Hierarchy of Operation Management Objectives Strategies - Case Study Example

Operation Management Author’s name Institutional affiliation Contents 2.1 Operation strategic issue 4 Operation management Executive summary Tesco commenced its existence in the year 1919 in London by Jack Cohen. Additionally, in the modern times, TESCO has grown as one of the biggest retailers in the United Kingdom. It conducts its activities in fourteen different countries globally and serves over tens of thousands of clients every day (Shuang, 2014, web). Furthermore, TESCO mainly deals with four distinctive store forms that include; Metro, Superstore, Express, and Extra. Moreover, TESCO has expanded its business format into an online grocery shopping. TESCO is driven by its vision that mainly revolves around their growth as a company. In addition to their vision, the core values that define TESCO are the creation of appropriate customer value in an effort to reward customer lifetime loyalty (Chidnma, 2014, web).Tesco’s market share alongside other companies can be illustrated as below (Companies versus market share) 1.0 Introduction I lived in the UK all my life up until I was twenty-one. I have known Tesco Company very well, besides its historical background and large scale production, the growth success of TESCO heavily revolves around its distinctive operations design, effective operations management and innovative operations strategy. However, Maintaining customer value and loyalty coupled with the cost that is accompanied by the new inventions in terms of technology such as the RFID and lean management, has been a recent bother to TESCO’s operation. Therefore, it would, therefore, be wise to analyze and evaluate critically the operation management of Tesco based on three primary perspectives that include its operation design, operation strategy, and its overall operation management (Shuang, 2014, web). By so saying, it means that, this essay will explore Tesco’s formats, low price policy, loyalty card strategy, cost control, international expansion, and delivery system management, supply chain management, managing capacity, and inventory management (Slack et al., 2012, 13). Therefore, Tesco’s operation management assessment and evaluation basically aims to objectively analyze the strengths and weaknesses that exists in its daily operation management and recommend on ways to deal with the problems that exist as a result of poor operation management and, maintaining customer loyalty. 2.0 Operation management 2.1 Operation strategic issue With the rising number of global competitors, it is advisable for the retail industry to continue improving on their operation capability so as to meet the shifting needs of consumers so as to have a competitive edge. Tesco has enhanced its reputation by responding successfully to the risks, complexity and competition under their ambitious and effective operation strategy (Aamir, 2014, web). In other words, the operation strategy in detail can be evaluated and analyzed in three distinctive aspects that include; corporate strategy, functional strategy and business unit strategy. In simple terms, redesigning of the existing operation management processes so as to fit the changing needs of customers and the international market standards has become a challenge to Tesco. In recent times, Tesco has had problems in initiating its operational strategies due to varying habits and values in different countries. In other words, the main operational issue revolves around its core objective which is creating appropriate customer value so as to maintain and gain their loyalty. Moreover, this is interrelated with other business objectives as shown below. (Tesco Plc., 2015, web) (Sourced from Tesco, 2015: http://www.tescoplc.com/files/reports/ar2012/index.asp?pageid=19) 2.2 Hierarchy of operation management objectives strategies critical analysis In its corporative strategy, Tesco shut down those groceries that were operating in a small scale and opened many bigger supermarkets that were under the leadership of CEO LanMacLaurin (Mahadevan, 2009, 15). By so doing, it was able to define and distinguish its operational business formats, focus, and its business direction. The results of this corporate strategy are the four operational business formats namely; Express Metro, Superstore, and Tesco Extra. Furthermore, this multi-format chain does not only serve to increase the flow of customers but also can see to it that the number of sales improves immensely hence guaranteeing net revenues out of low costs (Chidnma, 2014, web). Moreover, due to the immense pressure, domestic market saturation, self-development demand and high competition, Tesco worked hard to diversify its market oversea as time went by and transformed its local market into a global one to countries such as China, Poland, and Turkey. Owing to these, by the year 2005, Tesco was operating in 12 international