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The assignment requires the comparison between two different types of organisations in their approach towards operations management. I have chosen Pizza Hut PLC and Tesco Plc. The first one is the leader in the market of pizza and other one is the cost leader in its industry. Before we discuss about the operations of both companies i would like to give some background details of both companies.
In 1958 Pizza Hut name was established when Frank and Dan Carney ad an idea for a local pizza restaurant in Wichita Kansas. The restaurant was only for 25 seats and had room for only 9 letters on the sign....the building looked like a hut ...so 'Pizza Hut' was born! In 1972 about 1000 restaurants were opened throughout the USA and since that it has become the biggest Pizza Company in the world.
Tesco Plc is one of the top 3 retailers in the world, operating over 3700 stores globally. Tesco is basically a Britain based company which is also operating outside the UK in almost 13 countries across Europe, south Asia and recently in USA. . In 1929 the Tesco name was appeared in a shop in Edgware and since that the company has grown and developed.
The Main Operations of Tesco
Tesco's main operations include selling groceries, clothes and electronics etc, in stores and online. Express stores are found in city centres, shopping areas in residential areas town centres and on Esso gas stations whereas the Extras stores are situated in the suburbs of the city providing access to almost all the product range the company sells. Others are Metro stores which fall somewhere in between the two above.
It offers various products like credit cards, loans, mortgages, basic accounts and numerous types of insurances. This operation is mainly promoted through all the stores and internet operations like the website targeting all its customers around the country based on the existing relationship of trust.
This includes home phone, mobile phone and broadband businesses. Tesco Mobile has millions of customers in the UK now and it also has numerous phone shops in the Tesco Extras stores.
One of the features of the Express and Extras Stores are the gas stations which attract most of the shoppers and complement each other.
It's a brand name for electronic products available only in Tesco Stores. This brand range comprises from Computer Peripherals, Televisions, Video Players like DVD and Blu-Ray sorts of electronic products.
Tesco also provide insurance for various categories like car insurance, home insurance etc.
Main Operations of the Pizza Hut
Pizza Hut is providing fast foods such as pizzas, pastas, starters, ice creams and drinks etc, in stores, online and in family based restaurants. It operates globally almost all over the world. It is a chain of small individual stores and restaurants. In the delivery stores it provides facilities to deliver fresh and hot pizzas to the customer's doors and also for take away. Where as in the family based restaurants it allows customers to eat pizzas and can also take with them.
Pizza Hut encourage the innovation for finding the best taste in a reasonable cost for the customers and a result it produces all the time new varieties of products such as in these days it provides Pan dough, Italian dough, Chesibites and Stufcrust . it also provides varies kind of pastas such as chicken alfredo, cheese and veggie, bolognas etc.
ANALYSIS OF COMPETITIVE PRIORITIES
In 1984 Hayes and Wheelwright suggested that companies compete in the marketplace by virtue of one or more of the following competitive priorities:
It is the consistent conformance to customer's expectations in other words doing things right but the things which the operation needs to do right will vary according to the operation, (Slack et al. 2009).
The various extents of quality could be reliability that is the likelihood of breakdown, value for money or aesthetics like look, smell, feel, and taste. It could also be simply conformance to specification or perceived quality like reputation.
Quality at Tesco could be defined differently by different people. It simply could be the way the customers receive service from the staff like are they friendly, polite and helpful. It could be the cleanliness of the store and the design of the store. It could be the availability of the products in the stores and in the warehouses. In one most important measure could be if the products are in suitable condition like they are not damaged and are fit for usage. The overall quality of the Tesco is good and according to the customer's perceptions.
Quality at Pizza Hut is almost similar as stated above. But in respect of restaurants it should be be more clean and well decorated because its impression impress the customers very much. Quality of the food also a measure. Pizza Hut units that's why use the fresh dough and through in the bin extra defreeze products. To make sure the quality of the food is in line they do review of the units quarterly and also for ensuring the quality of the customer services they check it monthly for each unit. If the quality is not in line they prefer to replace the staff with better training.
Cost is an one of the major competitive priorities for those companies whose basis of competition is price. Lower cost of production would mean lower prices charged to the customer. Therefore the different dimensions of cost include keeping the manufacturing costs low, keeping the value added costs to minimum and hence the selling prices lower.
As Tesco is a big company so they are a large buyer hence they have a higher bargaining power with their suppliers so they can get the products at nominal rates from them which means passing lower prices on the customer, not only bulk buying is one of the reasons but also the development of their own range of products which is a possible threat to big name brands and also the managing of the stock for avoiding the waste such as reducing the gap time between the shelves of the stores and warehouse.
As Pizza Hut is the leader in the market of the pizza so it is very conscious about its cost because it wants to charge reasonable prices to its customers. It uses the ways in which it can reduce its cost to an optimum level such as,
The company uses the just in time inventory system.
