Operational Issue at Tesco - Case Study Example

Operational Issue at Tesco Table of Contents Introduction 3 Tesco PLC: A Brief Overview & History 3 Discussion 5 SWOT Analysis 7 Issues in Supply Chain Management 8 Improvement for Supply Chain management and benefits 8 Issues in Management of Quality 9 Improvement and Benefits in Quality Management 10 Issues in Customer Service 12 Improvement and Benefits in Customer Service 12 Conclusion & Discussion 13 Recommendation 14 Reference List 16 Introduction This report aims to address the specific areas of operation of a retailing firm. After the introductory part, the second section provides company background and history. The third section of the study outlines and critically discusses company objective, SWOT analysis, supply chain management, quality management and service design as well as improvement at the chosen firm. Finally, conclusion and discussion as well as relevant recommendations in these areas will be also provided so as to improve the condition. The company chosen for this assignment is Tesco PLC. Tesco PLC: A Brief Overview & History Tesco PLC is a UK based multinational general merchandising and grocery retailing firm headquartered at Hertfordshire, England. The company was incorporated in the year 1919 and founded by Jack Cohen. The company started its business as a group of market stalls but the name Tesco only appeared in 1924 when the founder purchased a tea shipment. The first store of the company was opened in 1929 Middlesex (Tesco, 2013). Since then, the company has experienced rapid growth and only within a span of 10 years, it succeeded in setting up 100 new stores. The business operation also expanded rapidly with the company taking its venture outside of the UK. If in the first half of 20th century, the company grew with rapid geographic expansion, in the later half, the company grew organically through acquisition of other firms. For example, the company acquired around 70 Williamsons stores in 1957, 212 Irwins stores in1960, 200 Harrow Stores outlets in the year 1959, the Victor Value chain in 1968 and 97 Charles Phillips stores in the year 1964 (TescoPlC, 2014). Tesco PLC is the second largest retailing company of the world in terms of the overall profitability and revenue. As of 2012, the company had a total of 6,351 stores across the globe (Tesco, 2013). The company operates in places such as Europe, Asia and North America. One of the keys to success for the company can be attributed to its diverse range of products. The company specializes in offering electronics, clothing, financial services, retailing, telecoms and renting CDs, DVDs. Apart from that, the company also offers services such as internet services, music downloading. The company has not only differentiated its product offerings, but has also differentiated in terms of the type of stores. For example Tesco Extra, Tesco Superstores, Tesco Metro, Tesco Express and Tesco Homeplus are some of the store variants (Tesco, 2013). Figure 1 – Core Values & Activities of Tesco (Source: TescoPLC, 2014) Figure 2 – Top 5 Retailers (Source: Coriolisresearch, 2004) The retailing industry is experiencing robust growth since the last few decades. The emergence of one-stop shop has been the key revolutionizing factor. However, at the same time, the intensity of rivalry is also growing at a rapid rate. The key business trends of the retailing industry are shifting rapidly. The major alterations in the industry appeared in the form of customer purchase behaviour and this can be deemed as the biggest change in the trends of the industry. For example, customers are now using smartphones to even compare prices of the commodities, reviewing quality etc. Likewise, trend shift are also observable among the corporate. They are developing online shopping applications, websites and social media pages to get closer to the consumers. Some of the major players of the industry are Wal-Mart Stores, Inc., Carrefour SA and J Sainsbury plc. According to reports, globally retailing industry is growing at a rate of 3.9% and the growth rate is likely to remain constant in the coming 6 years (Research and Markets, 2012). Discussion Operations management is principally concerned with conversion of the raw materials into finished goods and services in an efficient manner for maximizing organization’s profit (Palevich, 2012). The success of any business depends upon the clarity of its vision and mission. It directs the company and decisions are also made on this basis (Rusinko, 2010). The objective of Tesco is to grow in the UK market, become a creator of the highly valued brands, to become one of the outstanding retailers of the world both physically and online, to grow the retail services and also to build a team which creates more value for the company and obviously to be a strong player in every aspect of the business (Stacey, Griffin and Shaw, 2000). Tesco has always tried to manage its operations efficiently (Felsted, 2012). For example, in order to remain consistent with the CSR objectives, the company pursued sustainable profit strategy for a long term. In the similar way, the company is also intending to offer better services to the