Vendor Managed Inventory (VMI) - Konzept, Beurteilung und Praxisbeispiele (German Edition)

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Hence, the social dimension sometimes can be measured in corporate governance. Due to this wide range of activities, the social dimension has been criticized for being too unspecific and therefore allowing every stakeholder to only select aspects which he likes to point out. But there is again a very broad range of definitions and how CSR is related to the term of sustainability. They recommend a framework in which CSR is used as a social strand in the Triple-Bottom- Line approach of sustainability.

Despite numerous studies on the topics supply chain and Supply Chain Management SCM , there is still a debate over their precise definitions amongst. A supply chain is commonly regarded as a sequence of two or more parties linked by a flow of material, information and money, often global in scope. It consists of all parties involved, directly or indirectly, in fulfilling a customer request, such as manufacturers, suppliers, transporters, warehouse owners, retailers, and customers.

Within the framework of this thesis, the definition of Supply Chain Management is consistent with the view of the Council of Supply Chain Management Professionals:. The definition points out the importance of the management of flows between and among supply chain participants. There has been a lot of confusion about the difference or equivalent usage of the definition of Supply Chain Management and logistics, especially in Germany. But before logistics reached its status quo, there has been a development with various stages over decades.

Throughout this development, the area of responsibility of logistics increasingly expanded within business management science and practice. Logistics began to shift from a functional operating view to optimization of supply chains and cross-company network integration. Every previous stages of development can be traced back to key success factors of logistics, which have been shifting over the decades companies aimed mainly for cost reductions. The most important objective was a more efficient configuration of logistic processes.

During the s the new generic strategy of quality leadership replaced cost leadership. A system of performance objectives of Supply Chain Management can also be easily derived from the development of the key success factors, described in the section above, by applying the concept of Slack and Lewis. The five performance objectives of SCM are quality, speed, dependability, flexibility and cost. In order to be successful, a company has to ensure the right quantity in the right condition of the right product at the right cost, at the right place, at the right time to the right customer.

The first performance objective quality is linked to the ability of a company to achieve a product or service specification consistently 70 and to offer an appropriate delivery quality for customers. Speed includes short lead and delivery times which depend directly on the order fulfillment strategy and the customer order decoupling point. Dependability refers to a high degree of delivery dependability and delivery readiness. Furthermore it also involves high reliability and availability of all systems and work flows including those of upstream supply chain members.

Flexibility consists of adequate delivery resilience, a high diversity of variants and offering customized products and services. Cost is still the most important performance objective. The lower the costs are, the lower can be the price, which a company is able to offer customers for its products or services.

This system serves as a basis for the performance measurement, which is realized by key performance indicators KPI. There is a huge variety KPI in Supply Chain Management, which can be adapted to unique requirements of different countries or industries. The five performance objectives of Supply Chain Management result directly from its development over the last decades. Instead, it is necessary to continue to change and evolve the understanding of Supply Chain Management and its objectives to fit to the needs of today and the future.

The importance of the logistics and supply chain industry grew significantly over the last decades. Nevertheless, air freight is the highest carbon intensive mode of transport 88 , while ocean and rail freight are the most carbon efficient modes. The supply chain and logistics industry is expected to continue growing in the next years. Furthermore, SCM can be regarded as the missing link between green products, services and customers, allowing companies to produce even greener products if the corresponding logistics also becomes green.

The implication is clearly an essential need to integrate sustainability and its three dimensions into modern Supply Chain Management. Therefore an adoption of the understanding and the theoretical framework of SCM are required once more. Supply Chain Management research and science has been showing growing interests in sustainability for over two decades and the topic already became mainstream.


In Carter and Jennings were the first ones to have conceptualized the integration of social and environmental issues into an extensive framework. Pagell and Wu focused on managerial orientation on sustainability and transparency in the supply chain in order to increase sustainability outcomes. Their approach is based on the Triple-Bottom-Line and even extends this model by integration of strategy, organizational culture, transparency and risk management cf. This definition points out again the equal treatment of the three pillars of sustainability.

To achieve real sustainability, it is not enough to consider these dimensions separated. Green Logistics strives after a balance between economic and eco-efficiency. But it is insufficient to only have a definition and a conceptual framework of Sustainable Supply Chain Management. It is crucial to incorporate sustainability into performance objectives of SCM as well in order to design sustainable supply chains. As previously mentioned in section 2. The inclusion of sustainability displays the next stage of the development of SCM. Consequently sustainability becomes the sixth equal pillar of the SCM performance objective system and enhances the existing system containing of quality, speed, dependability, flexibility and cost cf.

The performance measurement system with its KPI must be adapted as well. The current deployment of sustainability in Supply Chain Management is influenced by different drivers and requirement. They are affected by different stakeholder groups cf. At present, the most important triggers among these are external pressure through legal demands and regulations, sustainable requirements of a growing group of customers and greater public vigilance.

More and more companies recognized the need of extensive collaboration with all partners of the supply chain to cope with requirements of different stakeholders. Government officials often rely on organizational consortiums and industry groups for advice and consultation on sustainable topics, especially concerning industry standards, trade policies, education of workers and the improvement of logistics infrastructure.

A recently published report confirmed rising importance of sustainability in the Supply Chain Management and logistics industry. However, the level of integration of sustainability varies significantly among different countries. Surprisingly, the emerging markets China and Brazil have shares similar to a developed country like Germany. Only Russian companies are lagging behind their counterparts from other major markets. The report also emphasizes remaining major challenges in the deployment of sustainability in SCM. There is still a great deal of uncertainty, especially regarding measurement and evaluation systems of sustainable performance.

In the last years, many SCM- related activities that were previously performed in-house have often been replaced with activities offered by logistics service providers. Carriers only specialize in transportation. They were the first logistics service providers because in the past transport was often viewed separated from the supply chain. Therefore carriers plan and perform movements of goods in the most efficient way. In modern SCM there are often used as subcontractors.

