Business Strategies Of Tesco

1.1 Company Background

Tesco was founded by Jack Cohen, who sold surplus groceries in the markets of the London East End from 1919. The Tesco brand first appeared in 1924. The first own-brand product sold by Jack was Tesco Tea; he made new labels by using the first three letters of the supplier’s name TE Stockwell which was a partner in the firm of tea suppliers and the first two letters of his surname forming the word “TESCO”. In the late 1990s, the typeface of the logo was changed to the current one shown on the carrier bags with stripe reflections underneath the typefaces as Tesco.

The first Tesco store was opened in 1929 in Burnt Oak, Edgware, London. The firm was floated on the London Stock Exchange in 1947 with a share price of 25p. The first Tesco self-service store opened in 1948 in St Albans and is still trading in 2010. The first Tesco supermarket was opened in 1956 in a converted cinema in Maldon, Essex. In 1964, Tesco Leicester enters the Guinness Book of Records as the largest store in Europe

Tesco’s first “superstore” was opened in 1968 in Crawley, West Sussex. It began selling petrol in 1974 and its annual turnover reached one billion pounds in 1979. Also In 1975 Tesco opened one of its first Hypermarket’s in Irlam. The first Hypermarket under the “Extra” name opened in 1997. Tesco also introduced a loyalty card branded ‘Clubcard’ in 1995 and later an Internet shopping service. During the 1990s it expanded into Central Europe, Ireland and East Asia. It then enters Malaysia, Turkey, Japan, China and Taiwan. Tesco broadband is launched in 2004 and tesco.com becomes first major British supermarket to enter music download market. In the year of 2010, Tesco opens the world’s first zero carbon supermarket in Ramsey Cambridgeshire and first ‘lifespace’ mall in Qingdao, china.

2.0 Value Chain

International production is dominated by multinational enterprises Tesco that are increasingly transnational in operations that widely dispersed on a geographical basis. Value chain breaks down of activities that companies perform into “primary” and “secondary” activities.

Primary activities are those required to create the product, sells the product and distribute it to the marketplace. Tesco does create its own product with its own brand to sell in the market according to geographical basis. It is to maximize profit by purchasing the lowest price of raw material and to increase consumer trust worthy to the brand image.

Secondary activities include a variety of functions such as human resource management, technological management, management information system, and finance for procurement. These secondary activities are required to support the primary activities. Modern technologies mostly influence the development of Tesco product that benefits both customer and the company. With the new technologies, it increases customer satisfaction because goods are readily available, services can become more personalised and shopping more convenient. Some example of technologies use in Tesco stores are wireless devices, intelligent scale, Electronic shelf labelling, self check out machine and etc . It is to make the whole operation more convenient. The adoption of Electronic Point of Sale (Epos), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities. The management and administration of the company are undertaken on IT systems replace papers operation, which are accessed through secure servers provide flexibility in the running of the business.

2.1 Primary Activities

Inbound logistics are placed at the first stage of the value chain as they possess the earliest opportunity to create value. It is where goods are received from a company’s suppliers and is stored until they are needed on the production. Examples Tesco produce its own brand cookies, Tesco purchase an amount of quantity of flour and stored until it’s needed for production. The logistical tasks, include the receipt of goods from suppliers, storage of goods, handling & transportation of goods internally and placing the products on the shelves. Tesco tries to maintain the level of consumer choice in store, whilst improving the efficiency of its distribution system and provides a low and reasonable price for consumer.

Operations are where goods are manufactured or assembled. The flour is taken out for production of Tesco cookies. The production element of Tesco’ activities are service orientated. Operations could be the second upstream opportunities that enable services and products to be provided, tasks such as opening every day in accordance with trading hours, maintaining the shelves, and the stock. In order to obtain future competitive advantage Tesco has to consider expanding further in terms of operating hours in those places, where it does not occur or opening new Metro and Express stores. However, this might be restricted by law or planning councils, which is essentially takes away competitive advantage.

The third stage of the value chain is the outbound logistics that is concerned with delivering the product to the customer. Outbound Logistics is the goods are ready, and need to be sent along the supply chain to wholesalers, retailers or the final consumer. Tesco currently adds value in its home delivery service. Other tangibles that have to be improved are those of parking facilities, trolley collectors, till staff and systems to gain competitive advantage, if executed more efficiently than competitors, they will add value by saving the customer time, whilst increasing the turnaround. Adding value could be achieved through the implementation of a trolley deposit system, keeping them tidy and enabling customers to get to and from the premises quicker, as well as making these facilities readily available and quicker to obtain.

