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1225630

An exploration of the Strategic and

Operational roles of Procurement:
A case of the retailer, Tesco PLC.

A coursework assignment
submitted for the Study Module:
MG5581 Procurement Fundamentals
on the
MSc. Global Supply Chain Management
programme at
Brunel Business School, Brunel University London.

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Table of Contents
1.0 Executive Summary ..................................................................................................... 5
2.0 Tesco – History, Company Structure and Operations .................................................... 6
3.0 Analysis of Procurement Strategies and Operations ...................................................... 8
3.1 Tesco’s Procurement Strategies ................................................................................ 8
3.1.1 Category Management and Spend Analysis......................................................... 8
3.1.2 Long-Term Supplier Relationships and Purchasing Portfolio Management .......... 9
3.1.3 Sustainable Purchasing ....................................................................................11
3.1.4 Other Important Strategies...............................................................................11
3.2 Tesco’s Procurement Process, Activities and Policies ................................................12
3.2.1 Procurement Process and Activities ..................................................................12
3.2.2 Procurement Policies .......................................................................................12
3.3 Procurement Considerations ...................................................................................13
3.3.1 SWOT Analysis ................................................................................................13
4.0 Recommendations and an implementation plan ...........................................................15
5.0 Conclusion.................................................................................................................17
References ...........................................................................................................................18

Table of Figures
Figure 1. Tesco Organisational Structure ................................................................................ 7
Figure 2. Kraljic's Purchasing Portfolio Model ........................................................................ 9
Figure 3. Supplier Feedback to Tesco (Tescoplc.com, 2020k) .................................................. 9
Figure 4. Tesco Procurement Process (Tesco, 2020d) .............................................................12
Figure 5. A SWOT Analysis of Tesco's Procurement Function .................................................13
Figure 6. Proposed Implementation Plan for Tesco's Procurement Function ...........................16

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1.0 Executive Summary

This research is written as a coursework submission for the MG5581 Procurement Fundamentals
on the MSc. Global Supply Chain Management programme.

The objective of this research is to explore the strategic and operational roles of procurement in
Tesco, a grocery retail company in the United Kingdom.

The procurement activities of Tesco and how these activities interconnect with its structure are
considered. Tesco’s operations and business environment in a procurement perspective is also
explored to give an insightful background of the company’s strategy.

Tesco’s procurement strategies are examined with the aid of existing research, industry reports
and company information. A further exploration of the related procurement process, activities and
policies that Tesco applies to deliver customer satisfaction is also done. Consideration is given to
how this influences the development and evolution of Tesco’s procurement function.

A SWOT analysis is done to examine the strengths, weaknesses, opportunities and threats that
may influence its procurement strategies going forward.

Recommendations along with an implementation plan are proposed for the consideration of
Tesco’s procurement function.

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2.0 Tesco – History, Company Structure and Operations

Grocery retailing has progressively evolved in the last 100 years. At the beginning of the last
century, it was likely that many retail businesses were independent stores selling groceries and
goods to earn profit. Equally, many aspects of earlier logistics and supply chain management were
controlled as independent activities (Fernie and Sparks, 2014).

Tesco, a brainchild of Jack Cohen, started out as a groceries stall in 1919 in the East End of
London and he “used his demob money to buy the first day's stock.” (Evans and Mason, 2018;
Tescoplc.com, 2020l). Therefore, from the very beginning, purchasing was an essential part of the
Tesco business. Also, Tescoplc.com, (2020) indicates that the name ‘TESCO’ originated from the
initials of the partners of one of the early tea suppliers with Mr. Jack Cohen being one of them.
Possibly, this was a future indication of the close relationship that Tesco would also have with its
suppliers. Since then, Tesco has expanded from a simple store, to opening local supermarket
outlets and then becoming a global retail supermarket chain (Christopher, 2012).

Notwithstanding, Tesco’s success may be partly due to the evolution of its procurement strategy.
Tesco’s own logistics and supply chain especially for fresh groceries was originally structured
around getting the best deal from the manufacturer selling to customers cheaply (Fernie and
Sparks, 2014). Moreover, retail business operations were inclined to the manufacturers’ model
which controlled most purchasing and logistics functions including sourcing, buying, inventory,
operations, and distribution (Randall et al., 2011). This had proven suitable for Tesco at the time
because Tesco’s focus was on getting good value for customers. Tesco remains focused on
delivering increased customer value, diversifying its products and being sustainable.