Logistics service intermediaries are often non-asset based service providers. They do not handle goods personally, but coordinate and connect different logistics actors and their SCM-related activities. Logistics intermediary companies frequently deal with freight forwarding activities, such as the consolidation of physical products. The most common type today is the third party logistics service provider 3PL or TPL , which coordinates clients, logistics intermediary firms and carriers in order to provide an integrated service.

Hence, the buyer operates as the focal company. Because of the variety of logistics activities, most modern 3PLs evolve either into large companies offering a wide range of logistics solutions or into specialized providers with a diversified portfolio of interests. That is why they often can optimize various logistics services and design a more efficient supply chain. The relationship with a 3PL can be of strategic, tactical or sometimes operational value.

Interactions between a procurement company and a 3PL are, in contrast to simple transactions between a transport provider and a buyer, more formalized and built with a long-term focus. The main driving forces today have mostly strategic influence in terms of market coverage, improving the level of service or increasing flexibility in view of the changing requirements of customer.

However, a recent survey figured out contradictory results in the industry. The global 3PL market accumulated total revenues of However, there is a remarkably uneven distribution regarding the regional growth rates. The relevance of other markets probably increases as well. Third Party Logistics service provider decisions are complicated by the fact that various criteria must be considered throughout the decision making process. Similarly, the set of chosen criteria in practice can also vary from buyer to buyer because each outsourcing company has its own evaluation standards and specific considerations according to its individual requirements for selecting 3PLs.

Many researchers identify cost reduction, service improvements, customer satisfaction and flexibility as central selection criteria. In recent years, the concept of fourth-party logistics 4PL emerged describing a further development of the 3PL approach. Once again, this chapter requires a precise definition of different terms in the beginning.

But different definitions of them can lead to significant distinctions and misunderstandings. It is usually narrower to define the transaction of ordering and receiving goods and services. This thesis will follow this concept and widely use notion of procurement. Regarding forthcoming chapters, it is clearly advantageous because it incorporates the buying of transport and logistics services. Nevertheless it must be mentioned that some recent research papers also use the term of purchasing to describe the activity of buying from logistics service providers.

To understand the integration of procurement into SCM, it is helpful to give attention to the process character of modern Supply Chain Management. During the last years, SCM evolved simultaneously with the changes of the key success factors from a functional view towards a process chains orientated concept with broader responsibilities.

Baumgarten arranges SCM in four process chains, namely product development, supply, order management and return. They proceed concurrently and are sequentially linked. The supply process chain consists of requirement planning, purchasing and procurement logistics and hence corresponds to the definition of procurement above. Therefore procurement itself is an important factor in the process chain model and in SCM. They mainly underestimate the potential of procurement. As a result of their increasing strategic importance, procurement decisions can be differentiated into four different categories.

Supply strategy involves direction-setting in the form of a set of strategic decisions. The superordinate objective of all strategic decisions is to ensure and increase competitiveness of the company by optimizing the performance of its suppliers. Supply strategy also determines guidelines for sustainability related requirements for suppliers. Supplier management is the last substantial part of procurement, which is responsible for the management of value creation processes in the relationship with suppliers.

The supplier selection process starts with the decision of the target market of followed by general supplier identification. Then the raw selection must be classified and matched to a supplier portfolio to prove eligibility aboout the procurement object. Supplier development aims for an improvement of the value-added processes related to the suppliers. The performance of every supplier is monitored and reported frequently. The buying company demands various improvements based on the results. If the supplier is not willing or able to improve his weaknesses, the supplier phase-out can be initialized.

Supplier integration strives for a long-term relationship with a supplier to get into a win- win situation in the long run. The main idea is the intensification of collaboration, which is mostly carried out by an intensive interchange of data or information and sometimes even by cooperation in research and development or production. The globalization led to one of the major trends of procurement in the last decade: global sourcing.

Companies have significant needs and incentives to buy globally today. They attach special importance to emerging market like China, India or Brazil not only because of the cost saving opportunities but also because of huge market potential. E-procurement electronic procurement has been a trend for more than a decade as well. It describes the procurement processes through the Internet as well as other information and networking systems.

With the increased focus on more strategically managing suppliers, a focus on impacting services procurement has emerged over the last years, as well. Similar to the mega trend in Supply Chain Management and logistics, sustainability has become a key success factor in procurement. With the beginning of broad international procurement activities in the s and s, sustainability also became one of the focal points of interest. In recent years, various researchers underlined the importance of integrating all three dimensions of the Triple-Bottom-Line into an overall framework, often called socially and environmentally responsible procurement SERP.

The level of implementation of sustainable procurement strongly depends on the industry and company itself. The Volkswagen AG, for instance, follows an advanced conceptual framework to incorporate sustainability in its procurement processes. Firstly, normative requirements are determined resulting in a set of purchasing requirements for sustainability in business partner relations. It includes international issue-screening, reporting liability of business units and analysis of problematic cases. The last level underscores the importance of monitoring and supplier development in order to successfully incorporate sustainable objectives in procurement.

Case by case revisions, information provision and support to suppliers are important aspects. Additionally, suppliers are obliged to prove positive changes towards sustainability. The definition of procurement includes two different kinds of products: goods and services.

The focus of development has been traditionally on goods, whereas little attention has been paid to services. Martinsen , p. Large , p. Stock and Boyer reviewed different of them. Chapter 2. Langley , p. Day and Harland , p. Beckmann , pp. Integration of sustainable criteria into a logistics service provider selection process Master's Thesis, Pages. U W Uwe Wobith Author.

Add to cart. Table of content List of figures List of tables List of abbreviations 1Introduction 1. List of most important contributions 5 Development of a comprehensive model of sustainable selection criteria 5. Analysis of ranked criteria 6 Development of an expert guidance for sustainable procurement of LSPs 6. Primary research question: What are sustainable criteria of logistics services and how can they be integrated into the procurement process of a logistics service provider?