It provides training to all of its employees for the best use of their time in order to reduce the labour cost.
e-g, if they recruit a delivery driver they want from him to learn all the ways of the work , like he should be able to attend the phone, should know about make table, cut table in order to give synergies in the busy time of the units.
Here time can be define as the difference of time between the order place by the customer till to receive it. The various lengths of time could include the manufacturing lead time, delivery lead time and the frequency of delivery, etc.
At Tesco's time could mean the availability of the products in the store and importantly the time when the customer starts to fill his basket and when he makes the payment, Tesco needs to ensure that this time is kept to minimum and the customer doesn't get upset by long queues, self-checkouts at Extra stores and some Express stores are a good example of this for customers who buy in small quantities. Due to the vast geographical spread of Tesco's in towns and suburbs they ensure that they are easy accessible to the customers. For avoiding the time in the till queues Tesco now introduced the self checkout machines.
Time is very crucial in pizza industry. Customers hate delay for getting food especially when they are hungry. But unlikely Pizza Hut stores always cretised by some customers not all for late delivery. Pizza Hut policy for oven hot sometimes cost it much as delivered twice in one price.
It is the ability of the business to adapt to the changes in the way in which its operations are being done. The different aspects of flexibility include the ability to cope with arriving materials of variable quality, the ability to satisfy demand for products of varying quality, the ability to cope with the launch of new products, the ability to amend existing products, the ability to alter delivery schedules, the ability to accept varying demand volumes.
At Tesco's the flexibility could mean the ability to introduce new products and existing product's promotion like buy one get one free. They are flexible for the customer because they offer a wide range of goods varying from top brands to their own Tesco Value brand thus offering the customer a lot of choice. They have also the ability to adjust to the number of customers being served a great example being the installation of the self-checkout systems. They are also flexible in terms of receiving payments in cash or debit/credit cards.
They are also providing online services and give after sale services.
At Pizza Hut the flexibility could mean make the pizza in the requirements of the customers. Deliver to them in their preferred time, reserve seat for them. Its Pizza Hut policy take money from customers after serve them, so they are flexible in terms of taking bill.
ANALYSIS OF MARKET STRATEGY
Market strategy of a business would mean that how organisations decide to develop in the market. Igor Ansoff came up with a simple method of identifying strategic options. The areas for a business to consider are:
Should they carry on selling their existing products?
Should they carry on selling to their existing market?
Ansoff comes up with four possibilities:
Market penetration - existing products and existing markets
Market development - existing products and a new market
Products development - new products and an existing market
Diversification - new products to a new market.
Tesco at the current stage of its business cycle is following Market development, Market penetration and Diversification. AS it expands its stores in the existing market with existing products and maintains its customers by offering promotions on the products, moves to the new markets in different countries with existing products it has e-g, grocery. It also follows diversification in its markets. It is doing related as well as unrelated diversifications.
Pizza Hut is following the market penetration and market development. It focuses mainly on the market development, both by acquisition and organically.
TOTAL QUALITY MANAGEMENT
TQM is an effective system for integrating the quality development, quality maintenance and quality improvement efforts of the various groups in an organisation so as to enable production and service at the most economical levels which allow for full customer satisfaction, (Slack N. et al. 2009).
The approach in TQM should be initially to identify what the customer wants, then design a product/service according to their wants and then design the processes in a way that everything is done correctly the first time.
At Tesco and Pizza Hut they will follow the total quality management principles such as,
Recognition of the importance of the customers.
Here they will identify what the customers want the most e-g, a good customer service, flexible payment methods, availability of the products etc
For the improvement of the quality, the involvement of everyone in the company. Here thay will encourage the open and honest communication in the organisation.
The concept that to view every business activity in a way that can be improved further. e-g, to improve the customer service in the till Tesco introduced the self checkout machines.
The goal of continues improvement. Here the organisations will take the feedback from the customers for checking the quality of the products/services they received
There are further models and tools which are used to fulfil requirements of each principles stated above, e-g, introducing the software for online ordering, if the website not good or damage by virus then the orders will be delay or may be reduce the sales. Pizza Hut out source this process from micros.
Porter, M. E. (1985), Competitive advantage: Creating and Sustaining Superior Performance, London; New York: Free Press: Collier Macmillan.
It's a process of evaluating progress towards attaining predetermined goals. Performance measures can be a qualitative or quantitative classification of performance. Performance measures can be of two kinds. One's relating to results like outputs or outcomes such as financial performance whilst others focus on the determinants of the results like inputs such as quality.
One of profound ways of measuring performance is through the use of Norton and Kaplan's Balanced Scorecard approach. It looks at performance through four different perspectives which are Financial, Customer, Internal business process and learning and growth i.e. innovation.
