Operations Management of Tesco Report

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Updated: Jul 21st, 2021

Table of Contents
1. Introduction
2. Concepts of Managing Operations
3. Process and value chain analysis
4. Tools and Techniques for Managing Operations
5. The Management of Quality Systems
6. Legislation/Health & Safety
7. Nature, Content & Process of Operations Strategy
8. Conclusion
9. Reference List

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Introduction

Tesco is a retail company headquartered in the United Kingdom. The company currently
operates in many countries around the world, and offers groceries, food, and other
goods. It began trading as a public company in 1947. The year 2001 marked the launch
of Florence and Fred clothing range by Tesco (Our Tesco 2015).

By 2007, the company had become international and was entering the United States
market using the name Fresh & Easy. It has almost 200 stores. In 2010, Tesco opened
the first zero-carbon supermarket in Cambridge to market its ambitions of going green
and managing its operations in an environmentally sustainable way.
It also launched online grocery stores in 2010 in Central Europe. Meanwhile, it has kept
on with its expansion plans by entering the Saudi Arabian market in 2012. Most
recently, it entered into a joint venture with Trend Limited in the Southern and Western
regions of India.

Over the years, Tesco has also launched its popular food brands to make them more
appealing and relevant to changing consumer needs (Tesco 2015).

Tesco serves all types of customers in its retail business, and offers products for daily
use as well as long-term occasional uses.

Most customers are middle class to low-class people seeking to find high quality
products for affordable prices. In addition to that, the company runs a club card system
to build customer loyalty and for customer intelligence gathering purposes.

The purpose of this report is to investigate the operations management of Tesco and
come up with a conclusion about its future prospects. It will highlight the important tools
and techniques that Tesco is using to achieve its operations management objective.

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It analyses the company’s internal resources using the resource based view framework
and also highlights the historical improvements in service delivery that have affected
Tesco’s growth to date.

Concepts of Managing Operations

Tesco’s strategy is to manipulate the elements of the marketing mix to create

competitive benefits and to have positive effects on sales. The company offers a wide
range of products and it has been doing so for the last few years.
Currently, its stores have food, clothing, financial services, electronics, furniture, and
home décor among others. Pricing for commodities differ, but the company keeps
overall prices similar to market prices for respective commodities.

The price element of marketing-mix is also a business strategy differentiating Tesco

from other retailers. The company follows its marketing message of “Every Little Helps”
to indicate its focus on the small margins that allow it to earn considerable returns and
for its customers to make substantial savings when shopping in bulk (Zao 2014).

Customers can get Tesco services at its stores located in many cities around the world.
At the same time, the company provides customers with products online.

In the online avenue, Tesco offers products bundled in one brand name, Tesco Direct,
while for in-store purchases; customers get products under different brand categories
namely the Tesco Express, Tesco Metro, Tesco Compact, and the Tesco Superstore.

The names are given according to the size of the store and the potential products that
would be stocked in the store. Thus, customers rely on store names to influence their
shopping expectations. The overall business strategy informs the promotion activities
undertaken by the company.

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The company seeks to achieve maximum profits and places marketing campaigns to
reflect shopping seasons, and also enhances or rebrands popular products to improve
sales. It also engages in traditional marketing campaigns such as advertisements and
sponsorships of events.
In addition, the company has also been working with point-of-sale placement,
announcements and gifting strategies to improve sales. It sometimes supports
charitable causes publicly and runs promotional offers for its loyal card-holding
customers.

The loyalty card offered by the company serves as a customer intelligence tool allowing
the firm to analyse trends and position it adequately, or alter its key marketing
messages to reflect market needs (Brenkert & Beauchamp 2010).

Operations in retail businesses require people coordination, empowerment, and

management. Tesco has a large number of front service workers who interact directly
with customers in its stores. To ensure service quality, it runs strict and regular
recruitment exercises to attract the most competent candidates (Zao 2014).

It also invests in training of employees and offers competitive compensation packages

to retain its staffs. Currently, the company offers the Colleague Priveledgecard and the
Buy as You Earn scheme to enable employees take advantage of the company’s
product offerings (Tesco Careers 2015).

The company’s analytical team includes engineers and statisticians capable of making
sophisticated calculation on customer data to predict sales (Swabey 2013).

Process and value chain analysis

Process analysis for Tesco would relate to customer wait times, inventory acquisition,
disposal, and level of helpfulness provided by customer service staffs at Tesco. In the
above elements, Tesco has a robust operation because it has employed an adequate
number of sales assistants for its online and offline operations.

It also ensures that the sales assistants are on shop floors at all times. They respond to
customer queries and fill in absent or busy cashiers and other staffs inside stores.
Tesco brand is visible in its stores, on its staff’s uniform, on its transport fleet and online.
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The design of stores is similar throughout the world, although some aspects of
orientation or size are different. The packaging quality for its branded in-store products
remains high and appealing, while all stores provide adequate parking space for
customers. Moreover, most of its parking spaces have special areas for the disabled
(Zao 2014).

Figure 1: Value chain analysis. Web.

As a retailer, the key activities at Tesco are; inbound logistics, operations, outbound
logistics, marketing and sales, and services offered to customers (Christopher 2011).
Tesco has to work closely with its suppliers.