Secondary research questions: 1. Kudla , p. Stern , p. Sietz et al. Johnston et al. Koplin , p. Nagel , p. Carter and Rogers , p. Hauff and Kleine , p. Straube , p. Koplin , pp. Loew et al. Carter and Jennings , p. Baumgartner and Ebner , p. Chopra and Meindl , pp.

In more academic terms, a part of this function is sometimes labelled informational market decentralization Bucklin ; Waterschoot et al. Retailers carry out these functions and typically reduce costs here through standardisation and routines. Products are offered in a physical or online store for a particular price including price labels which help avoid price negotiations for every single purchase.

Products are paid for at a physical or virtual checkout, where the purchasing contract is closed and product possession transfers from the retailer to the consumer. Certain cases still involve intensive negotiations in the purchasing process, e. Products may need to be tailored to the specific customer; prices may need to be fixed individually, etc. This is also part of the retail function. For higher priced non-food items such as furniture, cars or home appliances , it is also common for consumers to have the option to pay later or in instalments.

Providing this option stimulates demand. For a manufacturer, being far from the consumer can make it difficult to provide this option, as evaluating a customer s creditworthiness can be difficult and sometimes costly. Thus, this financing function is often carried out or at least coordinated by the retailer Product-related Services Even though the definition of retailing states that products are resold to the final customer generally without transformation, retailers in certain sectors have long been involved in the final step of the production process, mainly final assembly.

For example, retailers of expensive bicycles often assemble customised bikes for specific customers Waterschoot et al. While the delivery of goods to households has been discussed as part of the bridging space function, the installation, setup, maintenance and repair of products are additional functions. Indeed, the provision of such customer services by retailers is rising drastically.

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This can be observed, for example, with computer retailers, who not only deliver the computer to the customer s home but also physically set it up, configure it, install software, connect it to peripheral devices and the Internet, transfer data from old computers and so on. Another example is home improvement retailers, where the trend has moved from do it yourself to do it for me, and retailers now often provide the customer with craftspeople who assemble the product bought at the retailer.

In food retailing, ready-to-cook and ready-to-eat products are prepared by the retailer for takeaway. This function, however, still involves products which are bought from a manufacturer and resold by the retailer to a consumer. The services related to these products are often a means to differentiate the retailer s offer from that of a competitor by complementing the product with value-added services. A further integration of the retailer within the production function will be discussed in the next section Efficiency Benefits of Intermediaries One criticism of catalogues of retail functions is that they merely reflect the functions currently carried out by retailers without justifying their existence.

While the functions show different activities that must usually be performed in the system between manufacturers. This leads to two considerations: Nowadays, retailers usually make many of these activities part of their domain. However, they often only manage the process, and the execution itself is carried out via outsourcing.

For example, the transport function for distributing products to a store network increasingly falls under the domain of the retailer rather than the manufacturer, but retailers often use third-party logistics service providers to carry out the transport. Most online retailers ensure goods delivery to customers homes, but they usually execute this via parcel services such as DHL or UPS.

Manufacturers may carry out these functions themselves. This happens when manufacturers are verticalised Chap. However, if the manufacturer decides to eliminate the retailer as a middleman disintermediation , these functions still need to be performed. Considering retail functions shows that eliminating the middleman does not eliminate the costs of intermediary functions.

From an economic perspective, retailers remain viable participants in the distribution channel as long as they can perform certain distributive functions more efficiently or effectively than other institutions in the channel. It is likely that different value-added functions e. Compared with internalised manufacturer activity, retailers can more easily achieve economies of scale for activities with high fixed costs Rosenbloom , e.

Furthermore, economies of scope are achieved because offering heterogeneous products from different manufacturers smoothes the demand function. A manufacturer of skiing equipment, for example, will often experience strong demand for a few months but no sales for the rest of the year. This leads to inefficient use of logistics capacity such as warehouses and in-store selling space and salespeople, etc. Idle costs will be incurred for the majority of the year. But if a sporting goods retailer takes over the functions, bundling products from summer sports manufacturers and winter sports manufacturers in their stores, they will reduce costs through steady use of the selling space and logistics infrastructure.

Thus, a retailer can more easily compensate for demand fluctuations and generally employ capacity in a smoother, more cost-efficient way.

Finally, bundling products from many different manufacturers into a product range can help reduce transaction costs for consumers particularly search costs. Usually, the literature mentions eight flows that have to be created and managed to link buyers and sellers: 1. Ownership 2. Physical possession of the product 3. Promotion 4. Negotiation 5. Financing 6. Risk 7. Ordering 8. Ultimately, however, these flows can be associated with the retail functions listed above, so channel flows are simply another perspective on the same phenomenon.

This partly applies to traditional retail functions in which retailers have taken over additional activities, e. But it also applies to newly emergent functions traditionally not carried out by retailers. Retailers are increasingly using backward integration and partly or fully taking over the production function, a traditional domain of manufacturers. In recent years, researchers have highlighted the changing value-added systems in the consumer goods sector e. These changes come as a result of the increasing relevance of store brands see Chap. The reasons for backward integration are at least three-fold: First, it helps the retailer to differentiate itself from its competition if the company is involved in product development processes, since the company s offer then becomes unique.

Second, coordinating the value chain helps the retailer ensure product quality and product supply, which may be crucial in the event of general supply shortages. Third, it helps the retailer acquire more of the profit margin in the value chain. Quality standards are fixed and monitored by the retailer, including the necessary qualities of raw materials. In addition to selecting from different manufacturers product ranges, the retailer actively coordinates the value chain.

Product specifications are developed by the retailer and the producer often a specialised private label manufacturer , which is often merely a contract manufacturer that provides production capacity for the retailer. The retailer holds the rights to the product, product technology, recipes or construction plans and brand.

Beyond coordinating production, the retailer also has to market these products entirely on its own, i. Examples of far-reaching value-added activities in the production process, in particular the development and design of store brands, include the sporting goods retailer Decathlon and the vertical fashion company Zara. For IKEA, insourcing the design function that was previously performed by manufacturers or independent design companies helped improve manufacturing and transport efficiency Olsson et al.

