Operations Management: Tesco's Capacity Management - Term Paper Example

Operations Management: Tesco's Capacity Management Table of Contents Introduction 3 Background Information 4 Company Strategies 5 Conclusion 9 References 11 Bibliography 11 House of Lords. (2008). Waste Reduction: 6th Report of Session 2007-08: Vol. 2 Evidence: House of Lords Paper 163-II Session 2007-08. USA: House of Lords. 12 Introduction Operations management is one of the most important aspects that any company must be concerned about while continuing with its business. It is a broad term surmounting the designing of products, producing them and finally transporting them to their final destination. In other words, the operations managers are held responsible for accomplishing the business process effectively and efficiently. Efficient handling of business process includes the underlying technology which assists in production as well as monitoring the factor output ratios. in addition, the supply chain of the production process too is counted as part of operations management. Hence, the operations managers are responsible for incorporating competitiveness in their production process. The diagram alongside shows the intrinsic nature of operations management process where the manager’s decision is the ultimate force operating behind the choice of inputs. This choice is entirely based upon the manager’s efficiency and discretion of choice given the costs associated with the production process. The manager on the other hand, acts on the basis of information that he acquires from the market. These inputs are employed in the production process which yields the final output that is sold to the customers. Based on the feedback of customers, the managers decide to continue with their chosen input endowment. This is where the question of competition crops up (Waters, 1999, p. 4). The present paper examines this very aspect of Tesco and attempts to demonstrate The Degree To Which Changes In Operations Management Could Actually Lead To Improvements In Its Level Of Competence. Background Information Tesco was founded by Jack Cohen in 1929 in UK after being impressed by the concept of supermarket chains in different parts of USA. The prime motto of Cohen while he conceived the idea of Tesco had been that of purchasing large stocks of goods and selling small units of those commodities to retail customers, thus accumulating the difference between wholesale buys and retail sales, as profit margins. The year 1947 saw the company being embodied as a joint-stock company and in 1956 it opened its first self-service store. Post 1960s, the company decided to expand its business through acquiring a number of companies. However, the company still had a long way to go in order to make its presence felt among the English people. It laid the foremost importance upon the aspect of price competition which is historically regarded as playing one of the primary functions guiding customer decisions. The company had been employing a variety of measures beginning from producing on a large scale through indulging in merger and acquisition activities. Another innovative method that the company implemented in order to allure its customers had been that of issuing stamps to their shoppers which the latter could either convert into cash or trade for some other gift. However this strategy did not work for long with British customers as they gained more and more wealth thus demanding for luxury commodities rather than the commonplace ones produced and marketed by Tesco. As Tesco could not respond as quickly to customer demands, they felt the brunt of a looming crisis with receding customer demands thus forcing them to concentrate upon their supermarket stores and shutting their retail stores. In fact, the worsening state of the company had been one of the reasons why Imperial Tobacco dropped the idea of including Tesco in their portfolio while planning a diversification; their main concern had been that of a blemish upon their popular image following this incorporation. To improve their corporate image, the company decided to diversify a bit and thus came the decision to include petrol pump operations in their business. Furthermore, in 1975, the company proposed price discounts to their customers in order to replenish their lost fame. Such schemes proved to be successes as the company recorded operating revenue of 1 billion Pounds by the end of the financial year 1979-80. The company continued its journey henceforth through employing such customer friendly methods to attract them to their stores. At present, Tesco is established as the largest supermarket chain in UK with a chain of 700 stores as recorded in 1998. It accounted for the employment of more than 100,000 employees and contributes almost 15.5% of the retail food sales in the economy. In addition, the company also has expanded its business recently in different parts of Britain and Eastern Europe. The logic that they apply in their business is to accumulate a large quantity of goods bought in wholesale and sell them off to retail customers in small amounts while extracting the profit margin acquired in the process. Company Strategies One of the foremost and pivotal factors which guided the strategies of the company had been that of building a large base of customers through creating value for their money. Some of the facets that the company introduced as part of its value creation motive are scanning at the point of sale, centralized ordering and distribution, warehouse controlling modes, exchange of electronic data for efficiency. In order to assess the extent of competence in their production strategies, it