OPERATIONS MANAGEMENT: A CASE STUDY OF TESCO
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This report examines Tesco’s state of current networking and operations management. The report is founded on three main perspectives namely operations management, operations design, and operations strategy. Then, Tesco’s strengths and weaknesses in as far as efficient networking and operations management are concerned will be revealed. Additionally, the report evaluates the general approaches to managing improvement in an organization, and later link current Tesco’s operations needs to the different improvement management techniques. Finally, after the analysis, the report will recommend one improvement management approach that is ideal for the prevailing Tesco’s operations needs, and explain the risk involved for selecting this particular approach.
Operations that Require Improvement and Justification
Faced with the challenges of cutthroat competition, domestic saturation, and self-development demand, the company has moved to expand its operations to overseas markets and is using its store business model in countries such as China, Turkey, and Poland among others (Hill 2008). Largely, the success of Tesco in international expansion can be attributed to the excellent corporate strategies it has in place. Tesco has gained significant success and its growth in foreign markets is rapid. The company localises and translates its store format depending on the behaviour habits of the host country. Despite the success in foreign markets, Tesco is only in twelve countries. The company therefore needs to venture into more countries do diversify its market
With regard to the functional strategy and the business unit strategy, Tesco follows a consumer-centric concept and breaks myriad traditional “rules” of retailing. Tesco is always ahead of its competitors. One of the most important operations strategies of Tesco has to do with customers’ benefits. Using a strong customer-focussed concept, the company adopted the low-price policy, and the Tesco club cards to enhance customer loyalty. From its inception, the company has always competed on the price basis (Mañez 2006). The basis ideal of Tesco is to sell more at low prices. This is made possible through cost cutting approaches such as bulk buying and minimising wastage. Tesco also buys non-food items from developing economies such as India and China, which also enables the company to sell cheaply. The ability to sell at low prices is a key competitive advantage that. The problem with low price policy, despite its success, is that it does not cater for all segments of the market. Customers in higher economic strata can perceive low prices as a compromise in quality.
To win customer’s loyalty, Tesco introduced loyalty cards (Wright 1999). This has helped the company collect vital information about the customers. This data enables the company to conduct more focuses promotions and even adjust business layout according to the customer’s needs. The danger of this is that it can scare away potential customers who are not ready to share their information with the company. To get the necessary data, Tesco should conduct surveys. It should also innovate other ways of maintaining customer loyalty such as offering attractive discounts.
Tesco has also focussed vocal at improving the delivery system and innovating the supply chain for better quality services delivery to customers. In the year 1999, Tesco started to venture in online grocery shopping (Rowley 2005). Even though online shopping increased the unit cost for many other retailers at that time, Tesco made online sales of up to £500m within six years and this kept growing. Despite the success of online shopping at Tesco, the company has not taken the online model to foreign markets. This is an area that the company needs to work on. In most foreign markets, there is a small number of Tesco stores which makes it difficult achieve effective delivers bases on the store-based approach.
To improve supply chain management, Tesco also embraced new technology by introducing the RFID technology (Jones 2005). The technology has to do with use of barcodes in scanning and tracing a product throughout the chain of supply. This technology also improved employee efficiency the work of goods processing. However, it is important to realize that there are dangers of using technology. One danger is that the security of information cannot be guaranteed. Hackers can infiltrate the systems and steal or even doctor information. Furthermore, technology such as the RFID is expensive and can raise the costs of operation.
Approaches to Managing Improvement
The following approaches are at the disposal of Tesco in managing the company’s operations that require improvement. After discussing each in general, the best approach to managing improvement for the specific operations will be recommended.
Continuous Improvement Management
One methodology that Tesco can use to manage improvement is the continuous improvement (CI) approach. This is where the company’s operations that have weakness are improved gradually and not by impulse. As Bhuiyan and Baghel (2005) state, CI is all about improving the products, services, or operations on an ongoing basis through breakthrough or incremental improvements. CI incorporates all the other improvement management techniques discussed below, but on an ongoing basis.
Education and Training Management
Improving management sometimes requires an organization to consider the education and training aspects of its employees. According to Sola and Xavier (2007), some operations require the employees to be educated and trained to how to handle them. For example, some improvements that require technologically new equipments and machines may require the employees to be trained on how to use them (Schleich 2009). Therefore, educating and training the employees is one way of managing improvement.
The management should also consider the element of employees. This is because sometimes employees can be resistant to strategies for improving the efficiency of operations (Murray & Chapman 2003). As such, it would be important for the management to assess whether it would be necessary to introduce incentives such as higher pay, promotion, and rewards among others in order to avert any resistance to strategies meant for improving the operations of the organization (Wilson & Collier 2000).
