E-logistics and Supply Chain Management: Tesco - Assignment Example

1. Supply Chain management (SCM) involves integrating all the functions to maximize benefits and reduce costs. SCM includes the logistics flows, thecustomer order management, the production processes, and the information flows necessary to monitor all the activities at the supply chain nodes (Swensson, 2003). Tesco.com has adopted the expansive strategy by including non-food items in its list and ensures proper coordination between all its processes in the supply chain. Tesco uses the latest technology which enables to shop any time from anywhere through the use of handheld computers and WAP-based wireless phones, internet, pocket PCs or digital TV. They have also opened up Internet cafes in stores to facilitate the customers with poor computer skills. They have self-sourcing online forms. The website is interactive and provides facility is finalizing the order. Delivery can be scheduled by the shopper. Out of stock signals are given while ordering so the customer can opt for substitute. It has a scientifically designed error-free picker system from the stores which ensures accuracy in order fulfillment. Even the shopping carts are scientifically designed and fixed with mini-computers which direct the picker through the shop to maximize efficiency. Despite all these efforts, its registered shoppers are not yet regular users. Proper alignment is critical for success within any traditional business as well as with newer electronic format (Delaney-Klinger, Boyer & Frohlich, 2003). Gaining competitive advantage requires building on the proven principles of effective strategy (quoted by Porter, cited by Delaney-Klinger et al.,). Tesco did not try to attempt to build a new model of business but used existing assets to grow. There should be coordination of functional level strategies and trying to optimize individual functions can lead to failure. Theory suggests that facilities can be reduced in online business. In line with this, Tesco did not adopt the warehouse approach for effecting supplies like competitors did, but instead used its stores as distribution centers. Strategic Direction (2006) points out shoppers usually are free riders. Sophisticated shoppers browse through the informative website and then prefer to go and buy from regular stores. Tesco could perhaps look into the reasons why the registered shoppers are not regular users. At the same time, they should also make sure that as few customers as possible use their services without contributing to the organization. This is no doubt a challenging task but needs attention. Study also suggests that shoppers prefer large and bulky items and not the fresh products as they have not found to be up to the quality. 2. Value has been defined by Porter as ‘what buyers are willing to pay’. Firms create value for their customers either by lowering the costs or offering something different from the competitors (Bevan & Murphy, 2001). Customer’s value perception also depends upon the past association with the product or service. If the retailer can capture what creates value for their customer then they gain competitive advantage. This Tesco has been able to do through right merchandise and wide range of goods on offer. They provide home delivery facilities and convenience of shopping even for those who are not familiar with internet and computers. Tesco is able to reach those who are geographically dispersed. A report in Strategic Direction (2006) opines that charging the customers for home delivery is a mistake in the competitive market. Tesco justifies that £5 does not cover the true distribution cost. However, this ensures the customers are home to take delivery because they will be charged again for delivery if they are not. Secondly, customers try to justify the delivery charge and are known to increase the order size. Tesco has employed customer segmentation strategy by publishing newsletters for different segments. It has further added value by partnering with iVillage, which brings together content, community and commerce. Tesco also contributes positively to reducing environmental pollution because of its home delivery system. As Abukhader & Jonson (2003) state, the home delivery system is environment-friendly as transport emissions are less compared to customers who would individually visit the stores. Relationship marketing has shifted the focus of the marketing exchange from transactions to relationships. A stable customer base is a core business asset (Rowley, 2006). Customer loyalty is essential to build relationships. This fact has been recognized by Tesco who introduced the Club Loyalty Cards. Loyalty of customers may be expressed in number of ways – either through frequent purchase or influence others’ purchase decision. Customer loyalty is affected by the satisfaction that a customer feels. Loyalty cards provide details of the customer’s purchase habits, weekly products purchased and how product associations are made. Through data mining techniques this data can be transferred into valuable source of information, for targeted mailing and personalized communications. Since Tesco has stores in different countries, it can launch a corporate club card where reward points are more than the normal membership. This corporate card should be valid in any country should the executive be traveling or shift base. The redemption of these rewards should not be just extra or free purchases from their stores but could partner with others like free holiday or free airline tickets for two. They should reward volume of purchases and not frequency of purchase. 