Production Processes Instead of merely coordinating production processes, some retailers go one step further and own the production companies as well. IKEA uses contract manufacturing but also owns factories around the world. This is sometimes also the case in food retailing; for example, the German market leader EDEKA owns more than 20 meat factories and more than ten regional bakeries.

Coop in Switzerland owns a majority stake in Switzerland s largest meat and sausage manufacturer Bell as well as in many other production companies. Migros, a Swiss retailer that strongly focuses on store brands, owns M-Industry, which achieved sales of more than 6 billion CHF in M-Industry is a group of production companies with about 20 companies in Switzerland and further production sites in the USA, Canada, Germany and other countries.

Its 12, employees produce a product range of about 20, different articles. From chocolate production to meat production, mineral waters, cheese, detergents and other product categories, Migros produces a large proportion of the products on its shelves. As well as being a supplier to the Migros stores, M-Industry is explicitly seen as a growth pillar for Migros, with the share of sales to external customers, particularly in other countries, expected to rise in the coming years. Closed Loop Supply Chains In recent decades, increasing importance has been attached to environmental protection and sustainable strategies see Chap.

One consequence of this development is that supply chains are no longer just unidirectional, from the manufacturer to the consumer: reverse processes have become more relevant. Instead of disposing of products at the end of their lifecycles, sustainable waste management reduces waste by collecting used products and packaging material , separating and in some cases disassembling them, recovering the valuable parts which can be the entire product, or components or material and eventually reusing them through recycling or remanufacturing.

Retailers are taking over responsibility for this process. In many countries, retailers have to take back packaging material. They also have to take back used products or do so voluntarily as a customer service. From trading in used refrigerators or computers or returning used ink cartridges, returning cardboard boxes or bringing back empty glass or PET bottles, consumers can increasingly dispose of used products and packaging at their retailers. Together with manufacturers and third-party service providers, retailers are increasingly coordinating the accompanying reverse logistics processes.

This leads to an interesting phenomenon where the distinction between manufacturers and retailers is becoming blurred, and the characteristics of institutions at both ends of the value chain are converging. On the other hand, companies such as Apple, Boss or Montblanc are traditionally categorised as manufacturers, even though they have made huge strides in integrating the retail function into their own systems and opening stores or at least controlling stores and other retail channels see Chap.

While these functions mostly do not create a tangible output and are thus not evident to everybody, they are still necessary in the value chain between manufacturers and consumers. Retailers, as specialists in distribution, have a number of advantages in providing these functions more effectively and efficiently than other institutions, e. But with increasing size and sophistication, retailers have started to use their position as gatekeepers to the customer to acquire a growing share of the value chain and increasingly take over functions traditionally carried out by manufacturers.

These developments clearly indicate that the classic conceptualisations of retail functions are not comprehensive enough to describe and analyse many modern retailers. It has therefore been proposed to revise and broaden them Waterschoot et al. Further Reading Coughlan, A. Marketing Channels 7th edn. Rosenbloom, B. Marketing Channels: A Management View 8th edn. Tesco has seen impressive growth in recent decades, although the company has recently come under increasing competitive pressure, both at home and in some foreign markets.

By the s, the company had established its self-service model and had developed a reputation as a value-for-money retailer, following its founder s pile it high and sell it cheap motto. During the s, the company consistently lost market share to competitors, especially Sainsbury s. However, by , Tesco surpassed Sainsbury s again to become the UK s market leader in food retailing, a position it has retained ever since. In the mids, Tesco s international expansion began. The company first entered Hungary in , and in , it entered other Eastern European countries, the Czech Republic and Slovakia.

Shortly afterwards, Tesco entered Thailand and South Korea However, not all its internationalisation efforts were successful. Kantar Worldpanel, cited from Statista , p. Tesco also left Japan in And in China, where Tesco had ambitious plans, the company scaled back and sold a majority stake in its operations to a Chinese company. In , Tesco had global sales incl.

VAT of But, as with most international retailers, the majority of Tesco s business comes from its home market. Therefore, this case study focuses on the UK.

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With sales incl. Operating profit has fallen and like-for-like sales are down. The German discount chains Aldi and Lidl, who were not very successful in their first decade of operations in the UK, have recently gained acceptance among the British population, with resultant strong growth and aggressive expansion Tesco s Store Network Tesco distributes products to customers throughout the UK via a number of different store formats see Chap.

All formats obviously help bridge the physical distance between supplier production sites and customers homes, and they also help bridge the time between production and. However, the different store formats do so in very different ways. Specifically, Tesco uses the following formats see Fig. Their average size is about m 2. Tesco currently operates of these stores but plans to reduce this number in the coming years. Usually, Tesco superstores are just labelled Tesco. As with supermarkets in general, Tesco superstores are generally close to customers homes and their merchandise mix is aimed at customers coming frequently to buy daily supplies.

Tesco Extra stores are basically hypermarkets, mostly located out of town, with a broad range of groceries but also a high share of non-food products. Tesco has of these stores and plans to keep their number relatively stable. As is typical for hypermarkets, these stores are usually not frequented by customers for their daily shopping. Travel distances are farther with only about stores across the UK , but customers buy more at each shopping trip, stocking up their supplies for a week or two. Tesco plans major changes for the Tesco Extra format, because the stores are larger than new customer trends require.

Restaurants will be integrated and more space given to preparing fresh food, etc. Tesco Metro stores are inner-city supermarkets with a focus on groceries. They bridge the gap to the customer very successfully, with locations in cities and in particular on the UK s high streets. Their average size is m 2. In addition, Tesco plans to reduce this number in the coming years. This has been a growth format over the last decade, appealing to the growing demand for customer convenience.

They focus on providing food products and prepared food. Tesco already has of these stores and continues to open new locations. This shows a trend towards fulfilling the bridging space function even better in the future, because customers have been observed to shop more frequently and invest less time in their shopping trips. Therefore, Tesco Express s inner-city locations along customer traffic flows, in train stations, petrol stations, business districts, etc.