countries (Shuang, 2014, web). In other words, the reasons behind the success of Tesco’s global market diversification can to some extent give some intuitions in respect to its excellent corporate strategies. For example, in the 1990s, M & S transformed its format to a new market model without witnessing major changes. However, because, this model was not able to withstand and maintain global consumers, it collapsed tremendously (BARNES, 2008).With reference to the predicaments of Mark and Spencer (M & S), Tesco with its excellent corporate strategy can not only expand economically, but it can also grow at a very higher rate (Shuang, 2014, web). One of the fundamental primary objectives is for Tesco to keep on treating the international market overseas with a double caution. By so saying, it means that it can shift and localize its format stores depending on the habit of the host country (Aamir, 2014, web). It is universally acknowledged that, as compared to other production retail stores such as Carrefour and Walmart, Tesco’s scale of operation is relatively small. Therefore, to successfully compete with its competitors, it should heavily rely on the operational capability that is far more important that the size and scale of operation. With respect to the functional strategy and the business unit strategy, Tesco concentrates on its consumer-centric concept and in the process; it breaks the existing traditional policies and rules of retailing (Slack et al., 2012, 17). Additionally, with its strategic plan, it has been renowned to be a step ahead always of its competitors. By so saying, it means that one of the fundamental principles of Tesco’s operational strategy is to satisfy consumer needs. With this consumer-centric approach, Tesco tries to modify its price cost policy so as to maintain low price and in the process, they have established Tesco club card that help to ensure customer loyalty (Chary, 2009, 21). Furthermore, since its establishment, Tesco has been known to compete based on the price level. In simple terms, it uses the ideology of selling as many products as possible at a lower price possible. Furthermore, Tesco can manage its low price principle by purchasing goods in bulk, improving employee efficiency, avoiding wastes and designing an effective delivery system (Mahadevan, 2009, 17). For achieving a lower price level cost versus its competitors, Tesco has also established a global sourcing team that picks non-food goods and diversifies the purchasing channel. In addition to that, through sourcing from other international countries such as India and China, Tesco can cut the cost imposed on non-food products (Chary, 2009, 25). Therefore, from the facts above, it is clear that, provision of lower price levels is a very crucial competitive advantage which makes Tesco to stand out from the crowded retailers as shown in the table below. From the results, the most notable competition threat is emanating from Sainsbury which contains a good brand name and manages its suppliers effectively (Chidnma, 2014, web) CSF SAINSBURY ASDA SAFEWAY Branding 5 3.5 3 IT integration 4 3 3 Supplier management 5 3 4 Total 14 10.5 11 2.3 Critical analysis of the operation management using porter’s five competitive forces Tesco first established a club card in the year 1995 in the retail industry. It was also known by the name Loyalty card because it played a very vital role in collecting consumer information and tracking the purchasing trends of consumers for Tesco (Aamir, 2014, web). From the recorded data collection, it can stipulate targeted advertisements and promotion and moreover, change the convenience layout for customers (Shuang, 2014, web). Additionally, club card can be of help in formulating a good relationship with Consumers thorough sharing net revenues and the accumulating credit. It is, therefore, clear that Tesco links its operation function with its marketing strategy thorough loyalty card introduction. The trend of entering into the new market is basically low due to the fact that the capital required to initiate a supermarket store is extremely high. Some of the already established stores are Sainsbury, Asda, Safeway and the Morrison (Aamir, 2014, web).Therefore, those stores seeking new entry have to find a way of producing their goods and services at extremely lower prices. The bargaining power of consumers in Tesco is extremely high due to the fact that product differentiation and standardization in the international market is slightly low and the cost of changing to other products is low as well. Besides loyalty card and price, Tesco also works on improving its delivery system and creates an effective supply chain that will ensure good consumer service in an effort to deal with the bargaining power of consumers. In other words, Tesco improves its product delivery system by establishing prime distribution process and switching to home delivery