Tesco to focus on reducing its suppliers' input costs

Tesco could soon start looking at ways of taking the cost out of manufacturers' inbound supply chains, following its success in raising efficiencies with product logistics post factory gate, according to the company's former supply chain director Stuart Ross.

Speaking at a food and beverage forum last month organised by supply chain systems specialist Infor, which counts Tesco among its customer base, Ross said a focus on reducing the cost of manufacturers' ingredients and packaging was inevitable, as retailers such as Tesco sought to raise their game in the increasingly competitive retail market.

He said suppliers needed to take the initiative, offering Tesco solutions to problems it had in delivering on its core beliefs of "better, simpler, cheaper". Unless suppliers come up with appropriate solutions, Tesco will impose them - similar to how it did with factory gate-pricing, said Ross.

He suggested it would not be long before retailers such as Tesco and Asda took control of the entire supply chain. "They are going to do it because 10 to 13 years ago you would need to vertically integrate your company [to take control of the whole supply chain]," said Ross.

He used the example of chocolate manufacture where, unless suppliers collaborated in areas such as the sourcing of cocoa supplies to reduce costs, Tesco could use its purchasing power to force manufacturers to buy cocoa powder from its raw material suppliers at a price that it dictated. "Who can buy the cocoa powder cheaper?" he said.

Such a move, claimed Ross, was consistent with Tesco's strategy, which is centred on cost reduction, availability and simplicity. Prior to Ross leaving Tesco 18 months ago it had managed in a year to take £300M out of its costs, he claimed. "It's painful, but a virtuous circle."

It would be wrong to assume Tesco's would always be in a dominant position since "most retailers have been basket cases at some time over the past 15 years", he added. But he noted that Tesco's customer-centred approach had helped it achieve its current lead. However, he recognised the strides that Sainsbury and Marks & Spencer had made over the past year or so.