Marketing and Sales are where the organization prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. The cookies is targeted to the teenage whereby is delicious and have a convenient package. Service are includes all areas of service such as installation, after-sales service, complaints handling, training and so on. Clubcard gives further discounts and loyalty for the customers. However, Tesco may also decide to attract more customers by advertising via radio, local newspaper and national Television. With a more customer sophistication and their awareness of ethical business practices, it may give the company some constraints in terms of selling environmentally friendly products. In return, Tesco can take it as an advantage and provide customers with more of the recycling points and include information in their advertisements, adding value for customers who will believe that by choosing to shop at Tesco, people are helping the environment.

2.2 Support Activities

Procurement function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. Tesco purchase large amount of the raw material with low prices to produces a quality product.

Technology Development is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. It has the ability to provide new innovative product ranges and solutions that anticipate customer needs. It also remains a key competitive advantage, adding value, as Tesco’s brand name. However, installation and capital investment is a long term process and needs total commitment of the staff.

Human Resource Management (HRM) is an organization that would manage recruitment and selection, training and development, and rewards and remuneration. Employees are an expensive and vital resource. Tesco is a big company whereby needs a lot of employees and also provide training to motivate their employee. The company aims to increase the number of training schemes and further develop its recruitment programmes so to pass on to the customer the benefits of a well recruited, well trained staff, not the cost. Tesco continues to invest in customer service, where training is also linked directly to pay, so the staff are motivated to learn, and are encouraged to improve their approach to customers and service provision quality.

Firm Infrastructure includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS) and other mechanisms for planning and control such as the accounting department. Planning and control functions are the ones that account to provide the continued focus on the costs and cash control of the company’s operations. And departments such as profit protection whose main jobs are to reduce shrink. The company has now increased its staff count who are involved in upgrading its anti-fraud software (infrastructure/technology, interdependence), and installing new security systems which aim to reduce internal theft, an expense the customer will now not have to cover in the price of their purchases.

2.3 International Business Strategies

Tesco used transnational strategy when competing in the international business environment. Tesco faces pressures in terms of both cost competitiveness and responsiveness to local conditions. Tesco cannot depend on cost reduction via scale economies from producing a standardised product in a few selected geographical locations. They must seek reduction by exploiting location economies appropriate to a particular element of the value chain.

The marketing strategy will involve analyzing the markets, and determining which products to offer, as well as the appropriateness of each product for export to other Tesco shops in neighboring countries. Tesco may decide that there will be a ‘core’ European range of environmentally friendly clothes which could be exported throughout Europe, whilst there would be a broader range available for local customers. A detailed market research activity will need to be undertaken to test the concept of the new range, the intended pricing, attitudes towards Tesco as a retail outlet and purchasing habits of the customers before any decisions are made. The strategy is implemented through marketing tactics to determine the product specifications which involve detailed decisions such as the price and the way the product is distributed. However, consideration would also need to be given to the fact that the reality is that it is distributed throughout a chain store, so a premium price charged within a Tesco outlet cannot demand the same price as an others.

3.0 Supply Chain

Logistics is concerned with getting the products and services where they are needed and when they are desired. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.

The term of supply chain management has sometimes been used interchangeably with logistic. It has broader perspective includes the management of the entire chain from supply of raw materials through manufacture and assembly to distribution to the end consumer. It’s become a strategies as well as an operational issue.

3.1 Logistical Principles (Inventory Costs and Control)

Holding or carrying costs that include insurance, storage costs and opportunity costs. Tesco has lots of product that import from other country that purchased in a large quantity. Therefore Tesco has to pay insurance for the product safety when deliver and storage costs.

Order costs occurs when obtaining stock and might includes the cost of clerical and administrative work in raising an order, any associated transport costs and inspection of stock on arrival. Tesco has to bear the cost to employ people to analyze and order stock and also transportation fees to receive the stock.

Stock out costs occurs to stock out of raw materials and work in progress which may result in machine and operator idle time. Tesco has to bear cost that has missed orders from customer or missed delivery dates resulting in deterioration in customer or penalties clauses incurred for late delivery.