They also provide a strong convenience store assortment of prepared food for lunches, etc. One Stop comprises small neighbourhood stores of only m 2 on average. The chain is operated as a separate business with its own assortment. Tesco has of these stores, which are often not known to be part of Tesco because they are not branded as such. A small number are operated by franchise partners and this number is expected to grow.

Prices are higher than in typical Tesco stores. The One Stop format has seen great success due to its convenience, even in recent years, when Tesco in general has shrunk. In early , the company announced the closure of 43 stores throughout the UK. Still, the changes the company is making in its large stores, the move towards smaller stores and the increasing relevance of Tesco s online retail site Tesco.

These changes are evidence of the problem of overstoring in the UK, with too much sales space to maintain sufficient productivity. On a positive note, Tesco has been a global pioneer in online grocery shopping. It started its online shop 20 years ago in , and today it is the global market leader for online grocery shopping.

This market is very important in the UK, which is the most important online market in the world. Compared to other countries, a very high share of UK retail is online. From a retail function perspective, online shopping is a new paradigm for grocery retailers. In the past, retailers bridged the gap from suppliers to stores, before the consumer. With online grocery stores, Tesco offers to take over the troublesome last mile.

With frozen food, ambient food, etc. Tesco does this either by picking products from its existing store base and then delivering them to customers homes or by picking products in so called dark stores, dedicated to online order picking. In addition, new options for consumers have emerged.

Beyond just store-based retailing or online retailing, Tesco increasingly offers cross-channel solutions see Chap. But the previous section describes only the final stage in this supply chain. To move products from manufacturing plants or farms to the store requires a complex logistics network of distribution centres DCs. Previously, suppliers often delivered directly to stores.

But retailers are increasingly developing their own logistics networks and have taken over large parts of this supply chain see Chap. Tesco has been one of the pioneers here. Initially, centralised warehouses were established, but later a more differentiated network of warehouses and distribution centres was established for different product groups. This network is continuously being optimised.

Tesco operates one of the largest distribution networks in the UK, delivering about 10 million cases per day to its stores IGD About a decade ago, it had approximately DCs in the UK and Ireland, but this number was reduced to 28 in recent years. Until , each DC conducted separate planning. But this has since changed, with Tesco first grouping DCs into regional hubs and later centralising distribution planning to increase efficiency and ensure optimal asset utilisation. Tesco s DCs handle different types of merchandise according to their logistical requirements, e. However, some ambient items, like tobacco products, are still delivered directly to stores by suppliers.

Temperature controlled groceries e. General merchandise products e. Clothing is delivered to stores via different transport chains. The intention is to keep the DC network sufficiently close to the stores to reduce transport kilometres. Consolidating the transport of frozen food products and general merchandise products into the grocery product delivery network makes transport more efficient and reduces the number of trucks coming to the stores.

Products from local suppliers or global deliveries enter Tesco s logistics network at the DCs, and from there Tesco distributes these goods to its stores Tesco s Assortment A retailer must offer its customers an assortment of products. Tesco offers its customers a broad range of all different food categories and particularly in its larger stores also a broad range of general merchandise products, including electronics and clothing. In total, across its different formats, Tesco offers 90, different products SKUs. A recent UK study identified how superstores offer broad product assortments compared to discount stores The Guardian Online : Ketchup: Tesco offers 28 options, from its store brand to GranoVita organic tomato ketchup.

Aldi only has one option: its store brand. Dishwasher tablets: Tesco offers 26 options, from Tesco Everyday Value dishwasher tablets to Finish Quantum Powerball tablets in apple and lime. Aldi has three options: its store brand in different pack sizes. Rice: Tesco offers 98 options, from Tilda steamed wholegrain basmati to Yutaka sushi rice. Aldi has six options, all store brands. While providing an assortment is clearly an important task, the question is what the optimal assortment is and what the optimal selection is for customers. While a supermarket customer clearly wants choice, too much choice can be confusing and delay purchase decisions.

Furthermore, a broad product range is linked to high costs. While a broad range is a differentiation factor for superstores, it must not be too broad. Another reason why Tesco s range has grown substantially over recent years is so-called slotting fees. Retailers like Tesco demand payments from their suppliers to put products on their shelves.

With the increasing profit pressure on Tesco over the last years, listing new products has been a way to generate short-term income to improve profit and loss statements. Dave Lewis, Tesco s new CEO, has targeted reducing the assortment as another way to improve Tesco s cost situation without sacrificing customer satisfaction. Cutting out unnecessary products from Tesco s product range will help cut prices, make shopping easier for customers, improve product shelf availability and make ordering and refilling shelves much less costly The Guardian Online Therefore, Tesco has recently announced it will reduce its as-.

Instead of its current 90, SKUs, it has hired the Boston Consulting Group to decide which products will be eliminated. Market leader Tesco strongly contributes to these figures. In developing this store brand portfolio, Tesco has long been a role model for retailers around the world. For example, the company was the first to seriously launch a premium store brand Tesco Finest , after which the premium store brands of many other retailers in Europe are modelled.

Tesco s most relevant store brands are see also Chap. Tesco offers a choice of over 10, products with the Tesco brand. Tesco Everyday Value: This is Tesco s budget store brand, offerings sufficient quality at very low prices, particularly for basic products. Tesco Finest: This is Tesco s flagship and premium store brand, which claims to be best quality food, using specialist ingredients or recipes inspired by restaurants or celebrity chefs.

The brand was launched in , and while most other retailers premium store brands see limited sales, Tesco Finest achieves more than 1. Tesco Organic: This is a product range for organic food, from fresh fruits and vegetables to organic ingredients in other food products, etc. It sees sales of more than 1 billion GBP per year. As well as being sold in Tesco food stores, Tesco has also started to devote separate selling spaces to the brand still within Tesco stores to provide a more shop-like atmosphere. In terms of traditional retail functions, this broad array of store brands allows Tesco to perform functions traditionally carried out by manufacturers.