As shown in the figure above, operations take the biggest share of the company’s core
activities because it does not manufacture any goods. The next section of the report
evaluates the specific details that make up the overall operation activities at Tesco
(Slack, Brandon-Jones & Johnston 2012).
Tools and Techniques for Managing Operations

Tesco has expanded its dotcom distribution network to respond to growing online
grocery shopping by its customers in the UK. The company now runs a 120,000 square
feet distribution centre in Enfield, England.

The centre and its associated technologies allow Tesco to offer dedicated inventories
for online sales, which does not affect retail store sales. Previously, its staffs had to go
to the retail stores and pick products than ship them to customers.

Pick shopping to serve online customers worked when the company had limited
demand and had just launched the online version of its stores.

Now with home shopping distribution centres in five locations in England, the company
can rely on technology and logistics management to have the smart zone routing
integrated conveyor systems and zone picking solutions required for chilled goods.

The separation of different categories at the inventory level, which aligns with packaging
and shipping needs, allows personal shoppers, hired by the company, to pick grocery
produce and baked goods then drops them on conveyor systems for consolidating and
dispatch.

Meanwhile, the personal shoppers capture every detail of the transaction on their wrist-
mounted devices, which is online and updates every other connected database to
provide timely information for decision making at all levels of operations management in
the company (Bradley 2012).

The company also runs a chase management strategy, where it relies on installed
automated scanning and payment machines that allow the customers pay for goods
without assistance. With reduced human checkouts, customers are able to shop at peak
times and still avoid queuing.
This is an example of a unique application of just in time thinking in operations, where
customers get to check off in an offline store just when they would do online.

Tesco is a service management company, whose operations are different from those of
a manufacturing company. It has to handle capacity management tasks optimally so
that it retains a high level of customer satisfaction throughout.

Tesco offers goods in its stores and online shop, but customers prefer the company’s
stores to others because of its associated services, in addition to goods variety. In the
retail business, there is no way to guarantee identical services when customers and
staffs are transacting.

In addition, customers play a major part in the service delivery and they have an
influencing role to play, in the service quality they get. The business design of Tesco
makes it absorb the functions of wholesalers in the goods distribution chain. It accepts
goods from suppliers and sells to consumers.

It is possible for Tesco to implement a level demand strategy because the business can
afford to stockpile; however, filling up stocks before an anticipated high demand season
will also negatively affect inventory processing efficiencies of the company’s distribution
centres.

A better approach for Tesco has been the use of lean management principles, which
seek to eliminate all unnecessary elements and minimize waste. Since 1999, Tesco has
been utilizing a continuous replenishing system that relies on point of sale data.

It makes changes to inventory based on real time information and now covers all
distribution divisions in the company. The company minimizes delays that would be
caused by daily exhaustion of inventory, but the continuous replenishment solves the
challenge and helps the company to avoid implementing a level demand strategy.

Part of customer satisfaction in the retail business comes from the provision of goods
that customers want. Customers will likely stop shopping at a particular store when they
miss their preferred item several times. Therefore, a continuous replenishment system
is very handy for a retailer like Tesco.

Besides that, Tesco also runs cross docking operations. It relies on collaborative
planning, forecasting, and replenishment to anchor its inventory management.

The company relies on its partnership with retail analytics provider Dunnhumby to
analyse customer data and manage sophisticated analyses on its supply chain data
(Swabey 2013).

So far, the company has come up with a statistical model that predicts the impact of the
weather on customer buying behaviour and uses the model to forecast demand and
ensure that stores never run out of goods in high demand.

The analytical team at the company is able to combine various parameters such as
weather, store location, work practices, customer preferences, and conventional retail
intelligence to come up with predictions on stock.

Tesco has been working on its supply chain to realize incremental gains, especially in
the implementation of technology and design of service agreement frameworks. For
example, it has its own fleet to transport goods from suppliers, and this arrangement
allows it to supplement the transportation capabilities of its supply.

The move serves as an agile management strategy where the company has enough
resources to meet sudden spikes in demand, and when there is low demand for a
particular supplier’s goods, and then Tesco can dispatch fewer trucks and let suppliers
rely on their own transport infrastructure.

Moreover, the trucks used for suppliers at Tesco are also capable of serving as delivery
trucks to customers.

Since 2003, Tesco has been relying on radio frequency identification (RFID) technology
to monitor inventory throughout its supply chain. The technology allows Tesco to
achieve three operation management gains. First, it lets the company deliver better
customer services.

Second, it offers higher working efficiency, which reduces overall demand for labour and
improve accuracy and quality of job assignments by its staffs. Third, the technology
makes the supply chain reliable. Tesco can expect with certainty when goods will ship
from suppliers and arrive at its stores, and it can tell when they leave the store.

The use of RFID allows the company to track the movement of goods and use that
information to analyse store arrangement and its impact on consumer shopping
choices. It then uses the information to achieve better product placement for its branded
products.

The Management of Quality Systems

Tesco aims to have its Tesco brand products meet high quality requirements and high
quality requirements, both as a company policy and a legal requirement. The company
runs a Tesco Food Manufacturing Standard (TFMS) policy that governs its conduct with
suppliers and their obligations to the company.