customers by increasing the number of store attendants and backend staff members. This is also an initiative that supports the strategic objectives of the firm and is in line with company’s intention to grow sustainably and serve the society in which it operates. Hence, the operations strategy offered by firm is in line with the business strategy and the overall business objectives of the firm. Figure 3 – Relative Price Position (Source: Coriolisresearch, 2004) According to Zeithaml (2010) and Nagarajan (2004) every company has certain flaws and no company can be stated as 100% perfect. Nevertheless, the area in which a company faces the challenges differs (Deckop, 2006). For example, some companies face challenges in managing their operations efficiently, whereas some other companies face challenges in managing their marketing activities efficiently (Hobbs, 2009; Armstrong, 2002). Echoing this concept, author such as Harris and Fleisher (2005) emphasizes that the areas of challenges of a company is independent of the nature and type of business. SWOT Analysis Strengths: - Tesco has a strong brand image in the UK and other parts of the world. The company is best known for creating new ways of shopping and has offered customer with great shopping experience. The soothing in-house ambience coupled with superior customer service acts as strengths for the firm. Weaknesses: - The company has failed to streamline their supply chain. Often customers have complained about the unavailability of particular product. The company is also short of the number of required staff members and as a result of that they are failing to deliver the required customer service (Storey, Edwards and Sisson, 1997). Opportunities: - The company has the opportunity to establish units that looks after the management of product and service quality. Such initiatives will be really helpful for the firm to improve the efficiency of the operation and also add to the level of customer satisfaction. It has been found that Tesco is losing profit as well as market share due to its high price. Reports have suggested that Tesco is losing market share to low-cost grocers such as Lidl and Iceland (Theguardian, 2012). Hence, the company has the opportunity to reframe its pricing strategy and gain more market share. Threats: - The presence of strong competition in the market is a major threat for the firm. The major threat for the company is its inability to generate the desired profitability. The company suffered a loss for the consecutive times and this time it was down by 3.6% in UK. The biggest cause of apprehension is that there are no signs of recovery. The sales tumbled 3 % which is also a cause of concern for the firm (Wood, 2014). The in-depth analysis of the company has clearly shown that the company needs significant development in the areas such as supply chain management, service delivery, and quality management. A detailed analysis of the problems being faced by the company is presented below: - Issues in Supply Chain Management According to Bull and Compton (2006), the success of any firm is greatly dependent upon the efficiency of operation and quality of supply chain management. It is a cross functional approach which includes management and movement of raw materials into the organization (Anthony and Govindarajan, 2007; Agarwal, Erramilli and Dev, 2003). Apart from that the distribution of the fished goods to the third party vendors is also a key activity of supply chain management (Baker and Sinkula, 2002; Dalal, 2007). In the context of Tesco, major flaws have been identified pertaining to their management of supply chain activities. Improvement for Supply Chain management and benefits The modern supply chain is considered to be extremely complex and to maximize the competitive advantage; managers need to have a comprehensive visibility of the performance of the supply chain (Lewis, 2011). Hence, Tesco is recommended to transform their supply chain into a more flexible process. This initiative will allow Tesco to respond immediately to the risks and disruptions (Supplychainanalysis, 2014). The analysis revealed that the company was unable to manage their supply chain efficiently and as a result of that product quality got compromised. In this respect, the company is recommended to establish a department which will be responsible for cross checking the quality of the raw materials procured. In addition, the company is started to widen up their supplier list after the horse meat scandal is one of the disasters for the company related to the supply chain management. To build a strong relationship with suppliers and ensure desired functionality, the company depends upon the four pillars as values, transparency, monitoring and improvement. For example, communicating values of the company to the suppliers, fostering transparent business, assessing the risk and encouraging improvement in the form of skill development and reward success have profound impact. However, the company as soon as the outbreak took place, they cancelled contract with the suppliers “slivercrest”, who used to be their meat providers. In addition, the company faced challenges in the form of gaining