Tesco now operates through its shops and stores categorised as ‘Express’, ‘Metro’, ‘Superstore’
and ‘Extra’ (SD, 2006). Tesco also launched its online business in 1996 and has become one of the
world’s biggest online grocery retailers (Enders and Jelassi, 2009; Mkansi, Eresia-Eke and
Emmanuel-Ebikake, 2018).

Tesco is also present in several countries and recently reported group sales of £ 63.78 billion with
a 24% increase in group operating profit to £ 2.24 billion. It is listed on the stock exchange and
has clear policies on business conduct of its employees and suppliers (London Stock Exchange,
2020; Tescoplc.com, 2020d; Tescoplc.com, 2020e; Tescoplc.com, 2020k;)

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Tesco’s organisational structure is

considered quite hierarchical as indicated
in Figure 1 (Business Research
Methodology, 2020; Tescoplc.com,
2020a). The procurement function is led
by the group procurement director
(functional chief executives) and driven by
procurement chief executives and
procurement function heads across the
different subsidiaries of Tesco. Therefore,
it is possible that Tesco’s procurement
team is multi-disciplinary due to the Figure 1. Tesco Organisational Structure
(Business Research Methodology, 2020; Tescoplc.com, 2020a).
complexity of Tesco’s business. This also
projects procurement as an upper level function essential in the achievement of Tesco’s strategic
and operational level goals. It is also likely from Tesco’s growth that its procurement strategy,
operations, processes and policies have evolved adopting diverse approaches to keep its retail
business model viable and drive its success.

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3.0 Analysis of Procurement Strategies and Operations

Procurement is an essential part of supply chain management governing acquisition of goods and
services to meet a company’s needs - and consequently that of its customers. Often, procurement
and purchasing are used interchangeably. Monczka et al. (2009) help us to clarify this that “these
differences are largely semantic.” In this case, in reference to Tesco, the terms ‘procurement’ and
‘purchasing’ shall be used interchangeably.

In this analysis, Tesco’s procurement strategy and operations activities in addition to its
development of procurement strategy and operations are explored. A Strengths-Weaknesses-
Opportunities-Threats (SWOT) analysis (Monczka et al., 2009) is also applied to discover how
Tesco can approach planned or proposed strategies and offer practical recommendations for the
improvement of Tesco’s procurement activities.

3.1 Tesco’s Procurement Strategies

Tesco has employed several procurement strategies to meet its goals as explored below.

3.1.1 Category Management and Spend Analysis

Tesco as a global retail business maintains a range of up to 90,000 stock keeping units (SKUs) in
many of its large stores (Financial Times, 2018). Driven to offer customers variety and win
market-share from competitors, Tesco had taken up a wider product range with their ‘pile ’em
high, sell ’em cheap’ model (Simpson, 2017). Moreover, Tesco suppliers experienced business
growth by selling new products to Tesco. There are possible challenges with identifying which
products and suppliers the procurement function should focus on and how to deliver value to
customers including personalised offers and better prices. In research cited by Wood and Butler
(2015) done by Kantar Retail, “the average household buys only 400 products a year.” This further
underlined that Tesco was stocking products and giving customers more variety but also
increasing complexity.

Consequently, Tesco co-opted the services of Boston Consulting Group to realign its product range
(Quinn, 2015; Talking Retail, 2015). This Category and Spend Analysis strategy was based on
reducing the products range by 30%. Hines (2014) also indicates that retailers have become more
customer-centric in this way. This helped Tesco focus on their fast-moving products, secure better
prices as well as decrease costs of holding slow-moving inventory. However, this strategy may fall
short where customers have unique product preferences and erode some sales. Therefore, this
strategy requires a delicate balance between engaging suppliers for new better products and
maintain a good variety for customers.

