Competitive advantage analysis in the Grocery retailing industry - The role of IT and IS in Tesco
Competitive advantage analysis in the Grocery retailing industry
-The role of IT and IS in Tesco
I. SITUATION OF IT IN THE UK GROCERY RETAILING INDUSTRY:
The UK grocery retailing industry is composed of supermarket multiples. Overview: Supermarkets sweep up, (n.d.) identified the top five to be Tesco, Sainsbury's, Asda, Safeway and Morrisons respectively. (See Appendix A) There are those focusing on quality 'niche' like Waitrose and Marks and Spencer. Others are regional operators like Budgens, Iceland, Co-op. Some are at the cheap end like Aldi, Lidl, Netto. Despite the great number of retailers, the top 5 capture an average market share of 71.55%. (See Appendix B) Grocery retail industry started with Co-operative Movement in the 19th century. A group of retailers sold foods at affordable prices. By 1960, the concept of 'self-service' stores revolutionized. This further developed into supermarkets and superstores (See Appendix C). By 1970s, supermarkets grew larger into hypermarkets which include non-food items. (Ridge,1998) IT was behind all throughout this evolution.
IT changed the way the grocery retailing industry conducted its business. Initially, the industry used IT as a means of improving efficiency. But slowly, the focus has changed from mere efficiency to being the core of gaining competitive advantage. IT has been present in the grocery industry through ordering systems, hand-held terminals, EPOS (See Appendix D), EDI (See Appendix E) since late 1980's and early 1990's. This facilitated the exchange of information between the retailers and suppliers. Suppliers can access paperless information on sales, stocks, and promotions instantaneously. Before, supplier-customer relationships were maintained through personal contact. Now, this relationship is maintained electronically through Extranet. Tesco has its TIE (Trading Information Exchange) system. IS also facilitated in the stocks management and replenishment enabling the retailers to expand their stores and include more items. Automatic Replenishment Systems makes re-stocking automatic and quicker, with less people involved. IS also enabled them to handle more variety of items from purely canned and processed foods to include fresh agricultural products, frozen foods, entertainment, medicine, insurance, banking, clothes, and are still adding more. It is quite impossible to handle this diverse range of products without IT. Database Marketing was possible through the Loyalty Programs initiated by IT. "U.K. food sellers increasingly are employing U.S. supermarket technology and services to squeeze every dollar out of the low-margin industry". (Thorne, n.d.) Internet and the Web brings new ways of doing business. (See Appendix F) E-commerce brought more sales to the retailers while reducing the cost for a physical store. 20% of Tesco's sales come from the internet with the remaining 80% from the stores. (Tesco PLC Annual Review, 2002) IT has clearly offered convenience to both suppliers and consumers. (For a detailed analysis of the effects of IT on the business of retailers, see Appendix G)
The retailers depended on IT to achieve key success factors. Relevant sales data were captured through IT. IT helped in forecasting sales and facilitating the order and delivery of goods allowing retailers to stock enough goods on their actual stores, ensuring that product is available all the time at the same time making more space for more products. They also used IT to enormously decrease costs. Use of IT led to reduction of paperwork, wastage, warehousing cost, inventory cost, distribution cost, permitting the provision of competitive prices. All these boils down to one thing: saved resources in terms of time and money. Savings can then be ploughed back to the business to further build on its competencies.
Retailers also rely on IT to cope with future changes in the industry. The UK grocery market is near its saturation. Retailers are constantly finding new ways for growth (Ridge, 1998) and they are using IT as the solution. They have introduced many changes, like on-line shopping, for them to improve sales and customer service, therefore maintain their customers and market share. Retailers receive the advantage of being able to give the customer live data and the latest real-time prices. Johansson (n.d.) identified that Tesco and Sainsbury, top 2 leaders, opened GlobalNetXchange and WorldWide Retail Exchange respectively, which are electronic and Internet-based market exchanges aimed to reduce purchasing costs and standardize the purchasing process. Retailers are also adding in more products to their business like divorce finalizing and will-writing. (Overview: Supermarkets sweep up, n.d.) Asda in York has already extended its services to become the First Supermarket-Based Registry Office (BANANAS, BREAD, BEANS AND NOW BABIES, 2002).
