CIPS Exam Report for Learner Community:

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Unit:
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Professional diploma in procurement and supply

PD3 - Strategic supply chain management
Nov14

Question 1 Learning Outcome 1.2

Analyse, using examples from the case study, how Tesco uses its supply chain expertise to
achieve competitive advantage over its market rivals.

(25 marks)
There is a very wide range of examples from the case study of how Tesco uses its supply chain expertise to
achieve competitive advantage.
Upstream examples include: logistics and physical management of stock; stock control systems and processes;
communication systems and information transfer between Tesco and its suppliers; quality control; lean
supply; waste reduction; efficient and effective supply chain management; automation; economies of scale;
outsourcing; low cost country sourcing; supply base rationalisation; collaborative relationships with suppliers.
Downstream examples include: the wide range of products available; different brands, price points and
targeted promotions; availability of goods; sophisticated forecasting techniques; agile supply; efficient
consumer response; vertically integrated information systems; innovative use of technology; customer
relationship management through the use of clubcard data; multi-channel strategies.
Most candidates were able to identify a range of examples that answered the question sufficiently. However,
some responses were descriptive and just quoted examples from the case study text without demonstrating
how the initiatives actually achieve competitive advantage. Stronger answers used a theoretical framework
such as Porters generic strategies to structure the discussion and linked the examples to best practice
concepts. An example of this latter point would be the concept of agility. This is not mentioned in the case,
but there are a number of examples of its manifestation within the Tesco supply chain.
Strong answers were well-structured, defined the relevant concepts, discussed a range of examples from the
case, and clearly linked them to the achievement of competitive advantage. Weaker answers were poorly
structured, were descriptive, and did not link the examples to the concept of competitive advantage.

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Question 2 Learning Outcome 2.1

(a) Discuss why and how Tesco uses segmentation to analyse its range of customers.

(7 marks)
(b) Evaluate the different approaches that Tesco could adopt to meet the needs of THREE
specified customer segments.

(18 marks)

(a) Customer segmentation, as defined by Schiffman and Kanuk, is the process of dividing a potential market
into distinct subsets of consumers with common needs or characteristics. Tesco undertakes segmentation in
order to understand the needs of its customer groups, define value from their perspective, and to position the
organisation to meet those needs through a tailored marketing mix and supply chain strategies. It undertakes
customer segmentation by using clubcard and other market research data, and by dividing its existing and
potential customers into appropriate categories such as Finer Foods, Healthy, Mainstream, Convenience,
Traditional, and Price Sensitive.
(b) The answer to this part of the question obviously depends on the three segments chosen, but the
discussion is likely to revolve around the marketing mix factors such as product, price, promotion, and place.
For example, Convenience customers value ready meals, smaller local stores, convenient locations, on-line
ordering, speedy delivery, and are willing to pay an enhanced price. On the other hand, Price Sensitive
customers want low prices, special offers, basic goods, and out of town superstores. Candidates could also
explore the upstream supply chain initiatives that support these targeting strategies, for example agile
responses for Convenience customers and leanness for the Price Sensitive category.
In terms of (a), most candidates were able to identify the reasons why Tesco undertake customer
segmentation and how they achieve this. However, (b) was answered rather badly in many cases. Some
misunderstood the question and discussed how Tesco could segment their customers, rather than how the
company should service its specific customer segments. Others just repeated the discussion contained in their
response to (a). A significant number of candidates chose not to answer (b) at all, which often resulted in
them failing the paper overall. This demonstrates the importance of answering all parts of every question.
The answer to this question is not contained in a book. It requires critical thinking and application to the
context of the case study situation. Most candidates used three of the categories mentioned in the case.
However, some used three segments from the PADI matrix. Given the wording of the question, this was
perfectly acceptable, as long as there was an appropriate level of application. However, the use of the Boston
Box or Ansoffs matrix was not appropriate, since they are not customer segmentation tools.
Stronger answers defined the concept and discussed both the how and the why in relation to (a), followed
by a robust application to three clearly specified customer segments in response to (b). Weaker answers
contained repetition, limited application, and failed to address the question specifics.