While Tesco brand products are still produced by independent suppliers, Tesco itself designs the products, plans the recipes, defines quality standards, etc. Tesco has developed its own food manufacturing standards that set requirements for suppliers of its store brands. Sourcing the assortment Retailers provide customers access to an assortment of products that they would otherwise have to source themselves. Retailers perform this sourcing globally, as the example of Tesco. While many of Tesco s grocery products are sourced within the UK except, obviously, fruits, spices and other products that do not grow there , most of its non-food products come from Asia.

Tesco International Sourcing uses more than suppliers, mostly in China, with about factories. Together, every day about containers full of clothing, TV sets, barbecues and other products are shipped from Hong Kong harbour to Tesco, mainly for sale in the UK The Telegraph Online Marketplace partners on Tesco. Similar to strategies by other large online retailers like Amazon or Zalando, Tesco. This marketplace was introduced in and the number of partners has strongly increased since Creating Demand As well as placing an assortment in its stores, Tesco also contributes to creating demand for those products.

In addition, Tesco runs thousands of promotions each day, using many of the different promotion methods described in Chap. In , Tesco launched a very strong loyalty scheme, the Tesco Clubcard. This is one of the most effective loyalty schemes in the world, and it has been described in a number of case studies see Zentes et al. With this loyalty card, Tesco tracks customers individual purchasing behaviour, segments customers, uses strong direct marketing measures and offers customers precisely the right marketing measures e.

In general, Tesco applies all the methods that loyalty programmes have been observed to use see Chap. For example, it obviously has sales staff to help customers in store. As part of Tesco s current restructuring measures, customer satisfaction with service and staff helpfulness is monitored. A number. Tesco has increased staff numbers investing in additional working hours for sales employees and better aligned working hours to customer traffic i. Tesco has also improved work processes to increase efficiency and free employees from unnecessary work so they are available for customers. With these measures, customer satisfaction with service has greatly improved over the last two years.

Tesco also sells products both in store and online that need home delivery, like large domestic appliances. Tesco provides delivery and installation services. Furthermore, Tesco has introduced product recycling, which customers can purchase as an additional service. Here, the Tesco delivery team will remove the old appliance when they deliver the new one. In addition to product-related services, in recent decades Tesco has diversified its business into additional services.

This diversification was intended to exploit the existing customer base. Tesco diversified into banking services in and later into the telecommunications market with Tesco Mobile, a mobile phone provider. Tesco Bank provides a range of financial services, including credit cards, insurance, etc. It has synergy effects with Tesco s core business, as customers can be provided e.

Furthermore, Clubcard points are awarded for Tesco Bank business. Recently, Tesco decided to sell its stake in Tesco Mobile as part of its effort to pin off non-core businesses Summary and Outlook As well as fulfilling all the standard retailer functions, Tesco goes well beyond. It has a very efficient supply chain linking its suppliers production sites to its stores. And it has a broad base of stores throughout the UK. As well as buying products from brand manufacturers, a large portion of Tesco s assortment is store brands, for which Tesco designs the products, develops recipes, searches for manufacturing options and coordinates the full value chain.

However, Tesco also shows how quickly the customer requirements for these different functions can change, and how quickly a retail success story can turn into a crisis. Discounters have suddenly become dangerous competitors even though Aldi and Lidl have been in the UK since the early s and never previously posed a threat. Tesco s store network, which until recently was seen as a huge asset, is now perceived to be a burden, because too many of its stores are very large Tesco Extra and Tesco superstores.

Re-structuring these stores to reduce their size and fill the remaining space with useful features is a huge challenge. Globally, it has become clear that customer requirements for fulfilling retail functions are strongly heterogeneous see Chap. Store formats and products that worked very well in the UK and in a number of other European and Asian countries were not well received in the USA or in Japan, to name only two examples.

Tesco withdrew from these. Questions 1. Using the catalogue of retail functions, describe Tesco s activities in terms of these functions. Imagine if Tesco developed a strategy of building its own factories and further broadening its own brand range. Assume a manufacturer such as Tefal cookware, e.

Considering the functions currently executed by retailers such as Tesco, what would Tefal have to do? References Alderson, W. Factors governing the development of marketing channels. Clewitt Ed. Baligh, H. An analysis of vertical market structure. Management Science, 10 4 , Bucklin, L. A theory of distribution channel structure. Butler, R. Marketing Methods. New York: A.

Hamilton Institute. Coughlan, A. Marketing channels 7th edn. Daily Mail Accessed June 27, Hertel, J. Supply-Chain-Management und Warenwirtschaftssysteme im Handel 2nd edn. Berlin et al. IGD Supply chain analysis Tesco. Accessed June 27, Olsson, R. The changing role of middlemen strategic responses to distribution dynamics. Industrial Marketing Management, 42, Rosenbloom, B. The wholesaler s role in the marketing channel: Disintermediation vs.

Marketing channels: A management view 8th edn. Wholesalers as global marketers. Journal of Marketing Channels, 15 4 , Statista Supermarkets in the UK Statista Dossier. Hamburg: Statista. Sundhoff, E. Beckerath et al. Stuttgart: Gustav Fischer. Tesco Hertfordshire: Tesco. The Telegraph Online Tesco s international sourcing the machine behind the machine. Tesco s-international- Sourcing-the-machine-behind-the-machine.

Accessed May 14, Varley, R. Retail product management buying and merchandising 3rd edn. London: Routledge. Van Waterschoot, W. The classic conceptualisation and classification of distribution service outputs Time for a revision? Morschett, T. Rudolph, P. Schnedlitz, H. Swoboda Eds. Wiesbaden: Gabler. Williamson, O. The economic institutions of capitalism. New York et al. The Guardian Online Accessed March 3, Zentes, J. Elbert Eds. Zentes, J. Strategic retail management 2nd edn. Handelsmanagement 3rd edn. Munich: Vahlen.

This chapter describes the different types of retail institutions that represent different types of retail strategies for selling goods and services in the food and near-food sector. Several types of retail institutions mirror retailer business operations. Thus, each type represents a specific retailing strategy.

