Tesco Operations Management
Introduction
Tesco is one of the leading grocery and food retailers in the world, with operations in over 14 countries spread across North America, Asia and Europe. The company has over 6,300 stores and employs about 492, 714 people. The company which is domiciled in the United Kingdom is headquartered in Hertfordshire. As at 2011, the company’s revenues topped £60,931 million with an operating profit of £3,811 million (Tesco, PLC SWOT Analysis, 2011). The Company has been able to survive over the years by building a sustainable business model through value oriented retailing and diversification. Diversification into global markets has enabled the company to spread its business risks as well as expand its revenues. Value oriented retailing has helped the company build customer loyalty and sustain revenue growth (Tesco, PLC SWOT Analysis, 2011).
Tesco has also been venturing into non-food merchandise category by offering electrical items, finance, music, films etc. The company obtained exclusive rights to sell a short animated Christmas film called Merry Madagascar. This was a joint venture partnership with DreamWorks studio in 2009 (Tesco, PLC SWOT Analysis, 2011). In this project, Tesco sold over one million DVD’s. The company currently operates its own bank known as Tesco bank which offers a variety of services such as bank accounts, visa cards, loans etc. In its electrical category, Tesco has employed technical support advisors stationed in its stores to help customers make purchase choices among its wide variety of electronics and electrical goods on offer. Tesco sells microwaves, TVs, Apple iPads, Amazon Kindle and other most sought after electronic goods. Through its website TescoCars.com, the company also sells cars and offers a dedicated after-sales support from more than 1000 independent garages. Tesco leverages its online channels to offer a wide range of products and services to its customers (Tesco, PLC SWOT Analysis, 2011).
Tesco’s core operations and associated processes
PARKER and GULLIFORD (1996) noted that operations management in supermarkets focuses on providing quick services which secures and enhances customer loyalty. Speed is therefore of essence in Tesco. Most shoppers equate low speed with no service at all. This is the main challenge in operations management in Tesco (CHEN, 2005). Another challenge in operations at Tesco is execution of operations strategy which involves purchasing the right amount of products; managing a large operations staff to get the right products in the right stores, merchandising the products well, and pricing just at the right price point to optimize sales. The second challenge is promotional effectiveness to reach target consumers. Tesco does this through mass-market advertising which involves billboards, print media adverts and electronic media advertising (CHEN, 2005). The core operations at Tesco therefore include purchasing, operations and sales and marketing.
Purchasing at Tesco which could be called inbound logistics involves acquisition of goods and other inputs that the company sells. These finished goods include manufactured goods, fresh farm produce, frozen foods clothing, electronic goods etc. (BY, 2000). According to GODSELL (2006), Tesco has been facing increased demands from its customers for friendlier, personalized, flexible and faster services. Intense competition and new technology has also been piling pressure on Tesco. To achieve sustainable competitive advantage, Tesco has streamlined its supply chain management by establishing a buying division that ensures goods and foods are purchased on time, in the right quantities and cost effectively (LAWSON, 2013). Tesco has restructured roles in food sourcing which ensures UK buyers are more focused on the selling side of the business whereas sourcing is mainly undertaken by international departments. A new Group Food Sourcing division headed by the group commercial director was set up to source products directly from markets (LAWSON, 2013).
Operations at Tesco are undertaken by operations staff that is charged with ensuring all stores are neat, accessible and presentable. Tesco has designed processes which ensure that its products are well presented to customers. Tesco has stationed technical advisors in its stores to persuade customers to buy electronic goods and also provide technical advice. Tesco has leveraged technology to manage customer numbers and make customer experience in the stores an enjoyable one. Tesco has deployed cameras that use thermal imaging technology to measure and predict customers’ arrival at checkouts which enables managers to serve customers better. The technology enables managers to avail the adequate number of tills to serve customers faster (Anonymous, 2006). To improve on operations and cut costs the company has specially built trucks that are able to vary a wide range of products including frozen, fresh produce etc at the same time. This in effect reduces the number of trips that are required to restock the stores which ensures faster delivery and reduces costs.
Sales of products and services is carried out by the sales and marketing function at Tesco. The company advertises its products through electronic and print media to entice customers to its stores to purchase the wide variety of goods and services on offer. This process involves availing goods and services on strategic locations to attract shoppers to purchase. The company has been running various adverts in television and print media to attract shoppers. The company has also turned to the internet to improve on its sales and distribution function. Tesco uses satellite broadband technology to create a state-of-the-art digital media network which has enabled it to install Tesco TV in more than 300 stores with some 15,000 screens. The screens are strategically placed and provide news, entertainment as well as promotional information on Tesco and supplier branded products. The company provides customers with more information at the point of sale and adds value to their shopping experience. This enhances sales at the stores. The company has also built a direct website called www. Tesco.com which enables clients to shop online and have their groceries delivered at their doorsteps. The company delivers the orders at a small premium fee (WILSON, 2005).
Demand attributes
The 4-V model stands for volume, variety, variation in demand and visibility. Volume refers to a situation where the company is able to sell more and hence achieve low unit costs with a high degree of specialization. Tesco is a company seen as being capital intensive and systemization is also high. GODSELL (2006) noted that Tesco has located buyers and marketers in strategic places in the UK to streamline operations. This is a clear sign of high focus on volume as is highlighted in the 4-V model.
