Business Operations and Logistics - Tescos Empire - Essay Example

Business Operations and Logistics - Tesco’s Empire Introduction Tesco is the largest retail giant. It employs more than 500,000 employees and currently operates in more than 12 countries, including China, Japan, Malaysia, India, Poland and so on. The company is based on the United Kingdom where it employs more than 300,000 employees, highlighting that the company prefers to give more attention to the local market. Currently, the company offers a range of products in the food sector; and the products include fresh food, bakery products, frozen food, drinks, household, pet care, baby products, health and beauty products, food cupboard, home and entertainment items are offered by the company (Tesco, 2014). Literature review Supply chain management is a broader concept and which has been defined as it consists of the planning and management of procurement, conversion, and all logistics management activities including manufacturing operations, processes and activities related to product design, sales, marketing, finance and information technology (Council of Supply Chain Management, 2013, p. 187). In this regard, Fisher (1997) states that supply chain management include both internal and external logistics activities between companies. And this has been illustrated by the graph 1 representing the internal supply chain. Graph 1: Common internal supply chain process Source: (Chen and Paulraj, 2004) This graph depicts that the process of supply chain begins from suppliers, which is external entity entering into logistics dealings with the company. In other words, the companies are required to ensure external flow of logistics in which communication, delivery of supply, rates, designs; type and quantity are those important factors that are considered before going to the physical flow of goods or products. Graph 2: Supply Chain Source: (Chen and Paulraj, 2004) This graph 2 clearly highlights different aspects of logistics and supply chain management. Each aspect has its own influence on different logistics activities as the business world has become highly connected and reliant on business dealings and relationships and these dealings are mainly reflected through logistics and supply chain management as mutual business interests Tesco Case study Graph 3: Internal Supply Chain The graph 3 represents Tesco’s internal supply chain. The company’s internal supply chain consists of six stages and each stage has its own functions. For example, in the first stage, dairy source, the process of collecting dairy milk takes place. In this stage, the company affiliates interact with the dairy owners and from company’s own farm houses; from the company’s own farm houses, milk is directly forwarded to dairy factory whereas milk is collected from the independent dairy owners at a pre-determined time. After this stage, dairy factory further processes the collected milk for manufacturing the different dairy products. At this stage, a specified quantity of each product is produced each day; for this purpose, the factory manager determines the quantity of different products and this determination is carried out with the consultation and authorisation given by the related teams, such as development and blueprint team, supplier order team and store ordering team. After this stage, national distribution centres are required to carry out their part. In this stage, all finished products from factory are forwarded to the national distribution centres which also serve as storage point for all dairy products. At this stage, the entire logistics and operations are highly centralised. However, inventory management begins from the national distribution centre where demand and supply of different dairy items determine the subsequent physical flow of dairy products. At this stage, logistics process design performs its role by addressing the major issues including inventory decisions, facility location and transportation decisions. Here, the efficient and effective supply chain of dairy products determines the type and level of transportation and inventory management decisions which are taken by the national distribution centre along with the support of store ordering team. Graph 4: Supply Chain Associated Teams Data Collection: Primary and Secondary Research Both primary research and secondary research have been used to satisfy the objectives of this study. First primary research which involves obtaining first hand information from respondents has been obtained from Tesco superstore located in Edgbaston by conducting interview with the store manager. Initially, the store manager was not willing to provide information relating to the logistics and internal supply chain management. However, after providing a small briefing about the objective of interview, the manager agreed to give interview. Subsequently, a research instrument of questionnaire was used to collect the relevant data from the manager. The questionnaire was composed of three open-ended questions in which the respondent was fully allowed to provide answer as considered relevant and essential as well. Tesco: SWOT analysis Strengths Retail Market leader Tesco has been identified as the retail market leader. Currently, the company has one of the largest retail operations in the United Kingdom. For example, Tesco has more than 3300 stores and employs more than 310,000 personnel for providing services to the company (Tesco UK, 2014). The number of stores and employees clearly highlights that the company has outnumbered and outshined many retail giants, such as ASDA, Sainsbury and others. Weaknesses The company substantially relies on the UK presence and business operations. For example, as mentioned above, the country has more than 500,000 colleagues and if 310,000 colleagues are