Grocery retailing industry's sales grew by 30% from 1995. In 2000, sales in supermarkets and superstores reached £76.78bn, a growth of 4.5% from 1999.(Ridge,1998) This shows the contribution of IT to the industry. The retailers owe to IS and IT what they were, what they are now, and what they will be in the future: a one stop shop where consumers can do their shopping for almost everything.
II. IT AS A COMPETITIVE STRATEGY FOR TESCO
Tesco, founded in 1924, has been exemplary in using IT to become UK's biggest food retailer. It enjoys competitive advantage with its strategy of cost leadership, convenience, quality, and service. First, Tesco was abrupt to change with its environment, keeping a good strategic fit in introducing changes whenever required. As more and more retail stores were created, Tesco moved to centralized decision making. (See Appendix J) Tesco has been excellent in meeting changing customer needs through service and innovation while maintaining its commitment to value and quality. At the same time, Tesco anticipates the future and tries to change the conditions towards benefiting them. Seeing the trend of mobile consumers, Tesco introduced Pocket Ordering. Tesco has always been the leader in creating new opportunities. Tesco was first to introduce the Loyalty Program. It has now entered the area of banking, producing a card which consumers can use for shopping, banking and buying petrol. (Thorne, n.d.) This clearly distinguishes them from the others, improving the convenience of the consumers.
IT is heavily used as bridge between suppliers and distributors, facilitating distribution's outsourcing. (See Appendix K) This allowed Tesco to get savings and plough them back on core competencies, deriving more value out of services at lesser cost. At the same time, Tesco maintained a good rapport with their suppliers and distributors, taking good care of its value chain. (See Appendix L) Use of ECR made Tesco more responsive to consumer demand, eliminating unnecessary costs in the supply chain. IT advanced supply chain management particularly in integrating internal promotions with EPOS, replenishment management and waste management. (See Appendix M) EDI and TIE were essential to quick sharing of relevant sales and market information with suppliers, giving all parties added flexibility. Through the use of IT, the operational efficiency of Tesco was significantly improved. (See Appendix N) Costs were reduced in warehousing and distribution after proper planning of schedules. Tesco is becoming a one-stop shopping destination, with increased range of products. Quality was demanded from suppliers through bargaining power, convenience increased providing a pleasant shopping environment with the stores offering wider range of products and more space to move around and newer means of shopping, competitive prices resulting from all the savings it acquired through use of IT. The final factor for being effective in developing competitive strategy was Tesco's intention to pass on the benefits gained from the supply chain to customers!
An analysis of Tesco's 5- forces model (See Appendix O) will show that the bargaining power of buyer is HIGH, while that of the supplier is LOW-MEDIUM. Threat of Substitutes is MEDIUM - HIGH, while threat of entrants is LOW. Competitive Rivalry is LOW-MEDIUM. Only bargaining power of supplier and threat of substitutes, which should have been high and low respectively, fell below the ideal setting. Tesco has indeed very well managed its competitive environment.
Breese (2002) identified several factors helped Tesco maintain its momentum in its share growth:
* They have continued to open stores at a steady rate
* They have remained price competitive
* They have extended their remote shopping services (including the Internet), and now have the best coverage of all the major grocery retailers which continues to increase in the short term-achieving another all time high of 24.7% in the latest quarter and exceeding 25% for the first time ever in the four weeks to June.
Tesco PLC-Interim of results 24 weeks ended 12th August 2001 showed international strategy to be:
* To build a profitable international business of scale in both Europe and Asia, which continues to make excellent progress with sales up to 32% and operating profit up to 79%
* It is a market leader in the first five markets it entered
* It is profitable in eight of its ten markets
* It is on track to achieve its targets, including £140-160 M operating profit from its markets
* Its operating margins are improving each year
* It is though with start-up losses and initial learning
* And it now has a business model that is delivering increasing operating profits and covering the cost of funding.
Its four-part strategy is delivering its program for its long- term growth. (Tesco PLC-Interim of results 24 weeks ended 12th August 2001) It has:
* Gained market share from its UK competitors
* Developed a winning formula for growth with profit up to 79% last year
* Increased worldwide non-food sales to 7B a year
* And in only five years, it created a major new force in financial services.
