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.
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.
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.
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 centres.
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.
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