By Geoffrey Nairn

Retailers have long sought greater collaboration in their supply chains, but few have managed to achieve it. One that has is Tesco, the UK's largest grocery retailer, which has built a reputation as one of Europe's most innovative retailers in its use of information technology.

As with many retailers, Tesco has long used electronic data interchange (EDI) to order goods from suppliers and the network links 1,300 of Tesco's 2,000 suppliers, representing around 96 per cent by volume of goods sold in Tesco stores.

The EDI system started operating in the 1980s and its use was initially limited to streamlining store replenishment. In 1989, Tesco took its first steps on the road to collaboration and began using its EDI network to help its suppliers better forecast demand.

About 350 suppliers receive EDI messages with details of actual store demand, depot stockholdings and Tesco's weekly sales forecasts.

According to Barry Knichel, Tesco's supply chain director, this forecasting project has been successful as average lead times have fallen from seven to three days. "Nevertheless, the information flow is strictly one way," he says. "We still do not know the true value of this sales data because we never get any feedback."

In 1997, Tesco thus started its Tesco Information Exchange (Tie) project in an attempt to achieve much more sophisticated two-way collaboration in its supply chain.

"This really was a big development for us," he says. "The guiding principle was to combine our retailing knowledge with the product knowledge of our suppliers."

A large Tesco store may carry 50,000 products while a supplier will have at most 200. An important aim of the Tie project was thus to shift responsibility for managing products down to the relevant supplier.

"Suppliers clearly have a better understanding of their specific product lines, so if you can engage the supplier to manage the supply chain you are going to get much better product availability and reduce your inventory," says Jorge Castillo, head of retail business for GE Information Services, which developed the extranet technology behind Tie.

Suppliers pay from £100 to £100,000 to join Tie, depending on their size. This then allows them access the Tie web site and view daily electronic point-of-sale (Pos) data from Tesco stores.

According to Mr Castillo, Tie lets suppliers monitor changes in demand almost in real time and so gives them more time to react. "Before, Tesco's suppliers would not have seen a problem until Tesco got on the phone to them," he says. "Now, it is the suppliers who get on the phone to Tesco and they can see much earlier on if a product is not selling well."

The data can be analysed in a number of ways to allow suppliers to see how sales perform by distribution centre, by individual store or even by TV region - important for promotions.

The management of promotions is a complex process requiring close co-operation between supplier and retailer. However, it has traditionally been difficult to do well because of the lack of shared data to support collaborative decisions.

"Promotions can be a nightmare," says Mr Knichel. Tesco and GEIS added a promotions management module to the service in 1999. It allows retailers and suppliers to collaborate in all stages of the promotion: initial commercial planning, supply chain planning, execution and final evaluation.

According to St Ivel, one of Tesco's bigger food suppliers, Tie has saved 30 per cent of its annual promotional costs.

ore than 600 suppliers, representing 70 per cent of Tesco's business, are using Tie today and Tesco aims to have all its suppliers onboard by the end of 2000. Around 40 suppliers are participating in the most recent addition to the Tie system, a collaborative data module.

This aims to allow "seamless" planning in which the planning data on the screen is jointly filled in by both retailer and supplier. Mr Knichel sees this as radical change for the retail industry as suppliers and retailers have traditionally worked to separate agendas.

He feels Tie has much potential to streamline Tesco's supply chain and to help suppliers improve their service levels and promotions. But retailing is a traditional industry and many suppliers are set in their ways.

"Only two suppliers have fundamentally changed the way they work as a result of Tie. Nevertheless, they can bring products to market much faster than any of their competitors," he says.

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