Founded in 1919, Tesco has become one of the largest food retailers in the world. It is currently leading the grocery market in the UK and is continuing to grow worldwide, entering other markets, including communications, mobile technologies, insurance, etc. It can be argued that the company’s success in recent decades has been largely based on its management’s strategies of using innovation and technologies for development, as well as cooperating with other enterprises.
One example of innovations that Tesco used was the introduction of self-service checkout tills. While the management claims that the staff in the supermarkets are always ready to help the customers, the company encourages the latter to use self-service tills as well (Bin Rosnizam et al., 2020). This innovation has certain benefits; for example, the tills can be used for both small and extensive orders. In addition, they decrease the time customers spend waiting in lines and reduce the company’s staff-related costs. Another example of innovation that is used daily by Tesco’s customers is online shopping. The company offers a variety of ways to place orders and choose location systems using different devices, which also makes it more convenient for the customers to use its services.
In addition, Tesco has partnered with other enterprises to promote its growth and increase profitability. Thus, one of its partners is the government-run China Resources Enterprise (Tian, 2021). While Tesco aimed to create a large food retailer in China, it faced certain challenges and is still struggling to solve its problems there. These issues include the lack of strong localization strategies and understanding of the core values of the enterprise. Nevertheless, it can be suggested that the company will be able to succeed in the new market once it overcomes its limitations in these areas.
References
Bin Rosnizam, M. R., Kee, D. M., Bin Mohammad Akhir, M. E., Shahqira, M., Bin Mohd Yusoff, M. A., Budiman, R. S., & Alajmi, A. M. (2020). Market opportunities and challenges: A case study of Tesco. Journal of The Community Development in Asia, 3(2), 18-27. Web.
Tesco is an international grocery and retail chain dealing in general merchandising based in Britain. It is largest British retailer in domestic market share and global sales with profits more than $2 billion. Tesco has been fourth largest retailer in the world since the year 2003 when it originally specialized in drinks and foods but later dealt with electronics, internet service, clothing and software. In July 2007, Tesco stores in United Kingdom were closed temporarily due to bomb attacks for criminal investigation to be carried out where suspect device was traced in a store making surrounding area to be vacated. (Kotler, 1998 pp23-26)
Effects of a recession on the marketing activities of Tesco using PESTEL analysis
Recession makes Tesco have very slow growth and individuals have limited amount of money for spending in purchasing goods and services. This makes them more careful in making choices on what to buy and what to do without buying there by becoming less extravagant. This is to mean that marketing activities are affected disproportionately by recession. (Thompson, 2002 pp15-17) found that Imported goods in the market are cheaper to buy when pound is strong in comparison with other goods but in cases where pound becomes weak; it is more expensive to purchase foreign goods.
Recession makes financial resources in the market to be less meaning that, there is limited supply of money to carry out marketing activities and marketing manager will have to work hard to ensure advertising is done properly to create awareness about availability of goods in the market. (Porter, 1985 pp12-14)
When analyzing the macro-environment of Tesco, factors that affect vital variables are identified because there is likelihood that they influence supply, demand and costs. The changes that occur in Tesco make the environment to be uncertain and affect all the activities that are carried out. PESTEL analysis helps to know the issues that affect operations and categorize environmental influences. The analysis is involved in examining how economic, social political and technological forces affect the business so that contingency plans can be made in preparing strategic plans. In case of recession, Tesco uses PESTEL analysis to understand decline in the market, its business position and how to carry out its operations. (Cooper, 2000 pp10-13)
Economic slowdown may not put off consumers who are able to pay premium for goods. When ethical brands are available, they trade well during recession because their response to change in price is less. Therefore, if there is increase in their price, customers would not automatically switch to less expensive products. The expectations of consumers is to have brands that are leading with strategies that take care of changes in climate but also help customers to make the right choice of the goods that are available. (Byars, 2001 pp34-36)
During recession, Tesco engage in corporate responsibility so that marketing activities can be run well in order to manage social and environmental impact in efficient manner to manage the risks and outperform other businesses. Economic downturn is dealt with so that it may not have negative impact on marketing activities for Tesco to be more competitive in the market through offering good quality products and advertising its goods and services to create awareness to potential customers. Tesco had promotional campaign and price cut to inform customers on what they deal with and affordable prices are charged for goods and services for the customers to purchase more of the products even when they have limited supply of funds. (Baker, 2001 pp24-26)
References
Porter M. (1985): Competitive advantage, New York: Free Press, pp. 12-14.
Thompson J. (2002): Strategic management, London: Thomson, pp. 15-17.
Kotler P. (1998): Marketing management, Englewood Cliffs: Prentice Hall, pp. 23-26.
Cooper L. (2000): Strategic marketing planning: Journal of marketing, pp. 10-13.
Byars L. (2001): Strategic management, implementation and formulation, New York: HarperCollins, pp. 34-36.
Baker M. (2001): Marketing; Critical perspective on management and business, Chicago: University of Chicago, pp. 24-26.
Tesco, a major supermarket chain company in the UK has been experiencing a lot of internal and external conflicts in the past few years. The supermarket chain has had several conflicts with both individuals and other organizations. Internally, the organization has experienced conflict on its treatment to employees and its customers.
The company has also had several conflicts with government authorities and human rights groups over its approach to its businesses in foreign countries.
Externally, the supermarket chain has been in conflict with small businesses due to the perceived threat it poses resulting from product monopoly. The company has been so far unable to handle these conflict as a result has often been engaged in litigation to an extent it had to appear before the House of Lords.
Conflicts within Tesco
Most of Tesco’s internal conflicts began after it had instituted a given change. According to Mitchell (2005), change usually creates losers and winners and the former may usually be not very happy. Tesco’s conflict with its employees began in 2004 when it reduced its sick pay in order to decrease the level of impromptu absence.
In the case of Tesco, the move to reduce sick pay saw the employees face the risk of working while they were sick or receive a much less salary. The company on the other hand managed to achieve its desired goal of reducing unplanned absence from its employees.
The company’s move to acquire other supermarkets with the aim of expanding also resulted into conflicts between Tesco and local retailers, consumers and other groups. In 2006, the company was investigated by the United Kingdom Competition Commission over whether it was right for the company to gain such a powerful position such that small business owners are unable to operate effectively.
Constructive Conflict Management within Tesco
Most of Tesco’s internal conflicts can be handled through constructive conflict management. According to Tjosvold (2008), not all conflict is harmful and when managed properly, conflicts can help improve teamwork both within an organization and between different organizations.
Tesco’s internal conflict with its employees has so far been dealt inappropriately resulting in the escalation of tension and the company’s perception by both employees and consumers has suffered. Looking at the ideas presented by Valentine, Godkin and Varca (2009), Tesco has applied poor levels of mindfulness in its dealings with the employees, suppliers as well as local retailers.
Valentine et al. (2009) defines mindfulness as the ability to assess external and internal situations in a manner that will help yield important ideas.
Tesco initial plan was to reduce the number of unexpected absence by its employees. It however did not take into consideration what putting its plan into action will yield in the long run. Once the plan was implemented, there was an immediate conflict between the company and its employees.
Tjosvold (2008) noted that conflict is the means through which problems are acknowledged and solved. Constructive conflict management strategies would be especially effective in this case as it can help improve both productivity and innovation of the employees. One of the most notable constructive conflict management techniques suitable for this situation is collective bargaining and negotiation.
The company and employee representatives could meet and find a common ground that would benefit both parties. Mediation and arbitration would be effective in dealing with the local retailers as well as the suppliers. The company also needs to develop a positive conflict management culture that is built on cooperative relationship. This would allow open minded discussion with its employees in case of any potential conflict (Valentine et al. 2009).
Conclusion
Tesco Supermarkets has for a long time been plagued with conflicts. However, it has handled these conflicts inappropriately leading to escalation rather that resolution. By applying constructive conflict management practices, the company can be able to find an agreeable solution to several of its problem bringing an end to the various conflicts that have both harmed its perception in the market and its productivity.
References
Mitchell, C. (2005). Conflict, Social Change and Conflict Resolution: An Inquiry. Berlin: Berghof Handbook for Conflict Transformation (online). Web.
Tjosvold, D. (2008). The conflict-positive organization: it depends upon us. Journal of Organizational Behavior, 29: 19–28.
Valentine, S., Godkin, L. & Varca, P. (2009). Role Conflict, Mindfulness, and Organizational Ethics in an Education-Based Healthcare Institution. Journal of Business ethics, 94(3): 455-469
The UK retail sector has been expanding and growing exponentially recently. Being a part thereof, Tesco UK has managed to maintain presence in the UK retail industry by focusing on digitalisation and ecological production, at the same time responding to the needs of diverse groups. However, despite the current progress, Tesco needs to improve its performance in order to keep its position of a superior company in the U&K retail sector.