The chain has also opened a lot of new stores to sell more in terms of volumes and reduce unit costs. In 1986, Tesco repositioned itself with a new strategy that saw a lot of repeat customers which improved its revenues (Marketing Week, 1997). On variety, Tesco offers a wide range of products and services which are standardized to ensure quality. The company sells a wide variety of products which offers clients an opportunity to choose according to their tastes, preferences and budgets. On variation in demand, Tesco has seen high utilization of its products and this has enabled it to achieve its sales targets. The company has also witnessed a drop in unit costs due to high volume sales. The main strategy that supermarket chains use to grows sales and sustain interest in their stores is through introduction of new products. Tesco has been relying on that strategy by being innovative in introducing new products into its stores. On visibility, Tesco has invested heavily in IT systems to enable it serve its customers within the least possible time and also manage queues (KAMATH, 2007). The company has also opened a wide number of stores worldwide to improve visibility. It has over 6, 300 stores worldwide. Tesco uses satellite broadband technology to create a state-of-the-art digital media network which has enabled it to install Tesco TV in more than 300 stores with 15,000 screens. The screens are strategically placed and provide news, entertainment as well as promotional information on Tesco and supplier branded products. The company provides customers with more information at the point of sale and adds value to their shopping experience.
Performance objectives of Tesco
Tesco performance objectives are based on balance score card format. These objectives are in financial targets and non-financial parameters such as customer services and growth targets. These objectives can only be achieved if the objective of serving customers with speed is achieved. Tesco uses information systems to solve its business problems to stay ahead and achieve competitiveness (PALMER, 2005). Tesco recently won the Retail Week Customer Service Initiative of the year award. This award was for those firms that use IT to develop and strengthen their customer service function. The company uses cameras that use thermal imaging technology to predict and measure customer arrivals at checkpoints to ensure enough tills are available to serve them with speed (KAMATH, 2007; WILSON, 2005). The company prioritizes speed as one of its performance objectives that assists it to achieve its key performance targets.
The company also offers high quality products and services in that it has stationed buyers in strategic locations to ensure inputs are of high quality and in accordance with specifications. This ensures the company achieves customer service targets that are in the balance score card. The company also offers online marketing which serves a lot of clients faster and conveniently (http://www.tescoplc.com/index.asp?pageid=79). The other objective of flexibility enables the company to achieve its key performance objectives. Tesco encourages flexibility by innovating new processes and practices. The company also offers a wide range of products. The company is also dependable in that in its online marketing avenues the company delivers on time and also offers after sales services. One of these websites includes TescoCars.com, whereby a customer can buy a new car and get an independent garage to be servicing it (KAMATH, 2007). On cost the company achieves this target by selling more in terms of volumes to achieve less unit sales. The company is able to benefit from economies of scale due to its size (KAMATH, 2007).The company is able to achieve competitive advantage in that it is able to serve its customers speedily, its flexible and cost structures are friendly.
Input-Transformation-Output diagram
The input output model is as illustrated below;
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Transforming resources Transformation Outputs
In the above scenario the transforming inputs include fresh farm produce, non-food items etc. The inputs to be transformed include organic farm produce which is repackaged, Electronic equipment which are displayed strategically to boost sales etc.. This transformation therefore includes packaging goods into Tesco products, offering customer advice, after sales service, online marketing and distribution etc. (TON and RAMAN, 2010). The output is the repackaged products arranged neatly in the shelves, delivered products to customers who purchase online through www. Tesco.com etc. Output also include promotional campaigns roll out inform of TV adverts, print media adverts or below the line promotion materials display. The output function is undertaken by operations staff in charge of repackaging and displaying products strategically in the stores and the distribution staff (TON and RAMAN, 2010).
Wider supply networks
The wider supply network of the company comprise suppliers of foods and groceries, suppliers of electronic gadgets, suppliers of music, mobile phones, clothing factories, electronic goods manufacturers etc. Tesco relies on technology to serve its suppliers. The company shares its Epos data with its suppliers which ensure efficiency in replenishing the stores (Mitchell, 1998; Anonymous, 2008). The company uses extranet to share trading and other information with its suppliers which improves commitment and loyalty to the company. The company uses lean thinking to cut waste throughout its value chain. Sharing information with suppliers ensures there are no stock outs and especially during times of promotion times. Tesco outsources some of the non-core work to its suppliers and concentrates on the brand, marketing and providing leadership (GODSELL, 2006; JOHN PLENDER AND H, 2005). The company uses the “one-touch replenishment” in which a product moves through the supply chain and is only handled physically when a customer chooses it from the shelves. The company also switched to value mapping technique which facilitates switching product movement from batch to flow modes (JIN-HYUK, 2009).
Improvement options
The company could adopt vertical integration upstream and also downstream in some cases. This ensures it serves the company better as the company can cut costs by producing its own supplies. The company could identify value from the customers perspective .i.e. what are customer looking for in their stores. The company should use that as the basis of replenishing its stocks. The company should study its value stream to identify those key components in the supply chain that add value and those that do not. The company should do a waste assessment of its value stream and do away with all supplies and activities that do not add value and can be classified as waste. The company should also supply those products pulled by the client and not push products to the customers. The company should adopt just-in –time strategy in its supply chain. Sourcing for supplies when needed, at the right time and in the right quantities can save a lot of wastage (JIN-HYUK, 2009).
Conclusion
Effective operations management practice is an important field for large supermarkets such as Tesco to embrace to achieve competitive advantage. Consumer choice is limitless and the ability of supermarkets to execute at the store level is an important ingredient in attracting and retaining customers. To survive and remain profitable in the highly competitive wholesale and retail sector, large supermarkets must provide exceptional customer service, present their merchandise exceptionally well and ensure their stores are very clean and appealing to the eye. Large supermarket chains must ensure they attract, develop and retain a high caliber team of dedicated employees to attain competitive advantage.Competition is very stiff in the sector and supermarket chains must design their processes to ensure they minimize waste, enhance customer value and reduce costs. Supermarket chains must also be innovative in the way they do business which includes leveraging technology to provide faster customized services to their customers.
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