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3.1.2 Long-Term Supplier Relationships and Purchasing Portfolio Management

Tidy, Wang and Hall (2016) point out that “supplier engagement, as a broader corporate practice,
has risen in importance generally as a means of influencing supplier behaviour and driving supply
chain performance towards corporate objectives.” To be successful, Tesco’s retail business
requires to constantly leverage supplier relationships. This is also aided by Kraljic’s purchasing
portfolio model in categorising items based on supply risk and profit impact of the item. As
illustrated in Figure 2 the model below, different supplier relationships apply depending on the
nature of the supplied items
(Gelderman and Van Weele, 2005).
This is demonstrated further by
Tesco’s relationships with its suppliers
(Finch, 2004). On the contrary, this
was not always the case (Gold,
Trautrims and Trodd, 2015). Tesco
had been singled out for having poor
relationships with its suppliers and
had a bad performance under the
Groceries Code (Felsted, 2015;
Figure 3. Kraljic's Purchasing Portfolio Model Williams and Williams, 2015;
(Gelderman and Van Weele, 2005)
Ferguson, Brown and Boyd, 2019).
Tesco tried to improve relationships and develop further collaborations. This was further
highlighted by Green (2020) citing Tesco’s chief executive, Dave Lewis, that “over the last five
years, we have focused on serving customers better, re-engaging our colleagues, completely
resetting our relationships with
our suppliers and as a result we
have been able to add value for our
shareholders.” This is more
evident in the results of re-
alignment of the Tesco’s
procurement towards long-term
supplier relationships in the last
Figure 2. Supplier Feedback to Tesco (Tescoplc.com, 2020k)
five years as shown in Figure 3
(Tescoplc.com, 2020k). In this way, Tesco has been able to gain back supplier trust and some
customer loyalty as well.

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3.1.3 Sustainable Purchasing

Tesco bears greater accountability towards responsible sourcing (Wiese, Zielke and Toporowski,
2015; Tescoplc.com, 2020k) in addition to increased demand for it from customer expectations
and government regulation (Tescoplc.com, 2020h). Abbasi (2017) also elaborates that “supply
chains can contribute to the sustainable development of their surrounding societies.” Notably,
irresponsible supply chain activities can have a detrimental effect on the environment and society.
This was highlighted when Tesco suffered from the ‘horse-meat’ scandal and had to recall products
and review their supplier relationships (Lau, Nakandala and Shum, 2018; Ndubisi and Nygaard,
2018). Notwithstanding, Tesco has been making significant efforts to be more sustainable by:
• Offering products in a more environmentally friendly packaging and recyclable materials
(Monnot, Parguel and Reniou, 2015; Hart, 2020c; SM, 2020)
• Greater supplier due diligence, standards and compliance in supply chain networks (Gold,
Trautrims and Trodd, 2015; Bilińska-Reformat et al., 2019; Tescoplc.com, 2020k)
• Purchasing products with labels on product origin, content and disposal (Sarpong, 2014).
• Procuring energy efficient systems (Cullinane, 2014; Quak and Nesterova, 2014)
Tesco’s procurement strategy is now greatly directed towards sustainability including putting in
place clear policies for this (Tescoplc.com, 2020g).

3.1.4 Other Important Strategies

Global Sourcing
Tesco’s drive to bring its customers products of great value and variety have necessitated it to
delve into foreign markets for quality and better-priced products. While local markets offer
convenience in logistics and lead times, making use of global supply networks has equally proven
necessary. For example, Tesco procures from 40 countries (Tesco, 2020a) including horticultural
produce from Spain (Pérez Mesa and Gómez, 2015) and Brazil (de Castro Souza and Neto, 2012).
Supply Risk Management
The complex nature of procurement requires that Tesco put in place strategies to safeguard supply
networks. The learnings from the ‘horse meat’ scandal and the concerns of supply network
disruption from Brexit have necessitated the need for supply risk management. Tesco
procurement maintains a supply risk profile to track supply risk and ensure that supply is not
interrupted (Tesco, 2020c).

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Total Quality Management (TQM)

Tesco has championed several TQM approaches within its procurement strategy. For example,
Evans and Mason (2018) reveal that Tesco ensured that:
• Efficient ordering would guarantee higher On-Shelf Availability (OSA) for its customers
• It “took responsibility for most of the UK inbound distribution to its network in
collaboration with suppliers, hauliers and consolidators.”
• Its award-winning Supply Chain Blueprint Team helped spread operational efficiencies.
As a result, Tesco was in position to guarantee greater product quality down its supply chain.

