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The grocery retailer TESCO Essay

1) Process of Transformation

Goods and services are both areas of operations, this means that they will change the state of any input into output. In order to achieve this they will need to have a transformation process according to the type of service or goods they have to offer this is all part of satisfying customer needs.

Table 1.1 shows us the simple input transformation output process.



Materials information


Input transformation process output goods & services



Facilities staff

Although most companies use the transformation process it is natural to see that they use it to provide different things to satisfy their customer needs. For example the AA will provide a service for their customers, as they are assisting to fix their cars, on the other hand Tesco’s supermarkets are providing products such as foods and toiletries for customers. So we can say that they both have same input such as staff and facilities, however they use it in different ways.

If we look at Tesco’s supermarkets in relation to the above, we can clearly identify that they are indeed a product providing business, as they sell foods, toiletries etc. to their customers.

Table 1.2 shows Tesco’s input-transformation-output process:

Input resources

Transformation process


Goods for sale Display foods and goods

Sales staff Customer service Foods and goods assembled with customer

Functional tills Sell goods customers

The table above shows a basic outline of the nature of Tesco’s operations. It illustrates the simple fact of how they will take input such as goods for sale and take it through the transformation process, which in this case is putting goods on shelves or freezers within the shop floor. Then of course the output being customers buying their good, and Tesco meeting needs and achieving customer satisfaction.

Within the process of transformation the role of staff is very important, as it will contribute to the effectiveness of their operations. Therefore if we look at Tesco’s staff and their roles in the organisation we get an easier understanding of the above. A sales staff or assistant that works at Tesco is in direct contact with customers, this makes their role very important, as their customer service may depend of Tesco making a sale or not. Even though they will not need the same knowledge as the manager of the store, they do however need skills and understanding of such things as operating tills, where things are located in the store, special offers basic product knowledge etc. this kind of skills helps Tesco sale products within the store.

On the other hand if we take the role of a manager within the store, we will find that they are responsible for the actual running of small operations taking place and work being done by sales staff, so indeed the managers has more training be able to control the process of transformation that takes place. Tesco likes to improve and train staffs at all levels. This helps them run operations more efficiently as all staff are fully trained and therefore will do their jobs to a 100% of their abilities.

Technology is also another important aspect of the process of transformation. As we know technology is developing day by day and is indeed the way forward for organisations. Therefore keeping up to date and using new and efficient technology helps Tesco act more efficient on its operations, for example the tills they are using at the moment is very high tec. This means they are easy to use for staff and also much efficient, which means the queues at the check-out point will be shorter.

Tesco’s materials are those, which they keep in their warehouse, which then they transfer to all branches of Tesco and is then positioned within the store.

2) Operational Strategy

Tesco’s operational strategy is its long- term goal. It is important for Tesco to have an operational strategy because it establishes the types of goods and services the company will offer its target market, and how Tesco are going to get an advantage over its competitors. For Tesco to set its goal and to satisfy all its stakeholders (customers, suppliers, employees, the society) it is important to identify and analyse its five performance objectives. These objectives consist of:

The quality objective: want to do things right

The quality objective for Tesco means that the operation manager makes sure of that the store environment looks good so that it attract customers, and that they provide customer service. If Tesco provides good customer service and makes sure of keeping the environment looking good, the customers are more likely to come back instead of going to Tesco’s competitors.

The quality inside the operation is also important. If someone makes a mistake within the operation, time and money must be spent correcting this mistake.

If the operation have not reordered all the goods they need, this can lead to irritated customers and lower revenue for the operation.

The speed objective: want to do things fast

The speed objectives is concerned with how long time it will take the customer to get to the store, buy the product and arrive back home again. The customers would like to do this as quick as possible and Tesco’s operation managers should try to make this process quicker than its competitors.

Speed is also important inside the operation. If the movement of materials and information is not quick enough, this could delay the process of serving the customers as quickly as possible.

The dependability objective: want to do things on time

The dependability objective is concerned with keeping promises to the customers when it comes to opening hours, having the expected goods in stock, being able to serve the customers as quick as possible and have available parking all the time. One of Tesco’s aims is to offer the best shopping experience in the UK. (www.tesco.com) One of the factors that are helping Tesco in doing this is that many of their stores are open 24 hours a day. By doing this the customer flow will be more smoothed out, because the customers can go shopping whenever they want to.

The flexibility objective: be able to change what you do

Shopping habits are changing, and Tesco aims to be better than its competitors at this area. To do this Tesco offers the largest Internet grocer in the world. (www.tesco.com) This means flexibility when it comes to offering their customers a wide range of goods. In the shop Tesco must make sure that the goods are available for the customers, and that is much easier through the Internet. When using the Internet, it is also much easier to serve more customers at the same time.

Flexibility inside the operation is also important. If suddenly a rush of customers comes in to Tesco, they must be able to serve all the customers relatively quickly, as a normal period. This means that the staff must be multi-skilled so they can step in for one another.

Because of consumers’ changing needs, the company must be able to introduce new goods and services. Tesco has an own team who works on creating new products. They do market research, decide the most appropriate form of packaging for a product, and test the new product.