service (Ivory, 2015, web). With the commencement of the retail industry, it switched into online grocery shopping as early as in 1999 despite the fact that most retailers had a negative opinion of internet shopping as they thought it increases the cost of service. However, this proved to be a hit given that Tesco’s sales reached over 500 million euros in the year 2005 and continued to increase tremendously year by year (Shuang, 2014, web). . Tesco faces competition from its bitter rivals, Asda, Green grocer and Sainsbury. For instance, the main competitor in this segment is Asda which increased its sales from 16.3% in 2009 to 16.6% in the year 2010 (Ivory, 2015, web). In an effort to deal with higher competition, Tesco operates differently when it comes to home delivery service as compared to other companies such as Green Grocer, Ocado who employs the warehouse-based approach that focuses in picking products from depots. By so saying, it means that, Tesco employs a store based approach that delivers products from the nearby store immediately after an order is placed (Aamir, 2014, web). When the two approaches were analytical compared, it was postulated that, Online shopping increase the speed of delivery, reduce the workers overhead, can create large amounts of savings that will be able to establish so many warehouses hence making an organization to have a competitive edge. The bargaining power of Suppliers is low due to Tesco’s innovative nature. In simple terms, Tesco invented engineering software known as Vanderlande system that perfected its online shopping hence reducing suppliers bargaining power (Mahadevan, 2009, 13). However, although online shopping is a culture that was cultivated by Tesco long time ago and enabled it to achieve a sizeable success, it will be wise if the company gives greater attention to the online shopping model when it comes to introduction to the global market. By so saying, it means that, in the recently established global market, there are a limited number of Tesco stores that may find it hard to realize effective product and service delivery based on the store-based technique that is identified by Tesco. Furthermore, when it comes to a home delivery model, Tesco employs relative single model that in one way or the other may immensely increase the transport cost which will in the end affect the global market negatively (CHARY, 2009,63) 2.4 Analysis of the operation management performance objectives To improve on their speed of delivery and cost saving, Tesco implemented a policy that puts it in a position to use their transport fleet domestically. Additionally, the strategy of prime distribution ensures that TESCO’s transport trucks are effectively used to improve their service delivery efficiency. However, one of the striking challenges is that a primary distribution channel is not developed yet and still requires room for improvement. Furthermore, this distribution channel has some demerits because; at times the company lacks enough trucks to transport goods from suppliers conveniently (Shuang, 2014, web). Moreover, In the Global market, Tesco possesses a limited number of transport trucks hence making it depend entirely on suppliers. The second effort Tesco uses to improve its service delivery is through the innovation of new advanced technology and the introduction of lean management. Additionally, as most retailers concentrate on cost reduction, Tesco’s focus is entirely on the investments in terms of technology. Based on this fact, Techno was the first retail company in the year 2003 to establish RFID technology that has bar codes that tracks and scans product data throughout the entire supply chain. In simple terms, technological innovation serves as a competitive edge in terms of service delivery, reliability, and higher working efficiency. Furthermore, the improvement in its IT system improves customer check-out speed that decreased customer waiting time hence maintained its customer retention that is one of the primary objectives of Tesco (Aamir, 2014, web). However, there are some demerits that are associated with RFID technology. Tesco is a new technology that is not completely mature making it vulnerable to data errors and besides it is much more expensive looking at it from the cost perspective (Chidnma, 2014, web). Furthermore, one of the chief objectives of Tesco in recent years has been reducing the price by cutting costs. However, RFID technology shows a direct contradiction to Tesco’s low price and cost conception (Mahadevan, 2009, 17). Therefore, it will be wise in the future for Tesco to not only focus on improving RFID but also concentrate on how and when to spread the RFID technology to its suppliers. Tesco also employs lean management concept that avoids wastes and removes all the unnecessary elements. Additionally, under its leadership, Tesco alongside its cola supplier created a comprehensive research that analyzes