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Operation Management Assessment of Tesco Malaysia

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    This report is to analyze the processes and strategies such as design, planning, and control of operations systems of Tesco Stores (M) Sdn Bhd (Tesco Malaysia). Theoretical framework and concepts learned from this course are applied to evaluate the company’s operational strategies. The study evaluates how Tesco Malaysia positions itself in the market segment and analyzes the strength and weaknesses of its existing strategy.

    Based on the findings, we will be able to identify and provide recommendations to complement or improve Tesco Malaysia’s existing processes. Recommendations to incorporate these changes are meant to improve operational efficiency and market share. In return, maximizing profits and increasing its value proposition.

    Introduction

    Company Background

    Tesco Stores (M) Sdn Bhd (Tesco Malaysia) is a joint venture between Tesco plc. and Sime Darby Berhad in 2001. Sime Darby still holds a 30% stake in this joint venture. In February 2002, Tesco Malaysia opens its maiden hypermarket in Puchong, Selangor. It currently operates 46 Tesco and Tesco Extra stores format following the acquisition of Makro Cash and Carry in 2006 and employs over 15,000 staff nationwide (Tesco Stores, 2013). They plan to open three new stores in 2014.

    Vision

    To be the most highly valued business by: the customers we serve, the communities in which we operate our loyal and committed colleagues, and of course, our shareholders

    Five elements describe the sort of company it aspires to be;

    •  wanted and needed around the world
    • a growing business, full of opportunities
    • modern, innovative, and full of ideas
    •  winners locally whilst applying our skills globally
    •  inspiring, earning trust and loyalty from customers, our colleagues and communities.

    Strategy

    1. It consists of a seven-part strategy for growth, which reflects the way consumer needs are changing and the increasingly global nature of their business,
    2. To grow the UK core
    3. To be an outstanding international retailer in stores and online
    4. To be as strong in everything we sell as we are in food
    5. To grow retail services in all our markets
    6. To put our responsibilities to the communities we serve at the heart of what we do
    7. To be a creator of highly valued brands
    8. To build our team so that we create more value

    Core Purpose

    Tesco Malaysia’s core purpose is to create value for customers to earn their lifetime of loyalty.

    Core Values

    No one tries harder for customers.

    • Understand customers
    • Be first to meet their needs
    • Act responsibly for our communities

    Treat people the way you want to be treated.

    • Work as a team
    • Trust and respect each other
    • Listen, support and say thank you
    • Share knowledge and experience

    Competitive Priorities of the Organization and Business Level Strategy

    Competitive Priorities of Tesco

    Tesco’s competitive priorities fall into two major categories: price and own-label. To reduce cost, having a great relationship with the suppliers and sourcing goods from local or overseas manufacturers who are more competitive with price and volumes reduce their input cost. Further to this, the ability to control operating costs and drive for efficiency in their operation management is a requirement.

    Tesco’s own label is exclusive and made to match-leading brands. It’s about giving customers confidence in the quality, value and reliability of the things they sell. Their pricing is very attractive and it’s their selling point to help customers save more without compromising on quality. If Tesco can create brand loyalty for their product offerings, thus price inelasticity on the part of the buyers.

    Business-Level Strategy

    Using Porter’s Generic Strategies, we’re map Tesco Business Level Strategy

    According to (Porter, 1985), A firm needs to choose between cost-leadership and differentiation strategies to create a sustainable competitive advantage or it will become stuck-in-the-middle without a coherent strategy (Acquaah & Ardekani, 2006). However, Tesco has shown it is possible to implement both cost leadership and differentiation strategy, term as a hybrid strategy (Baroto, M. B., Abdullah, M. M. B., & Wan, H. L., 2012). Other successful companies have done so such as IKEA and Germany’s Auto Industry.

    Five Objectives of Operations Management

    Quality

    The Tesco Home brands are exclusive and made to match-leading brands in quality, value and reliability. They have 4 categories, Value, Choice, Light Choices and Finest. Each brand has its own product offerings to meet the growing demands of diverse customers’ tastes and preferences (Tesco Homebrands, 2012).

    When you walk into a Tesco store, you can expect it to be well lighted, air-conditioned, clean and tidy. Shoppers’ perception previously was such a setup would mean the product prices are expensive. This is no longer the case and customers have to come to expect a pleasant store environment. Keeping stores neat and tidy is not easy to sustain but it is an inexpensive way to attract customers.

    Speed

    Speed of response to a product and services is becoming more demanding now. In a well-run store like Tesco, you need a good and efficient cashier to help move shoppers out of lines fast or in a timely matter. Having more checkout counters open also helps to reduce long queues as it could lead to customer dissatisfaction.