Tesco and Pizza Hut operate a Balanced Scorecard approach to measure performance. For the financial perspective, few of their key performance indicators are profit maximisation, but it depends which key performance indicators they use for measuring performance e-g, in Pizza Hut they use cost of sales, cost of labour and sales as financial key performance indicators and for non financial the number of complaints from the customers, their comments about the services they received
. For customer perspective, ensure staff's great, earn lifetime loyalty which is the aim of Tesco offer the customers promotions on the products give them the good customer service, introduce the club card points. Whereas at Pizza Hut they offer the customers pay after the meal which is a policy of the Pizza Hut.
For operations, Tesco want to reduce the time of processes by effective training, outsourcing of the delivery processes, introducing the self checkout machines, etc Where as Pizza Hut also provide the effective training for employees, i-e, they want from their employees to know all the processes for producing and serving Pizzas.
For innovation pizza Hut uses the customers comments about the knew product.
Capacity planning is defined in the Webster's dictionary as the process of determining the production capacity needed by an organization to meet changing demands for its products. Hence capacity is the maximum amount of work that an organization is capable of completing in a given period of time.
The usage of capacity can be measured by calculating utilization and efficiency and also through overall operations effectiveness which is based on time, quality and speed. The aims of capacity planning include fulfilment of forthcoming demand of products without any deficiency by finding the optimum capacity so that the whole costs of under-capacity & over- capacity are nominal.
In the big organisations like Tesco and Pizza Hut a systematic approach and three dimensions to capacity strategy, are useful tools for capacity planning. If they follow the systematic approach then firstly they will identify the requirements for the capacity of the each product and secondly they will compare it to the current and measure the gap e-g during Christmas the demand of the products increases than usual. Thirdly they will develop alternatives plans for reducing the gap e-g, introduce alternative products, bulk purchases etc. On the fourth step they will evaluate each alter native both qualitative and quantitative aspects. In the qualitative aspect they will see whether it effects on the business strategy and in the quantitative aspects they will see the effects on cash flow.
Inventory is the stored accumulation of the transformed resources in an organisation, (Slack N. et al. 2009). The need for inventory arises due to the difference between the timing of demand and supply.
Inventory management is very important in the organisations such as Tesco and Pizza Hut. Its depends how they decide to manage the inventory because there are many factors which effect the decision e-g, too much inventory may reduce the profit and too little inventory may damage the customer confidence. Tesco is one of the top 3 big retailers in the world; due to the size of its business, managing the inventory is very crucial process. It consider many factors before to decide how to handle it e-g, ordering cost, holding cost, bulk discounts, waste items on the shelves etc. Due to the size and corporate strategy of the company EOQ seems to be the good system for managing the inventory.
As Pizza Hut is the leader in its market it don't like to damage the customer confidence by holding too little inventory and due to the nature of the business it also don't like to waste the material by holding too much inventory. Pizza Hut managing the stock by using Just in Time system is the best way. However it may increase the ordering cost but it reduces the holding cost and the chances for waste are minimum.
SUPPLY CHAIN MANAGEMENT
To consider the issue of purchasing attention now turns to the topic of supply and its management. It is helpful to differentiate two areas:
Purchasing day to day goods and services, ensuring that these are in line with the quality slanders, are they appropriately priced and delivered to a suitable time scale.
Supply with strategic consideration including to plan and implement a strategy and managing the overall process for supply chain.
Therefore supply should considers the strategic issues such as:
Test for out sourcing activities i-e, Suitability, Fesiability and Acceptability.
The establishment of the strategic partnership.
Number of the suppliers it should use.
One way of assessing how far supply chain management is being approached as a strategic process is by applying Reck and Long's (1988) strategic positioning tool.
For getting the competitive advantages Tesco and Pizza Hut should have their supply chain which should be better than their competitors. To improve the supply chain they should have the reliable suppliers, efficient and effective team of employees, good stock management etc.
Impacts on Competitiveness, Innovation and Sustainability:
As Tesco is a team leader in its industry so, the capacity planning, inventory management and supply chain management are the most important areas to focus on if the competitive priorities are to become the cost leadership because improving internal process of operation system can reduce the operation cost and overhead cost so they can offer the lower price of the products to their customer. For examples, downstream technique can reduce the power of supplier so; the company can get the good price for products (e.g.-discounts) and also can fulfil the demand of the market.
For innovation and sustainability all of the tools impact very much and they are inter related in this area e-g, for sustainability they should know about the future capacity planning, for that purpose they make a good supply chain management and for that they should maintain inventory management and to get the customers loyalty and confidence they should think about total quality management and performance measurement.
Pizza Hut is a leader in its market inventory management, supply chain and performance measures and capacity planning are the most important area for competitiveness and sustainability for example to make the future forecast they need all of the above relatively.
For innovation TQM is a very important tool, here they need to find what kind of quality customers are getting currently and what type of quality they expected from Pizza Hut both in product and service.