The technologies in use at Tesco allow the firm to match demand for staffs with actual
staffing needs. It can then measure an individual store performance against
expectations (Koufteros, Verghese & Lucianetti 2014).

Proper design of stores, matching staff demand and provision of self-paying options for
customers increase staffs output, reduce idle time for sales representatives and
significantly cuts administration schedules (McNamara 2011).

Legislation/Health & Safety

Health and safety are everyone’s responsibility at Tesco. The company maintains a
policy of ensuring that employees are in charge of their colleague’s welfare as well as
their own.
It also has a safety arrangement in all stores that work together with the safety policy.
Highlights of the policy include the need to record all accidents to facilitate future
improvement of workflow and equipment design.

The company has first aid boxes placed strategically in use in safety and health
emergencies. It has designated areas for smoking and it provides e-cigarettes to the
employees to help them maintain a smoke free working environment. Tesco gives
employees one free eye test as long as they are operating display screen equipment.

For some workers, a medical report is mandatory before assignment of duties, and the
requirement ensures that only workers who are fit to work actually do so. Otherwise, the
company finds alternative jobs that match employee capability (Our Tesco 2015). Such
arrangements ensure that productivity remains high at Tesco.

It also limits the cost of having to deal with injuries or worker absenteeism (Kim et al.
2013). The use of accident reporting mechanisms and the matching of worker abilities,
health, fitness, and job demands put Tesco ahead of its competitors (Tesco 2012).

The table below shows Tesco’s relative performance in the rate of reportable workplace
injuries, which highlights the effect of monitoring, and the improvement that the
company has achieved from 2011 to 2012.

Figure 2: Rate of reportable injuries (Tesco 2012)

The company does not discriminate based on religion, physical or mental disability, age,
gender or sexual orientation. It also offers equal employment opportunities that comply
with affirmative action legislation in the respective countries of operations.

The fairness policy at Tesco extends to performance appraisals, compensations,

opportunities, and disciplinary matters. At the same time, the company upholds
employee privacy to comply with privacy legislation.

The company only collects wheat is minimally acceptable to facilitate normal

functioning, and ensures that most of the employee information held by the company is
submitted voluntarily. Moreover, the company relies on best practices and technologies
to protect confidential information (Tesco 2004).

The adherence to safety, health, and legal conditions to facilitate smooth operations at
the firm is part of the strategy to ensure continuity of business (Dimba 2010). Firms that
protect employee privacy and offer appropriate working conditions appear as caring,
and elicit organizational citizenship behaviour expressed by employees.

Employees are a source of competitive advantage in the service industry. The human
resource department handles the employee issues, which act as supporting activities for
the core activities like operations management as per the value chain analysis (Harms,
Hansen & Schaltergger 2013).

Nature, Content & Process of Operations Strategy

The nature of Tesco’s operations is retail, where the aim is to avail products to as many
customers as possible.

Tesco embraces the use of a common platform to build innovation. With branded
categories such as the Fresh & Easy concept and branded stores, the company uses a
single format that applies to a uniform range of products. For example, the Fresh and
Easy format is only for food and groceries.
Customers expect to get all food and grocery offerings at any Fresh & Easy store. The
same strategy expands to the bigger stores where each category is under a mini-
department within the store. Several categories of goods fit into stores, allowing the
company to run many different promotions concurrently (McNamara 2011).

The model then extends to other operations, such as transport planning, automated
ordering, club card, and innovative display capabilities in stores.

The benefits of the strategy include better shopping experience for customers, simpler
storage management tasks for staffs, reduced costs for the company and faster
ordering and delivering, which benefit both the firm and the customer (McNamara
2011).

The main strategy at Tesco has been to combine product availability techniques and
customer focus orientation to have order-winners.

With increased use of tracking technologies for goods, and improved capabilities of its
analytical team, the company is able to focus on individual and group customers and
provide them with relevant services that precisely meet demand.

The precision afforded by technology serves as a differentiation strategy for Tesco

(Slack, Chambers & Johnston 2011).

Differentiation at Tesco serves as a source of competitive advantage. When reviewing

internal factors for success using the resource-based view theory, one sees valuable
resources at Tesco as its analytical team, and its distribution centers.

In addition, its supplier quality policies and its recruitment strategies are also value-
adding resources that help it to offer differentiated retail experiences that are superior to
what the competition is offering.

The pricing strategy, which keeps Tesco well positioned to take on bargain hunters and
other price sensitive shoppers combines well with the loyalty card strategy that allows
customers to opt in to an information collection system run by Tesco to offer them
rewards, and deliver a better shopping experience.

In addition, the use of self-paying technologies for customers at stores, which ends up
cutting checkout wait times, is also influential in making Tesco achieve its objectives of
lean management, and to reduce overall costs of operations.

Conclusion

Tesco can attribute its operations excellence in its relentless pursuit of innovation in
inventory management, in-store customer service satisfaction, and proper treatment of
employees according to their job abilities, fitness condition, and position in the
company.

As a retailer, Tesco does not face operations challenges typical in manufacturing

industry and, therefore, had to come up with improvised implementation of the just-in-
time inventory management system.

The company relies a lot on technologies to assist in transportation, tracking goods and
consumers, and enhancing work performance of the employees.