would be wise to discuss the following points – Location Factors - One of the primary factors that any company must keep a note of while selecting a location for their stores is that of being in proximity to their customers. Moreover, it is also important to choose locations at places which are farther off from other rival stores so that the company is able to demarcate itself from others. Hence, the two points that any company must be firm about regarding their location are those of being in close proximity to the location of their target consumers while being able to distinguish themselves from their rivals. Furthermore, the company must also keep an eye on being consumer friendly which could be ensured through implementing certain steps such as arranging suitable parking space for their customers or organizing their devices in ways convenient for their customers. Initiating such measures would help them attract more and more consumers and instigate them to buy more from Tesco stores. Tesco has kept this point in note while deciding on their locations. The company stacks food as well as non-food items such as apparels, etc. which actually helps the customers get an access to a wide variety of necessary goods under a single roof. This is one of the ways through which the company ensures easy accessibility for their customers. Moreover, the company has been on an expansion spree with more than 2300 retail stores in their possessions. Thus, it might also be regarded to be in a clearly advantageous position compared to its rival firms such as Wal-Mart, Sainsbury and Safeway, which together with Tesco accounts for almost 70% of the UK retail market share. The company is actually striving hard to retain its position as a topper in the retail industry. With the accession of Asda by Wal-Mart, the company has found itself amidst a crisis given the latter’s popularity as a retail chain across the globe. Thus, Tesco has initiated certain measures which could distinguish it from Asda/Wal-Mart. In addition, to optimize its in-store layouts, the company also arranges for interview with its customers on a regular basis and based on their feedback repositions their existing plans (Hughes, 2011). Capacity – It is also largely important to stay aware about the expanding footfall that a company’s various retail stores are experiencing. With the number of consumers growing, it is highly recommended that a store must have ample space to accommodate the same. Moreover, with growing number of consumers, it is quite obvious that the demand for the company will be on a rise as well. Hence, there are two points that the company must keep in mind in this scenario, namely, the increasing footfall as well as the rising demand for their products. However, Tesco is found to be responding reasonably well in this regard with increasing number of stores around the nation along with their eagerness to diversify into a large number of commodities; initially Tesco had been dealing with food items but later diversified into non-food articles as well with the tagline. In order to meet its increasing demand, Tesco has initiated many technological processes which permit consumers to shop online from Tesco stores. Such a step has a two-fold effect – firstly, it takes care of the increased demand while keeping the number of footfalls low thus avoiding congestion in these stores and secondly, the process helps in easing the accessibility of its different products for Tesco consumers. Moreover, the company also has hired a 32-member team who assists in the management of shelf goods. With increased customer footfall and limited space to accommodate them, it is highly important that the stores arrange for fast replenishment of their commodities within a short span of time. This saves the stores from confronting consumer wrath and keeping up to their names simultaneously. This process has been possible only on account of introducing online business within their domains. In addition to the management of increased need for building capacities, these processes have facilitated an enhancement in labor productivity quotients as well. Product and Process Design – Tesco has been striving hard for retaining its position among its consumers which is why it is highly important for the company to design its product as well as production process in ways suitable to attract more consumers while simultaneously being able to produce in the most cost efficient way. In terms of product design, it is highly suggested that a company must be able to provide its goods in a package which are likely to be admired by as many people as possible. In a drive to offer their goods in a whole new appealing package, the new CEO, Philip Clarke has strategized the introduction of new brands within the company which are likely to produce some change to the look of the shelves in Tesco stores (The Times, 2011). On the other hand, the company must be equally aware of its diverse consumer base all of whom are not featured by a similar income structure. This fact had been kept in mind by the Tesco board when it decided to introduce the Tesco Finest line in Europe which sold commodities at premium prices compared to other mediocre ranges of products (Ray, 2010). Moreover, the company also employed a 32-member team of product design developers entrusted with developing and redesigning stores shelves in more than 2000 Tesco stores across the world. In order to keep in line with the different kinds of consumers, the company has developed a variety of retail stores such as Tesco Express, Tesco Metro, Tesco Superstore and Tesco Extra. Each of these stores had been equipped to