Indeed, Tesco has achieved a huge amount in a very short amount of time through growth and there is much more to come. ...
This is a preview of the whole essay
Its four-part strategy is delivering its program for its long- term growth. (Tesco PLC-Interim of results 24 weeks ended 12th August 2001) It has:
* Gained market share from its UK competitors
* Developed a winning formula for growth with profit up to 79% last year
* Increased worldwide non-food sales to 7B a year
* And in only five years, it created a major new force in financial services.
Indeed, Tesco has achieved a huge amount in a very short amount of time through growth and there is much more to come. Tesco has now 586 stores in UK (composed of 255 superstores, 220 supermarkets, 48 neighborhood stores, 42 Metro stores, and 21 express stores) and 86 eastern European stores (Thorne, n.d.) coming from 337 in 1987. With the aid of IT, Tesco repositioned itself and has taken the place of market share leader. It was able to look for innovative ways to manage its costs, core competencies, and activities offering competitive prices, as much choice as possible, high-quality products, and the best customer service. Tesco is acknowledged as a leader in the development and implementation of new value-added customer services. Its Clubcard customer loyalty program has some 10 million members, and the company is a leader in Internet Shopping. It is also venturing out increasing its global competitiveness. Indeed it was able to accomplish its aim -to become the forefront of retail technology, using IT for competitive advantage and cost savings.
III. UTILIZATION OF TECHNOLOGY:
Technology Present in Tesco:
Currently, Tesco utilizes IT to achieve its business strategy. Tesco is committed to maintaining leadership through use of IT. (Application Integration for E-business-Case Study: Tesco, n.d.) IT facilitating access to data enhances the product and service being offered (e.g. EDI to communicate sales data, forecasts, trends) IT is also used to contribute to a direct reduction in the firm's cost profile. Tesco uses Tradanet to send orders to suppliers. Internet allows it to outsource distribution, enabling them to focus on core competencies. Payments are made through EFT which eliminated the need for invoices. IT empowered Tesco to become the market leader. However, competitors desire to outperform Tesco. It will be worthwhile to continue the improvements using IT. At present, Tesco is offering new means to attract customers by adding new ways they can do their shopping. Customers can order direct from the warehouses (which includes baby products, books, DVD, electrical, etc), and even use their hand-held Pocket PCs to shop (See Appendix P)!
Technologies not yet in Tesco
The grocery industry is very saturated. This made it very necessary that Tesco find new ways of finding new areas for growth. Added to this, is the ever-changing environment situation. Changes in the environment must be anticipated and monitored to eliminate unwanted surprises. Opportunities and threats must be actively managed. Thus the need for proper planning in how to use IT to create strategic stretch to make the conditions in the environment favorable to Tesco. Overview: Supermarkets sweep up (n.d.) said that for the first time in years, in Jan 2002, Sainsbury outperformed Tesco over the Christmas period. Tesco needs to act immediately if it wishes to retain its position. Below are recent technologies that Tesco might adopt to help them keep their current customers and attract new ones. These systems can be good defense against this threat. They also improve service, increasing value to the customers. Furthermore, using IT in such ways increases the barriers to entry for new competitors, and competitive power in the industry.
* Self-scanning checkouts. (See Appendix Q)
* Auto-ID (See Appendix R)
* Smart cards (See Appendix S)
Future technologies in Tesco
The future is very dynamic. Those impossible before are already done today. Innovation and creativity is the key for further utilizing information systems in the future. Below are recommendations of some creative and innovative systems that Tesco may adopt for it to further improve its service and innovation as a means of achieving differentiation thereby maintaining its position as market leader.
* Expiry Alarm System (See Appendix T)
* Interactive Kiosk System (See Appendix U)
* Self-Scanning Cart System (See Appendix V)
Tesco has actively managed and used IT in the past to acquire its position as the leader. Currently, Tesco has been investing on new areas of growth while keeping with the demand of the environment. What lies ahead is still in question for Tesco. A grave uncertainty exists in the future. This should encourage Tesco to look for new and better ways to strategically utilize IS and IT for competitive advantage. Tesco did this before, and it will be possible again!