The combinations of technologies and work planning process help Tesco to differentiate
itself from its competition and earn higher revenues, despite its low cost value
proposition to its customers.

Reference List

Bradley, A. 2012, ‘Case study: Tesco.com, United Kingdom’, Dematic Logistics Review,

2012, pp. 16-17.

Brenkert, G. G., Beauchamp, T. L. (eds.) 2010, The Oxford handbook of business

ethics, Oxford University Press, New York, NY.
Christopher, M. 2011, Logistics and supply chain management, FT Press, New York,
NY.

Dimba, B. A. 2010, ‘Strategic human resource management practices: effect on

performance’, African Journal of Economic and Management Studies, vol 1, no. 2, pp.
128-137.

Harms, D., Hansen, E. G. & Schaltergger, S. 2013, ‘Strategies in sustainable supply

chain management: An empirical investigation of large german companies’, Corporate
Social Responsibility and Environment Management, vol 20, pp. 205-218.

Kim, T.-Y., Aryee, S., Loi, R. & Kim, S.-P. 2013, ‘Person-organization fit and employee
outcomes: test of a social exchange model’, The International Journal of Human
Resource Management, vol 24, no. 19, pp. 3719-3737.

Koufteros, X., Verghese, A. & Lucianetti, L. 2014, ‘The effect of performance

measurement systems on firm performance: A cross-sectional and a longitudinal
study’, Journal of Operations Management, vol 32, no. 6, pp. 313-336.

McNamara, M. 2011, Deploying the Tesco operating model. Web.

Our Tesco 2015, Health and safety. Web.

Slack, N., Brandon-Jones, A. & Johnston, R. 2012, Operations Management , 7th edn,

Pearson, Upper Saddle River, NJ.

Slack, N., Chambers, S. & Johnston, R. 2011, Operations management, 6th edn, FT

Prentice Hall, New York, NY.

Swabey, P. 2013, Tesco saves millions with supply chain analytics. Web.

Tesco 2004, TESCO Corporation business ethics policy. Web.

Tesco 2012, Creating good jobs and careers: Health and safety. Web.
Tesco 2015, History. Web.

Tesco Careers 2015, Careers center. Web.

Zao, S. 2014, ‘Analyzing and evaluating critically Tesco’s current operations

management’, Journal of Management and Sustainability, vol 4, no. 4, pp. 184-187.

Operations Management At The Tesco Supermarket

Business Essay
Info: 5378 words (22 pages) Essay
Published: 1st Jan 2015 in Business

 Reference this
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Tesco is the Britain’s biggest and most profitable supermarket chain throughout the
world. In my assignment I have focused on the process of the supply chain management
of Tesco. I have advised many operational strategies to successfully run the supply chain
process and the major issues relating to process. The department has to bring the
security measures in consideration as well, for which they use bar codes and security
codes on the products, which help in reducing the chance of being theft and eventually
preventing the store from loss. My report covers different aspects relating to process
issues; capacity issues quality matters, marketing issues and finance issues.

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The coordination among operation, financial issues, marketing strategies and customer
satisfaction is highlighted in this report. Tesco is generating more turnover every time
by using best latest technology for example, self checkouts and strategies like reduce to
clear strategies, cut of prices, buy one get one free, Tesco gift cards, double up vouchers
offer, shopping reward for petrol and etc. In my report I have also tried to cover the
international market approach of Tesco, which at present operating in 13 countries.

1.0 Introduction
The second largest retailer in Europe is Tesco and fourth largest in the world. John
Edward Cohen.Jack founded the company in 1924. He was known as a market stall
trader in the east end of London in 1919. The name Tesco was first used on tea and was
formed from the initials of Cohen’s tea supplier, T E Stockwell, combined with the first
two letters of Cohen. Tesco Stores Limited was incorporated in 1932.

Tesco being the huge retailers have effective supply chain management and information
systems, I will debate about the Tesco supply chain management, using value chain
analysis model. The issues Tesco is having within its supply chain process and the
strategic issues. I will comment on all such issues and problems then I will recommend
some suggestions using appropriate operations management strategies.

What Is Process Analysis?

An operation is composed of processes designed to add value by transforming inputs
into useful outputs. Inputs may be materials, labour, energy, and capital equipment.
Outputs may be a physical product (possibly used as an input to another process) or a
service. Processes can have a significant impact on the performance of a business, and
process improvement can improve a firm’s competitiveness.

I have researched about the leading retailer organization in the UK Tesco Ltd and the
process I have chosen in Tesco to analyse is its supply chain system and processes.

What is Supply Chain Management?

“The planning and management of all activities involved in sourcing and procurement,
conversion, and all Logistics Management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence. Supply Chain
Management integrates supply and demand management within and across
companies.”

(The Council of Supply Chain Management Professionals

(CSCMP) from Grant et al. (2006 p. 15)
Overview of Tesco Supply Chain Process
Watford in England, Tesco and Procter & Gamble are leading organizations when it
comes to supply chain, according to a survey of international food and grocery specialist
IGD, based here. The senior executives from 50 international companies taken a survey
in November 2005, showed the characteristics of a leading retailer to include sales and
profit growth, a strong customer focus, an integrated supply chain, a distinct business
model, and strong collaborative relationships.