meet the demands of its diverse consumers as well as to accommodate the immense footfalls that the company had been experiencing for quite some time now (Barnes, 2008). To stay in line with cost efficient system of production and management, the company adopts a large number of strategies beginning from technological incorporations to innovating newer and modified methods of supply and distribution. For instance, the company has introduced re-usable plastic trays used in their food sections have helped reduce their costs by a large extent. In addition, the company also has entered into a pact with its bank in order to save time and opportunity costs in terms of interest payments. Whenever any consumer makes payments at the counter of Tesco, the money is immediately transmitted to the company’s bank account which saves it a fortune in terms of interest payments. These facets have assisted the company in being able to manage its retail prices at substantially lower levels than those of its competitors. Records show that the company has been able to curtail its costs down by almost 17 percent between 2000 and 2006 (Tesco, 2011). Performance and Customer Relationship – Tesco takes good care of the way that their customers are treated in their stores. They adhere to their policy of assuring their consumers that they no longer need to wait for long while making payments in the counters. In order to ensure this fact they conducted a research to examine the length of each queue and on the basis of this data, decided upon the number of counters to be opened. In addition, the company also has initiated clubcard programs which investigates consumer behavior among their customers and in return to their participation, also rewards their respondents with online discounts and coupons. This process has helped in aggravating their market share to more than 30% over recent years, in contrast to a meager 16% enjoyed by Wal-Mart. Moreover, the company has placed advertisement screens at strategic points which help in guiding the consumers in making their purchase decisions. This has helped in increasing their sales by almost 10 percent in more than 60 brands. All this owes to the extent of technological innovation that the company has indulged itself into. Tesco TV has helped in intimating the consumers about the upcoming trends of the age. Through strategically located TVs, Tesco is able to successfully influence its consumers in making purchases from their stores and that too in line with the recent trends of the age (Hughes, 2011). Logistics and Warehousing – Tesco has made significant improvements in terms of logistics and warehousing over time. Initially, Tesco had been the proponent of the primary distribution system where the company hired distributors sent trucks to collect goods from their suppliers and distributors and deposited them in retail stores within due time. This process helped in saving time as well as costs by almost 14 percent. In addition, to make further improvements in the same, the company also has opened up a number of distribution chains in the vicinity of its retail stores in different locations across the world. Furthermore, in order to enhance its customer loyalty, the stores have initiated the CR system which is better than the DC system. This is one of the reasons why the company is found to be improving in this frontier. Initially, the company used to order goods based on their perceptions about the goods being highly demanded by people. However, in the latest CR system, this process has been revised to that of the responsibility of consumers. Whenever a consumer places any order in a counter, it is directly updated in their centralized system and the shelves are replenished accordingly. Conclusion In conclusion thus it could be said that Tesco is well into a position to give its competitors such as Sainsbury and Wal-Mart a run for their business. The company well realizes its potentials and the tastes and preferences of their consumers which are largely dependent upon their respective budgets. This is the factor which instigates the company towards employing methods finally evolving as cost-discounting ones. Although its position was at stake at a time when the economic situation in UK was on a rise, it gradually succeeded in putting behind a mark and eventually building up its position in an environment of staunch contenders. References Barnes, D. (2008). Operations management: an international perspective. USA: Thomson. Hughes (2011). “TESCO taps into the power of satellite broadband to create a state-of-the-art "Digital Retail Network."” [Online]. Retail Case Studies: Tesco Stores. Available at http://www.hughes.com/NewsEvents/CaseStudies/Retail/Pages/TESCOStores.aspx [Accessed on: May 24, 2011]. Ray, R. (2011). Supply Chain Management for Retailing. New Delhi, India: McGraw-Hill. Tesco (2011). “Between 2000 and 2006 Tesco prices fell by 17%” [Online]. Talking Tesco: How we compete? Available at http://www.tesco.com/talkingtesco/lowPrices/ [Accessed on: May 24, 2011]. The Times (2011). “Newspaper Briefing including Google set for Windows fight with Chrome OS - The Times” [Online]. Proactive investors: United Kingdom. Available at http://www.proactiveinvestors.co.uk/columns/guardian-cfd-s-newspaper-briefing/5305/newspaper-briefing-including-google-set-for-windows-fight-with-chrome-os-the-times-5305.html [Accessed on: May 24, 2011]. Waters, D. J. (1999). Operations management. 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Really Good Packaging Explained: Top Design Professionals Critique 300 Package Designs and Explain What Makes Them Work. USA: Rockport Publishers. Read More