Several systems of retail classification have been developed by government institutions to collect and analyse business data more effectively. Ebooks and Manuals

One of the first classification systems was the Standard Industrial Classification SIC code, which was developed for the US Census Bureau in and uses special codes sets of numbers to identify types of retailers. However, retailers selling the same category Springer Fachmedien Wiesbaden J. Eurostat These classification schemes, therefore, are mainly used for data collection and statistical analysis to provide insight into the development of the various retail institutions at a national or international level.

For retail managers, the more strategic aspects of the different types of retail institutions are crucial. Therefore, classifying retail institutions based on the characteristics of the strategies they employ to sell goods and services is important for strategy development and competitive analysis. These types of retail institutions are referred to as retail formats. Retail formats are specific configurations of retail marketing mix that are maintained consistently over time e. Ebooks and Manuals

In this context, the wheel of retailing and the retail lifecycle are two particularly important theories The Wheel of Retailing The wheel of retailing McNair is a well-established framework for explaining developments in retail institutions. The theory suggests that retail institutions go through cycles during their development see Fig.

The theory is that as low-end retailers upgrade their strategies to increase sales and profit margins, new forms of low-price discount retailers take their place in the market. The wheel of retailing describes institutional changes that occur when new competitors enter the market. In its initial form, the wheel of retailing consists of a three stage cycle McNair and May ; Brown ; Berman and Evans , pp : According to the wheel theory, retail innovators often appear as low-price operators.

Thus, the cycle begins with retail institutions starting off with low prices and low service levels. The second phase is trading up. Retailers who wish to expand their business and attract more customers enhance the quantity and quality of merchandise they handle, provide more services and open outlets in more convenient locations. This leads to an increase in operating costs and prices and thus offers opportunities for new competitors to enter the market with low-price strategies.

The third phase sees increased competition for services of all kinds and a convergence of retailers marketing mixes as they mature. They become vulnerable to new competitors entering the market with low prices. It is different from existing retail institutions strategies, as at least one element of the marketing mix is altered in the new format. In the introduction phase, sales and profits are low, but growing. Costs and risks are high because long-term success is not assured at this stage. The growth phase is characterised by the rapid growth of both sales and profits.

Existing companies expand their markets and new competitors employing the same retail format enter the market. Towards the end of this stage, growth acceleration begins to decline and cost pressures may emerge. The next stage is maturity of the retail format, brought on by market saturation, which in turn is caused by a high number of firms using this retail format and competition from new formats.

Sales growth declines and profit margins may have to be. Once maturity is reached, the main goal is to prevent the business from declining and to sustain profits for as long as possible. In the final stage, decline, sales volumes decline and prices and profitability shrink. Companies can try to avoid decline by repositioning their retail format, but many companies abandon the format altogether and introduce new formats to keep their customers or attract new ones.

In the context of the retail lifecycle, store erosion Berger is defined as a reduction in a retail company s appeal and ability to attract customers over time because of changes in the company s internal and external conditions. In a dynamic environment, new retailing formats that meet new customer needs render existing retail formats obsolete. In order to avoid decline and survive, retail companies must adapt to changing marketplace conditions and reposition their retailing concepts. Adapted from Berman and Evans , p.

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New competitors from general merchandise retailing have entered the market by expanding their assortments and selling food and near-food articles i. But, in most cases, traditional food retailers also carry merchandise outside their traditional lines of food and near-food items i. These developments indicate that it is difficult to precisely allocate retail institutions to either food or general merchandise retail formats.

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This section will present the formats of superettes, conventional supermarkets, superstores, combination stores, hypermarkets and supercentres, convenience stores, food discounters, drugstores and warehouse clubs. Table 2. Food retailing store density is relatively high in most countries. While larger store formats are growing more relevant, stores below m 2 dominate in all country markets by store numbers. These formats have been under pressure for a while, even though these were once the traditional neighbourhood store format for food retailing.

However, they remain important in some markets, such as the Asia-Pacific region. Because of its long trend of dwindling market share, many retailers in Western markets have written off superettes and streamlined their store chains. However, thanks to the efforts of retail chains such as EDEKA or REWE, which have supermarkets but also operate superettes, this retail format is experiencing a resurgence. These retailers have changed the positioning of their small store formats by using trading-up strategies in their retail marketing mix.

This strategy of positioning superettes as a form of neighbourhood-oriented proximity retailing not to be mistaken with convenience stores in neighbourhood locations or in cities, with modern in-store designs, revamped assortment strategies and usually lower prices, has made this store format relevant again. Because one of the main problems with superettes in the past was store productivity, many retailers have also changed the ownership structure.

In most cases, they now operate their superettes as franchise systems or voluntary chains to guarantee their profitability see Chap. This has traditionally been the main retail format for grocery shopping and has accounted for the majority of sales in food retailing for several decades. However, it faces intense competition from new formats offering more convenient shopping facilities, more product lines and more varied assortments or lower prices as a result of lower operating costs Levy et al. Companies such as REWE or EDEKA have successfully repositioned their supermarkets and thus improved their competitive positions by emphasising freshness and high quality assortments, introducing medium- to high-level store brands and improving store atmosphere in order to provide a better in-store shopping experience Superstores Food-based superstores are larger and more diversified than conventional supermarkets.

Combination stores, as they are sometimes known, are a similar store concept. These stores combine food and general merchandise, thus offering a higher level of one-stop shopping for consumers than superstores Berman and Evans , p. This combination of food and general merchandise in superstores and combination stores yields operating efficiencies and cost savings, mainly because non-food items tend to have higher margins.

Superstores and combination stores usually follow either a high-low pricing strategy HiLo , which means that they are very promotion-oriented e. Superstores and combination stores can be located in city or neighbourhood locations as well as in isolated sites or in shopping centres and oriented towards customers travelling by car. These large-scale retail formats are also referred to as big-box retailers. While this trend has developed similarly worldwide, specific formats have developed in different countries.

