The Lean Production and Waste Management of Tesco Plc - Research Paper Example

Introduction Tesco had a humble beginning in the year 1919 by Jack Cohen in London as a grocery retailer. Since then the company has gone about a long way in establishing itself as a dominant brand in the global retail market. The company presently operates in almost all the major retail markets across the globe and has a formidable brand image in the retail industry (Tesco, 2010). The present study would focus upon the retail giant and would analyse its operational and logistics management as a tool for competitive advantage. The study would focus on the lean management and the value chain framework of the organization towards creating a competitive advantage for the organization. Question 1: Critically evaluate the use of lean production and/or lean services in your chosen organisation. The term lean management was coined by John Krafcik in the year 1980 as a tool for effective management of operations in an organization. Lean management is defined as a combination of US and Japanese management techniques which focuses on aspects like waste reduction, inventory management and response time for customers (Managers-net, 2010). The competitive advantage of Tesco can be attributed towards its adoption of lean management in its operational strategy. The competitive advantage of the organization can be analysed from the fact that Wal-Mart which is much more times larger than Tesco asked the US government for assistance with regards to the entry of Tesco Plc in the US retail market. Tesco Plc has effectively used the loyalty card to tap the specific needs and wants of the customers and to deliver products accordingly at the correct time and place and at a lower cost. This has enhanced the competitive advantage of the organization in the tough global retail market. Aspects like Hub and spoke model, point to point delivery coupled with lean management have ensured better positioning of the firm in the minds of the target customers (Lean Enterprise Academy, 2005, p.1). As a part of the lean management philosophy Tesco Plc continuously engages itself in replenishing each of its retail outlets on a regular basis. This includes continuous process of reordering goods from vendors within a short span of time. The firm also procures goods directly from the suppliers thus eliminating intermediaries which do not create value but only ensure enhancement in costs. The firm has also used cross docking techniques backed by an effective ERP system which has enabled real time information sharing which has resulted in cots control. The efficiency of the lean management techniques of the organization can be analysed from the fact that almost 96 percent of the goods are always present in stock which is a benchmark for the retail industry. Tesco Plc operates using a large number of store formats with a similar pricing structure to cater to the specific needs of the customers. Online shopping has added yet another feather to the efficiency of the organization as it has enabled customers to shop from the comfort of their homes and getting goods delivered at their doorstep without actually visiting the store (Womack & Jones, 2005, p.1). Question 2: Discuss and recommend how waste is/can be managed along your chosen organisation’s Value Chain Value Chain and Waste Management Value chain of an organisation includes all the necessary activities that enhance the value of its organisation. The concept of value chain was first developed by Michael E. Porter as he identified necessary activities of an organisation which is responsible for its value creation. He explained that “a firm’s value chain and the way it performs individual activities are a reflection of its history, its strategy, its approach to implementing its strategy, and the underlying economics of the activities themselves” (Porter, 1998, p.36). The following figure portrays the value chain model. Figure 1: Value Chain (Source: Gwin, 2001) The above figure shows two levels of activities for organisation. The primary activities are inbound logistics, production operations, supply chain, marketing and services and the supporting activities include various departments like finance, HR, IT, procurement etc. This paper involves the Tesco Plc and its waste management through its value chain analysis. Tesco Plc is UK based leading global retailer. It offers finished product of different brands and retailing services. Therefore, its value chain differs from the manufacturing organisations. The retail value chain primarily involves the supply chain management. The following figure shows an example of retail value chain. Figure 2: Retail Value Chain (Source: Pradhan, 2006, p126) The above figure shows that primary task for a retail organisation is its supply chain. Tesco has developed its supply chain for creating value for its image, environment, society, community and for its stakeholders. Waste management is an important area of responsibility for an organisation. Waste management aim to reduce the environmental pollution and to reduce unnecessary wastage of resources and time. Therefore, waste management has become a significant area of concern for the existing retailer groups. In this respect, value chain is a major tool for them in managing wastes. Effectiveness of waste management affects the cost and revenue of retaliating business. Ijioui, Emmerich and Ceyp have identified that “with respect to cost, the main benefits of value chain management include reduced waste of raw materials and intermediate and final products, as well as optimized set up cleaning costs” (Ijioui, Emmerich and Ceyp, 2007, p.130). Tesco Supply Chain and Waste Management Tesco has realised the value of managing waste for enhancing the revenue of the organisation. Tesco has efficiently planned its supply chain aiming to reduce its wastages of valuable resources, time and cleanup cost. The following figure depicts the entire supply chain process of Tesco Plc. Figure 