Hello again everybody, welcome to my latest blog.

As they seem to be in the news almost every day at present, I thought I would pick up on the recent troubles that Tesco finds itself in.

Perhaps prompted by the bad headlines, there have been a few dissenting voices regarding Tesco’s reputation as a ‘lean’ examplar. (Check out the link to the Independent article at the end of this blog, and the Twitter comments from Bob Emiliani and others) Interestingly I have since found a link to a book on Amazon – that is still awaiting publication – that includes a large section on how Tesco has leveraged growth through application of lean in its Supply Chain. Talk about ‘Just Too Late’, I wonder if this book will now make it to market (link at the foot of the page)?

My personal view, formed through years of experience working with their suppliers, is that Tesco has probably never been a lean exemplar. Its commitment to lean never went more than skin deep. I’d suggest that chapters relating to Tesco in Lean Thinking and similar books are taken with a huge pinch of salt. Let me back this up by giving a couple of examples of how I started to doubt their ‘Real Lean’ credentials.

Whilst running a VSM event in a company that was a supplier to Tesco, I put up a few slides that cited Tesco as a great example of a lean enterprise. How it was ‘leaning’ its Supply Chain in collaboration with its suppliers, and how its ‘multi-channel’ route to markets was a great example of Value Stream Design. Within a couple of minutes the room was in uproar!

“If Tesco are such a great lean company, how come they bully us all the time for price reduction? How come we have to subsidise their promotions, even though it causes a massive spike in our production plan, and that hurts us?” was one comment among many.

At another business, that had tried to show their Tesco contact the work they were doing on their shopfloor I was greeting by an incredulous Factory Manager;

“Their Buyers don’t even understand basic lean concepts. This guy has stopped us using the term Value Stream because he didn’t like the connotation that Value has in Tesco, as being at the cheap end of the market! We’ve had to relabel all of our Visual Controls to remove the term Value Stream.”

Needless to say, I don’t talk about Tesco much now as a lean exemplar.

It will be fascinating to see how Tesco responds to the recent problems it has had, and the tactics it uses to get back both market share and profitability. I fear the worst, and I can’t imagine the conversations between buyers and suppliers right now! Although it can only be a matter of time before one or two of the significant top brands refuses to support either disruptive promotional activity or pressure for price reduction with no commensurate offer of support.

I’m certainly no expert in the Supermarket sector but a number of Tesco’s competitors seem to be applying some elements of lean thinking better than they have.

I have a lot of respect for the efforts that Asda / Walmart have made with their “everyday low prices” strategy, which attempts to wean customers off their addiction to Promotional offers. It’s my view that there are ultimately no winners in promotional activity, as it adds cost and waste into the Supply Chain, and breaks the natural rhythms of consumption that if left unchanged would allow production to become synchronised to.

Morrisons, despite being seen as a ‘fuddy-duddy’ brand with little in the way of innovative thinking, has pursued a route of vertical integration, which means that it owns much of its ‘own label’ manufacturing capacity. Much easier to communicate with and integrate Value Streams I would suggest, and its not a win-lose relationship. This feels a bit more like the Toyota model of ‘Keretsu’, a vested interest in mutual benefit and shared ownership. That is long-term commitment, rather than a short-term “give us lowest price or we’re off” attitude!

The new(-ish) players in the UK market, the ones causing all of the disruption, are the discounters Lidl & Aldi. They appear to have a great understanding of their Value Stream, especially their customer’s definition of ‘value’. Their range is deliberately limited, and their systems are local and lo-tech compared with the likes of Tesco and Sainsbury’s. Why add unnecessary cost, when the customer isn’t prepared to pay for it?

Interestingly, there is also growth in market share at the other end of the sector, with Waitrose aiming to open up another 500 stores in the next 5 years. Their business model is completely different to the other players based around a mutual ownership model, and it just goes to show that price is not the only factor in customer’s choice of where they spend their money. Perhaps that’s an indication of different Value Streams in terms of customer buying profiles – something that’s surely not news to analysts in this sector! Being stuck in the middle of either – not being the cheapest, nor the one offering the highest perceived quality – is a dangerous place to be (not my view, Michael Porter’s!). That’s exactly where Tesco has found itself.

There are some fantastic examples of lean (agile even?) elsewhere in the Retail sector. Inditex, the owners of the Zara brand, springs to mind. But maybe that story is the subject of another blog, another day.

As always, I’d love to hear your views and comments on this subject. How might Tesco truly embrace lean principles and start turning their fortunes around?

Happy shopping!

 

Graham

 

The Independent article: http://ind.pn/1nj6VTy

Bob Emiliani’s Twitter response: https://twitter.com/BobEmiliani/status/515922206384459776

The ‘new’  Tesco Supply Chain book: http://www.amazon.co.uk/Tescos-Supply-Chain-Loyalty-Simplicity/dp/0749472073