Process Analysis of Supply Chain Management in Tesco

The Process Analysis Diagram below shows the Tesco’s process of procurement in its
Supply Chain. Its illustrates how Tesco purchasing system works in it information
systems.

Purchasing Process of Tesco

http://www.qpr.com/getimage.aspx.ID-144329.gif

In a Tesco’s Purchasing process flow diagram, processes starts one after the other and
performed sequentially. Processes works in parallel are performed simultaneously.

In the above diagram, raw material is held in a storage bin at the initial stage of the
process. After the last task, the output also is stored in a storage bin.

The Process starts from a websites and then using the budgeted amount it requests for
the fill out purchase request approval form and it can be a request for the quote from
supplier. Then the message if approves goes to the department (purchasing manager)
which is responsible for the approval of the purchases and will get approved from there
and it send the message to the request quote from supplier which from there goes to
supplier and the supplier receives the message and starts manufacturing or arranging
delivery for the organization. The purchasing manager sends that approved message to
the inform source of decisions from where its goes to the requestor and the whole
process goes on in the same way.

5.2 RMA Processing System

The analysis diagram below explains the process of RMA in Tesco. It begins from the
request and through the number of sequential processes it ends up either in receiving
goods or the returns of goods.

http://www.qpr.com/getimage.aspx.ID-144334.gif

The complete RMA process is quite clear from the above figure that how it works, Let
me tell you about it in points.
A complete RMA request is submitted and it goes to Customer Relations Management.

The Customer Relations Management receives the request and reviews it with an
intention to either accept it or reject it.

Then if the request approves or CRM say yes then it will create a return of goods order
in ERP. If it says No then the system sends the customer with rejection information.

After creating return of goods order in ERP it provides the customer with an RMA
number.

At the end of the process customer returns the goods and send them back to the
company.

On the other side in the process the company match the RMA number of the customer
and receive the goods.

6.0 Process Performance Measures

The Operations managers are usually interested in processing aspects such as cost,
quality, flexibility, and speed. Some of the performances measuring processes, which
help communicating these aspects, include:

Process capacity – The capacity of the process is its maximum output rate, measured in
units produced per unit of time. The capacity of a series of tasks is determined by the
lowest capacity task in the string. The capacity of parallel strings of tasks is the sum of
the capacities of the two strings, except for cases in which the two strings have different
outputs that are combined. In such cases, the capacity of the two parallel strings of tasks
is that of the lowest capacity parallel string.

Capacity utilization – The amount of the process capacity that is actually being utilized.

Throughput rate Or Flow Rate – the average rate at which units flow past a specific point
in the process. The maximum throughput rate is the process capacity.

Flow time (also known as throughput time or lead time) – the average time that a unit
requires to flow through the process from the entry point to the exit point. The flow
time is the length of the longest path through the process. The flow time includes the
processing time and any time the unit takes between steps.

Cycle time – It is the time in between successive units in return of output from the
process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle
time can be thought of as the time required for a task to repeat itself. Each series task in
a process must have a cycle time less than or equal to the cycle time for the process. Put
another way, the cycle time of the process is equal to the longest task cycle time. The
process is said to be in balance if the cycle times are equal for each activity in the
process. Such balance rarely is achieved.

Process time – the average time that a unit is worked on. Process time is flow time less
idle time.

Idle time – time when no activity is being performed, for example, when an activity is
waiting for work to arrive from the previous activity. The term can be used to describe
both machine idle time and worker idle time.

Work In process – the amount of inventory in the process.

Set-up time – It is the time required to prepare the equipment to perform an activity on
a batch of units. Set-up time usually does not depend strongly on the batch size and
therefore can be reduced on a per unit basis by increasing the batch size.

Direct labour content – the amount of labour (in units of time) actually contained in the
product. It excludes the idle time where workers are not working directly on the product.
It also excludes the time spent on maintaining transporting materials, machines, etc.

Direct labour utilization – the fraction of labour capacity that actually is utilized as direct
labour.

6.1 Little’s Law

In the process the stock is related to the flow rate and throughput time by the following
equation:

W.I.P. Inventory = Throughput Rate x Flow Time

This relation is known as Little’s Law, named after John D.C. Little who proved it
mathematically in 1961. Since the flow rate is equal to 1 / cycle time, Little’s Law can be
written as:

Flow Time = W.I.P. Inventory x Cycle Time

http://www.netmba.com/operations/process/analysis/
6.2 The Process Bottleneck
In This process capacity is usually determined by the slowest series task; that is, having
the slowest throughput rate or longest cycle time. This slowest task is known as
the bottleneck. The Identification of the bottleneck process is a most critical aspect of
process analysis since it not only determines the process capacity, but also provides the
opportunity to increase that capacity.

Managing time and saving time in the bottleneck process saves time for the whole
process. Saving time in a non-bottleneck task does not assist the process since the flow
rate is restricted by the bottleneck. It is only happens when the bottleneck is finished
that another process will become the new bottleneck and presents a new opportunity to
improve the process.

If the new slowest activity is much faster than the bottleneck, then the bottleneck is
having a major impact on the process capacity. If the new slowest task is only little faster
than the bottleneck, then increasing the throughput of the bottleneck will have a limited
impact on the process capacity.

