CHANGES AT TESCO YIELDING SAVINGS

CHRIS O'LEARY

ATLANTA -- Tesco Stores, London, said innovative technology programs have yielded savings from its supplier docks to its store shelves.

Tesco has strengthened several links of its supply chain, making substantial investments in electronic data interchange, warehouse bar-coding and computer-assisted ordering, among others.

As a result, inventories in some stores have been slashed by 60% and labor costs have been reduced by about $30 million.

"Our key enabler is our investment in information technology," said Joe Galloway, divisional director of supply chain systems, at the CIES Logistics Management Program here last month.

Tesco has launched initiatives in several areas:

Advanced EDI applications. The retailer is linked with more than 1,300 manufacturers in various EDI transactions. Purchase orders are sent almost exclusively through EDI, as well as a substantial volume of invoices, sales forecasts and price changes.

Electronic transmission of advanced ship notices will be the next step, planned for later this year.

Computer-assisted ordering. Because each Tesco store is able to automatically send daily orders based on sales data, stores now only have a week's worth of back stock, increasing the amount of floor sales space by up to 20%.

Improved warehouse operations and ordering. Tesco streamlined its distribution centers, separating fast-moving merchandise from slow, and automated purchase ordering to improve merchandise lead times. The retailer is using radio-frequency technology and case bar-coding to further speed up operations.

Of all the investments Tesco has made in technology, Galloway said, EDI has proven to be the lifeblood of its operations.

"EDI has enabled a complete change of philosophy in our relationships with suppliers," he said. "It has allowed us to achieve efficiencies across the supply chain. Many of the benefits of reduced lead times and stock levels would not have been achievable without EDI."

The retailer first concentrated on electronically transmitted purchase orders and invoices -- "where the obvious benefits are," he said. Tesco currently sends more than 95% of its purchase orders and receives more than 55% of its invoices via EDI, while about 400 suppliers are also involved in exchang-

ing prices and sales forecasts electronically.

Sending manufacturers sales forecasts is not intended to set the stage for vendor-managed inventories, he cautioned. "We don't let suppliers manage inventory for us. We give them forecasts to enable them to maintain our service requirements, not to determine how much to deliver to us."

Computer-assisted ordering has also revolutionized Tesco's operations.

"Sales information is recorded at the item level and sent overnight to our mainframe, where the order calculations take place," he said. "In some cases, the orders are transmitted to our suppliers without any manual intervention. This enables us to have a 12-hour lead time on certain deliveries to stores."

Tesco has used the system to drastically cut its store inventories. "We now have just under a week's worth of stock in stores," Galloway said. "This has enabled us to increase the proportion of space dedicated to sales by up to 20%. In some stores, frozen food

stockkeeping units have been cut by up to 60%."

Store employees work more productively using the system, he said. For instance, stores can now create reports to analyze out-of-stock products to determine which are due to store misorders and which are the result of manufacturer shortages.

"The productivity gains were enormous," Galloway said. "We have achieved 20 million pounds [about $31 million] in labor savings over the last five years."

The success of CAO inspired the retailer to begin implementing a logistics management system which will automatically send purchase orders using information from store orders.

"It will be a single, integrated system for ordering all products to be distributed through any of our warehouses," Galloway said. Tesco is introducing some functions and expects to have the entire program on line by next year.

"The system is designed to improve the accuracy of our forecasts, reduce manual intervention in the generation of purchase orders and optimize the scheduling of supplier deliveries," he said. "It will enable us to further reduce depot stockholdings next year."

One key component will be the generation of daily sales forecasts based on information received from CAO, Galloway said. "They are essential when you are working on short lead times. They are generated on historical demand and then by applying seasonal profiles or promotions.

The system also automatically assigns time slots for suppliers to arrive at the dock when it creates a purchase order, with orders prioritized based on their importance to business, product handling times and loading dock capacities.

"The staff will keep an electronic diary of bookings and goods for each depot," Galloway said. "It already has significantly reduced congestion at the docks."

Warehouse operations are also being improved through technology. Tesco recently completed a restructuring of its warehouses, designating areas for high-volume and low-volume merchandise. Some warehouses are completely devoted to high-moving items.

"Our distribution systems have enabled us to significantly increase the throughput of our existing networks," Galloway said. "It has enabled us to postpone building new depots, saving us significant amounts of money."

"In our fast-moving depots we are implementing radio-frequency systems: installing terminals on-board forklift trucks," Galloway said. By creating labor standards and monitoring employee performance, Tesco can determine when and where performance needs to be improved.

Some warehouses are also using barcoding, aided by the fact that more than 95% of the cases received have been barcoded at the supplier level.

"This has improved throughput and product recognition. Prior to barcoding we were relying on operators recognizing products and matching them to the description on invoices," he said. Employees now scan the outer case code, which matches the pallet to the computer-generated invoice.

For receiving fresh foods, Tesco's warehouse technology is even more advanced. Pallets are scanned into the system at the warehouse dock, and tickets are printed for the quantity of the item needed in each store. "It has meant a 27% improvement in the accuracy of our fresh foods orders," Galloway said.

The system also analyzes the product life and rejects products with insufficient codes, ensuring that stores don't wind up with merchandise that instantly needs to be reduced or junked.