However, the current lack of a clear competitive advantage combined with low control over the subsidiaries makes Tesco UK vulnerable to external threats such as the current economic issues associated with UK’s political situation. A change in the management technique and the risk prevention strategy along with the introduction of a slightly new brand will help Tesco to regain its power in the UK retail sector.
Introduction: Tesco Strategy Analysis
Gaining long-lasting attention and strong loyalty in the global economic setting is a crucial goal of any international company. However, the specified objective is quite difficult to attain given the increasing range of rivals and the risks that an organisation faces in the specified setting. Tesco is one of the organisations that has managed to locate the strategy that not only keeps it afloat but also helps it to maintain the consistent presence in the global market. With its impressive diversity of products and uniquely low prices, Tesco has managed to gain a competitive advantage that allows it to remain an important player in the global retail industry and its various sectors.
The current market trends have shaped Tesco’s strategy to a large extent. For example, the UK retail industry has been experiencing the revival of the environmental and sustainability-based movement, which has contributed to the development of the trends such as eco-friendly production, ready-made products, and similar opportunities. Due to the search for new options, the retail industry is growing unceasingly, which the recent change in market share indicates (“Tesco reclaims top spot,” 2018).
The observed change has affected Tesco, the market shares of which grew by 4.5% to reach a total of 22.3% (“Tesco reclaims top spot,” 2018). Therefore, the general trend toward expansion and search for innovations allows the industry to grow. Thus, the current strategic purposes for business that Tesco should consider include expansion and rebranding, as well as product diversification and digitalization of its marketing framework.
The approach that the organization is currently using to address its situation implies an elaborate use of resources and a cost-efficient approach toward managing its operations. The specified framework is quite common in the UK market, especially with Tesco’s rival companies, such as Sainsbury’s (Eley, 2018). Therefore, to build a competitive advantage in the UK, Tesco will have to introduce a new framework for handling its operations and addressing customers’ needs. Specifically, a sustainability- based, innovation-driven strategy should b considered as the optimum framework for Tesco at present.
Tesco’s Current Situation: An Overview
Background
Because of its sensible use of its resources and a proper understanding of the current trends in the industry, Tesco has been doing well in the realm of the retail industry. The company has established a positive presence in the UK market, thus cementing its brand image as a positive and eco-friendly one (Tse, Zhang, Doherty, Chappell, & Garnett, 2016). Furthermore, the organisation has been responding to the emergent market trends and changes in customers’ demands by introducing diversified products (Tse et al., 2016).
However, due to the challenges associated with the strenuous economic and political situation in the United Kingdom, Tesco UK has been in need for a new strategy that could attract more customers and potential investments. Analysing the issue from the perspective of the Supply and Demand Theory (SDT), or the Invisible Hand Theory, will help to explore the problems faced by Tesco presently.
Reasons for Success
Appealing to customers in the retail sector is a rather easy task given the constant demand and rather basic requirements, product quality being the main one. However, the specified characteristics also create the platform for high competition rates, as the example of the UK retail industry shows (Yamoah, 2016). To keep afloat in the target setting, Tesco has been using a combination of moderate to low prices and rather high quality (Pulker, Trapp, Scott, & Pollard, 2016).
The specified strategy has helped Tesco to gain the support of numerous customers, cementing its image of a company that creates value effectively and treats its customers with due care. Nevertheless, it is highly desirable for Tesco to explore other opportunities for keeping its customers satisfied. Further pursuit of digital market opportunities should be seen as a possible option.
Competitor
There are several large retail chains in the UK. Although Tesco plays the leading role in the specified setting, Sainsbury’s also takes an important place in the rank of the most influential retail companies in the UK (Eley, 2018).
The organisation owes its success to the unique and very effective use of infrastructure to reduce quality issues and maximise customer satisfaction (Eley, 2018). Therefore, unlike Tesco, which has not yet acquired a distinct and easily distinguishable competitive advantage, Sainsbury’s has designed a brand identity that makes it memorable and recognisable (Eley, 2018). Thus, Sainsbury’s represents a rather dangerous rival for Tesco.
Communication Strategy
Communication is the key to successful performance for most companies in the modern business world. At present, Tesco uses direct marketing as the key means of connecting to its customers and business collaborates (Vilas et al., 2018). However, the first should also consider other opportunities, including popular social media as the means of advertising its products to a wider range of people.
For example, the use of Facebook as a possible tool for promoting Tesco’s ecologically friendly and healthy dietary options (Vilas et al., 2018). From the SDT perspective, the proposed technique will allow not only attracting new buyers but also spreading the word about the company’s innovative approaches and changes in its brand image. As a result, Tesco will be able to communicate its message in a more palatable manner.
The application of social media as a possible method of disseminating information about Tesco has its disadvantages. A recent study debates whether the application of Facebook advertisement tools may affect the organisation negatively (Peeroo, Samy, & Jones, 2017). However, with the opportunities for appealing to target audiences directly, one should use the proposed tool to spread awareness and key information about the changes that Tesco has experienced, including its rebranding and the promotion of eco-friendly products. In addition, social media may be used to seek opportunities for partnership.
PESTEL Analysis on Tesco
Political
Outcomes of Brexit;
Difference in tax rates
Economic
Correlation between pricing and production expenses;
Labour costs
Social
Propensity toward online shopping;
Need to appeal to diverse communities
Technological
Information technology (IT);
information and communication technology (ICT)
Environmental
focus on ecological food;
sustainability as the key corporate policy
Legal
Brexit outcomes;
Global trade agreements
Table 1. Tesco: PESTEL.
The results of the PESTEL analysis should quite predictably that Tesco UK has to face an array of economic and financial issues caused by the current political controversy. Because of the Brexit decision taken by the UK government, the profit margins of the organisation may be reduced significantly due to a drop in the number of customers (Tse et al., 2016). Moreover, there is the threat of a decrease in the levels of customer volatility, which will cause a significant drop in Tesco’s performance (Sanchez-Rodrigues, Harris, & Mason, 2015).
Therefore, the combination of the political and economic factors caused by Brexit is currently most unfortunate for Tesco, representing the greatest threat to its existence in the UK retail market. The specified factors seem to be the key drivers affecting the UK retail industry at present (Sanchez-Rodrigues et al., 2015). The competition issue should also be mentioned as the primary economic factor that may sink Tesco’s profits.
Social issues, in turn, are unlikely to affect Tesco negatively. Given the current focus on healthy eating, the company’s policies align with the values that are held high in modern society. Consequently, the company will feel relatively safe in the context of the British retail market. Indeed, with the levels of obesity increasing exponentially and affecting more people every day, the opportunities for healthy dieting that Tesco provides are bound to be valued highly by the target population. Applying the SDT perspective, one will have to admit that the rise in demand for healthy products defines the necessity for Tesco to improve its R&D processes and raise its quality bar.
Technological innovations represent the advantage that will help Tesco to regain the trust of its buyers and attract new customers. With the increase in the influence that modern media has over general audiences, the use of advanced tools for maintaining quality rates and increasing the quality of products should be deemed as essential. Technological development is an essential macroeconomic factor that drives companies’ progress in the retail industry; therefore, it has to be taken into account when reshaping Tesco’s current approach.
Technological advances will have to be used in three key areas, which include quality management, product diversification, and communication. The latter is especially significant since it implies receiving feedback from customers, maintaining communication with partners within the supply chain, and exerting control over the corporate processes, in general (Tse et al., 2016). Therefore, Tesco should integrate the philosophy of innovation into its setting and incorporate IT and ICT advances into its framework.
Moreover, Tesco should include the retail technologies that will improve its products and services. Although the incorporation of the RFID technology has contributed to making the customer experience more fulfilling and address the negative factors that lead to a rise in dissatisfaction levels among customers (Tse et al., 2016). The specified issue can be seen as the direct effect of the recent political issues and the economic challenges that followed. Therefore, Tesco as one of the largest UK retail chains will need to incorporate the tools such as kaisen and horizontal logistics in order to improve the quality of the end product and address the needs of its buyers (Sanchez-Rodrigues, Harris, & Mason, 2015).
Tesco SWOT Analysis
Strengths
Well-established presence in the UK market;
Cost-efficient approach toward production;
Flexible pricing system
Weaknesses
Lack of an innovation-based approach;
Loss of a unique brand identity;
Dependence on the UK political choices and the following negative consequences
Opportunities
Enhancing the efficacy of digital marketing;
Creating a strong partnership;
Attracting new and powerful investors;
Addressing the needs of diverse communities
Threats
Economic challenges caused by the political issues;
Financial concerns caused by increased expenses;
Inability to develop a new competitive advantage.