6.3 Starvation and Blocking

The process of Starvation occurs when a downstream activity is idle with no inputs to
process because of upstream delays. The process of Blocking occurs when an activity
becomes idle because the next downstream activity is not ready to take it. Both the
starvation and the blocking can be decreased by the addition of buffers that hold stock
between tasks.

7.0 Process Improvement

The common issues like cost, quality, flexibility, and speed are usually improved. The
following lists some of the ways that processes can be improved.

Reduce work-in-process inventory – reduces lead-time.

Add additional resources to increase capacity of the bottleneck. For example, an

additional machine can be added in parallel to increase the capacity.

Improve the efficiency of the bottleneck activity – increases process capacity.

Try to keep the work away from bottleneck activities where possible and thus improve
process capacity.
Increasing the availability of bottleneck resources, for example, by the addition of an
additional shift – increases process capacity.

Decrease non-value adding activities – reduce cost, reduces lead-time. Non-value

adding tasks incorporate transport, rework, waiting, testing and inspecting, and support
activities.

Redesigning the product for effective manufacturability – can improve several or all
process performance measures.

The flexibility can be made better by outsourcing specific processes. Besides this by
postponement, which shifts customizing activities to the end of the process results in
the enhancement of the flexibility?

In some cases, dramatic improvements can be made at minimal cost when the
bottleneck activity is severely limiting the process capacity. Moreover, in well-optimised
activities, essential investment may be required to achieve a marginal operational
improvement. Because of the large investment, the operational gain may not generate a
sufficient rate of return. A cost-effective analysis should be performed to determine if a
process change is worth the investment. Ultimately, net present value will determine
whether a process “improvement” really is an improvement

8.0 Financial Evaluations of Tesco’s Supply Chain

Tesco’s Total Supply Chain Management Costs metrics attempt to segment cost centres
into process based activity.

8.1 Order Management Cost

Customer Service Cost
Cost centres that have to do with entering customer orders, reserving inventory, credit
check, consolidating orders, processing inquiries and quotes.

Finished Goods Warehouse Cost

Cost centres that has to do with the storage, receiving, picking, and shipment of finished
good products.

Outbound Transportation Cost

A cost centre that implicates the cost associated with the transportation (all modes
including export) of finished goods products.

Contract and Program Management Cost

Cost centres that have to do with the initiation and on going management of customer
contracts including master agreements, compliance to volume based incentives, and
other special incentives.

Installation Planning and Execution Costs

Cost centres that have to do with the planning and execution of product installation at
customer designated locations.

Accounts Receivable Cost

Cost centres that have to do with the processing and closure of customer invoices
including collection.

8.2 Material Acquisition Cost

Purchasing Cost
The cost centres associated with both the strategic as well as the tactical parts of the
purchasing process.

Raw Material Warehouse Cost

The cost centres associated with the receiving, storage, and transfer of raw material
product.

Supplier Quality Cost

The cost centres allocated to supplier qualification, product verification and ongoing
quality systems for raw materials.

Component Engineering and Tooling Cost

The cost centres allocated to the engineering (design and specification) and tooling
costs for raw materials, i.e. packaging.
Inbound Transportation Cost
Cost centres allocated with the transportation (all modes including import) of raw
material and/or purchased finished good products.

Accounts Payable Cost

Cost centres that have to do with the processing and closure of supplier invoices
including credit and disputes.

8.3 Planning Cost

Demand Planning Cost
It is a cost centre for unit forecasting and overall demand management.

Supply Planning Cost

The cost centre for supply planning includes overall supply planning, distribution
requirements planning, master production planning, production scheduling.

Supply Chain Finance Control Cost

The cost centres in finance allocated to reconcile unit plans with financial plans, account
and control supply chain cost centres, and report financial performance of the supply
chain SCOR (Supply Chain Operations Reference) card.

8.4 Inventory Carrying Cost

Opportunity Cost
Inventory dollars times the cost of money for your company.

Obsolescence Cost
The further costs of obsolescence in the form of accruals and/or write offs.

Shrinkage Cost
The costs of shrinkage in the form of accruals and/or write offs.
Taxes and Insurance Cost
The cost centres allocated to the payment of taxes and insurance for inventory assets.

8.5 IT Cost for Supply Chain

Application Cost
Cost centres briefing the fixed costs are associated with supply IT application costs to
Plan, Source, Make, Deliver, and Return.

8.6 IT Operational Cost for Supply Chain

The centres of costs summarizing the ongoing expenses associated with maintenance,
upgrade, and development of IT costs to support Plan, Source, Make, Deliver, and
Return.

9.0 Tesco Operations Management Theory (Value Chain)

http://enduragement.files.wordpress.com/2008/06/porter-value-chain.png

9.1 Primary Activities

(Currently, Adds value (+), losses value (-), Potential to add
value (P+))
Inbound logistics
In the start of the process inbound logistics are put at the earlier stage of the value
chain, as they possess the earliest opportunity to create value. That’s why; the
components of this stage are considered to be upstream activities. The supplying
activities, in this case, include the receipt of goods from suppliers, storage of goods,
handling & transportation of goods internally and placing the products on the shelves.
Tesco aims to keep the level of consumer choice maintained in store (+), whilst
improving the efficiency of its distribution system (+). In implementing a quality control
regulations concerning damaged goods and products, it provides an excellent
opportunity to reduce costs unfairly incurred by the company, therefore preventing
these costs being passed on to the consumer (P+).