CONCLUSION
IT was present all throughout the evolution of the grocery retailing industry from small self-service stores to big hypermarkets. Without IT, the existence of hypermarkets would have not been possible. This was the contribution of IT in the past. Today, the focus of IT has shifted from mere operational efficiency to that of using IT to gain competitive advantage. Supplier-Customer relationships are now maintained electronically. Automatic replenishment systems facilitate inventory control ensuring that there are always stock available so that customers go home with what they want. Database Marketing is used to improve the way retailers approach their customers. In the future IT will be used as a tool for survival, to cope with future changes in the industry. The UK grocery market is near its saturation. Retailers are constantly finding new ways for growth, and IT is the solution to this.
Tesco was so effective that it plays as the current market share leader, getting a share of 24% of the market. Tesco now holds a collection of 586 stores in UK (composed of 255 superstores, 220 supermarkets, 48 neighborhood stores, 42 Metro stores, and 21 express stores) and 86 eastern European stores, the number of which was only 337 in 1987. Tesco has been so good in using IT to achieve its strategy that it was able to almost meet the ideal competitive environment with only bargaining power of supplier and threat of substitutes, which should have been high and low respectively, falling below the ideal setting
Tesco is committed to maintaining leadership through use of IT. IT facilitating access to data enhances the product and service being offered. IT is also used to contribute to a direct reduction in the firm's cost profile. Tesco is offering new services to customers like Pocket Ordering and ordering direct from warehouses. Tesco should be keen in adopting systems which are either present in the competitors or in other countries. These systems include self-scanning checkouts, auto-id, and smart cards. Finally, Tesco may adopt the recommended systems like expiry alarm system, interactive kiosk system, and self-scanning system to further distinguish itself from the rest of the competitors while improving its service and innovation.
APPENDICES
APPENDIX A MARKET SHARE OF TOP FIVE GROCERY IN UK
Taken from Overview: Supermarkets sweep up. (n.d.) Retrieved April 25,2004
http://www.corporatewatch.org.uk/pages/whats_wrong_suprmkts.htm
Percentage of Market Share of the Top Five Grocery Multiples (by volume)
997
998
999
2000
Dec
2000
Tesco
22.0
22.9
23.4
24.2
23
Sainsbury's
9.7
9.8
9.1
8.6
5
Asda
3.3
4.1
4.8
6.3
5.4
Safeway
0.3
0.2
0.0
0.1
9.7
Morrisons
3.9
3.9
4.5
5.1
----
Source: Till Roll Share of Trade for 52 weeks ending July by independent retail analysts Taylor Nelson Sofres Superpanel.
From the graph, it can be seen that TESCO, the market leader is 6 bigger than Morrisons, and twice as big as Safeway.
APPENDIX B TOTAL SHARE OF TOP 5
997
998
999
2000
Tesco
22.0
22.9
23.4
24.2
Sainsbury's
9.7
9.8
9.1
8.6
Asda
3.3
4.1
4.8
6.3
Safeway
0.3
0.2
0.0
0.1
Morrisons
3.9
3.9
4.5
5.1
TOTAL
69.2
70.9
71.8
74.3
Average Market Share = (69.2 + 70.9 + 71.8 + 74.3) / 4 = 71.55%
APPENDIX C DEFINITION OF TERMS
Taken from Overview: Supermarkets sweep up. (n.d.) Retrieved April 25,2004
http://www.corporatewatch.org.uk/pages/whats_wrong_suprmkts.htm
A supermarket
...is a self-service grocery store that sells food, beverages and other goods. They are located on urban high streets or in shopping malls, covering an area of between 4,000 - 25,000 square ft. They are located on urban high streets or in shopping malls. Over the last 10-15 years, many have developed branches in out-of-town or edge-of-town locations.
A superstore
...is a retail outlet specializing in grocery sales, although not exclusively selling food, of between 25 - 50, 000 square ft. These are usually located out-of-town or on the edge of towns. They offer a larger range of non-food items, such as DIY and garden products and electrical goods.
A hypermarket
...is a superstore over 50,000 square ft. These are always out of town or on large out of town complexes, with extensive car parks. French and US hypermarkets can be as much as 100,000 square ft.
APPENDIX D EPOS
Tesco's central replenishment system is fed by the sales information from its ePOS systems. Orders from each of its 700 stores are then calculated and transmitted to the distribution centers for fulfillment.