Table 2. Tesco: SWOT.
As the SWOT analysis performed above shows, the political issues and the associate economic outcomes presently pose the greatest threat to Tesco’s success. Therefore, it is critical for Tesco to develop the competitive advantage that will attract an even greater number of customers and potential sponsors to it. Presently, the firm should consider investing in market research to determine the latest trends in the industry and respond to them promptly.
Even though Tesco has been meeting customers’ demands lately, an enhanced framework for meeting buyers’ requirements has to be designed to address the issue of high competition. Therefore, it is suggested that the firm should create a well thought-out risk management strategy and focus on searching opportunities for an alliance with another organisation that could provide Tesco with support.
Enhancing market research should also be interpreted as another important issue that Tesco should consider. By exploring the benefits that the digital market offers, Tesco will develop new tools for keeping its brand easily recognisable and memorable. For example, creating online applications for product ordering and delivery should be seen as an important step toward increasing customer satisfaction and diversifying Tesco’s services.
The specified change will require creating an online application and introducing the organisation to the digital market. Therefore, Tesco should consider investing in R&D and especially the use of IT and ICT tools. With the update of its current strategies and the focus on meeting the needs of diverse customers, the organisation will retain its influence in the UK market.
Conclusion: Tesco Future Plans
Tesco has been performing quite impressively in the UK context, especially given the recent political issues and the economic challenges that ensued. However, while the recent political choices made by the British government are rather questionable, the Brexit decision being a rather irresponsible decision, there are opportunities for Tesco to maintain its influence in the retail sector. Moreover, with the innovation-driven approach and the changes in its current production processes, Tesco may improve the overall performance of the UK retail sector, thus leading to an increase in economic growth.
Recommendations
Rebranding the company’s products and enhancing its presence in the UK retail sector should also be seen as an opportunity. Given the recent economic challenges, UK citizens are expected to appreciate Tesco’s reasonable pricing strategy and the quality standards that it sets for its products, yet further diversification thereof along with the introduction of digital services will be required. Creating online applications that will improve the sped and quality of services will be needed.
Moreover, to reduce risks and not to incur losses in the future, the organisation should adopt a different approach toward managing its supply chain. Specifically an innovation-driven strategy toward information and quality management will have to be introduced. Moreover, the firm will need to update its corporate HRM strategies and values to meet the new standards for treating staff members and satisfying their needs. Once the suggested changes are integrated into the company’s design, Tesco will be able to address the issues caused by the current social, economic, and financial concerns observed within the state.
Recommendations for Tesco
Eley, J. (2018). What next for UK supermarkets after ‘Sainsdas.’ Financial Times, 1-2.
Peeroo, S., Samy, M., & Jones, B. (2017). Facebook: A blessing or a curse for grocery stores? International Journal of Retail & Distribution Management, 45(12), 1242-1259. Web.
Pulker, C. E., Trapp, G. S., Scott, J. A., & Pollard, C. M. (2018). Global supermarkets’ corporate social responsibility commitments to public health: A content analysis. Globalization and Health, 14(1), 121-140. Web.
Sanchez-Rodrigues, V., Harris, I., & Mason, R. (2015). Horizontal logistics collaboration for enhanced supply chain performance: An international retail perspective. Supply Chain Management: An International Journal, 20(6), 631-647.
Tse, Y. K., Zhang, M., Doherty, B., Chappell, P., & Garnett, P. (2016). Insight from the horsemeat scandal: Exploring the consumers’ opinion of tweets toward Tesco. Industrial Management & Data Systems, 116(6), 1178-1200. Web.
Vilas, A. F., Redondo, R. P. D., Crockett, K., Owda, M., & Evans, L. (2018). Twitter permeability to financial events: an experiment towards a model for sensing irregularities. Multimedia Tools and Applications, 1(1), 1-29. Web.
Yamoah, F. (2016). Fairtrade consumers and “global south” producers supply chain management. African Journal of Business and Economic Research, 11(2-3).33-52.
Tesco is one of the leading UK retailers that started its international expansion in the 1990s. The company’s focus on internationalization was a successful strategy that led to remarkable growth in many regions and considerable profits that reached $3.8 billion in 2011 (Wrigley, Lowe, & Cudworth, 2013). However, success in some regions was accompanied by major failures in other areas, which led to significant losses, both financial and reputational. This paper includes a brief analysis of the company’s strategy, as well as challenges the company faces and new strategic directions to adapt to address these challenges.
Analysis of the Existing Strategy
The focus on international expansion was determined by the growing regulatory and competitive pressures Tesco had to handle in the domestic market. The first areas of expansion were countries of Central Europe that were undergoing major transformations in the 1990s after the collapse of the Soviet Union. Regulations in those countries were minimal, and competitors were also quite a few, which enabled the company to earn a significant share of the market (up to 27%) in 2011 (Wrigley et al., 2013). At that, Tesco experienced the most unprecedented growth in Asia, specifically in South Korea. The company is now the second-largest retailer in the country, with revenues of over £5 billion (Butler & Neville, 2013). The company is successfully penetrating the markets of India and China.
Nevertheless, the expansion into the US market that started in 2007 proved to be a failure as the company announced that all the stores would be closed and sold in the near future (Ruddick, 2013). It is noteworthy that Philip Clarke, the company’s CEO, understood the complexity of operating in the USA as the market was saturated, and the competition was rather fierce. However, the decision was to enter the American market with a focus on fresh food (which was quite expensive).
The internationalization of Tesco has a number of peculiarities. First, the company made some partnerships. One of the most successful partnerships was implemented in South Korea (Wrigley et al., 2013). Tesco and Samsung collaboration was successful as Tesco managed to address various issues associated with operating in new markets. First, the retailer managed to learn the peculiarities of the country’s legislation and regulatory policies.
Customers’ needs and characteristic features were also acknowledged. Tesco also managed to establish a retail chain that seemed fully domestic. Another peculiarity of Tesco’s expansion was the focus on its private labels rather than manufacturers’ products. The company also tried to be customer-oriented. However, in many regions, Tesco failed to achieve this goal, which led to failures and losses (Yoder, Visich, & Rustambekov, 2016). The company did not meet the needs of customers in the USA, Japan, and other regions.
Costs and Benefits of the Strategy
It is necessary to note that internationalization is often an effective strategy used when the competition in the domestic market becomes too fierce, or other environmental challenges come into play (Wrigley et al., 2013). The expansion to other markets allows companies to improve profits through the increase in sales. The company can allocate funds wisely and invest in profitable projects. Operating in new markets helps companies become more flexible and innovative.
On the one hand, businesses learn about different regulatory policies and laws. On the other hand, they learn how to adjust to such environments. This flexibility is essential in the contemporary globalized world as regulations and norms existing in some countries tend to be adopted in other regions as well. There are chances that the norms and regulations existing in a foreign market will be used (with some differences) in the domestic market as well.
Nonetheless, the costs associated with the use of this strategy are also substantial. First, any expansion requires significant financial investments (related to acquisitions, alliances, construction of facilities, and so on). For instance, Tesco invested £1.25 billion to enter the American market (Wrigley et al., 2013). Clarke stated that this kind of investment was affordable for the company, and it could become transformational for Tesco in case of success. The CEO also stated that the major reputational loss in case of failure was associated with his name, not the company. Nevertheless, the reputational loss is apparent, and its negative effect can become visible soon. Unsuccessful expansion can come at a high cost, and Tesco’s failures in some regions can be seen as illustrations of these costs.
Environmental Challenges
Tesco’s failures are associated with a number of wrong decisions as well as environmental challenges. First, the company entered the American market a year before the global financial crisis of 2008 (Butler & Neville, 2013). The environmental factor was accompanied by the inability to adjust and the inability to address customer needs (Yoder et al., 2016). For example, Fresh & Easy stores offered high-quality products, but they became unaffordable for price-sensitive Americans.
Furthermore, the focus on private labels was also ineffective in the US market. Martinez-Ruiz, Gonzalez-Gonzalez, Jimenez-Zarco, and Izquierdo-Yusta (2016) stress that American customers often become loyal to particular brands. People’s needs and preferences were not addressed, which resulted in failures. Customers’ peculiarities were not taken into account in other regions as well. For instance, in Poland, people prefer convenience stores to large hypermarkets while Tesco focuses on this type of retail units in that region (Ruddick, 2013). Apart from the inability to identify people’s needs, Tesco also faced issues related to the introduction of new regulations.