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Operations
The production components of Tesco’s activities are service focused. So, processes
could be the second upstream opportunities that enable services and products to be
provided, tasks such as opening every day in accordance with trading hours,
maintaining the shelves, and the stock (+). In order to gain future competitive
advantage success Tesco has to consider extending further in terms of operating hours
in those places, where it does not occur or opening new Metro and Express stores (P+).
However, law might restrict this or planning councils, which is essentially takes away
competitive advantage (-).

Outbound logistics
The 3rd stage of the value chain analysis is the outbound logistics that is concerned with
delivering the product to the customer. Tesco is currently adding value in its home
delivery service (+). Besides these, other concerns that have to be improved are those of
parking facilities, trolley collectors, till staff and systems to gain competitive advantage,
if executed more efficiently than competitors, they will add value by saving the customer
time (+), whilst increasing the turnaround (+). Adding value could be gained by the
implementation of a trolley deposit system, keeping them tidy and enabling customers
to get to and from the premises quicker, as well as making these facilities readily
available and quicker to obtain (P+).

Marketing and sales

Obviously Sales and Marketing are placed under downstream elements of the value
chain. Clubcard allows more discounts and loyalty for the customers (+). Moreover,
Tesco can also decide to attract more consumers by advertising via radio, local
newspaper and national T.V. e.g. keeping the “lower prices” on advertising campaign or
further discounts offers (+). By more customer awareness of ethical business practices, it
may give the company some constraints in terms of selling environmentally friendly
products (-). In return, the company can take it as an advantage and provide customers
with more of the recycling points and include information in their advertisements,
adding value for customers who will believe that by choosing to shop at Tesco, people
are helping the environment (P+).
9.2 Support Activities
Company Infrastructure
The Planning and Control activities are the ones that account to provide the continued
focus on the costs and cash control of the company’s operations (+). Moreover areas
such as profit retaining whose main jobs are to reduce shrink. The Tesco has now added
more staff that is involved in upgrading its anti-fraud software
(infrastructure/technology, interdependence), and installing new security systems, which
aim to reduce internal theft, an expense the customer will now not have to cover in the
price of their purchases (+).

Human resource management

Human Resource Management is regarded as upstream and downstream process,
covering everything from recruitment to management development. The company
wants to increase in the number of training ideas and further develop its recruitment
programmes so to pass on to the customer the benefits of a well recruited, well trained
staff, not the costs (+). Tesco continues to invest in customer service (+), where training
is also linked directly to pay, so the staff are motivated to learn, and are encouraged to
improve their approach to customers and service provision quality. (P+).

Technology development
It is a downstream task and it has the ability to provide new innovative product ranges/
solutions that anticipate customer needs. It becomes as a competitive advantage,
adding value, as Tesco’s brand name gives the product vitality (+). Capital Investing and
Instalment is a long-term strategy process and needs total commitment of the staff.

10.0 CRITICAL SUCCESS FACTORS

It is crucial to consider internal operational effectiveness of Tesco in the form of
identifying critical success factors of the company within the food-retailing sector.

10.1 Branding and Reputation

There are industries that have always understood that they were selling brands before
the product. Tesco is a brand and also serves as the core strategic advantage. The
company was spreading like wildfire changing the generic into the brand-specific,
largely through carefully branded packaging and the promotion of an “every penny
counts” environment. The company has a powerful corporate identity and brand image,
and is associated with good quality, trustworthy goods that represent excellent value.

The product and services development processes of the Tesco have been re-engineered,
to facilitate better management of product lifecycles and more efficient delivery of wide
ranges of products to customers. Product tasks have always tried to enhance core
ranges and introducing quality products. Tesco’s system full of innovation of improving
the customer shopping experience, as well as its efforts to branch out into finance and
insurance have also capitalized on strong brand reputation.

The Tesco is also very successful in respect of customer trust and loyalty due to its
loyalty cards system and its general approach to customizing services to the needs of
every customer. This is evident in respect of fast growth of on-line sales where the
company has a strong platform to further develop this revenue stream. After under
taken the fact the in these days most of the people has less time for shopping, Tesco
employed these on-line systems and now became the biggest online supermarket.

10.2 IT Integration
Nowadays the companies act in a fast growing dynamic and complex environment,
giving more difficulties making forecasts and adapting themselves to the continuous
changes. In order to be able to compete in this kind of world, it is necessary to innovate
at an extraordinary speed, continuously improving the products, services and processes.
For Tesco activities have become needs rather than comfort. The Tasks that control
inventory, keep all the inventory and deliveries records and analyse business
transactions are the lifelines of the company. It can also be said that IT has reached
beyond its traditional support role and taken up a central role in business strategy
formulation.