According to Prajogo and Sohal (2003), lack of appropriate management systems can hinder the operations for quality improvement. Hence, improvement management requires considering the management systems with an organization (Inoue et al. 2013). For instance, employees need to be involved in the decision-making and management so that they can work towards quality improvements. For instance, some operations could be having problems because of presence of a bureaucratic management, where decisions are made by the management and prescribed downward to the employees. Hence, managing the leadership could lead to improvement of the operations.
Strategic Planning Management
Managing planned improvements in an organization requires a strategic vision (Narasimhaiah, Somers & Wong 2010). In this light, the management needs to evaluate the effects of the planned improvements on the organization. This is because some improvements strategies can backfire and cause undesired outcomes that can lead to a discontinued future of an organization (Anderson 2000). Therefore, in management of improvement, Prajogo and Sohal (2004) recommend that there is a need to conduct a scenario analysis to help in proactively predicting the anticipated outcomes. Hence, strategic planning is one way of improving the operations.
In this improvement management technique, it is suggested that an organization should focus on managing the processes that lead to success and reduction of failures instead of focusing on the management of the outcomes (Tehm, Ooi, & Yong 2008). According to Motwani (2001), this improvement management technique strives on promoting knowledge innovation and creating to improve and optimize processes. This results in added value, quality, and harnesses capabilities of the employees, which then leads to reduced cycle-time, down-time, and increased efficiency (Al-Mabrouk 2006; Holsapple and Joshi 2000).
As Sila (2007) states, the satisfaction of customers on an ongoing basis is what determines the long-term success of an organization. For this reason, improvements that are managed with customer focus in mind result in increased satisfaction, and hence repeated purchases and patronage (Santos-Vijande & Alvarez-Gonzalez 2007). Therefore, apart from meeting and exceeding the specific expectations of the customers, this improvement management approach is inclined towards the realization of high sales and revenues for the organization. This is because increased customers’ satisfaction translates to increased sales and revenues.
From the foregoing analysis, one operation that requires improvement is Tesco’s diversification to foreign markets. This is because Tesco is only in twelve countries and to spread the risk, it therefore needs to venture into more countries. Global expansion should be a strategic goal. Hence, it requires the strategic planning improvement management.
Tesco also needs to improve its pricing. This is because the company’s low price policy, despite its success, is that it does not cater for all segments of the market. Customers in higher economic strata can perceive low prices as a compromise in quality. Therefore, the company ought to have considered the different needs for its different customer segments. Therefore, this points to a lack of customer-focused improvement plans and management.
Tesco needs to improve its strategy about the use of loyalty carts. This is because it posses the danger of scaring away potential customers who are not ready to share their information with the company. Before introducing such strategies, Tesco should get the necessary data first, such as conducting customers’ surveys. The company should also innovate other ways of maintaining customer loyalty, such as offering attractive discounts. All these point to the need for customer-focused improvement management.
Despite the success of online shopping at Tesco, the company has not taken the online model to foreign markets. As such, in most foreign markets there are a small number of Tesco stores, which makes it difficult to achieve effective delivery based on the store-based approach, and that is why switching to online shopping to reach out to more customers is an ideal improvement strategy. Hence, customer-focused improvement management is ideal here.
There are dangers of using RFID technology and an improvement is necessary. One danger is that the security of information cannot be guaranteed. Hackers can infiltrate the systems and steal or even doctor information. Furthermore, technology such as the RFID is expensive and can raise the costs of operation. Therefore, in order to improve, the company requires training some of its employees on security issues of RFID. In addition, to neutralize the operations costs of using RFID technology, the company needs to improve service delivery so that customers can be satisfied, which in turn would lead to repeated purchasing and hence more sales revenues that can counter the fixed expenses. This is a customer-focused approach to managing improvement.
From the conclusions above, it emerged that among the different areas that require improvement, one requires strategic planning improvement, another training and development, and fours areas required customer-focused improvement management. Therefore, an inference can be made that Tesco needs to direct its efforts on embracing the customer focus approach of managing improvement. This is because most of the prevailing operations that require improvement relate directly to the customers. However, the risk of selecting this method is that it ignores the other two, these being training and development and strategic planning management. One method that would have encompassed all is the continuous improvement management approach, but this will be expensive to sustain as it covers other elements, such as employees, leadership, and process management that are beyond the scope of the prevailing operations requirement at Tesco. Therefore, selecting one that would improve most of the operations that need improvement is the best strategy for Tesco, which is the customer-focus improvement management.
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