For instance, the changes in the Indian legislature has a negative effect on the development of the company and its further expansion in the region (Butler & Neville, 2013). Finally, many countries are trying to address serious financial issues and introduce new taxes, which also has an adverse impact on the company’s growth.
Resources/Capabilities
When discussing the resources and capabilities of the international retailer, it is necessary to note that Tesco has substantial funds to invest in numerous projects. The company’s billion profits show that significant funds can be allocated to innovate and expand. Apart from the obvious financial resources, the company also has other resources and capabilities. For instance, Tesco has a positive experience associated with the collaboration with companies operating in new (for Tesco) regions (Wrigley et al., 2013).
This experience can be helpful when expanding to new markets (in India and China). Tesco’s experience in collaborating with other companies can generate value as the company will be able to employ it in other regions (collaborating with other companies). The use of this strategy can help the company reduce costs, understand new markets better, and develop a proper image in the new market.
The company also tries to innovate and come up with new products and services. The development of private labels is one of the areas where Tesco has succeeded in many regions. For example, its tablets have acquired significant popularity (Warman, 2013). Hence, the development of private labels can help the company meet the existing and potential customers’ needs in a more efficient way.
The company is also expanding its e-commerce operations. Tesco’s management claims that being online is one of the major competitive advantages in the retailing industry (Warman, 2013). The company has quite effective information systems that can be used to implement marketing research, share knowledge within the company, and so on. The data obtained can help the company create value-added products and services that can attract more customers and meet the needs of the existing customers.
New Strategic Directions
It may seem that the most appropriate strategy for Tesco is the focus on the domestic market and the most successful foreign markets (such as South Korea). However, the UK market is saturated, and the competition is very serious. The company needs to expand, but the expansion strategy should be based on the lessons learned from previous years. First, Tesco should launch large-scale market research with a focus on customers’ characteristic features (profile).
It is essential to understand what people need and want. One of the successful methods to learn more about new customers is the development of partnerships and alliances. Tesco can collaborate with local businesses to develop a successful marketing strategy.
Yoder et al. (2016) note that ineffective supply chain management contributed to Tesco’s failures. The company should implement research concerning the most efficient locations of stores and other facilities. This task is closely connected with another area of concern. The company should analyze the existing competition in new markets. Tesco should properly evaluate the existing competition and (based on this analysis) decide whether new Tesco stores can be set or other locations should be chosen. It is also important to identify Tesco’s competitive advantage to be able to win the competition or, at least, remain a successful player in the market.
Finally, Tesco should focus on innovation as this strategy has proved to be effective in South Korea and many other countries. The use of technology is instrumental in achieving this goal. For example, South Korean customers enjoy so-called virtual stores (Wrigley et al., 2013). These advances can be equally successful in western countries as well. The use of mobile technologies is also on the rise. E-commerce is another area to develop.
Conclusion
In conclusion, it is possible to state that Tesco has chosen an effective strategy that implies internationalization. This strategy is associated with numerous opportunities, including larger profits, growth, flexibility, organizational learning, etc. However, it is vital to avoid the mistakes the company has made. For instance, Tesco should reconsider its supply chain management, especially when it comes to the choice of location. The company should implement extensive research concerning customers’ needs and preferences.
It is also critical to evaluate properly the existing competition in different markets as well as environmental issues as macro and micro-economic factors affecting the development of countries and regions. Tesco should maintain its focus on innovation, but the use of advanced technologies and marketing strategies should be based on extensive market research. Although the company is still facing numerous internal and external issues, Tesco can still retain its leading position and improve its operations in different markets.
Martinez-Ruiz, M. P., Gonzalez-Gonzalez, I., Jimenez-Zarco, A. I., & Izquierdo-Yusta, A. (2016). Private labels at the service of retailers’ image and competitive positioning: The case of Tesco. In M. Gomez-Suarez & M. Martinez Ruiz (Eds.), Handbook of research on strategic retailing of private label products in a recovering economy (pp. 104-126). Hershey, PA: IGI Global.
Wrigley, N., Lowe, M., & Cudworth, K. (2013). The internationalization of Tesco: New frontiers and new problems. In G. Johnson, R. Whittington, D. Angwin, K. Scholes, & P. Regner (Eds.), Exploring strategy: Text and cases (pp. 657-661). Harlow, UK: Pearson.
Yoder, S., Visich, J., & Rustambekov, E. (2016). Lessons learned from international expansion failures and successes. Business Horizons, 59(2), 233-243.
To what extent can Tesco’s supply chain practices be said to follow lean (i.e. just in time) principles? (Consider JIT as a philosophy, a planning and control system, and an inventory system.)
JIT as a philosophy
In this case, JIT is seen in three main domains: the elimination of waste, the adoption of continuous improvement strategies, and the involvement of all personnel in the business operations of a company. In a move to adopt continuous improvement strategies, the company has continued to develop its ‘step change’ program. Some of the initiatives of the program include the use of replaceable shelves so as to reduce the time spent by staff in arranging shelves; self-service checkouts; the use of handheld scanners in all stores and the establishment of a dedicated clothing distribution center.
The company’s adoption of the RDIF technology also illustrates its initiative to factor in new improvements in its operations. The system proves to be much better than the traditional bar codes since the new technology enables the transmission of product codes to scanners without the need for human intervention and specific items can be tracked throughout the supply chain. Furthermore, the technology promotes efficient processing of goods, a relatively higher rate of employee efficiency through enhanced product availability, lower costs as well as reduced theft cases.
Waste elimination is achieved by the use of an e-procurement program. The Tesco Information Exchange program (TIE), which is the basis for its “full fresh” program, ensures that perishable goods such as foods are delivered twice a day to reduce wastage and to ensure that the products are fresh.
JIT as a planning and control system
Planning and control involve the reconciliation of supply and demand for goods by customers. In other words, it refers to the day-to-day activities that run the operations of a business.
An example of how Tesco uses the JIT as a planning and control tool is in its move to Collaborative Planning, Forecasting, and Replenishment (CPFR). This mainly involves an analysis of customer demand patterns whereby business partners share forecasts and trend changes in the market over the Internet. This is usually aimed at reducing inventory costs and improving the availability of products to customers.
Tesco obtains Point of Sale (POS) data from each of its individual stores. This data is used to study and analyze consumer behavior, manage the stocks at different stores, and for sales projection purposes. Moreover, its e-procurement program, TIE, links all stores to their suppliers hence facilitating faster transactions in the supply chain.
JIT as an inventory system
Tesco’s Continuous Replenishment (CR) system best illustrates its use of JIT as an inventory system. Orders are obtained from the sales counters at different stores and sent to the head office. They are then sent to suppliers for stock replenishment via an automated order process. The orders are placed several times a day, suppliers then make deliveries to the distribution centers, and the items are then dispatched to the stores upon arrival.
The cross-docking operations strategy is also another JIT inventory system. The company eliminates the need for storage by decreasing inventory holding. This is achieved by offloading goods from supplier trucks and loading them onto trucks that are heading to the same store.
The primary distribution process has enabled the firm to fully utilize its distribution fleet through backhauling. The process involves the collection of goods directly from domestic suppliers and delivering them into its distribution network.
What are the main differences between operating JIT in retailing and manufacturing operations?
JIT in manufacturing usually involves raw materials, work in progress, and finished products. On the other hand, JIT in retail mainly involves obtaining already finished goods from manufacturers.
JIT in retail, in most instances, deals directly with the final consumer. However, a manufacturer rarely has to deal directly with the consumer.
The Balanced Scorecard (BSC) model is a mechanism that is mainly used by organizations to enhance their efficiency, particularly when it comes to the issue of strategy management and achievement. Often, organizations rely on several indicators to determine whether their performances are well in track to achieve organizational objectives. Such indicators, including the financial measurements are, however, inadequate in pointing out accurately an organization’s actual position in as far as it business operations and performance are concerned.
The BSC provides an elaborate mechanism for organizations to determine several indicators, which are all used in determining strategy. This paper seeks to discuss the use and efficiency of BSCs by organizations as they pursue their strategies and objectives. In particular, the paper seeks to discuss Tesco Plc. and its application of BSC.
Tesco Plc. is the leading British retailer of food, selling more than 4000 varied food products. The retailer has further expanded its portfolio to include the sale of other non-food items, including electronics, kitchen utensils, stationery, and clothing among many other commodities.