WSS 1040s and scanners are allocated for each assembler at the start of their shift and a picking assignment is then downloaded. The assembler then collects and scans, in the printer area, store destination labels for pick-up assignments to make sure that he has all the accurate labels for the assignment.
WMS System has already planned the most efficient route round the warehouse and displays the products to be picked. To confirm accuracy, the assembler scans the product's outer case code and is then told how many cases to pick as he visits each location. If the stock is temporarily not available, the assembler uses a function key to prompt stock replenishment.
APPENDIX E EDI's DEPENDENCE ON TECHNOLOGY
When a buyer firm wants to send an electronic purchase order to a supplier, it must first transform data from internal computer applications used for managing inventory or production into the common language of EDI. Similarly, the supplier firm must convert the received order into data formats that its shipping and order entry applications can process. To send EDI transactions between two trading partners, a special type of software called a translator or "EDI management software" is needed to convert the data into ANSI syntax. Similarly, data received from trading partners in ANSI formats must be converted to a format that an internal business computer application can process. EDI message then travels electronically to the trading partner in order to be received. Traditionally, EDI transmissions flow through closed networks called value added networks or (VANs). As communications alternatives have developed in the late 1990s for the use of TCP/IP (Internet) protocol and file transfer formats for Internet and direct transmission to company and proprietary networks, EDI is being increasingly transferred over non-VAN networks and Internet VANs as well.
EDI has the potential to affect financial and information flows across the entire cash flow time line. Benefits a company may get include: reduced transaction and banking costs (in financial EDI applications); Reduced delays and errors; and Stronger relationships with trading partners. There are at least eight major areas of benefit for firms and organizations that implement EDI: Reduced Cycle Time, Reduced Error Rate, Labor Savings, Reduced Storage Costs, Reduced Uncertainty, Enhanced Security, Transaction Cost Savings, Trading Partner Relationships
APPENDIX F DEVELOPMENTS BROUGHT BY WEB AND INTERNET
Ridge (1998) identified the developments the retailers were able to introduce because of IS and IT. Sainsbury ('Order and Collect') was the first to sell through the web in February 1995. This was however limited to a number of products: wine, flowers and chocolates. In September 1996, Tesco followed with a 'tele-sales' mail order service where consumers can order through the net. By November 6, 2002, a direct Internet based home shopping service was introduced. In August 1997, Somerfield started office shopping scheme. (See Appendix I) Somerfield extend the service to "Somerfield Direct", launched on January 19, 1998,at a store in Chippenham, Wiltshire. 'Customers can choose from a catalogue of more than 3 000 products and have their order delivered to their home.' (Olins, 1998, cited by Ridge, 1998) Obviously without IS and IT, these changes are not possible.
APPENDIX G DETAILED EFFECT ON THE RETAILERS' BUSINESS
A. OPERATIONS:
The industry invested heavily in IT, drastically improving operational efficiency in terms of distribution, storage, handling, and the movement of goods between supplier, specialist distributor, retailer, and customer through automated data capture and information transfer. Internet and EDI coordinated distribution from manufacturers to warehouses and then to retail stores. Specialist distributors are able to monitor warehouse efficiency, maximize space and vehicle utilization, minimize delivery duplication, and plan delivery times and routes successfully. These activities ensured that the retailers get the right products needed at the right time, at the right quantity and condition as to solicit purchase. Updated information captured through portable data captures machine and EPOS facilitated stock control & replenishment. This made convenient stocking goods commensurate to sales. Retailers depended on EPOS and EDI to perform management tasks like inventory scheduling and management; forecasting of demand, sales and stock movement; predicting trend; and planning effectively. Bar code and scanning technology are very vital aspects of the retailer's operation. This eliminates the need to individually price the products making it quicker to replenish shelf displays. It also accounts for easier task and faster keying-in of purchase information during checkout. Flexibility is also easily achieved in terms of price changes. All these contributed to the reduction of distribution costs, accounting for 12-20% of the value of the product.