and evaluates its cola supply chain (Chary, 2009, 36). From the results, it was noted that, there is still room for improvement in terms of efficiency and cost reduction through reduction of lead time, curbing on the touch points, and increasing the rate of utilization of machine (Shuang, 2014, web). Owing to these, Tesco established replenishment system that aimed at focusing on point sale data and information that provides real-time information of sales. Moreover, replenishment reduces holding of the inventory, guarantee food quality, cuts the cost, and improve product availability (Mahadevan, 2009, 13). Furthermore, the cross-docking operation helps Tesco to apply the collaborative plan, replenishment in support of the inventory management and forecasting. In this case, docking operation gives room for simultaneously loading products of the same store into a trailer instead of purely focusing on the distribution approach. Besides, cross docking allows Tesco to manage the holding of stock at a lower inventory level while simultaneously satisfying consumer expectations and demands (Aamir, 2014, web). In other words, releasing too much stock will in one way or the other increase the inventory cost and hence generates wastes (Shuang, 2014, web). Therefore, in managing its inventory, Tesco should employ the independent demand principles so as to scientifically forecast reasonably with network that releases stock into the market. 3.0 Conclusion and recommendations Tesco organization is an excellent operational management and boasts of a remarkable record in strategic planning. It is universally accepted that the reason behind Tesco’s success revolves around its operational skill and operational efficiency (Aamir, 2014, web). Additionally, Tesco has established a diverse range of strategies that aim to satisfy consumer expectations, improve on its service delivery system, reduce costs and innovative supply chain system and control its inventory holding (.BARNES, 2008, 27). Besides this operational strategy, Tesco can as well simultaneously incorporate its business unit strategy, functional and corporate strategy via effective operations management and operations design. Owing, to these, it was clear that, the core objective of Tesco is consumer-centered (Shuang, 2014, web). Furthermore, to increase and improve its customer loyalty, it introduced club card and online shopping. Besides, it conducts its customer analysis through application of some technologies that determine consumer attitude, customer habit. However, most of its operational management strategies such as the prime distribution, RFID, and the international transport sector face some challenges that Tesco needs not to overlook if it has to continue with its growth. Despite the fact that, its operational management is of greater quality, Tesco still holds several opportunities that can enable it maintain sustainable development and improve further. In general, innovation is vital in adding quality and value to its products (BARNES, 2008, 16). By so saying, it means that Tesco can continue innovating new technology just like the RFID and make advanced technology a new-order winner over its competitors (Mahadevan, 2009, 31). Moreover, die to the weaknesses that accompany higher technology, Tesco should not only concentrate on technology but also establish ways of improving on human capabilities as well. Given the fact that, non-food products makes up for a larger segment of Tesco’s sales, it is therefore important for it to source a diverse set of non-food goods, improve on non-food delivery and supply chain system and invent technology that basically focuses on non-food inventory system. References Aamir Chouhan, (2014). TESCO every little steps. Retrieved on 8th august from: http://www.slideshare.net/Aamirchouhan/tesco-operations-and-supply-chain-42085513 BARNES, D. (2008). Operations management: an international perspective. London, Thomson. CHARY, S. N. (2009). Production and operations management. New Delhi, Tata McGraw-Hill. Chidnma Egwim (2014). Management operations. Retrieved on 8th august from: http://www.academia.edu/6864767/Management_of_Operations KAMAUFF, J. W. (2010). Manager's guide to operations management. New York, McGraw- Hill. MAHADEVAN, B. (2009). Operations management: theory and practice. New Delhi, Published by Dorling Kindersley (India), licensees of Pearson Education in South Asia. MAHADEVAN, B. (2010). Operations management: theory and practice. Upper Saddle River, Pearson. PANNEERSELVAM, R. (2012). Production and operations management. Shuang Zhao, (2014). Analyzing and evaluating Critically Tesco’s current operations management. Retrieved on 8th august from: http://www.ccsenet.org/journal/index.php/jms/article/viewFile/42713/23378 Slack, N, Brandon-Jones, A, Johnston, R and Betts, A (2012). Operations and Process management.3rd edn, prentice Hall (ISBN: 9780273768807) Read More