The Tesco chain of stores is currently ranked as the third largest in the world, after global leader Walmart of the USA and French company Carrefour. Apart from operating in native Britain, Tesco also has a presence in at least 13 other countries across the globe (Datamonitor, 2011). In 2012, Tesco achieved a total group sales value of £72 billion and £3.8 billion in profits before taxation. The underlying diluted earnings per share increased by 2.1%, while the full year dividend per share stood at 14.76% (Tesco Plc, 2012).
Tesco introduced its BSC in 1998. Over the years, the BSC has been critical in enabling the firm to achieve its strategies and objectives. Each year, the firm reviews its BSC with the intention of ensuring that its organizational goals are achieved. There is strict adherence to the BSC in Tesco.
Weekly data is accumulated and stored. The scorecard in every store helps managers to also access the corporate scorecard that is presented on quarterly basis (Witcher & Chau, 2008). Management staffs at the top of the hierarchy oversee the firm’s performance in the process of unearthing problems in the firm. However, once the problem areas have been identified the local management is given the mandate to resolve and improve on the areas.
Given the size of Tesco Plc., the firm requires a BSC methodology to balance its strategies in the main areas of finance, innovation concerns, process, and customer procedures. This report specifically dwells on highlighting a proposed BSC model that would be appropriate for application at Tesco Plc.
The BSC proposal enumerates targets that the company ought to pursue. The proposal defines a raft of initiatives as well as measures that the management needs to put into consideration as they steer the company into achieving growth and prosperity.
Literature on BSC
The Balanced Score Card has particularly gained prominence in the 21st century owing to the transformations from the industrial age to the knowledge or information age (Saraiva, 2011). Kaplan and Norton are credited with formulating and introducing BSC into the field of management in 1992.
In their argument and support for this model, Kaplan and Norton (1996) have vehemently argued against the use of traditional mechanisms that have been in use by organizations to evaluate their performance. The financial accounting measures, they argued, lack the depth to give an actual picture of how the business performs.
The invention of the BSC, thus, was mainly done with the view of supplementing the few areas where the financial measures failed to consider in their evaluation of the organization. The main intent of BSC, according to Wong-On-Wing et al. (2007), is to maintain score on various items that keep a balance of the short-term as well as long-term objectives.
It also keeps a balance between the lagging and leading indicators, as well as the performance perspectives both within and outside the organization. This broad range of perspectives that are offered by BSC, in turn, help the management to make certain good-short-time financial outcomes, as well as helping in the guidance of the business in seeking to achieve the strategic objectives.
BSC also plays a critical role in helping the company to handle fundamental efforts as it defines and communicates its key interests to the managers, employees, the customers, and other investors (Kaplan & Norton, 1993). The BSC’s capability plays a crucial role in enabling managers to recognize performance indicators that could be used to make forecasts about the firm’s wealth and health.
Because of its ability to quickly translate strategy in quick actions that are quantifiable, BSC is able to control strategy within the firm’s environment, helping to discover any hidden assets or information. Pineno (2002) points out that the idea of linking the strategy with the people working internally in the organization and those who are out, such as the stakeholders, helps in enhancing continuous learning together with development.
Despite its numerous strengths and advantages, however, BSC also has its limitations that tend to lower its effectiveness. The strategic perspectives as identified by BSC, for instance, lack a causal connection (Nørreklit, 2000). Additionally, although BSC insists on customer satisfaction, there is little evidence to support the analogy that it automatically results in superior financial outcomes.
Although Nørreklit (2000) is in agreement with the thinking that several actions introduced by a firm result in high customer value ratio, which leads to good financial standings in turn, the whole matter lacks causality. In essence, the assumptions made by BSC can be regarded as illogical and have the potential of creating anticipation of incoherent evaluation. This could be the reason why a firm may end up registering sub-optimal performance.
The BSC, as a management tool, lacks absolute representativeness (Nørreklit, 2000). The model overlooks any rapport between what the environment holds and what the organization stands for. For instance, the assumption by BSC appears to neglect the existence and importance of competition to the organization. It is critical to point out that the existence of variance between the strategy being articulated and the one being presumed needs to be acknowledged in order to enhance performance and results (Nørreklit, 2000).
Proposed BSC for Tesco Plc
Strategic requirements
To emerge as a leading retailer internationally
Tesco’s intentions should be to surpass both Walmart and Carrefour as the leading retail chains globally. This should be by way of profit margins as well as the number of stores established throughout the world. Thus, the firm’s target should be to expand its branch network, particularly in the international market while also seeking to increase its customer base.
To maintain leadership in the UK market
The local UK market remains to be integral to the growth of Tesco’s business. The firm should seek to maintain the local market’s leadership by mainly improving on its customers’ overall shopping experience. Competition should be sustained by way of offering greater returns to the shareholders than is the case with other rival stores in the UK. Competitive pricing should also be pursued to ensure that customers are able to achieve value in their purchases.
To create highly valued brands
The Tesco brand remains the strongest within the local UK market. It deals in a wider range of products and services both in the UK and in the international market. Because of the diverse customer needs that are involved, Tesco should seek to offer customer with quality products whose prices reflect on the value of the brands. Rebranding of products using the Tesco label will reassure customers of the value involved in the products they purchase.
To develop the Tesco team
Tesco should equally focus on improving and developing the internal team as a means of adding more value. More leaders should be nurtured from within the firm’s workforce to be able to take up new responsibilities that are emerging with the steady growth. Developing the team from within will potentially help the firm to achieve sustainability over a long period.
To commit service to the communities
Tesco needs to extend its services to the community by integrating social responsibilities as part of its corporate strategy. This should involve limiting their environmental impacts to the society, as well as introducing initiatives that are meant to bring more value to the communities at large.
Financial Perspective
To emerge as a leading retailer internationally
The strategic objectives involved include increasing the international market sales of the company. The sales can be measured by the amount of revenue that the firm will collect. As a set target, Tesco should seek to surpass the £50 billion mark in terms of revenues collected from the internal markets.
The second strategic objective is to expand the profit margins for the firm. The appropriate measure to ascertain this will be the actual profit figure achieved each year. The target should involve achieving a growth rate of 10%.
The firm must also strategically seek to expand its customer base. This can be measured by the number of its registered customers, especially those who sign up for services such as shopper’s cards and online purchasing. Tesco’s target should be to have at least half a billion customers registered in its database from across the globe.
To maintain leadership in the UK market
The first strategic objective under this strategy includes improving sales, which can be measured by the revenues achieved. The target should be to be to achieve a revenue figure of £50 billion for the UK market alone.
The second strategic objective is to expand the current profit margins, which can be measured through the annual profits registered by the firm. The target should be to achieve growth in percentage of the company’s profits compared to its previous years’ performances.
The third strategic objective is to achieve return on the capital employed by the firm. The ROCE can be used as a measure of establishing this. As part of the target, Tesco should seek to achieve a 20% growth within the next ten years.
To create highly valued brands
The strategic objective in this aspect should be to register growth in all the underlying diluted earnings to the firm. The appropriate measures here include the earnings per share (EPS) and the total shareholder return (TSR). The target for the company should be to maintain an EPS and TSR ratio of greater than 3.5%.
Customer Perspective
Tesco’s main priority in seeking to address the customer perspective should involve several initiatives that require proper management right from the firm’s top management.
Low prices
The firm should adopt a pricing policy that sets prices at a lower and competitive level compared to the prices set by competitors. The prices must be able to sustain the operations of the firm, while at the same time attracting more buyers. Achieving low prices is possible for Tesco if the company ensures that it efficiently manages its logistics.
Such inventory management methodologies, such as Just-In-Time management (JIT) must be employed at the stores’ depots to ensure they cut down on the cost of holding too much inventory. This will also ensure that customers enjoy higher efficiency in service delivery as products will not run out of stock at any given time. Tesco should continuously suggest ideas of achieving efficiency in its performance and service delivery and help its suppliers to implement the strategies.
Innovation
A review of the whole range of products that the company deals in should be undertaken with the view of refreshing their outlook in the eyes of the customers. The company must integrate technology in its operations, such as introducing online purchase, in order to adapt to the changing needs of its customers.
The packaging for the Tesco-branded products must be revised to capture the attention of buyers, as well as achieve greater convenience during shopping. Tesco can also seek to collaborate with product manufacturers in a way that ensures greater value is added to their products.
For instance, shop floor areas can be assigned to different marketers to promote their products, while creating awareness to the shoppers at the stores. Products manufacturers can also be allowed to advertise their products within the Tesco stores, as well as online through the official Tesco website. This will increase awareness amongst the prospective buyers and increase the likelihood of more buyers buying the products either physically at the stores or online.
Managers must be given the freedom to identify the appropriate customer as well as market segments that can enable Tesco to compete effectively with other retail chains. The managers must also identify the appropriate measures to be applied within the targeted segments. In order to successfully manage this, the firm must have a feedback mechanism that allows its customers to give information about the products and services being offered by the firm.