another set of trustworthy suppliers (Stevens, 2013). The reduction in supplier’s power will allow the company to gain greater control over the suppliers and can result into better quality of raw materials. (Source: TescoPLC, 2014a) In order to mitigate the supply chain issues, the company is heavily dependent upon the technology. Even the company made use of technology to mitigate the challenges of supply chain. Information sharing with the vendors through Tesco Information Exchange (TIE) also acted as tools for streamlining business. However, long term relationship with suppliers is the key strategy for the firm to manage the quality (Quinn, 2013). Issues in Management of Quality In this turbulent business scenario, the ability of a company to manage and maintain quality acts as a key success determinant (Forrester, 2000; Wordpress, 2012). The application of quality management does not ensure ‘good quality’ of the products rather it makes sure that the quality of the product remains consistent. In order to pursue this, the company needs to put into practice the four major components such as quality control, quality planning, quality improvement and quality assurance (Hage, 1999). In-depth analysis of Tesco has shown that the company is facing challenges in this segment of the business. The major area of concern for Tesco was the management of product quality and services. It has been seen that company is not able to manage and deliver the expected quality in the fresh food segment. Philip Clarke, the chief executive of the firm is also admitting it to be a serious issue (Bold, 2013). In addition to management of quality services, the company also has major problems in the area of logistics and product delivery service. The new CEO of the company believes that managing the quality of the delivery services is one of the major concerns for the firm and has transformed into a long standing issue (Theguardian, 2011). Improvement and Benefits in Quality Management In order to improve those issues, the company made use of TQM (Total Quality Management) approach as an effort to mitigate the challenges of quality management. The application of TQM allowed the company to improve the operations of the business and the quality of the products and services is obvious (Fredendall and Hill, 2000). Some of the key benefits realized by the company are defect reduction, cost reduction, high morale of the employees and helpful (Forrester, 2000). (Source: Hsmdghs-bd, 2013) Tesco implemented TQM as an effort to maintain its position as the market leader in UK (Ciaran & Wall, 2011). However, in the process the company faced various challenges. One of the major challenges was resistance to change. There were issues related to the involvement of all the employees and TQM is management philosophy that requires involvement of all employees. This was the major challenge that the company faced. However, this was surmounted by strong commitment and skills of the leaders. The benefit of TQM implementation was realized in the form of enhancement of the quality, and helpful employees, also another vital task. The scenario in Tesco changed dramatically after the application of TQM. For example, the CEO, Philip Clarke, highlighted that Tesco is starting to make use of DNA testing system as an effort to check the quality of the meats before selling them to the end customers. The new system inspects all the products at every phase during the production process. This ensured hygiene and most importantly, Tesco succeeded to manage quality of the products. Apart from that, the production efficiency increased to a great extent. Issues in Customer Service Customer servicing is one of the vital elements of a company service design strategy. The notion of service design can be described as the process of organizing and planning the infrastructural requirements, material components, communication and people (Raymond, 2013). The aim is to design and address the needs of the customers accordingly (Love and Bullen, 2009). The authors also stated that service design can also be termed as a backbone of underpinning the behaviour of consumers. In the context of Tesco, the company was unable to determine and implement the required service designs. According to Philip Clarke, the CEO of the company states that his company is unable to comply with the market trends. For example, the company is yet to make online website fully functional. The analysis of the company also reflected that the store design also needs to be changed owing to the fact that the competitors of Tesco have modernized their stores and therefore Tesco needs more refreshed stores in order to satisfy and offer better customer experience. Improvement and Benefits in Customer Service As an effort to improve the service design and simultaneously enhance the quality of customer satisfaction, the company explored various ways of service delivery and flexible payment options (Raymond, 2013). For example, online order placement and online payment system was installed which acted as an advantage for the firm. It not only provided greater flexibility to the customers but allowed them to cater to a large customer base. Since most