B. MARKETING:
EPOS captures the sales data at the point of purchase. This data serves as marketing research information for the supplier in helping them predict future trends, anticipate changes in needs, and plan their production schedule. Efficient Consumer Response aids in the function of Customer Relationship Management. 'Frequent purchase card' program enables retailers to create individual customer profile containing details on their purchases, preferences, buying habits and patterns. (See Appendix H) The information gathered can help the retailer in future decisions and actions for them to better target customer groups, provide better products, and satisfy each individual customer.
C. FINANCE:
Cash Point Banking allows consumers to pay using switch cards in addition to credit cards, without worrying about cash. Automated Teller Machines are never absent in every retail stores. Tesco, mirroring recent U.S. trends, added their own banking service. It provides debit and credit cards, and savings with interest. IT also allows retailers to pay suppliers through electronic funds transfer (EFT), a quick method requiring less paperwork. This shifts the burden of checking the accuracy of sales invoice to the suppliers. With IT, a retailer can easily evaluate its profitability through reports like cash flow, balance sheet, etc generated using specific Report Generation Software.
APPENDIX H LOYALTY PROGRAMS
England's grocery retailers are engaged in a lively competition for market share, and are striving to outdo each other with a wide range of product, marketing and service innovations. And like their U.S.-based brethren, British food sellers are wooing shoppers with everything from in-store banking to e-mail orders, and from baby-sitting services to magazines, with new innovations constantly appearing. The Big Three in the U.K. supermarket world have been pitted against each other in an intense rivalry for some time and consider customer loyalty an important element in their success. As in the United States, loyalty cards rewarding shoppers for their patronage have become virtually a staple of the U.K. food industry. Tesco's Club Card, similar to those of other companies, awards a point for each £1 spent in its stores. Shoppers can then spend those points at Tesco stores or B & Q "do-it-yourself" hardware stores. The company is also linking up with other businesses. Club Card points can be earned for patronizing certain gasoline stations, and a trial is underway which gives Tesco points for expenditures on food and drink at 30 pubs. The cards not only enhance customer satisfaction but also provide a valuable source of customer data for marketing efforts. Shopper names and addresses, and the category of products purchased are recorded and can be used for direct-mail campaigns and other promotions. Club Card evenings -- complimentary in-store gatherings for certain Club Card holders -- are organized to promote products. Shoppers who have visited the wine or cheese departments at Tesco might be invited to a wine-tasting evening; those who purchased shampoo or cosmetics might be invited to a "hair care evening." Tesco also sends Club Card members a monthly magazine of recipe ideas, details of new product launches, and other information tailored to its particular demographic groups. Each separate edition of the magazine reflects the interests and lifestyle of a target market group such as young families, students or seniors. Loyalty points are automatically awarded for expenditures made with debit or credit cards at Tesco; while Safeway's ABC Bonus Account pays 5% interest and even has an overdraft capability. These branded cards may also be used for purchases at associated gasoline bars.
APPENDIX I HOW SOMERFIELD'S OFFICE SHOPPING WORKED
"2,500 staff at I.B.M. development laboratories in Hursley, Hampshire are able to place an order via their personal computers, choosing from 20,000 products. Somerfield staff will collect the goods and deliver them to the I.B.M. car park. A £2 fee is charged for this service." (Hamilton, 1997, cited by Ridge, 1998).
APPENDIX J ENVIRONMENTAL ANALYSIS
In 1980s, it adopted centralization of purchasing changing to linked computer systems. Followed shortly in 1986, Tesco spearheaded a breakthrough in sending orders electronically via Tradanet. Then it opened the first composite multi-temperature warehouse in 1988, which facilitated the storage and transportation of different food products at different temperatures. It all started out when Tesco recognized a poor performance following 'pile it high, sell it cheap' policy. It identified the problems and saw a need to change and adopt a new strategy. Strategy included Tesco's resolution to problems identified, future growth and prosperity. These required a new strategy; strong concentration on price was limiting the total service. New strategy was based on 'quality and service in a pleasant shopping environment, together with competitive prices'.
APPENDIX K CORE COMPETENCIES
Tesco recognized the fact that it would not become proficient with secondary distribution. The action was to settle for outsourcing distribution to experts in the field of food warehousing. These experts have the skills required which Tesco does not. Tesco can now focus the resources, which should have been allocated for distribution, to further hone its skills and competences. Store managers can now concentrate on improving customer care and service. Outsourcing also entailed that more capital is available for investment in the core business rather than the money being invested in trucks and other transport cost. The most important benefit of outsourcing is cost savings with improved efficiencies and productivity because the burden of such activity is passed on to people who have perfected their experience curves in doing it.