The feedback mechanism could either be a toll free telephone contact, an email address, and a suggestion box situated strategically at all the Tesco stores. From these feedback messages, the management will be able to determine what the customers want and currently not on offer at the stores. They will also be able to learn about customers’ feelings and thoughts on prices. These details will be critical for helping the managers to make adaptive decisions that take care of customers’ concerns.
Deliveries also need to be organized and made to the physical locations of the customers. This will increase customer convenience in the sense that they will manage to carry out their shopping and have their goods without physically going to the stores. This can be efficiently done through the use of online shopping.
The cost involved in delivering goods to the parents must be fairly determined to match with the value. Delivery services must also emphasize on safety in order to minimize on damages and cases of returned goods. Offers for online shoppers as well as occasional free deliveries will increase Tesco’s ability to attract more customers and enhance its revenue and profit value.
Increase the size and skill of staff
The number of workers currently employed at the firm should be increased in order to match the increasing number of customers. The quality of services and performance of the workers also need to be enhanced to match the rising expectations of the customers. The firm must train the workers as a way of developing their customer skills. This will improve product availability as well as presentation for the customers. People and communication skills should be of particular interest to the firm.
Internal Business Process Perspective
Product
Tesco must address the issue of improving products and their safety. Several control mechanisms can be put in place to ensure this is achieved. They include establishing elaborate procedures to be employed globally as a way of ensuring product integrity, strict regulations that address technical safety and regular reporting and establishing clearly spelt out processes on crisis management. Equally, a close partnership between the firm and its business associates, such as suppliers, would help to achieve mutual understanding, especially where standards are involved. Developments must be monitored closely to help with quick response where customer trends or legislation changes.
Operations
There is need for Tesco to establish and maintain control of the quality of its food as well as the non-food products. This may include establishing teams of experts whose main role would be to ensure that the quality standards are adhered to during implementation. High internal standards should be set out and the workers trained on how to observe and implement them. Tesco should work closely with the suppliers to help them constantly achieve the high standards.
Tesco’s operations within the foreign market entail a number of issues and challenges that the management should seek to address. This may involve making collaboration decisions with other local firms and people, such as the supply and distribution networks. The collaborations and close relations should ensure that the partners adhere to the working standards and practices at Tesco.
Management must determine the employment policy that will achieve integration of the local expertise, while seeking to achieve greater growth and development. Workers acquired within the foreign markets must be trained on the basic principles and practices that form the overall corporate mission and objective.
Customers
The focus of the company with respect to managing internal processes should be to achieve great customer satisfaction. Customer feedback must be tracked and management decisions made to reflect on the changing market trends. Increased customer satisfaction can be achieved by using Tesco labels on as many products as possible in order to offer greater assurance of quality to the customers. Concerns raised by the customers must be handled immediately in order to restore their trust.
Community initiatives
Programs must be devised by the company with the sole objective of improving on the welfare of the communities living around Tesco stores and operations. Environmental initiatives must be pursued for the purpose of limiting the carbon footprint. This may include adopting the use of natural energy, such as solar power, as opposed to fossils fuels.
Sponsorship programs to public community projects, such as schools, charity organizations, hospitals, and even sports events will be critical in integrating the communities into the group’s operations. It will highlight Tesco’s commitment to improve the welfare of the communities in general.
Community initiatives should also seek to achieve growth and improvement of Tesco’s third party business associates, such as the distributors and suppliers. This will enhance effective business practice and operations, while also helping to achieve continuity and sustainability.
Innovation
Tesco must continuously seek for ways of improving customer experience. The idea should be to increase convenience whenever customers think about shopping at the retail stores. Advancement in technology can be integrated and used to create the desired convenience, such as enabling customers to do their shopping online even in locations where Tesco has no physical stores available.
Tesco should employ mechanisms of locking in its already existing customers such that it may not be easier for them to consider other retail stores for their shopping needs. This may be achieved by use of shoppers’ cards that accumulate points every time the customer shops at any Tesco retail store. The accumulated points can later be rewarded by allowing the customer to shop at the stores free of charge basing on their accumulated points.
Additionally, Tesco has also introduced banking services that can be used to add more value to the shoppers. Customers need to be encouraged to open bank accounts with the facility and the benefits tied to their shopping. For instance, the bank should be able to offer credit services that allow the shoppers to do their shopping at any of the Tesco stores even when they do not have cash with them. Such facilities and benefits will maintain customers within the Tesco Group and allow the firm to improve on its revenues and profits.
Learning and Growth Perspective
Training programs are needed to enable workers at the firm to develop mandatory skills that would enhance customer experience. Communication channels must be established at the firm to enable the employees receive clear directives from the management. Equally, the management must be able to receive questions and concerns that are raised by their subordinates. Training of employees in the various international markets should be done in a unique manner that addresses the country’s needs directly.
Customer service should be pursued as the sure avenue of achieving global leadership in retail business. Employees must constantly be reminded of their mandate in ensuring that Tesco maintains great services to the customers. Promotions should be tied to individual performance as a way of motivating the employees to give their best contributions. The mission, vision, and value statements need to be printed and copies availed to the workers to make them understand what their objectives at the firm are.
Strategy design and formulation should not be an exclusive reserve for only a few individuals who are charged with the responsibility of running the strategy department. Instead, Tesco should welcome individual workers to offer suggestions and even come up with ideas on how to improve on the organizational objectives.
When workers are allowed to be part of the operations through providing direct contributions, they will feel as though they are part of the process. Their participation will improve growth and the learning aspect of Tesco. Given that Tesco operates in many countries where it faces numerous cultural and societal challenges, allowing workers to come up with strategies that they deem to be appropriate will create customization and enhance performance.
There is need for Tesco to integrate performance on the part of the workers as the organizational culture. Emphasizing this to the employees from the first day of their selection to the firm would ensure that they are psychologically ready and prepared to work that extra mile in ensuring that they serve their customers with diligence.
Although minimum academic qualification should be set and considered for each role during employee recruitment drives, graduates training should be emphasized. On-the-job training programs should also be introduced and evaluations done on a continuous basis in order to track on the progress of the individuals.
In order to achieve long-term sustainability, Tesco must ensure that it retains its workers for longer durations. In other words, there is need to address turnover ratio with a move to reduce it. Tesco should competitively remunerate its employees to minimize the chances of them being attracted to other employers. Other benefits and welfare issues must be included to make workers feel at home while working for Tesco.
Because it is costly for the firm to train workers continuously and then lose them to other rival employers, it is important that Tesco’s welfare and remuneration remain the most attractive in the industry. This will ensure continuity of the learning curve while providing the benefits in form of improved customer service and quality service delivery.
Conclusion
The Balanced Scorecard matrix is a model applied by companies to ensure the successful attainment of their strategies and objectives. This measure is more elaborate compared to the financial measures that have been traditionally employed. BSC is widespread in its focus and predictability as it touches on both the internal people at the firm, as well as the external shareholders.
The management of firms establishes their objectives in the main perspectives of BSC, which include finance, customer, internal business process, as well as learning and growth and measure their achievements against established targets. Tesco Plc. is a leading retail company in the UK. A BSC model for the retailer would help it achieve numerous strategic objectives that touch on its customers, finances, the internal processes, and learning and growth.
Customers require value for their money. The firm can achieve this by improving on the quality of its products and services. Financially, the firm can seek to increase its revenues and improve on its profit margin, while it can seek to develop the skills of its workers through training and expand the workforce to match the growing customer base.
Kaplan, R. S. & Norton, D. P. (1993). Putting the balanced scorecard to work. Harvard Business Review, 71, 134–142
Kaplan, R. S. & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review, 74, 75–85
Nørreklit, H. (2000). The balance on the balanced scorecard – a critical analysis of some of its assumptions. Management Accounting Review, 11(1), 65-88
Pineno, C. C. (2002). The balanced scorecard: an incremental approach model to health care management. Journal of Health Care Finance, 28(4), 69-80
Saraiva, H. (2011). The balanced scorecard: the evolution of the concept and its effects on change in organizational management. EBS Review, 28, 53-66
Logistics management has been the industrial success driver for a long time, and thus organisations have been investing on it over the last century. However, the current organisational supply chain management is focused on the increasing consumer expectations with regard to the choice and delivery of goods and services.
Due to the high competition brought about by globalisation across all industries, customers are in a position to demand higher quality and lower prices for goods and services. In a bid to maintain an intact client base coupled with continued profitability and viability, organisations have embarked on adopting different approaches in their logistic operations.