3: Tesco Retail Supply Chain. (Source: Clarke, n.d.) This supply chain model is developed by Philip Clarke, the IT and Logistic Director of Tesco Plc. In order to reduce the waste in the process of its supply chain, Tesco Plc has introduced continuous replenishment strategy. This strategy has helped it to reduce the wastage of time and resources by managing efficient supply chain. This is an effective strategy that meets the consumer’s demand by managing waste. The following figure depicts the process of continuous replenishment in its supply chain. Figure 4: Replenishment in Supply Chain (Source: Clarke, n.d.) As per the above figure, Tesco Plc has able to manage entire tasks aiming to reduce the time and unnecessary expenses. It has planned activities like transportation, inventory, scheduling, and store order by proper calculations. It has developed a set of batch for product flow, multiple deliveries on daily basis, specific system for all product deliveries and these tasks are operated locally with centrally controlled (Clarke, n.d.). Management of physical wastes are also very critical for Tesco Plc’s operational process and waste management. Hence, it has established a separate unit for recycling the package waste. Tesco stands first in reducing the weight of packaging. The following diagram represents the weights of packaging of Tesco and its competitors. Figure 5: Weight of packaging (Source: Local Government Association, 2007) The above figure also indicates the proportion of recycling of packaging and it this case, Tesco’s performance is average comparing to its competitors. The packaging weights of Tesco is lowest i.e. 684.5, but merely 62% of its packaging is prepared by using recyclable materials. Temperature control is very necessary as it helps to deliver many foods items like fruits and vegetables without packages (Local Government Association, 2007). However, Tesco has also done commendable job in recycling products. It “operates its own recycling units and recycles 85% of its packaging waste, such as paper, cardboard and similar items, and continuously researches on methods of how to be more efficient in the use of energy and material” (Instituto De Empresa, n.d.). Recommendations Developing an efficient waste management system through value chain helps an organisation to meet organisational objectives that includes corporate social responsibility, competitive advantage and long term sustainability. Tesco Plc has enough resources and technology for developing proper waste management system. Firstly, it should develop convenient stores aiming to reduce wastes. Secondly, it must introduce Total Quality Management (TQM) approach in its value chain to reduce wastage. Thirdly, it must develop its supply chain fully backed by Enterprise Resource Planning (ERP) system. Fourthly, Tesco should try to minimise the bullwhip effect in its distribution channels. Fifthly, it should procure suppliers who are effective in managing wastes. Question 3 Evaluate the impact that your recommendation will have on your organisation’s resources, and justify how your recommendation will ensure increased competitiveness, long term sustainability and corporate social responsibility-836 The previous section has described value chain and supply chain of Tesco Plc which help it to reduce the wastage of resources, time, physical waste etc. Tesco’s business commitment towards its society, consumers, community, and stakeholders is very high. However, figure 5 shows that the retailer has not been able to achieve higher recycling process comparing to its competitors. The suggested recommendations are very helpful for waste management in Tesco’s supply chain. Wastes can be divided into two categories i.e. tangible waste and intangible waste. The tangible wastes are harmful for the society, environment and community. It is a major issue for organisations in meeting their corporate social responsibility (CSR) and environmental objectives. The intangible wastes are unnecessary costs and wastages of time, resources etc. It affects the health of organisation in terms of profitability that passes to stakeholder groups. These two types of wastes are great threat for organisations (Kaplinsky and Morris, 2000). Therefore, Tesco must attempt to plan its waste management to ensure increased competitiveness, long term sustainability and corporate social responsibility. First recommendation suggests that Tesco must develop convenient stores that will aim to reduce resource wastages. Apart from supply chain, retail stores have the greater possibility in controlling the waste. For setting up and for running retail stores, retailers require energy, materials, human resources etc. Tesco must design and plan its store that will lead to reduce the use of non-recyclable resources. It will help to reduce the store expenses. The eco-friendly stores will enhance Tesco’s image in market. Tesco has already opened a zero carbon supermarket store in Ramsay that “cost 30% more to build, but it uses 50% less energy, and with oil at $70 a barrel it is a business case in itself” (Finch, 2010). Tesco must try to convert its existing stores into zero carbon stores. Total quality management (TQM) approach is an effective way for reducing resources wastages and for increasing competitive advantages, that it is very essential for long term sustainability. TQM approach is one of the most popular tools for managing the entire operation of a business. Tesco should develop proper strategies for introducing TQM in its supply chain management. In this respect, just-in-time method is very helpful as it avoids unreasonableness, unevenness and waste (Mukherjee, 2006, p.196). Rawlins stated that “TQM reduces waste by removing the need for inspection” and “by involving everyone in improving the way things are done” (Rawlins, 2008, p.19). The successful implementation of TQM by Tesco in its supply chain will help it to enhance consumer satisfaction, productivity and to reduce costs waste by accelerating