APPENDIX L VALUE CHAIN
The switch to centralized purchase decision-making and outsourcing required a close and constant coordination and communication between Tesco, its suppliers, and distributors. IT served as the primary tool for communication maintaining constant contact. Tesco established network arrangements with suppliers and distributors mainly through EDI. Tons of information was shared, including purchase orders, confirmation, or change of orders, delivery schedules, and payments, reducing the paperwork involved in transactions. EDI is not only used for conducting business transactions but also as a means to share forecasts, sales, stock data and trends, and up-to-date product information. Negotiation also occurs online. Suppliers also send a delivery note before delivery enabling Tesco to add more products. IT makes everything faster with faster movement of information, ergo short supply times for Tesco. Tesco cared for its suppliers by maintaining close link with them. It helps them in planning the production schedules by agreeing on forecast expectations, giving them greater certainty and less wastages with the orders. Tesco gives out support to suppliers in the form of seminars to clarify EDI, objectives, and future plans. After checking the quantity and quality of goods ordered, Tesco then sends a promissory note, through EDI, to the suppliers indicating when and how much it will pay maintaining its credibility. Payments are made through EFT, eliminating the need for invoices. IT enabled all the parties involved in the value chain to be flexible, taking immediate actions whenever necessary, becoming more responsive to changes. Each lends a helping hand to the other in the quest for cost reductions, information-sharing and, of course, profit-building.
APPENDIX M TESCO SUPPLY CHAIN MANAGEMENT
Taken from Application Integration for E-business-Case Study: Tesco. (n.d.) Retrieved on April 10, 2004 from http://www.info-edge.com/samples/BI-0003free.pdf
Tesco Trading Information Exchange or TIE, launched in July 1998, is an extranet based-solution to help it work closely with suppliers, making information available to them. This allowed Tesco to meet many of the requirements of ECR by sharing data with suppliers. Tesco can then share EPOS data in near-real time, inform supplier of their inventory level. This, in turn, allows suppliers to measure and anticipate levels of demand on a day-to-day basis and quickly adjust production schedules to react to fluctuations. TIE is taken further to integrate internal promotions with EPOS. By January 1999, Tesco added the Promotions Management to handle the promotion scheme, while still linking the suppliers. Effectiveness of promotion is assessed by monitoring the movement of daily sales through EPOS, competitor activity, compliance, and consumer reaction. Information is fed back to appropriate levels of management including the suppliers. This new system provides a rigorous and structured approach to maximize the effectiveness of the promotion. Since both Tesco and suppliers share the same set of data, they agree and commit to the way the promotion is to be run. This achieves better management of promotions, never running out of stocks for effective promotions, nor piling up on goods for failures. Generally, TIE increased service levels, shelf and sales availability, drove stock levels down resulting to fewer wastage and less costs.
APPENDIX N OPERATIONS
Tesco adopts its business processes according to its strategy. Goods are never stocked for so long in the regional warehouses. Once received, goods are grouped into cages for different stores, then quality and quantity checking follows. After this check, printed labels prepared by the central office are placed on the cages indicating the delivery information of each cage. This reduces the cost associated to warehousing. Tesco also reduces distribution cost by spreading the delivery time and delivering only the desired number of goods needed by every store. Aside from this, Tesco's Continuous Replenishment system raises the availability of products while simplifying the function of replenishment. Products are ordered automatically based on continuous information flows from checkouts. Using the world's first store-specific merchandising system, Tesco can now tailor each store range to meet the precise needs of its customers. Linked to continuous replenishment, product space is allocated to demand. A new automatic scheduling system in stores works out the optimum staffing levels required at checkouts, to match 12 million customers per week with 18,000 checkouts.