Therefore, this report compares and contrasts the logistics operations of two companies, viz. Tesco and Sainsbury, with regard to inventory management strategies, logistical operations, inventory management, transport mode polices, and IT systems. Conclusions and recommendations for the next five years of operation are also made for the two companies.
Logistics Elements
Logistics management involves the planning, implementation, and effective and efficient control of the flow of goods and services from their point of origin to that of consumption to ensure that the customers’ requirements are met (Wang 2013). The basic elements include warehousing, storage, and handling of materials, packaging, transport, and the control of information.
Management of Logistic Operations: Tesco vs. Sainsbury
Tesco
Tesco is one of the food retailers in the UK and it has thousands of stores worldwide, but over half of these stores are in the UK (Competition Commission 2010). The headquarters are located at Hertfordshire and the company offers offline and online personal finance services. The company has also been on a profit run for the last couple of years.
Tesco has recorded a significant growth over the last few years and one of the indicators of this growth is its profit before tax. Over the last financial period, the company had a growth of 14.5% in profits, which had improved from the previous year as it stood at 2.1%. However, the trend has been unsteady with the company pre-tax growing by 12.3% in 22010/2011 financial period and 8.7% in the 2009/2010 financial period.
A graph showing Tesco’s pre-tax growth between 2009 and 2013
Logistic operations
Centralisation
In the years around 1970, Tesco had a Direct to Store Delivery (DSD) where the manufacturers as wells as suppliers had the choice of delivering their goods in any store that they chose (Joseph 2013).
Centralisation was unachievable with this kind of warehousing and the product quality could not be guaranteed. In a bid to ensure that the company had control over the prices of goods, it adopted the centralised system to replace the DSD (Palmer 2004). The stores were interlinked with the head office, and stock could be obtained on time with quality guarantee.
Continuous replenishment
Tesco also adopted the continuous replenishment policy in the year 1999, which entailed a flow system and allowed multiple deliveries to be made (Wang 2013). The company also pioneered in the implementation of Factory Gate Pricing, which allowed the company to save on the prices of goods since the suppliers reduced the prices charged for transportation (Rushton et al. 2013).
Transportation Policies
Tesco is one of the companies in the UK with an efficient logistic operation. The company has traditionally been dependent on trucks on the highway to deliver the goods to the customers and the various stores, and these were utilised in the sourcing of goods from suppliers. It, however, introduced rail services late in the year 2011, and these were meant to reduce the traffic that the Lorries were creating by taking about 40,000 of them off the road.
The trains transport the goods from the company’s central depot to the distribution centres and stores, and goods from the suppliers are transported on the way back. For the purpose of this logistical venture, Tesco got into partnership with Direct Rail services and Stobart Rail (Tesco Case Study 2011). Some of the other transport modes that the company utilises in its logistic operations include shipping, air travel for regional and international centres, and vans for home delivery.
Warehousing, Storage and Packaging
The company also has a detailed logistics strategy, and this aspect is evident in the four main warehousing methods that it utilises within its supply chain. The first warehousing method applies for goods that can be stored at room temperature, and these warehouses are the regional ambient distribution centres (Tesco Case Study 2011).
These warehouses are used to store things such as groceries that are not moisture dependent or wet. The second kind of warehousing utilised is the bonded warehousing, and this form is utilised for goods that are regionally distributed. The third king of warehousing that is utilised by the company is the national distribution centres. These are spread all over the countries that the company operates, and they are used to store the goods that are deemed to be slow moving and that are durable.
These goods include textiles and other materials such as those used in hardware and construction. The last warehousing utilised are the composite distribution centres. These centres are temperature regulated to provide optimum conditions for the mainly fresh and perishable goods that are stored here. Frozen foods are also stored in these warehouses, and temperature controlled trucks and train carriages are used to distribute them to the outlet stores and other retail stores.
Information and Technology
The company has also been a leader in the use of technological innovations in the packaging process, and some of the major breakthroughs that it has made include the invention of a new material used in packaging of fresh produce to increase their shelf life. The technology has been applied in the arioso fresh produce that it has in its stores, and has doubled the shelf life. Packaging is also utilised in other products that the company stocks in its warehouse.
Facilities are a major contributor of supply chain management and Tesco has a number of methods to ensure that this driver has an impact on its performance. In a bid to facilitate the change, the company removed some of the processes in the supply chain that were deemed inefficient and the rest of the processes were changed to be more customer focused (Benton and McHenry 2010).
Most of the outlets in the country also have gas stations and the company is considered as one of the major petrol-independent retailers in the United Kingdom. Some of the countries served include Czech Republic, Hungary, Poland, the Republic of Ireland, and Slovakia (Vankateswaran and Son 2010).
Inventory management
Inventory management is a significant part of any business enterprise, and Tesco has invested in this field to ensure that it stays competitive (Weele 2010).
The experience of shoppers can be subject to the availability of stock in a company and shoppers currently have the choice of different organisations from which to shop. Researchers have found that shoppers often visit other stores to shop for an item that is missing in the initial store that they shopped, and this aspect represents a loss in revenue for the company involved (Golgeci and Ponomarov 2013).
The most important aspect of supply chain in ensuring the availability of stock in industries is the management of inventory (Blackburn and Scudder 2009) and Tesco has embarked on this course. Other important factors in the logistic management include information accuracy, presence of product range, and substitution of demand (Yücela et al. 2009).
The determination of policy aimed at optimum inventory control has garnered importance over the last few decades with the company being one of the market leaders in this aspect.
One of the major policies adopted by Tesco is the Automated Store Ordering (ASO) system, which has ensured that the company replenishes its supplies to the customers’ convenience (Longo 2011). Automated store ordering is one of the latest developments in the supply chain management, but hitherto most industries utilised human interventions in their stores to make decisions on the availability of stocks.
The use of ASO within Tesco and its subsidiaries has allowed the improvement of efficacy and led to the development and introduction of Electronic Point of Sale (EPOS) technology (Vadalakis et al. 2011).Some researchers have described the basis of ASO as a technologically oriented service allowing the improvement of services within organisations’ supply chains (Vadalakis et al. 2011).
Other researchers have also compared ASO with other traditional approaches that were used in organisations to improve the delivery of services (Gaur et al. 2009).
In addition, ASO has ensured the improvement of availability of products and services. Tesco has utilised ASO for a number of years and it is frequently involved in the introduction of other services geared towards improving the availability of goods within its branches. In one of the researches done on Tesco’s inventory, the use of ASO was found to increase the, ‘variability of workload by 185% in the distribution centres’ (Potter et al. 2009: 5740).
The company has also been a leader in the adoption of technology in the supply chain, and it was the first to automate its checkouts in the retail stores. The company also developed the computerised stock control system in the 80s, which complemented the checkout systems already in place by then (Van Der Zee and Van Der Vorst 2010).
Tesco.com is a major component of the company’s information sharing attempts to the customers, and it has grown to operate over 250 stores across the UK since its inception (Potter et al. 2009). The services have also become important to the company’s customers and it is reported that over a million of them use the services (Burt et al. 2011). Therefore, the company remains a market leader in the use of transportation, inventory, and information in the growth and management of its supply chain.
Sainsbury
Sainsbury was founded in the year 1869 and for years, it was the largest food retail company ahead of Tesco and other companies in the industry (Dudbridge 2011). One of the areas that can be evaluated in the performance of the company is the bank subsidiary that it operates.
The company received £52.9 million in the last financial year, which was an improvement from the previous year’s financial performance of £40.3 million. The previous financial year’s profits also stood at £39.7 million, which was an improvement from the profits of the year 2011 that were £29.9 million (Wang 2013).
A graph showing Sainsbury’s pre-tax profits and after-tax profits in 2011 and 2012
Despite the positive performance, the company experienced challenges in competition with other companies and Tesco is one of the companies that overtook it in terms of size and performance.
The leadership has also demonstrated lesser strategy in the market over the last decade as compared to the previous years, and this aspect has forced the company to fall below other companies such as ASDA (UKPA 2010). The supply chain management has also not been adequate, and this aspect is one of the reasons that the company trails Tesco in the industry.
Logistics management
The company had used the out-dated logistic system that Tesco abandoned in the 70s, until the year 2001 when it adopted the strategies of network renewal, people and culture, partnerships and replenishment policy (Joseph 2013).
Transportation
Sainsbury has adopted a rather simple warehousing system and transport network. The company mainly utilises vehicles in the distribution of her goods between the distribution centres and the retail outlets. The main component of the fleet of vehicles is the long trucks that form the backbone of the transport system.
