Tesco: shelf- ready or else?

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Related tags: Supply chain management, Change

Tesco: shelf- ready or else?
Tesco has started the roll-out of shelf-ready packaging by making a special offer to suppliers. It runs roughly like this: "Commit to shelf-ready...

Tesco has started the roll-out of shelf-ready packaging by making a special offer to suppliers. It runs roughly like this: "Commit to shelf-ready packaging (SRP) before the next range review and implement it during 2005 and you may keep your listings"

For many manufacturers, this is an impossible time frame. Such suppliers may acquire their finished products from several factories around Europe and sometimes even further afield.

A reasoned supplier response would compare today's cost to serve and tomorrow's costs to serve under the SRP packing specification.

Of the retailer's total costs to serve the shelf, they split roughly 50/50 between the regional distribution centre plus transport to store on one hand and what happens in the last 50 yards of the supply chain (store backdoor to shelf) on the other.

The supplier's comparison must therefore include the last 50 yards as this is the place where much of the benefit of shelf-ready packaging occurs.

My perspective is that it is not the supplier's job to fund the incredible mess most retailers have allowed to occur in their back store area.

On the other hand, it is not in the supplier's interest to refuse change that will improve on-shelf availability.

I have done a number of studies looking at the impact of a change in packaging configuration, including case size, SRP and pallet stacking configuration and conclude that there is an overall benefit in changing a small range of slower-selling lines whose case contents rarely make it to the shelf in a single hit.

Those changes that make sense should be undertaken in a sensible timescale by the supplier and the benefit shared between the two parties by a change in the buying price.

I am aware of several suppliers who are working together to present the results of an efficient consumer response comparison to Tesco, such that the commercial realities can be placed on the negotiating table.

I do not envy the suppliers who do this as the response will be unpleasant, but the continuing pressure on margins makes it unavoidable.

Tim Knowles

is Director, ProActive

http://www.proactive21.com

Related topics: Supply Chain, Services, IT

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