Hypermarkets, which originated in France, are the largest of these. These large retail formats usually follow an aggressive, promotion-oriented low-price strategy. The stores are generally located in isolated sites or found near to or integrated into shopping centres. The architecture is usually cost-oriented, with a simple store design and function-oriented store atmosphere. As these large retail formats offer a broad assortment of food and general merchandise and thus provide one-stop-shopping opportunities, customers usually buy more. These store formats have a greater market area than smaller store formats e.

These stores, therefore, provide substantial parking facilities. Because of their low operating costs and the combination of food with higher margin general merchandise, which allow for aggressive pricing strategies and increased shopping convenience e. However, some countries e. They open long hours up to 24 hours, depending on local or national legislation. The stores are small and facilities are limited, with an average atmosphere and average service level. Convenience stores can be operated as standalone units e. The focus of convenience stores is on ease of shopping.

They offer fast shopping, allowing customers to pick their merchandise quickly and check out quickly Levy et al. The very limited assortment of these stores is food-oriented. Convenience stores thus also offer mental convenience, as the limited assortment enables customers to make their choices quickly Berry et al. A high proportion of sales are impulse pur-. The average transaction in convenience stores is small, and the products are often consumed shortly after purchase.

They offer a small selection of items and, therefore, are also referred to as limited-line stores or limited-assortment stores e. A typical Aldi store, the best-known example of this format, carries about stock-keeping units SKUs. The basic assortment consists of food items with a high rate of turnover in few size options and brands are offered per product category. Other prominent examples of internationally successful hard discounters are the German Lidl and Carrefour s Dia.

The stores are characterised by their no-frills approach, meaning that, for example, there are almost no services available no helpdesk, no sales staff in attendance, etc. Often, products are sold out of boxes box stores or cut cases and are presented on pallets. Food-based hard discounters often carry a limited range of manufacturer brands and rely heavily on low-price store brands see Chap.

Thus, prices vary between different retailers. Discounters often complement their assortments with a weekly or semi-weekly changing selection of general merchandise, sold at very low prices and heavily promoted via newspaper advertising or flyers distributed to households. These items come from a variety of product categories ranging from personal computers and furniture to home accessories and often have no association with the regular merchandise carried by the retailer.

Such items are offered in order to increase store traffic, and non-food items in some cases produced exclusively for this purpose usually have a higher margin than food items. Hard discounters are usually located in easily accessible traffic-oriented and costoriented locations with a focus on low occupancy costs, e. Because of their aggressive pricing strategies, the different types of convenience they offer e. They often play an important role in proximity retailing Drugstores Drugstores are specific types of specialty stores that focus on beauty, health and personal grooming merchandise Levy et al.

In addition, these stores often sell categories such as food items, magazines or newspapers, stationery, toys or gifts. Depending on. The product categories sold in this store format are similar to food items in some respects, mainly in terms of shopping frequency and purchasing patterns near-food items.

In some statistics, drugstores are therefore classified as food store formats. Compared to traditional specialty stores, drugstores tend to be more aggressive on price and apply pricing strategies such as everyday low-price EDLP strategies or promotion pricing. Watson or dm-drogeriemarkt. Drugstores are often located in city or shopping centres, but are now increasingly found in local neighbourhoods or isolated sites. Thus, they play an important role in proximity retailing and usually offer a high degree of shopping convenience via their location strategies, small store sizes and speedy checkout facilities Warehouse Clubs Warehouse clubs are a food retail format developed in the USA and later introduced into countries such as Spain and France.

However, the format is not prevalent worldwide. Warehouse clubs sell their products to both end-users and small- to medium-sized companies. Membership is required and customers are charged an annual fee. This type of store is characterised by low prices for a limited assortment comprising half food and half general merchandise. Store architecture and design are very simple and cost-oriented, characterised by a simple interior, concrete floors and wide aisles Ogden and Ogden , p.

Items are usually presented on pallets. This type of store offers fast-moving, high-turnover merchandise, thus minimising holding costs. Warehouse clubs concentrate on special purchases from popular brands. Often, products are sold that are sourced from manufacturers in special circumstances e.

Berman and Evans , p. The warehouse club format resembles cash and carry wholesalers e. Even though membership is restricted to companies and these outlets focus on business-to-business trade, end users also frequently purchase at these stores Non-store Formats in Food Retailing While most food retailing occurs via store formats, there are several non-store formats through which consumers can purchase groceries and related products. For example, remote ordering channels, such as traditional catalogues or Internet shops, can be used to. While these formats are generally gaining in importance, the share of groceries offered through mail order channels remains limited see Chap.

For fresh merchandise e. Because of the close and personal contact with their customers, these vendors often have high retention rates among their customer base. However, the costs associated with direct selling are very high and, therefore, so are the prices. Vending machine retailing is another alternative. Merchandise such as snacks and soft drinks are stored in a machine and dispensed to customers who pay via cash or card. Vending machines are usually placed at convenient locations with high traffic Levy et al. Vending machines have undergone several innovative developments recently.

For example, new types of kiosk vending machines provide customers with product displays and information on the merchandise and electronic systems track inventory and cash, thus reducing stock shortages or malfunctions. While the relevance of these diverse store formats in food retailing differs around the world see Fig.

In addition, the main retail formats in this sector have also changed as a result of these developments, technological progress and responses to changes in customer behaviour. Nielsen Still, new store formats which gain market share spur important developments. The most important in this context is the increase in discount-oriented retail formats such as large retail formats e. Convenience stores are also becoming more important. In order to remain competitive in the mature business of food retailing, more and more retailers are carrying merchandise which falls outside their traditional assortment.

This phenomenon is referred to as category migration Zentes et al. For example, food discounters offer general merchandise as special offers in weekly or semi-weekly promotions to generate store traffic and improve profit margins. Another important trend is that food retailers are extending their regular assortment to increase sales and margins.

For instance, hard discounters have extended their basic assortments in recent years by adding fresh meat and frozen food.