3.2 Tesco’s Procurement Process, Activities and Policies

3.2.1 Procurement Process and Activities
Tesco’s procurement process is structured around creating “value for customers to earn their
lifetime loyalty” (Tesco, 2020b). Tesco has structured procurement activities as shown in Figure
4 (Tesco, 2020d).

Sourcing Buying Ordering Production Shipping Receipt

Figure 4. Tesco Procurement Process (Tesco, 2020d)

Sourcing: Searching and engaging suppliers to establish what can be supplied, how and when.
Buying: Contracting and agreement to ensure that Tesco standards and expectations can be met.
Ordering: Instructions for items as required by Tesco to satisfy anticipated customer demand.
Production: Manufacture of the products according to Tesco’s standards, quantity and quality
Shipping: The movement of the products from the supplier to Tesco hubs and then stores
Receipt: Receipt of ordered items at the distribution centres and at the stores.

3.2.2 Procurement Policies

Tesco’s procurement function is guided by various policies including clear policies on its Code of
Business Conduct and Ethics and Compliance (Tescoplc.com, 2020i, 2020g, 2020b).
Code of Business Conduct: Operations and the commitment to customers.
Responsible sourcing: Sustainable procurement and protection of human and animal rights
Group Anti-Bribery policy: Compliance of Tesco employees and suppliers to anti-bribery
Group Gift & Entertainment policy: Business gifts involving Tesco employees and suppliers
Group Conflicts of Interest policy: Identification and response to a conflict of interest

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Group Whistleblowing policy: Reporting misconduct concerns and seeking support

3.3 Procurement Considerations

The procurement function can continue to support Tesco’s grocery retail market business and a
SWOT analysis is considered in Figure 5 below to establish areas of improvement.

3.3.1 SWOT Analysis

INTERNAL
Tesco is a market leader with a multi-
channel retail network and extensive
supplier networks (Kantar, 2020; Quinn, STRENGTHS WEAKNESSES
2020; Tescoplc.com, 2020k). Tesco has Market Leader Supplier Relationships
Multi-Channel Retail High Operational Costs
used this position to advance its strategy
Supplier Networks Shrinking Competitive
with the notable recent undertaking of a Advantage
merger with Booker and acquisition of Best
Food Logistics (Green, 2017;
Tescoplc.com, 2019, 2020j). Tesco THREATS
OPPORTUNITIES
procurement should continue to leverage Amazon and others
Online Retail Channel
Brexit
this market position to engage suppliers to Home Delivery Service
COVID-19
produce more innovative products for its Sustainability

customers. This also offers a strong

negotiating position for Tesco’s
EXTERNAL
procurement team for more sustainable
Figure 5. A SWOT Analysis of Tesco's Procurement Function
products from its suppliers.

Tesco’s procurement team still comes short in supplier relationships. Tesco also has high
operating costs across its supply chain and has lost some competitive advantage as a result of the
supply chain challenges it faced: poor treatment of suppliers, a highly publicised accounting
scandal and quality issues in some of its retail products. Tesco has tried to close these gaps
(Tescoplc.com, 2015; Thegrocer.co.uk, 2019) but it must repair damaged and frail supplier
relationships while enforcing supplier due diligence and compliance to quality standards. Further
analysis of the operational cost savings that can be achieved is also needed. Tesco has already
made a step towards this in its buying partnership with Carrefour and in utilising renewable
energy in its supply chain (Churchill, 2017; Agnew and Eley Jonathan, 2018; Tescoplc.com,
2020c).

Online retail has grown by at least 4 times between January and June 2020 (Statista, 2020) with
a proportion of Tesco’s customers being part. Tesco’s customers have also shown great interest in

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purchasing sustainably sourced products. These avenues create interesting opportunities for
Tesco’s procurement teams. Understandably, Tesco has already started exploring this through a
viable online ordering service for its customers along sourcing of healthier, longer shelf life and
less packaged products meant to reduce waste and return greater value to customers (Eley, 2020;
Hart, 2020b; Quinn, 2020; Tescoplc.com, 2020f). Additionally, Tesco has also made effort to
source and use energy efficient and carbon-neutral equipment while targeting costs as well
(Churchill, 2017).

