The issues of stock management and supply chain strategy have always played a central role in retail planning, but the COVID-19 pandemic of a few years ago placed those supply lines under almost unprecedented levels of stress. 

Shutdowns and extremely high demand for products - coupled with a switch away from in-person purchases - have led many larger companies, including retailers, to reassess their approach to stock management and supply chain logistics.

 

In this edition of our occasional “Under the Microscope” series  we compare and contrast the stock management strategies of major retailers - Tesco in particular, as well as John Lewis, Aldi and Lidl. 

As experts in industrial racking systems and mezzanine flooring, we’re used to helping retailers make the most of their physical spaces for stock, whether by utilising modular shelving to create adaptable spaces or installing mezzanine floors.

Our analysis here will examine the approaches different organisations take and the increasing use of advanced automotive technology to control stock and deliver customer expectations in the era of just-in-time supply chains. 

All of this, of course, is taking place against the backdrop of the possibility of future shock events whether another pandemic or -  to use a current example – the war in Ukraine.  

Tesco - Long Look Back Continues to Inform A Forward-Looking Strategy

The case of Tesco is interesting in that the retail giant offered a study on the development of stock management over the years. The example also demonstrates how the modernisation and streamlining of inventory management and supply line strategies have played a huge role in helping to turn Tesco from a ‘pile it high, sell it cheap’ retailer with a limited range of stock and a fairly downmarket reputation, to one of the world’s leading retail businesses. Indeed, it will probably come as a surprise to many UK shoppers to realise that 65% of Tesco’s store floor space is now located outside the United Kingdom. The evolution of the Tesco supply chain management strategy since the 1970s is reflective of the approach taken by the wider retail sector. 

As recently as the mid-1970s, the approach to the Tesco supply chain was extremely laissez-faire by modern standards. In this era, suppliers and manufacturers would deliver directly to stores, with little or no central control or standardisation. In many cases, the managers of individual Tesco stores would develop their own business relationships with local suppliers. In 1977, however, the store initiated Operation Checkout, a ‘price war’ with Sainsbury’s, designed to boost sales. The pressure this placed on the supply lines almost caused a collapse. 

Examples of problems included:

• Stock checks being carried out in the open air
• Suppliers having to wait as long as 24 hours to deliver at Tesco centres
• The Tesco transport fleet working 24 hours a day, seven days a week
• Shelves staying empty for hours at a time

All in all, mounting problems accelerated the decision in the 1980s to centralise operations. The most surprising thing is that it was only at this time that store managers were stopped from deciding the ranges they stocked and the prices they charged. 

Operation Checkout - A Milestone In Standardisation

Operation Checkout was a prime mover in the decision to centralise but there was also a strong desire to standardise the quality and range of items available at all of the stores, something which could only be done through centralised control of distribution. 

The new approach called for existing distribution centres to be extended and new centres to be constructed, complete with new technology enabling faster handling of goods. Over time, however, it became clear that the new, fully centralised system, while ideal for out-of-town mega-stores, wasn’t fit for purpose for the growth envisioned for the future, nor for the stricter rules that were anticipated for the supply chain of chilled foods. 

Chilled, Fresh And Frozen - A Different Approach

The response was a shift from the 1990s to composite distribution. In simple terms, this means that products that are temperature controlled – chilled, fresh, and frozen – have their own network of multi-temperature warehouses and vehicles. The fact that fresh produce of this kind could be delivered daily meant that stores held lower levels of stock and that they could reduce or remove storage facilities within stores.   

One of the key shifts brought about by the switch to composite distribution was the shift, within distribution centres, from warehousing to cross-docking. What this means is that, rather than taking delivery of stock, storing it, and then sending it out for delivery, the distribution centres would act as hubs, taking stock in and immediately moving it on for delivery. The result of this change in approach was that the number of ‘touches’ on some products – interaction which involves effort on the part of Tesco employees – was reduced from 150 to 50. Additionally, the time taken from an order for a can of cola, for example, being placed with the supplier to a customer carrying it out of the store, was reduced from 20 days to five days.   

Lidl and Aldi - Supply Chain Optimisation: No Snoozing Allowed

To bring things completely up to date, it is worth comparing the supply chain strategies of Tesco, now firmly established as the biggest force in UK supermarket retailing, with those used by relative newcomers to the UK market, Lidl and Aldi. 