Cost objective: want to do things cheaply

Tesco is in a price competitive market, and needs to consider its costs carefully. Around 60% of Tesco’s costs are the cost of buying materials and services, around 15% are staff costs and 30% are technology and facilities costs.

For an operation such as Tesco, the cost objective can be seen as the most important objective, because all of the previous four performance objectives affect cost.

In operational strategy it is also important for Tesco as an operation to identify and provide a connection between the 5 steps in the Hill Methodology model.

1. Corporate objectives here Tesco look at their long term aims and objectives such as their growth rates, profitability, cash flow etc. this helps them established were they are going to and how they want to get there to achieve profitability.

2. Marketing strategycompared to other supermarkets Tesco has to look at its product range as well as selling brand names they have their own Tesco brands. They also look at who they are targeting for certain products, for example sandwiches and drinks may be stocked up around lunch time during a working week and this means they are targeting business men, builders etc. that go out for a quick lunch. They also look at rate of innovation and mix of specifications.

3. How they win over other supermarketsthis is due to a number of reasons, such as Tesco’s beans being 4p cheaper then their competitors Asda. The quality of their products been better, or having a bigger product range, speed of delivery and in some ways their brand image being a family supermarket.

4. Process choicefactors that take into consideration are process technology being used within Tesco and also the role of inventory, trade offs embodied in process and capacity, size, location etc.

5. Infrastructure this is Tesco’s planning and control operations systems, this will also include the structure of work for staff as well as their payment systems and finally their organisational structure.


“Planning and control is the activity of deciding what the operations resources should be doing, then making sure that they are really doing it.”

(Slack, N. et al, 2001)

Capacity Planning


“The way that operations organise the level of value- added activity, which they can achieve under normal operating conditions over a period of time.” (Slack, N. et al, 2001)

Tesco is a large supermarket, which sells lots of different products. Some of the products are seasonal products. This leads to a seasonal demand fluctuation. Tesco also experience demand fluctuations every day and every week. To cope with this demand fluctuation, there are three different strategies Tesco can use:

1) Keep output on one level:

This means that the same number of staff would operate all the time, so that they produce the same output in each period. (See Figure 3.1). Tesco mostly sell perishable products, which are not suitable for storage. Keeping the output on one level would also be a waste of staff, because the staff would be sitting in the checkouts waiting for customers.

Figure 3.1

2) Chase the demand:

This means that Tesco would try to keep their capacity on the same level as the demand. (See figure 3.2) Different number of staff will have to work in different working hours with different equipment. This strategy can more complicated to put into practice. This strategy would be suitable for Tesco, because lots of Tesco’s output is not storable. For Tesco to achieve to chase the demand the staff might have to work over- and idletime, they have to vary the size of the workforce or hire part- time workers.

Figure 3.2

3) Manage the demand

If Tesco want to manage the demand, there are two things the management can do:

a) They can try to change the demand. This is often done through price. Right before the

expire date on the products they can sell them for half price. They can also change the demand through advertising.

b) Tesco can also have alternative products for their seasonal products.

Figure 3.3

Inventory planning

Definition of inventory: “the stored accumulation of material resources in a transformation system” (Slack, N. et al, 2001)

When the operation managers at Tesco are going to make their inventory decisions, there are three factors they must considerate:

1) How much they should order

2) When to order

3) How they are going to control the system

When the operations managers are going to decide how much to order, the two most important factors they must considerate are the cost of placing the order and the stock holding costs.

The most common model used to figure out when the stock needs replenishment, are the Economic Order Quantity model (EOQ):

EOQ= (2CoD/Ch)^1/2

Co= ordering costs

D= units per year

Ch= holding costs

(Slack, N. et al, 2001)

At Tesco they have an own IT stock replenishment system called Sales Based Ordering (SBO). This system calculates when Tesco should order new stock on the basis of what have been sold. The SBO system keeps track on how big the stock is and how many products that are being sold each day. Knowing the information of these two factors, the system can calculate how much to order. (info pack fra Tesco)

Tesco is an operation, which needs to order new stock frequently because they have lots of perishable items, and their products are highly consumed. Tesco’s stock is delivered in two separate periods during a day. The first delivery consists of the perishable items. This delivery arrives between midnight and 8am.

The second delivery arrives between 8am-8pm. This delivery consists of items that have longer shelf-lives, such as groceries, cheese, bakery and non-food items. (info pack fra Tesco)

When the operations managers at Tesco are going to decide when to reorder, they have to be sure that they not order too early or too late). They must also consider the lead time (the time between ordering and delivery) and that all the goods do not arrive at the same time.

There are two ways of deciding when to reorder:

1) Time based reorder (reorder at the same time each period).

2) Stock based reorder (reorder when the stock is on a certain level).

Tesco uses both of these approaches when deciding when to reorder. To calculate when to reorder the operation manager can again use the EOQ. When he has calculated the EOQ, ha can figure out the time between the orders by dividing the EOQ with units per year (EOQ/D) and he can calculate the order frequency by dividing the units per year with the EOQ (D/EOQ). (Slack, N. et al, 2001)

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