of the products are standard and repeated this process is appropriate. The theory of service design suggests that service design should accommodate “right first time”. It has been also observed that there is a overlap between process and service design (Fredendall and Hill, 2000). (Source: PPT) The company linked in-store and online store elegantly. This allowed users to explore both online and offline store and offered greater satisfaction. However, the challenges came in the form of lack technical expertise. The major challenge was getting accustomed with the new system and maintaining the same quality standard. In the context of service design, the company achieved benefits in the form of error free processing, provided appropriate resource, minimum throughput time etc. The implementation of TQM at the company allowed the company to provide customers with the services and products that accurately meets customer demands and is absolutely free of accidents or defects. Conclusion & Discussion The operational activity is one of the four pillars of business of a firm. In the broadest sense, a company must achieve operational excellence in order to gain an edge over the rivals and make continuous improvements. Achieving operational excellence also allows the firm to maximize value for the customers and gain financial benefits. Numerous scholars have suggested that with greater operational efficiency, a company remains more cost effective and offers customers with better quality products and services. This study tried to evaluate the operational issues faced by one of the most highly established global retailers of the world Tesco PLC. The analysis of the internal environment of the firm revealed that Tesco needs to focus more on the supply chain management aspect. Major flaws were also identified in the company’s quality management and process management divisions. One of the major causes of concern for the company is that they are failing to manage the supply chain properly and is resulting into negative market reputation. To conclude, it can be stated that Tesco needs to focus more on their overall operational activities and also needs to bring greater transparency. The strategic SWOT analysis revealed that the company is dealing with the issues such as poor market reputation and intense rivalry within the industry. Hence, in order to fulfil the strategic objectives, deal with the existing challenges and to become the market leader in UK, the company is recommended to implement fair trade policies and pursue low cost strategy. In addition, the application of software packages to manage the supply chain activities and establishing a department which will be responsible for overseeing the quality of the procured raw materials and products can fulfill the objective of the company. Recommendation Considering the company’s business strategy and current operation, following are the recommendations to the company. 1. The company is strongly recommended to bring transparency in their operation. Greater transparency will help the company to generate a sense of trust among the consumers and will also allow the company to regain the lost trust. It can be enhanced by building awareness among the consumers and stakeholders (Pavitt, 2005). The company is also recommended to set high standards for the suppliers to ensure quality management. In order to monitor the operational process the company is suggested to assess the probable risks and take steps accordingly. In addition, timely auditing and accurate reporting are other key requirements. 2. Tesco is strongly suggested to seek assistance of information technology to improve the overall operations and bring efficiency. It is important to have the right tools and software in place for better results, managing risks and improve efficiency (SAP, 2014). The implementation of such software tools will enable the company to align their process and methodologies with the key business strategies of the company. Paley (2002) stated that the application of such tools allows the firm to achieve greater transparency, visibility and indentify the cause-and-effect relationships between the operational metrics. 3. Nowadays, it has been observed that some customers are looking for cheaper price with better quality. In addition, they are also comparing quality of products and services of the competitors before making final choice. This increased the switching tendency may affect Tesco profits. The company is therefore recommended to create balance profitability and increase customer base. This can be achieved by providing value for money to the customers. A price cutting campaign can be an effective initiative to win back customers. In addition, pursuing cost leadership strategy by minimizing the cost can also be a good option. Reference List Agarwal, S., Erramilli, M. K. and Dev, C., 2003. Market orientation and performance in service firms: role of innovation. Journal of Services Marketing, 17, pp. 68-82. Anthony, R. and Govindarajan, V., 2007. Management Control Systems. Chicago: Mc-Graw-Hill IRWIN. Armstrong, P., 2002. Management, image and management accounting. 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