The cut-throat nature of competition in the sector means that all three businesses focus on supply chain optimisation as a means of reducing lead times, cutting costs and improving efficiency. 

They’ve invested heavily in technology in the form of automated warehouses, and all utilise a combination of centralisation and decentralisation. All three make extensive use of data analytics, using information on supplier performance, sales trends, consumer behaviour and inventory levels to tweak procurement in response to real-time shifts in demand. It’s a focus that remains a constant theme - and they never lose sight of it.

Inventory Management Strategies Differ But Goal Remains The Same

The differences in inventory management strategies between the three supermarkets include the fact that Tesco and Lidl control their inventory through management based on a combination of demand-driven data and forecasting. Tesco, for example, has a long-established global network of suppliers that needs to adopt a continuous replenishment approach and keep stock levels low.  On the other hand, Aldi adopts a more streamlined approach, relying on a lean inventory approach which keeps costs as low as possible by holding far smaller stock levels. 

Other differences between the three include the fact that Tesco outsources some of the stock control management activities to third-party logistics companies, while Aldi and LIDL lean more on their own internal logistics and transportation systems.    

John Lewis - Key Decisions Influenced By Profit Slump of Recent Years

Any consideration of the approach to stock management and inventory taken by the John Lewis partnership – which takes into account Waitrose supermarkets and John Lewis stores – has to take into account the slump in profits that the company has suffered in recent years.

In 2023, for example, the group as a whole announced a pre-tax loss of £234m, posting losses for the third year on the run. This led to a switch in strategy to concentrate on non-retail activities such as housing which was, at one point, intended to contribute 40% of the profits of the group. In March 2024, however, this specific target was dropped as John Lewis announced a return to profitability.

New Ventures - But Unashamed Focus on Retail Remains

Although plans to build rental homes are likely to play a part in the group's future, the emphasis at the time of writing is, as stated by departing chair, Dame Sharon White, unashamedly on the retail offering. Indeed, the return to profit was driven mainly by sales in Waitrose supermarkets, which rose by 5% to £7.7 billion, with a 6.6% increase in prices being combined with operational efficiencies. Since 2021, the group as a whole has managed to save £420 million in operating costs, with a target of £900 million by 2026. 

To be able to raise prices and increase sales in the midst of a cost-of-living crisis is something of an achievement, and much of it can be traced to investment in technology across the supply chain. According to Naomi Simcock, John Lewis's Operations Director, 'Optimised Inventory Management for a Seamless Customer Experience', is the technical phrase for the approach. 

Improved Product Information Combines With High Tech Advancements

Some of the steps which make up this approach are fairly simple, such as supplying detailed product information to reduce returns and improve customer satisfaction (borrowed from retailers like Screwfix). More technologically advanced, however, is the drive for real-time inventory visibility in both online and physical stores. These advancements are ending various frustrations - such as customers being told items advertised online are out of stock – and the use of machine learning to predict customer traffic in stores and call levels in call centres and allocate resources with greater efficiency, along with physical technologies such as the introduction of stock picking robots in warehouses. For Waitrose in particular, this will mark a shift from relying on historical data and human intuition to manage stock availability. 

The machine learning is based around Blue Yonder Demand Planning – it will analyse customer behaviour and, in particular, gather detailed data on how customers' shopping habits are influenced by factors like weather patterns, promotions, and even major sporting and cultural events. The aim is for the company to be able to work with logistics partners and suppliers on the basis of more accurate forecasting and to be able to respond to fluctuations in demand more quickly and accurately. 

A similar system is already in use within John Lewis and Waitrose warehouses, unifying the use of data and AI across the whole supply chain – from suppliers to customers. The increased use of technology and stock tracking enables a greater link between online retail and brick-and-mortar operations. For example, if they have run out of stock online they can use the inventory tracking technology to find out which shops are holding the item in question. The order can then be sent to the shop in question, and the item sent out to the customer as though it were an online order.  

Retail - A Place In Our Hearts 

We’re interested in seeing the growing trend of using information gathered by real people and combining it with AI and other technologies. The retail world can’t afford to treat people like robots but it seems that it’s making every effort to use different technologies in innovative ways - both for their continued growth and to secure their place in the hearts of customers.