Notwithstanding, there are several threats to Tesco’s business. Firstly, Amazon’s foray into the
UK online grocery retail business is a significant threat (Eley, 2020). This is likely to affect Tesco’s
30% market share in this space as Amazon has already moved to offer customers a free home
delivery service. Secondly, Tesco’s supply chain will require significant re-alignment with the
onset of Brexit at the end of 2020. McKevitt and Gaul (2019) anticipate that “a significant
percentage of the food purchased by UK consumers is at risk of disruption in a no-deal Brexit
scenario” with 62% of it imported from the European Union. Thirdly, the supply chain and
customer shopping disruptions caused by the COVID-19 pandemic have created uncertainty
evidenced by the panic buying situation at the beginning of lockdowns along with reduced
consumption of non-essential goods (Green, 2020a). Hart (2020a) suggests that such
uncertainties necessitate procurement teams to increase focus on supply chain resilience and risk
management to maintain business viability and customer satisfaction.

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4.0 Recommendations and an implementation plan

There are several recommendations that Tesco’s procurement can consider.
Firstly, leveraging its market leading position, Tesco needs to re-engage its customers and
understand the key products and preferences that interest them. This will help the procurement
team focus more on improving value higher up Tesco’s supply chain for customers, beyond the
focus of product variety but low customer value. This could be through better engagement with
suppliers for quality products. In addition, by using its various channels, Tesco should re-evaluate
its product variety and find innovative ways to introduce new and transformed products to its
customers. This will help Tesco regain competitive advantage over its rivals.
Secondly, Tesco’s drive towards sustainability is highly pegged on engaging its suppliers and
customers extensively by eliminating waste through its operations, packaging and the nature of
the products it delivers to its customers. This involves engaging suppliers holistically to ensure
that sustainable practices are applied in production. Furthermore, the procurement function
would need to take lead in the transformation of Tesco’s operational systems and equipment to
more energy-efficient and carbon neutral standards.
Thirdly, the procurement function needs supply risk mitigation measures with the onset of Brexit.
Heading into the end-of-year deadline, disrupted supply networks and routes may cause shortage
of essential products. While stockpiling inventory may be done to overcome short term disruption,
the long-term procurement strategy should focus on getting reliable supply for the high-risk
products including consideration of local suppliers.
Fourthly, the procurement function needs to support the internal push for products that can grow
the online retail channel while maintaining support to traditional channels. This may be through
better product packaging and sizing to stimulate shopping experience for online customers. One
other consideration is for viable cost savings on production to ensure that the final product enables
Tesco to compete strongly with its fast-growing competitors like Aldi, Amazon and Sainsbury.
Some of the recommendations are summarised in the Figure 6 below.

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Maintaining Maximise the Online

Managing Supply Improved Supplier
progress on Retail Channel and
Goal/Task Risks during Relationships and
Sustainability fend off Threat of
BREXIT Risk Management
Agenda Amazon
Actions Explore local supply Transformation of Improved multi-channel Closer supplier
and stockpile to carbon-heavy offerings and value for relationships and
cover off short-term equipment and customers engagement
disruption reducing wastage
including packaging

Resources Market and Product Customer and Large customer base Existing supplier
Experience supplier buy-in relationships

Stakeholders Government Support, Regulators, Suppliers, Digital Marketing Team, Suppliers,

Supplier Customers, Internal Suppliers, Management Management Team
Partnerships, Operations, Team
Management Team Management Team

Deadline December 2020 2025 2021 2021

Figure 6. Proposed Implementation Plan for Tesco's Procurement Function

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5.0 Conclusion
The strategic and operational roles of procurement within Tesco have been explored giving a
succinct picture of the function within its retail grocery business. Different concepts, tools and
techniques have shown that Tesco focuses on a combination of cost, quality, sustainability,
reliability, agility and variety to deliver items and groceries to its customers. A SWOT analysis has
offered unique perspectives to do with sustainability, supply risk created by COVID-19 and Brexit,
as well as competition from other retailers. Recommendations in an implementation plan have
leveraged Tesco’s strength as a market leader with strong supplier relationships and a good
customer base to navigate its threats and overcome its weaknesses. Therefore, Tesco’s
procurement function underlines its importance as a driver of strategic goals, customer value and
competitive advantage.

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