3. Tesco has outsourced the maintenance and servicing of the delivery vehicles. Tesco now provides differential pricing for flexi delivery hours. People have earlier expressed dissatisfaction at being disturbed during meal times but Tesco wants to see if price difference can make them more flexible. Reverse logistics – returned products is supposed to provide direct benefits like enhanced customer satisfaction, decreased resource investment levels, reduction in storage and distribution costs. If a company does reverse logistics well, it will make money. It impacts a company’s bottom line by recapturing values (Autry, Daugherty & Richey, 2001). Tesco takes back if the customer is unsatisfied with some product and credits the shoppers account. Study reveals that the perceived atmosphere of the website is consistent with that of an online store (Bevan & Murphy). Design features, color, imager, ease of navigation, payment security, speed are all important for an effective website. Accuracy of billing, easier comparisons shopping, and visual representation of product create value. SCM leads to reduced costs, increased market share and sales and solid customer relations. Tesco should introduce performance measurement which would quantify the effectiveness and efficiency of their SCM. Supply chain development must be integrated in the physical distribution and the marketing information processes (Swensson, 2003). Tesco has moved aggressively to improve SCM to balance customers’ demands with the need for profitable growth. This includes coordination within different functional levels, inventory management and cost control. The credit or debit card of the shopper is not charged until packing is done. Their shopping carts, delivery vans are all fitted with latest equipments and gadgets to ensure fresh and smooth delivery of products. At every point, from the time of placing the order until the merchandise is delivered, coordination between functions is excellent. Even during delivery, the drivers are requested for small jobs which they oblige. Then virtual shopping card is stored each time the shopper leaves the virtual store thereby making it easier for the multiple family members to contribute to the shopping cart. 4. The main competitors of Tesco are Webvan, Sainsbury and Waitrose. Understanding the competitive strategy is essential to keep ahead of competition. Tesco success so far has been due to its store based delivery against the warehouse model that most adopted. It used this approach as it realized that demand forecast was uncertain. It managed to put together the precise combination of features, value and right business economies (Hackney, Grant & Birtwistle, 2006). Webvan tried to project itself as a new business model thereby violating fundamental strategic principles. Webvan invested warehouses leading to huge investments. Sainsbury too could not make huge investments and lagged behind. Both these contributed to the success of Tesco. While Tesco’s success is deeply rooted in its application of technology, constant technological innovation is required to sustain a competitive advantage. This implies internet is not a technology but a tool that encourages social interactions. Tesco has expanded its reach and offers products beyond the traditional groceries, which also gave it a competitive edge. They have also expanded internationally. Nevertheless, as the online retail segment in UK is growing, Tesco has to cautious to sustain the competition. They have to encourage interactions, interrelationships, dialogue, paradoxes and inconsistencies. Some shoppers have already expressed that they are not convinced the food is really fresh. This opinion has to be changed. Here partnering or outsourcing of some supplies could benefit Tesco. In due course, as competition grows, Tesco may have to stop charging for home delivery. Job specialization of the in-store staff needs constant monitoring and improvement. Order process fulfillment and inventory management is essential because shoppers do not like ‘out of stock’ excuses. For deliveries, even though they have an efficient system in place, they could improve further by association with delivery companies, the logistics would have to be worked out to sustain competition. References: Abukhader, S. M., & Jonson, G., (2003), The environmental implications of electronic commerce, Management of Environmental Quality: An International Journal Vol. 14 No. 4, 2003 pp. 460-476 Autry, C. W., Daugherty, P. J., & Richey, R. G., (2001), The challenge of reverse logistics in catalog retailing, International Journal of Physical Distribution & Logistics Management, Vol. 31 No. 1, 2001 Bevan, J., & Murphy, R., (2001), The nature of value created by UK online grocery retailers, International Journal of Consumer Studies, 25, 4, December 2001, pp279–289 Delaney-Klinger, K., Boyer, K. K., & Frohlich, M., (2003), The return of online grocery shopping: a comparative analysis of Webvan and Tescos operational methods, The TQM Magazine, Vol. 15 No. 3 pp. 187-196 Hackney, Grant & Birtwistle, 2006), The UK grocery business: towards a sustainable model for virtual markets, International Journal of Retail & Distribution Management Vol. 34 No. 4/5, 2006 pp. 354-368 Rowley, J., (2006), Customer relationship management through the Tesco Clubcard loyalty scheme, International Journal of Retail & Distribution Management Vol. 33 No. 3, 2005 pp. 194-206 Strategic Direction (2006), Tesco drives e-retail message home, VOL. 22 NO. 3 2006, pp. 21-24 Svensson, G., (2003), Holistic and Cross disciplinary deficiencies in the theory generation of supply chain management, Supply Chain Management, Vol 8 No. 4 pp. 303-316 Read More