Smaller vans are also used in the transport of some other goods to and from the retailers. Some of the latest developments in the transport network that Sainsbury utilises are the Isotrack Vehicle Tracking Systems, and this aspect has enabled it to reduce fuel consumptions and carbon emissions. The other measure that Sainsbury took was to integrate its transport with the paragon software systems, and this move in combination with isotrack reduced the operational costs.
Warehousing
The company’s warehousing policy includes about 19 distribution centres across the UK, and these are used to store the different kinds of goods that the company distributes to the retail centres (Competition Commission 2010).
The company started construction of a central depot in the year 2012, and this depot would be connected to both a major highway and a rail network. The warehouse would cover an area estimated at about 1 million square ft, which would serve as the only major depot for the company, with the other distribution centres getting some of the goods from here.
Storage and Distribution
Sainsbury had traditionally used the centralised distribution that was also used by Tesco, and manufacturers would deliver their goods here. This system started to fail at the beginning of the millennium, and they had to adopt a different system. The latest of the storage systems used by Sainsbury is the Automated Storage and Retrieval System, and the company utilises special sortation systems and conveyors (Competition Commission 2010).
Some of the other components in the company include the primary consolidation centres, fulfilment factories, k Line depots, frozen food depots, and specialised distribution centres (Vadalakis et al. 2011). The company also outsources its logistic providers, and some of these include the Excel Logistics.
The company also embarked on expansion policies and one of the first of these policies includes the acquisition of Bells Stores, which increased its stores and profitability. The company also invested in transportation in its supply chain with the introduction of major changes and collaboration with other companies to ensure efficiency (Long et al. 2011).
Inventory Management and Technology
The inventory management has also become a major concern for Sainsbury and one of the major steps that it has taken include the adoption of technology on the supply chain.
The company, even though not the first in the industry, introduced a number of online services that were meant to improve its performance on the global front (Vadalakis et al. 2011). Consumers can now shop online and engage in business transactions over this platform and this aspect, according to Terzi and Cavalieri (2010), is an effective method of ensuring better performance.
Sainsbury has developed a strong network of suppliers with assurances of fresh and quality foods. The company also has an Internet-based shopping service where customers can access various products and services throughout the day.
However, the number of stores that have adopted the service is fewer as compared to those adopted by Tesco, which stands at only 165 in number. The company has also invested in a number of services for its customers including baking services that it provides. The outlets are also known to offer a variety of services, which are mainly related to hospitality.
Comparison
This essay puts Tesco as the market leader in the industry in the UK, and the company has managed to overtake Sainsbury in the last few years. The strategies that the company adopted can be considered as having put them in the leadership of the industry. The company was able to change their out dated strategies timely enough to avoid being irrelevant and remove any inefficiencies in their logistical operations.
Sainsbury, on the other hand, was relatively slower in the adoption of system upgrades and new technology in the logistics management and this is one of the reasons that it trailed the other market leaders.
However, the company has put these changes in place, and it could be competing on the global arena in the next number of years. They have replaced their traditional systems to match those of Tesco, and this has made them worthy competitors. Companies should be able to adopt changes as fast as they are available (Potter et al. 2009; DeHoratius et al. 2010).
Another important aspect of logistics management in any industry is the transportation and availability of services to customers in the right time and quality (Kayakutlu and Buyukozkan 2010). Customers also need a variety of products to be offered in the same place for convenience and organisations that are able to achieve this goal have a reported better performance.
Tesco has managed to provide varying types of services including the gas services that it provides to its customers and the different types of goods available in its stores. Sainsbury offers varying types of goods and services in its branches, but these goods and services are not as many compared to those that Tesco offers. This aspect is one of the reasons why some customers who used to frequent Sainsbury have shifted to Tesco, thus leading to its dominance in the industry.
Despite the above differences, the two companies have a well-performing supply chain that is geared towards the provision of adequate goods and services to their customers. The two companies have engaged in the promotion of the participation of all the players in their supply chains, and this aspect is considered as one of the most innovative ways of increasing performance of the supply chain.
Conclusion
From the analysis of this paper, the logistic policies adopted by Tesco were important in the propulsion to the top of the industry. On the other side, Sainsbury was slow in the adoption of strategies to this effect, leading to the marked slow improvement and a fall in the industry dominance.
This aspect shows that industries should be fast in adopting technologies in their logistical operations to be in a position to compete effectively. Out-dated practices should be replaced with new one, and this should be timely enough. The companies are now competing with each other on the same platform, and the changes made by Sainsbury have made it a strong competitor of Tesco.
Recommendations
A number of recommendations are possible for the two companies in the report. These companies should be in a position to make decisions in their supply chains in terms of production, inventory, location, transportation, and information. They should create master production schedules by taking in account the capacities that their stores and organisations. These production schedules should also be balanced in terms of quality, workload, and equipment available.
In the inventory, the two companies should invest adequately to ensure that they are predictable and that their supply chains are certain, which can be done through the adoption of policies aimed at increasing customer confidence. They should also invest in different parts of the country and provide goods and services that are appropriate for the target markets.
Transportation is also an important aspect of the supply chain and appropriate partnerships with the transport companies should be entered. The path taken by both companies in adoption of technology in their operations is commendable; however, they should ensure that the latest technology is available to their customers.
List of References
Benton, W., and McHenry, L. (2010) Construction purchasing & supply chain Management. New York: McGraw-Hill.
Blackburn, J., and Scudder, G. (2009) ‘Supply chain strategies for perishable products: The case of fresh produce’. Production and Operations Management 18 (2), 129-137.
Burt, N., Petcavage, S., and Pinkerton, R. (2010) Supply management. Boston: McGraw-Hill Irwin.
Competition Commission (2010) The supply of groceries in the UK market Investigation [online].
DeHoratius, N., Mersereau, A., and Schrage, L. (2010) ‘Retail inventory management when records are inaccurate’. Manufacturing and Service Operations Management 10 (2), 257-277.
Dudbridge, M. (2011) Handbook of lean manufacturing in the food industry. Chichester: Wiley-Blackwell.
Gaur, V., van Donselaar, K., van Woensel, T., Broekmeulen, R., and Fransoo, J. (2009) Ordering Behaviour in Retail Stores and Implications for Automated Replenishment [online].
Golgeci, I., and Ponomarov, S. (2013) ‘Does firm innovativeness enable effective responses to supply chain disruptions? An empirical study’. Supply Chain Management: An International Journal 18 (6), 604- 617.
Kayakutlu, G., and Buyukozkan, G. (2010) ‘Effective supply value chain based on competence success’. Supply Chain Management: An International Journal 15 (2), 129-138.
Long, Q., Lin, J., and Sun, Z. (2011) ‘Modelling and distributed simulation of supply chain with a multi-agent platform’. International Journal of Advanced Manufacturing Technology 55 (1), 1241–1252.
Longo, F. (2011) ‘Advances of modelling and simulation in supply chain and industry’. Simulation 87 (8), 651–656.
Palmer, M. (2004) ‘International Retail Restructuring and Divestment: The Experience of Tesco’, Journal of Marketing Management 53 (9), 1075-105.
Potter, A., Towill, D., Boehme, T., and Disney, S. (2009) ‘The influence of multi-product production strategy on factory induced bullwhip’. International Journal of Production Research 47 (20), 5739-5759.
Rushton, A., Baker, P., and Croucher, P. (2013) The Handbook of Logistics and Distribution Management: Understanding The Supply Chain. London: Kogan Page.
Terzi, S., and Cavalieri, S. (2010) ‘Simulation in the supply chain context: a survey’. Computers in Industry 53 (1), 3–16.
Tesco Case Study. (2011) How Tesco became the UK’s Largest Retailer. Switzerland: Datamonitor Plc.
UKPA (2010) Asda loses market share to rivals [online].
Vadalakis, C., Tookey, J., and Sommervile, J. (2011) ‘Logistics simulation modelling across construction supply chains’. Construction Innovation 11 (2) 212-228.
Van Der Zee, S., and Van Der Vorst, I. (2010) ‘A Modelling Framework for Supply Chain Simulation: Opportunities for Improved Decision’. Decision Sciences 36 (1), 65-95.
Vankateswaran, J., and Son, Y. (2010) ‘Impact of modelling approximations in supply chain analysis – an experimental study’. International Journal of Production Research 42 (15), 2971 – 2992.
Weele, A. (2010) Purchasing & supply chain management: analysis, strategy, planning and practice. Andover: Cengage Learning.
Yücela, E., Karaesmena, F., Salman, S., and Türkaya, M. (2009) ‘Optimising product assortment under customer-driven demand substitution’. European Journal of Operational Research 199 (3), 759-768.
