in inventory management. For instance, Koster and van der Heijden (2015) argued that an overreliance on lean inventory management practices can lead to reduced product quality, decreased flexibility, and increased risk in the supply chain. This is because an overemphasis on efficiency can result in stockouts, delays, and other disruptions that can negatively impact customer satisfaction and brand reputation. Additionally, Hertz et al. (2020) found that lean inventory management practices can lead to increased vulnerability to supply chain disruptions, such as those caused by the COVID-19 pandemic. Similarly, in the context of global sourcing, scholars have debated the benefits and drawbacks of this practice. Some scholars argue that global sourcing can lead to lower costs, access to new markets and suppliers, and improved quality control. For example, Yang and Su (2018) found that global sourcing can lead to cost savings by allowing firms to take advantage of lower labour costs and production efficiencies in other countries. Similarly, Lazzarini et al. (2018) found that global sourcing can lead to improved quality control by allowing firms to leverage the expertise and capabilities of suppliers in other countries. However, other scholars have raised concerns about the risks associated with global sourcing, particularly in terms of social and environmental sustainability. For instance, Locke et al. (2019) argued that global sourcing can lead to negative environmental and social impacts, such as labour abuses and environmental degradation. Additionally, Lim and Shamsuddin (2018) found that global sourcing can lead to increased complexity and risk in the supply chain, as firms must manage relationships with multiple suppliers across different countries and regions.
In order to do this section, it will be important to keep the main focus on the two selected concept of SC which are Order Fulfilment and Inventory Management and Global Sourcing. After the description of the selected concept the theories related to those concepts will be discussed in detail showing how the selected companies are applying it.
Two essential elements of supply chain management are order fulfilment and inventory control. The procedure of obtaining, handling, and dispatching consumer orders is referred to as order fulfilment. The transportation of commodities from suppliers to warehouses and distribution hubs, and finally to customers, must be coordinated. Monitoring and regulating inventory levels is a key component of inventory management since it helps keep costs down by ensuring that there is always enough stock to meet demand from customers (Baraka, 2022).
Figure 1: Order fulfilment
Retailers must fulfil orders efficiently and manage inventory effectively if they are to meet customer demands for prompt, dependable, and convenient product delivery. Retailers must strike a balance between the desire to reduce inventory holding costs and the dangers of stockouts and overstocking with the necessity to maintain enough inventory levels to meet customer demand. Retailers may increase supply chain efficiency, lower costs, and boost customer happiness by employing efficient order fulfilment and inventory management solutions (Stephen, 2022).
The Economic Order Quantity (EOQ) model is a commonly used inventory management tool that helps businesses determine the optimal order quantity for a particular item, balancing the costs associated with holding inventory and ordering more. The formula takes into account the cost of holding inventory (storage, insurance, depreciation, etc.), the cost of ordering more inventory (shipping, handling, paperwork, etc.), and the annual demand for the item (Dr. Kumar, 2016).
Figure 2: EOQ Model Source
Tesco, Lidl, and Aldi are all major retailers that use the Economic Order Quantity (EOQ) model to manage their inventory levels and ensure that they have enough stock to meet customer demand while minimizing inventory holding costs. The EOQ model is a widely used tool that helps businesses determine the optimal order quantity for a particular item, taking into account the costs of holding inventory and ordering more (Skordili, 2013).
Tesco, for example, uses advanced demand forecasting algorithms and real-time inventory tracking systems to manage their inventory levels. They also use a just-in-time (JIT) approach to inventory management, where products are only ordered and delivered when they are needed. According to Tesco's 2021 Annual Report, the company's inventory turnover ratio was 16.7, indicating that they are effectively managing their inventory levels. Lidl and Aldi, on the other hand, have simpler supply chain structures and smaller product ranges (Tesco, 2020). They use a more centralized approach to inventory management, with products ordered from a central warehouse and distributed to stores as needed. According to Lidl's 2020 Annual Report, the company's inventory turnover ratio was 8.7, while Aldi's was 9.2, both indicating that they are also effectively managing their inventory levels.
In terms of order fulfilment, Tesco has a complex supply chain network that includes a large number of suppliers, warehouses, and distribution centres. They use a variety of fulfilment methods, including in-store pickup, home delivery, and click-and-collect. According to Tesco's 2021 Annual Report, the company fulfilled over 1.5 million online orders per week in the UK alone. Lidl and Aldi also offer a range of fulfilment options, including in-store pickup and home delivery (Samdani, 2020). According to Lidl's 2020 Annual Report, the company fulfilled over 3.3 million home delivery orders during the year. Aldi also offers home delivery through partnerships with third-party providers like Deliveroo and Uber Eats. Overall, all three retailers use the EOQ model to manage their inventory levels and offer a range of order fulfilment options to meet customer demand. While their specific strategies and practices may differ based on their unique business structures and supply chains, they all prioritize efficiency and customer satisfaction in their operations (Delaney, 2020).
The next concept that has been selected is the concept of global sourcing. Global sourcing is the process of looking for and buying products and services from suppliers located all over the world. Due to its ability to help businesses reach new markets, cut expenses, and gain a competitive edge in the global market, it has grown in popularity over the past few years. Global sourcing is a key component of Tesco, Lidl, and Aldi's supply chain management strategies. They all collaborate closely with their extensive networks of global suppliers to provide their consumers with a wide selection of premium goods at reasonable costs (Mol, 2022).
Figure 3: Sourcing process
For instance, Tesco has a protracted commitment to ethical sourcing and collaborates with suppliers to ensure that they uphold their strict standards for product quality, safety, and business ethics. Also, they have made large investments in the architecture of their supply chain, including the creation of specialised sourcing teams and the building of direct connections with farmers and producers. Global sourcing is a priority for Lidl and Aldi as well, and they take advantage of their vast supplier networks to provide a variety of goods at competitive costs. They are able to provide competitive prices to their consumers because they both place a high emphasis on efficiency and cost optimisation in their supply chains (Jia, 2017).