Extranet system employed by the company, enables Tesco to use the Internet to create
proprietary and customised information flows between the company and its business
partners. The Communication system connects business partners online behind virtual
firewalls, bringing more flexibility, scalability, extensibility and integration across the
distribution channels. Extranet is also assisting to expand the key information on
business partners throughout the supply chain and facilitate collaborative relationships
with partners. Market Shares and exchanges hold the promise of expanding Tesco’s
reach, delivering buyers to their virtual doorstep from around the world. Some examples
of the most efficient innovative technological advances that support daily business
activities of Tesco are wireless devices, intelligent scale, and electronic shelf labelling,
self check-out machine and radio frequency identification (RFID) systems. This
technology change to maintain Tesco’s ability to handle an increase in product/service
volume while controlling costs; it also enables to be innovative and market oriented.

10.3 Supplier Management

Tesco, like many other grocery chains companies, sources its goods from overseas
manufacturers who are more competitive on price and volumes. For many successful
years, Tesco has been helping British jobs and expertise by encouraging large branded
suppliers to develop exclusive production facilities. But in recent years the company has
realised the need to look abroad for products no longer available in UK, bud tried to do
it through long-established UK partners. The foods continued to be heavily UK-based
due to the very successful range of prepared foods.

As a major retailer selling diverse product range, they work with many different
suppliers around the world, with employees from many different cultures and ethnic
groups. Therefore, it is the company policy and company’s main approach to have
unique relationships with suppliers. Using latest and advanced technology in its
communications systems and cooperation with the suppliers, the company aims to
control the work of its suppliers and heavily relies on their efficiency. The direct market
ventures use a number of sub-contracted suppliers, selected to be best in class in their
country. Tesco has created close and strong relationships with the contractors believing
that regular and long-term orders promote the investment necessary to improve
conditions in the supply chain.

Tesco being an international retail company, it develops various supplier management

programmes to survey key suppliers and franchisee satisfaction. The company also help
in the activities of Ethnical Trading Initiative.

The table shown below shows a strategic comparative analysis, comparing Tesco’s
successful factors discussed above with the same factors of the main competitors’ in the
UK grocery industry. The scores have been giving with the scale from 0 to 5

CSF

Sainsbury’s

Asda

Safeway

Branding
5

3.5

IT Integration

Supplier Management

Total

14

10.5

11

The results show that the significant threat is potentially coming from Sainsbury’s that
possesses a strong brand name and is carefully selects and controls its suppliers.

11.0 Recommendations On Operational Strategies

An individual retailer’s characterise Generic Strategies by response to the industry
structure. To obtain a sustainable competitive advantage Tesco should follow either one
of three generic strategies developed by Porter.

The first technique or strategy of cost leadership is one in which Tesco can strive to have
the lowest costs in the industry and offer its products and services to a broad market at
the lowest prices. This strategy will be based on the Tesco’s ability to control their
operating costs so well that they are able to price their products competitively and be
able to generate high profit margins, thus having a significant competitive advantage. If
Tesco uses another strategy of differentiation, than it has to try to offer services and
products with unique features that customer’s value. Tesco will be able to create brand
loyalty for their offerings, and thus, price inelasticity on the part of buyers. The
Broadness of the product offerings, technology, special features, or customer service is
popular approaches to differentiation.

The last strategy of focus can be either a cost leadership or differentiation strategy
aimed toward a narrow, focused market. In case of a cost leadership strategy Tesco
focuses on creating internal efficiencies that will help them withstand external pressures.
That is why; it appears reasonable to say that Tesco will have frequent interactions with
the governmental/regulatory and supplier sectors of the environment. In accordance to
this, while both overall cost leadership and differentiation strategies are aimed at the
broad market, Tesco may also choose to confine their product to specific market areas
or may choose to offer a smaller line of products to the broad market, thus pursuing a
strategy of focus or niche (Porter, 1980). In other words, Tesco uses a strategy of cost
leadership either in a specific market or with specific products.

The threat some industries face is that they try to do all three and become what is
known as stuck in the middle. In case of Tesco it is not appropriate, as they do have a
clear business strategy with a clearly defined market segment.

11.1 Market Objectives And Strategies Implementation

The strategy structuring tools are key to assessing the business situation. Risk and value
trade-offs are made explicit which leads to concrete proposals to add value and reduce
risk. Explicit ideas for action, including efficient planning need to be developed by Tesco
as the strategic alternative.

Generic strategies about I have talked above, Tesco is likely to employ two strategic
options that are also likely to be primary market objectives of focus on market
development though partnerships and diversification through new product
development.

12.0 CONCLUSION
The success of the Tesco shows how far the branding and effective service delivery can
come in moving beyond splashing one’s logo on a billboard. It had fostered powerful
identities by making their retailing concept into a virus and spending it out into the
culture via a variety of channels: cultural sponsorship, political controversy, and
consumer experience and brand extensions.

In a fastly changing market environment with high competition pressure Tesco have to
adopt new expansion strategies or diversified the existing in order to sustain its leading
market position in an already established retailing market. Tesco must have to adapt to
the rapidly changing circumstances. The Strategy of a company should be regarded as a
process of continuous learning, which includes learning about the goals, the effect of
possible actions towards these goals and how to implement and execute these actions.
The effectiveness of an implemented strategy and the speed of its implementation will
therefore directly depend on the quality of Tesco’s cognitive and behavioural learning
processes.

In big companies like Tesco strategy should be analysed and established at various
levels within the hierarchy. All the levels of strategy of T