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Question 3 Learning Outcomes 3.3, 4.1

Tesco monitors four main areas of supply chain performance: operations, people, finance,
and customer satisfaction.
Propose and justify TWO objective measures of performance that could be applied by Tesco
to each of these FOUR areas to assess the performance and optimise the effectiveness of
the overall supply chain.

(25 marks)

Candidates were free to choose their own performance measures, but some examples are given below within
each of the stated supply chain areas.
Operations: stock turnover; number of stock-outs; miles travelled per vehicle; number of empty return loads;
vehicle utilisation and downtime. People: days lost through absence; staff turnover; cost per shift per
employee; number of training days. Finance: return on capital employed; profit per square metre of floor
space; turnover of each store; value of out of date stock. Customer satisfaction: number of customer
complaints; number of positive customer tweets and other social media comments; number of returns of
unsatisfactory goods; conformance to picking lists for on-line shopping.
This question was generally poorly answered. Many candidates discussed performance management
techniques such as benchmarking, KPIs, SLAs, dashboards, pyramids and balanced scorecards, rather than
propose specific performance measures. These techniques could of course be referred to in the discussion,
but their description was not required. Many answers appeared to contain a pre-prepared general
performance management discussion, rather than a focused response. Answers that did not propose specific
performance measures did not achieve a pass mark. This demonstrates the importance of answering the set
question, rather than one that was anticipated or hoped for.
As with Q2, the answer to this question cannot be found in a book. It requires critical thinking and application
to the case context. However, the case study gives a big steer to those candidates unsure of what to measure.
Page 7 refers to the main measures that the steering wheel approach incorporates, such as: safety and
efficiency (operations); appointment, development, commitment and values (people); stock results,
operating costs (finance); and accuracy, delivery on time (customer satisfaction). Converting these into
SMART performance measures combined with a justification for their use would achieve a pass mark.
Stronger answers contained specific and objective performance measures with a robust justification and
explanation. Weaker answers were too vague, too general, and failed to produce specific performance
measures.

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Question 4 Learning Outcome 1.3, 4.2

Explain, using examples from the case study, how each of the STEEPLE factors could be used
by Tesco to analyse its supply chain risks.

(25 marks)
There are a number of STEEPLE factors that could affect Tescos supply chain and thus constitute a potential
risk. Some examples are given below.
Social factors: demographics; lifestyle changes; attitudes to leisure; the influence of fashion; changing
expectations of customer in terms of their quality of life. Technological factors: new technologies in terms of
retailing; internet availability; reduced life cycles; increased pace of technological change; the use of mobile
technologies. Economic factors: changes in the economic cycle (either growth or recession); the level of
unemployment; taxation; exchange rate fluctuations; position in the business cycle and the level of customer
confidence. Environmental factors: the availability of natural resources; climate change, carbon footprint; the
threat of natural disasters; increasing influence of pressure groups and awareness of consumers. Political
factors: changes in government; instability and war; protectionism; trade embargoes and quotas; local
content provision. Legal factors: environmental legislation; employment law; consumer protection legislation;
trades union provisions; corporate governance requirements; specific legislation related to the treatment of
suppliers. Ethical factors: outsourcing; poor working conditions; food scares; treatment of suppliers; use of
customer data; protection of reputation.
There was a surprisingly poor level of understanding in relation to the role of a STEEPLE analysis. The model is
a means of identifying macro factors in the broad external environment. It is not a framework for assessing
internal or market-based risks, but many candidates included these factors in their analysis. An example of
this problem was evident in the coverage of technological factors. Instead of discussing broad technology
aspects in relation to rapid changes and the risk of not keeping up to date, many candidates discussed internal
systems and the risk of them failing.
Another problem was time management. Most candidates attempted this question last but had not allocated
sufficient time to answer it fully, resulting in many incomplete answers. This demonstrates the importance of
allocating time equally across all four questions and rigorously adhering to the plan.
Stronger answers identified a number of macro-environmental factors across all seven STEEPLE categories and
linked them effectively to the case situation. Good answers also utilised case evidence to demonstrate how
Tesco have addressed many of the identified risks. Weaker answers used the STEEPLE model inappropriately,
applied the factors insufficiently, or failed to complete their answer.

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