3.2 Distribution channel

Distribution channel refers to the route the product takes from the producer to final consumer. Such channel must fulfil physical movement of the product, their storage prior to transit or sale, the transfer of title to the products and their presentation to the consumer. They are 4 types of distribution channel, direct system, transit, classical system and multicountry system. Tesco is a large retailer that uses few type of distribution channel that is convenient and affordable. Tesco use transit system whereby they export sent to a transit warehouse in another country. Then act as a break bulk point with item despatched in bulk over long distance and other in smaller unit to more local destination. Classical channel is also one of the distribution channel that Tesco use. Export goods are sent to warehouse and then distributed within the national market. It function as break bulk and perform a stock holding function with national of that country being serve by locally inventories. Tesco also use multinational system that use separated warehouse to serve several adjoining countries rather than one country only. This is because export and import product is in a large amount and is more affordable.

Tesco UK has uses TNT Logistics UK for home delivery services for the newly-launched Tesco Direct. The nationwide service will utilise dedicated Tesco Direct vehicles as well as TNT Logistics’ multi-user TNT Home fleet, which already delivers furniture and larger goods for other retailers. TNT Logistics has long-standing experience in home delivery was a key factor in awarding the company the business. They are the ideal logistics partner for Tesco as they have the expertise we require to ensure the deliveries are made as promised to our customers. In addition, through the use of the TNT Home fleet, they give us the flexibility to grow the business in a cost-effective way. Tesco business, the focus upon customer service is important, and TNT has demonstrated an enthusiasm to work with us to make the customer experience amongst the best in the market. Tesco has launched lots of product lines from small goods to large item. Customers can order through the tesco.com website, by telephone or by visiting the Tesco Direct desk located within selected Tesco stores.TNT will manage on Tesco’s behalf and also utilise home delivery platforms. Initially over 200 TNT staff will be employed on the operation increasing as sales volumes accelerate.TNT Logistics has installed software systems, including its HDi home delivery system, Red Prairie’s DLx warehouse management system, Paragon route planning and PenPod for the collection of electronic signatures.

Transports are implicit in the choice of distribution channels and in other locational decision for the multinational organisation. Heavy industries locations chosen will often depend on whether the operation is bulk forming or bulk reducing. Bulk forming operations such as in furniture manufacture need to be close to their markets in order to cut transport costs. However for bulk reducing operation, the main need is to be close to the heavy raw material use as inputs. Modern industries increasingly use lighter raw materials so that they together with the service industries. For Tesco access to rail, road, sea and air links is important both for import and export purpose. The transport mode chosen will depend on cost but on the relative importance for their product or services. Such as speed of delivery, dependability of delivery, quality deterioration issue, transport costs, route flexibility and etc.

Tesco supply chain management director has some deep understanding of the medium of the charging system is triggered by a rapid return of customers to work in various retail formats. This will work well if you have returned the same charging system, using the same supplier, cross-dock distribution center, and the vehicles that serve a variety of stores, to supply each retail store format. There are some small differences in real costs in the process of supplying the same item at several stores format, because the purchase price can be negotiated from suppliers for the entire network, not the format of the store. Tesco can benefit from the method of logistic Toyota suppliers to reduce the time and energy and effort in the supply of merchandise. Tesco can see the waste at each step along with a great opportunity to reduce costs while increasing customer satisfaction. The first step is to relate the data point-of-sale in the stores directly for shipping in the RDC decision Tesco. This step makes the final customer at the checkout point in the current inventory. Tesco submitted to create the expanded reach of the format, starting in Britain, so the household can get a quick adoption of consumer goods from various outlets. The experiment is a small Tesco store to create easy reach of the place in a densely populated area.

4.0 Conclusion

Tesco is a multinational enterprise that is increasingly transnational in operations that widely dispersed on a geographical basis. Tesco does create its own product with using its own brand to increase loyalty of consumer by brand recognition. Tesco also used secondary activities to support the primary activities. Which all the new technologies, it can improve the whole management and also give a better satisfaction for consumer. Tesco has a large concern on its logistic, lots of import and export of product within different range. Tesco has to access to rail, road, sea and air links for entire distribution. For Tesco. com, Tesco has to arrange transportation to deliver the goods that consumer purchase online. Tesco has to make sure that goods sent in a good condition to fulfil customer satisfaction. Tesco will maintain it goods service and makes more improvement.