A method called Total Cost of Ownership (TCO) is used to assess all costs related to a product, such as the purchase price, shipping, customs, duties, taxes, warehousing, and other expenditures. TCO is a crucial factor in Tesco, Lidl, and Aldi's international sourcing processes. All three businesses have created complex supply chains that enable them to acquire goods from suppliers all around the world, but they are also fully aware of the potential expenses and dangers involved in such business operations (JIANG, 2022).
Tesco, for instance, has created a thorough TCO model that accounts for a variety of elements, such as the cost of goods, shipping, customs, levies, taxes, warehousing, and other costs. While assessing prospective suppliers, they also take into account aspects like quality, dependability, and sustainability. With an emphasis on effectiveness and cost reduction, Lidl and Aldi employ TCO to assess their international sourcing processes. They have made significant investments in the infrastructure of their supply chain, including the creation of specialised sourcing teams and the application of cutting-edge technologies to expedite their processes and cut costs (Christopher, 2021).
Considering Tesco's choice to buy fresh produce from Kenya as an illustration of the effect of TCO on international sourcing operations. While Kenya provides a consistent supply of high-quality product, the cost of shipping and logistics is considerable due to the nation's distance from the UK and its undeveloped infrastructure. Tesco has established a very effective network of producers and farmers, as well as the utilisation of cutting-edge logistical technologies, to help balance these expenses. Tesco has been able to provide high-quality goods at competitive pricing while simultaneously assisting the local Kenyan economy by carefully managing the total cost of ownership (Hardaker, 2018).
Lidl and Aldi have also used TCO to streamline their international sourcing procedures with an emphasis on cutting costs and boosting effectiveness. Both businesses promote quality and sustainability while having large supply chain networks that enable them to obtain goods from all over the world at affordable pricing. Aldi, for instance, has created a thorough supplier code of conduct that incorporates tight guidelines for moral sourcing and environmental responsibility (Hardaker, 2018).
Tesco, Lidl, and Aldi are three businesses that have a similar industry and business strategy. Their worldwide SCM practises do have some important similarities and distinctions, though. All three businesses use cutting-edge technology to manage their supply chains, which is one area of similarities. To streamline their operations and boost productivity, they employ GPS monitoring, online ordering systems, and computerised inventory management systems. They all also emphasise the importance of sustainability and moral sourcing methods (JIANG, 2022).
Yet, there are some discrepancies in the way they approach global SCM. For instance, Tesco operates in more nations and has a wider range of products than Lidl and Aldi. Tesco's supply chain network is much more intricate, necessitating greater attention to risk management and emergency planning. Lidl and Aldi, in contrast, have a more efficient supply chain, which enables them to give their customers reduced prices. Their methods for international sourcing also differ. Tesco frequently sources goods from a broader range of nations, including poorer countries that may present more hazards. Lidl and Aldi, in comparison, place more of an emphasis on purchasing from low-cost nations in Europe like Poland and Romania (Global, 2021).
Based on the foregoing explanation, Tesco, Lidl, and Aldi have all adopted a number of best managerial practises in their international SCM operations. The use of cutting-edge technology to manage their supply chains is one of the best practises. To increase their logistics and efficiency, all three businesses have introduced computerised inventory management systems, online ordering systems, and GPS monitoring. This results in better forecasting, planning, and decision-making in addition to eliminating manual labour and errors.
A major focus on sustainability and ethical sourcing methods is another recommended practise. To ensure compliance with international norms and laws relating to environmental protection, ethical labour practises, and product safety, the companies have established defined rules and processes. This not only lowers the likelihood of legal liability and reputational harm, but it also increases consumer loyalty and trust (Dr. Kumar, 2016).
The businesses have also put in place a strong procedure for risk management and emergency planning. For instance, Tesco has a more intricate supply chain network that necessitates greater risk management due to its more diverse product selection and operations across numerous nations. Due to their simplified supply chains, Lidl and Aldi have been successful in reducing the risks associated with supply chain interruptions. Also, the businesses have developed a Total Cost of Ownership (TCO) strategy for international sourcing. This entails assessing the whole cost of acquiring goods or services, which includes both direct and indirect costs such as shipping, storage, quality assurance, and customs fees. Using this strategy enables the businesses to find the most affordable sourcing solutions while upholding high quality requirements. In addition to this it has also been seen that, using the Economic Order Quantity (EOQ) model, the study evaluated Tesco, Lidl, and Aldi's order fulfilment and inventory management procedures. A popular inventory management model called the EOQ helps businesses choose the right amount of inventory to order in order to reduce overall inventory expenditures (Delaney, 2020).
In their worldwide SCM operations, the three firms have generally adopted best managerial practises that give priority to operational efficiency, cost effectiveness, and sustainability. The EOQ model, the TCO strategy, and the utilisation of advanced technological systems have all contributed to cost savings, waste reduction, and increased productivity.
Recommendations and Conclusion
Based on the analysis of the best managerial practices of Tesco, Lidl, and Aldi, the following recommendations are proposed to improve their global SCM operations:
The global SCM practices of Tesco, Lidl, and Aldi have been analysed using the EOQ and TCO models. The three companies have implemented best managerial practices that prioritize operational efficiency, cost-effectiveness, and sustainability. The recommendations proposed in this study can help the companies to improve their global SCM operations and achieve long-term success. By adopting advanced analytics, collaborating with suppliers, prioritizing sustainability and ethical practices, and investing in technology, the three companies can enhance their supply chain resilience, reduce costs, and improve customer satisfaction.
References
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