reduced, who presently provide services only in the United Kingdom; the remaining 190,000 colleagues are employed in 11 countries. This comparison clearly indicates that the company heavily relies on the UK business operations and limited attention is being given to the international presence in other countries. Profitability and performance issue The recent financial and performance indicators highlight that the company is under severe pressure to effectively manage its financial performance. For example, Anderson (2014) reports that Tesco faces the problem of decreasing profits, stagnant sales and office politics and error of £250m in the profit forecast have created serious financial issues for the company. As a result, such financial performance and boardroom problems have become a cause of concern not only for the investors but also for the customers, suppliers and other attached with the company (Anderson, 2014). Based on these reported issues, it can be deduced that the company is facing the problem of effectively competing with the competitors because the issue of decreasing sales and profits clearly hallmarks that the competitors are giving tough time to Tesco by giving more attractive offers and deals to the customers which were mainly attracted and loyal to the products of Tesco. Opportunities Global expansion is a viable option for the company. For example, new emerging economies, such as Brazil, China and India, are creating hope and attracting new investors as these countries are undergoing a rapid economic growth which directly increases the purchasing power of consumers besides stabilizing the strength and presence of the middle class living in these countries. In this regard, Butler and Neville (2013) mention that, currently, Tesco operates 131 stores in China, Malaysia 47, South Korea 520 stores, are some of the examples highlighting that the company has ability to internationalise its business operations and enter into new markets. Threats Competition Tesco faces stiff competition in the UK retail market. BBC News Business (2014) highlights that Tesco’s sales have substantially dropped and this sales fall of 3.6% has also diminished the market share from 30.1% to 28.8%. Additionally, Butler (2014) states that Aldi’s price plan has severely shook up Tesco and other competitors in the UK retail industry. This clearly reflects that the UK retail market is becoming more and more competitive for Tesco. And this growing competition threatens Tesco and its competitive position and performance in the industry. Conclusion and Recommendations Tesco’s SWOT analysis highlights very serious issues for the company. The company faces strong competition from competitors and this stiff competition has decreased sales, profit and market share in the United Kingdom which is central point for generating main revenue for the company. At the same time, the strategic objective of logistics to include and increase efficiency and effectiveness in business operations and operations management as well which are directly or indirectly linked to the improved financial performance of the company. Tesco should carry out the audit of the logistics activities and supply chain. The purpose of this audit should be to overhaul the entire logistics activities and their effectiveness and efficiency as well and whether they are generating or supporting the other business activities to generate profit for the company. This audit is highly essential as currently the company is under severe pressure from the cost side as sales are decreasing along with profitability as well. Under this condition, it is highly needed that whether the logistics activities are increasing cost or helping to decrease the cost. At the same time, it is also essential that the inventory management should be appropriately handled at the national distribution centre as ineffective inventory management will further increase cost for the company. More importantly, dairy products are perishable so it is highly essential that all inventory related decisions should be carried out to increase the value of products. References Anderson, R. (2014). Tesco turns stale as competitors freshen up ideas. BBC News Business. Available: http://www.bbc.com/news/business-29310445 Accessed: 11 December, 2014 BBC News Business, (2014). Tesco’s sales fall faster than its competitors. BBC News. Available: http://www.bbc.com/news/business-29706435 Accessed: 11 December, 2014 Butler, S., & Neville, S. (2013). Tesco’s empire: expansion checked in UK and beyond. The Guardian. Available: http://www.theguardian.com/business/2013/apr/18/tesco-empire-uk-and-beyond Accessed: 11 December, 2014 Butler, S. (2014). How Aldi’s price plan shook up Tesco, Morrison’s, Asda and Sainsbury’s. The Guardian. Available: http://www.theguardian.com/business/2014/sep/29/how-aldi-price-plan-shook-up-tesco-morrisons-asda-sainsburys . Accessed: 11 December, 2014 Chen, I.J., & Paulraj, A. (2004). Towards a theory of supply chain management: the constructs and measurements. Journal of Operations Management, Vol. 22, p. 119-150. Council of Supply Chain Management, (2013). Supply Chain Management: Terms and Glossary. Available: http://cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary-2013.pdf Accessed: 11 December, 2014 Fisher, M.L., 1997. What is the right supply chain for your product? Harvard Business Review Vol.75, No. 2, p.105–116 Tesco UK. (2014). Tesco in the UK. Available: http://www.tescoplc.com/index.asp?pageid=282 Accessed: 11 December, 2014 Tesco, (2014). Welcome to Tesco Grocery. Available: http://www.tesco.com/groceries/ Accessed: 11 December, 2014 Appendices Interview Questionnaire What is the internal dairy supply chain? How do you obtain or share information flow with other managers? What type of information is shared with the other managers? Read More