    Stock availability on the shelves is becoming more important for retailers. This is to ensure every product is available at its place all the time for shoppers purchasing. Else, they will go somewhere else. To measure stock availability, Tesco has implemented a key Store routine process call the Gaps scan. By scanning the product barcode, it will inform the current stock level. If below, the gap scan will provide them what are corrective action and a label will be placed to indicate the reason (Julien, 2013).

    Dependability

    Since opening its first store in Puchong, emphasis was to have a large car park to ensure availability of parking to the shoppers. This is not necessarily the case as the public took advantage of the free parking. Parking fees were implemented to discourage free parking where paying shoppers will get free parking after spending x amount. It was not successful, dropped and a challenge till this day. As a result, Tesco is unable to realize the full potential sales that could have been generated.

    In Tesco, accurate prices are important to maintain customer satisfaction. Shoppers are dependent that pricing in stores being consistent with what’s being advertised on the printed media and online. In the event there is a price dispute, Tesco will honor the lowest price. To minimize such incidents, store staff are required to scan the product barcode before opening hours.

    Flexibility

    Tesco Malaysia’s new store format, Tesco Extra has a contemporary design and a brighter look. It caters to small businesses, families and individuals with a comprehensive selection of products and services such as pharmacy, business development to support small business owners with their purchases (Tesco Stores, 2013). Plans are on the way to retrofit their existing stores to this format. Recently, Tesco Malaysia launched the Grocery Home Shopping Service. They are the first retailer to set up an online shopping service where it will deliver to your doorstep. It’s a very convenient and alternative solution if you’re do not have time to visit the store. (Tesco eShop, 2013)

    Cost

    Tesco’s relationship with manufacturers, suppliers and the use of technology for distribution and logistics are crucial in keeping its operating cost low. For example, Tesco Value’s product ranges are white in color, simple packaging and standard design across the whole product range. Tesco is how they can minimize its cost to keep the retail price as low as possible.

    Another is Tesco Ambient Distribution Centre (TADC) at Bukit Beruntung which is the hub for optimal storage and logistics. They were able to show how this high-tech facility can cut down delivery costs and time to consumers by nearly half which translates into high transparency in its supply chain and lower prices for customers (Tesco Press Release, 2012). Tesco’s use of technology helps to implement effective cost-saving strategies.

    Key Performance Indicator

    Key Performance Indicator (KPI) is a quantifiable measurement of a company’s set operational and strategic goals. The tables below represent Tesco Malaysia’s scoring based on the performance objectives and its competitors.

    Tesco Malaysia KPIs based on the Five Performance Objectives

    1 = poor performance, 10 = excellent performance

    Comparison with other competitors

    1 = poor performance, 10 = excellent performance

    Conclusion

    Tesco Malaysia has done very well with its current business strategies to meet customers’ demand for product choices, low prices and availability. They have listened to their customers and have become a better retailer now.

    With a stable operation and revenue stream, our recommendations to Tesco Malaysia are the following,

    • Being aggressive in opening new stores especially in East Coast, Sabah and Sarawak.
    • Review the use of different storage sizes to fit into smaller communities.
    • Identified correct product mix and range for different store sizes.
    • Leverage the technology used within Tesco Group to become more efficient and provide better service. Example: self-service checkout, intelligent queue management system.
    • Diversified their revenue stream to reduce risk from a single source of income.

    The result is to increase market share and increase profits it earns over its lifetime.

    References

    1. Acquaah, M. (2006). Does the implementation of a combination competitive strategy yield incremental performance benefit? A new perspective from transition economy in Sub-Saharan Africa. Journal of Business Research, 61, 346-354. http://dx.doi.org/10.1016/j.jbusres.2007.06.021
    2. Baroto, M. B., Abdullah, M. M. B., & Wan, H. L. (2012). Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management, 7(20), p120.
    3. Julien, A. (2013). How do we measure availability in Tesco? Retrieved from http://www.fmm.org.my/images/articles/events/Julien%20-%20How%20do%20we%20measure%20availability%20to%20project.pdf
    4. Porter, M. (1985). Creating and sustaining superipor performance. Competitive Advantage. New York: FreePress.
    5. Tesco eShop, 2013, Retrieved from http://www.tesco.com.my/eshop/html/help.aspx?ID=2&PID=5&rel=help#1
    6. Tesco Homebrands, (2012). Retrieved from http://www.tesco.com.my/html/our_brands-details.aspx?ID=135&PID=138
    7. Tesco Press Release, (2012). Retrieved from http://www.tesco.com.my/html/press_release_details.aspx?ID=107&PID=172&NID=5 Tesco Stores, 2013. Retrieved from http://www.tesco.com.my/html/tesco_store-details.aspx?ID=115&PID=122

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    Operation Management Assessment of Tesco Malaysia. (2016, Aug 18). Retrieved from https://graduateway.com/operation-management-assessment-of-tesco-malaysia/

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