the entire operational process. Enterprise Resource Planning (ERP) is an advanced technology for bringing efficiency in operational process. Higher efficient operational process is necessary for developing a systematic waste management procedure for Tesco. Primarily, ERP focuses on reducing the cost of operational process. There are certain expenses that can be easily avoided by using ERP technology like RFID. For example, e-procurements, inventory management, time managements, communication with suppliers are some of the major benefits of ERP (Bendoly and Schoenherr, n.d.). Generally, ERP technologies are used for the business to business activities and Tesco has to deal with a number of suppliers. Wal-Mart’s entire supply chain process is backed by RFID technology and it is considered to be one of the best retail supply chain models in the world (Supply Chain Digest, 2009). Hence, Tesco must try to attain such expertise in managing its supply chain by implementing ERP technologies. Bullwhip effect is a major problem for an organisation in managing the supply chain process. In case of retailers like Tesco, it is very necessary to choose proper distribution channels for procuring products. The higher level of Bullwhip effect leads to increase the wastage of necessary and valuable resources. There are several causes of experiencing Bullwhip effect in supply chain management. The primary causes of Bullwhip effects are “demand forecast updating”, “order batching”, “price fluctuation” and “rationing and shortage gaming” (Aprile and Garavelli, n.d.). Therefore, Tesco can achieve the long term sustainability by reducing Bullwhip effect. Procurement of valuable suppliers is another major task for developing strong supply chain aiming to bring reductions in costs, resources and waste. Tesco must try to obtain suppliers who are environmentally conscious. Tesco should increase the storage of recyclable products and in this respect, the suppliers of finished goods play very important role. The recyclable and eco-friendly products will help Tesco in reducing cleanup costs. Tesco is committed to offer high quality and eco-friendly products to its consumers. This commitment has created high brand image of Tesco among consumers groups. Improvement in Tesco’s supply chain for reducing wastage of resources is long term process and it is very necessary for meeting CSR objectives and for its long term sustainability. Question 4: Using Porter’s value chain as a template, create a framework that will assist a newly employed first-line manager in your organization with the following: a. Identify the type’s wastes in both primary and support processes b. The ‘danger signals’ of each waste c. How to respond to the ‘danger signals’ Michel Porter proposed a framework for value chain analysis that can be used by organizations to maximize their operational abilities. According to Michael E Porter every firm or industry is composed of a set of activities which are collectively used to design manufacture and deliver a particular product or service to the customer. The value chain consists of a set of primary and support activities that are designed to create organizational excellence. The primary activities are composed of inbound logistics, operations, sales and marketing, outbound logistics, service and operations. Support activities are comprised of functions like procurement, technology, human resources and infrastructure of the firm (Porter, 1998, p.33-43). Inbound Logistics: Inbound logistics comprises of activities like customer service, transport of goods, inventory control and production (Gourdin, 2006, p.188, 189). In case of Tesco Plc inbound wastes constitute idle inventory lying in depots. Idle inventory enhances the cost of operations which affects the profitability of the firm. Tesco Plc sources most of its product from third party vendors which enhances the chances of idle inventory. Unavailability of a particular product or service also means a loss to the company as it means loss of business and profit making opportunity. The danger signals can be identified by analyzing the holding time of a particular good or item in the depots or warehouses. In order to respond to the danger signal the firm must have a real time information sharing mechanism which can be obtained by using highly improvised tools like ERP which would link the suppliers and the retailer as a single unit. This would help in demand estimation based on real time figures which would eliminate instances of surplus stocks or stock outs thus cutting down on the cost of operations. Outbound logistics: Managing outbound logistics is considered to be more critical than inbound logistics as it has a larger number of options which requires greater skills in management. Outbound logistics in general refers to the distribution based tasks of a products or service to its final end customer (Wu & Dunn, 1994, p.29). Figure 6: Logistics Management using Porter’s Value Chain (Source: Wu & Dunn, 1994, p.24) Wastes in outbound logistics in case of retail chains like Tesco come arise from erroneous estimates of demand forecasting which involves aspects like selecting a particular carrier, management of warehousing etc. The danger signals in case of outbound logistics arise from environmental hazards arising due to use of inefficient methods in management of outbound logistics. In order to counter these danger signals Tesco plc must formulate criteria for selecting the suppliers. Tesco must only select those suppliers which have an efficient record in waste management. Apart from these efficient methods of demand forecasting based on real time information must be adopted so as to minimize instances of idle inventory or stock outs. Certain other techniques for effective management of dangers in case of outbound logistics include backhaul management, warehouse management etc (Wu & Dunn, 1994, p.29). Sales and Marketing: Sales and marketing is considered to be another important part in the value chain framework of an organization. This activity assumes greater importance for retailers like Tesco Plc whose core competence is with sales and marketing. Packaging wastes are some of the most important wastes generated in a value chain. The danger levels can be analysed by the threat to the environment posed by the use of non recyclable materials as packaging material. Packaging forms an important dimension in the product offering of the firm as it denotes product differentiation. Use of environmentally friendly packaging materials would help in promoting environmentally sustainability and would also act as a measure for Corporate Social Responsibility (CSR). After Sales Service: The aspect of logistics in after sales service arises from tasks like returns handling, maintenance of networks and handling customer grievances. An efficient organization generates a fast and effective solution to its customers. The wastes in this activity emerge from hazardous substances that are produced and the manner in which they are handled by the logistics department. In case of Tesco Plc wastes can arise from extended products which are generally sold as a part of after sales service to the customers. Goods that are returned by the customer require proper handling, storage and disposal. The aspect of extra storage space implies additional financial burden for the organization. In order to cater to the danger signals Tesco plc must take into account the aspects of maintaining a database such as the one done by Otis elevators. This would help in effective waste management. Care must also be taken to ensure that waste recycling and further usage does not hamper the quality of the product as was the case with BMW (Wu & Dunn, 1994, p.31). Reverse Logistics: Certain nations have adopted strict legislations with regards to management of wastes in organizations. In case of Tesco Plc the firm has to handle the packaging materials which are being left by the customers in the store. This process involves additional expenditure on storage, warehousing and recycling which actually does not add any value to the product offering. Reverse logistics involves reduction of source and substitution. Reduction of source involves performing the activities using fewer resources. Substitution involves use of greater recyclable materials in packaging. Efficient use of reverse logistics can generate cost effectiveness as it would cut down on additional expenditure that does not add value to a product (Wu & Dunn, 1994, p.33-34). Figure 7: Reverse Logistics to Handle Waste Management in Value Chains (Source: Wu & Dunn, 1994, p.34) Procurement: Procurement involves purchase of goods from different vendors and suppliers. Wastes in procurement arise from improper means of procuring goods which result in stock outs or excess stock. A long procurement process also generates significant wastages in the value offering of a product. Tesco Plc can adopt an e-procurement strategy to address issues of waste management. E-procurement has emerged as a tool that is backed by effective technology to procure goods (Pani & Agrahari, 2007, p.22). Human Resources: Wastes in Human Resources arise from having idle workforce as well as absence of a well trained workforce. The danger signal for this activity is reflected by the high levels of inefficiency of the employees. Response to this danger signal would include taking up proper steps for training and development of the employees so as to make them more skilled and efficient. Firm Infrastructure: Wastes in firm infrastructure involves inefficient use of firm resources. In case of a retailer like Tesco Plc wastages in firm infrastructure arises from overuse electricity, inefficient vehicles for transportation. The danger signals can be observed by comparing cost estimates which would provide an indication with regards to the inefficiency of aspects of firm infrastructure. Tesco Plc must use efficient measures such as using low energy consuming lighting devices and efficient vehicles which offer good mileage and ensure strict adherence to emission norms. Conclusion This paper has critically evaluated the lean production and waste management of Tesco Plc by analysing its value chain and supply chain process. Tesco is the world’s third largest retailer and it primarily focuses of its supply chain for creating value. This paper includes four major sections that have analysed the necessity of value chain for developing proper lean production and waste management. The first section has evaluated the lean production of Tesco that is meant to deliver services and products as per consumer needs and demands. Second section has focused on Tesco’s waste reduction policy through its value chain and its supply chain. This section has also provided some relevant recommendations for managing wastes. Third section has evaluated the recommendations for waste reduction by ensuring increased competitiveness, long term sustainability and corporate social responsibility. The final section has offered a proper framework of waste management for Tesco’s operational process. This framework has identified different types of wastes that Tesco is expected to counter while managing its primary and secondary activities. References Aprile, D. and Garavelli, A. C. No Date. Bullwhip Effect Reduction: The Impact of Supply Chain Flexibility. [Pdf] Available at: http://www.icpr19.cl/mswl/Papers/004.pdf. [Accessed on December 20, 2010]. Bendoly, E. and Schoenherr, T. No date. ERP System and Implementation-Process Benefits: Implications for B2B E-Procurement. [Pdf] Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.128.6688&rep=rep1&type=pdf. [Accessed on December 20, 2010]. Clarke, P. No date. Distribution In Tesco. [Pdf]. Available at: http://www.tescoplc.com/plc/ir/pres_results/presentations/p2002/tescouk02/philip_clarke.pdf. [Accessed on December 20, 2010]. Finch, J. February 02, 2010. Tesco opens its first zero carbon store. [Online]. 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