APPENDIX O PORTER's 5-FORCES MODEL
a. Bargaining Power of Buyers: HIGH
Tesco holds an extremely high Buyer Bargaining Power over its main distributor, Glass Glover, and its 2,500 suppliers. While being a client in three other specialist distributors, Tesco opted to remain a small client to them, focusing majority of its demands from Glass Glover. Tesco is the major customer comprising 40% of Glass Glover's revenue. Because of this, Glass Glover cannot afford to lose Tesco or it might end up being out of business. Tesco maintained high volume with Glass Glover, but made sure it did not put all its demands on Glass Glover only. It maintained plenty of alternatives. This way, its switching cost is low, ergo Tesco can at any time switch distributor should it feel unsatisfied. This buyer bargaining power also holds true with Tesco's suppliers. Tesco and its suppliers must agree on bar codes of products, packaging, volume, weight, and case sizes, to name a few. When one supplier is unable to meet Tesco's requirements, the orders are sent to its supplier's competitors. Thus, the supplier can't afford to dissatisfy Tesco and should provide Tesco with quality yet cheap goods. Tesco very well played the game of bargaining power.
b. Bargaining Power of Suppliers: LOW-MEDIUM
Tesco possesses a low supplier bargaining power. For one, there are many players in the industry from which the customers can buy their goods. As such, switching costs for the customers are likely to be low as there are many alternative sources. But their brand is strong.
c. Threat of Substitutes: MEDIUM - HIGH
There exists product-for-product substitution, substitution of need, and generic substitution bringing about a high threat. However, Tesco has introduced more unique services separating itself from the others somehow lowering this threat.
d. Threat of Entrants: LOW
The size of which the top 5 specifically Tesco's are operating brings about economies of scale. Tesco has already established its distribution channels. How many branches...Having existed for almost __ years in the industry, Tesco is high in the experience curve. Tesco is also trying to be more distinct from the rest of the players in the industry by offering more and newer services.
e. Competitive Rivalry: LOW-MEDIUM
As mentioned, the Big 5 captures around 71% of the market. Competitors are not in balance in terms of their size, with few large companies dominating the market over the many small ones. But the market is in its mature stage, getting more and more saturated. Retailers then have to compete for this small market growth, including Tesco. Moreover, Tesco has been adopting measures of trying to differentiate itself from the rest (like the Loyalty Program). But then again, these measures are easily adopted by the followers.
APPENDIX P POCKET SHOPPER
Tesco extends the confines of shopping from physical stores, to virtual e-commerce sites, and now to almost anywhere! One can do his shopping on the train, bus, or anywhere he brings his Pocket PC to. A downloadable application is installed in the Pocket PC allowing consumers to search through products in the superstore. Desired items can be placed into a basket or cart even without internet connection. Once the Pocket PC is connected with its cradle connection to the PC, customers can synchronize the product range and basket contents with Tesco's servers. The pocket PC can also be used to login and checkout the order. Through Pocket PC, one may synchronize orders with Internet connection through mobile phone's GSM or GPRS. (Retrieved on April 26,2004 from
http://www.tesco.com/page.asp?superstore/p/pocketshopper.htm)
APPENDIX Q SELF SCANNING CHECKOUT and TERMINAL
Interactive wireless self-scanning terminals coupled with built-in radio and screen can address customers directly upon entering the store. Customers will be greeted by name, a personalized messages, the total loyalty points, current offerings that might be of interest to the consumer. This is clearly a way to create new opportunity, influencing the environment, and a better approach to effective, personalized marketing! This system still has more potential uses. Self-scanning checkout allows customers to beat queues by reducing checkout lineups. Goods are scanned all at once at the checkout counter immediately producing the final amount to be paid. This eliminates hassles to customers, increasing the shopping experience and making it more comfortable for them. Like EPOS, it may perform inventory functions if it is connected with the back-end systems. The system is already used in Netherlands, Germany, France, Argentina, Belgium, Brazil, Eire, Finland, and Scandinavia and the USA. In the UK, Safeway, Waitrose and Sainsbury's already have some 200 stores with self-scanning systems. Tesco can do it the way Safeway does it: customers pay in an interactive computer terminal using debit or credit cards after the amount has been determined by the scanning checkout terminal. (Thorne, n.d.) Tesco must consider the installations of such systems soon so they will not be left out from the norm, avoiding the potential threat.
APPENDIX R AUTO ID
Auto-ID was founded by Massachusetts Institute of Technology in 1999. A chip is embedded to every product, carrying its unique information. This identifies one product from another, making every product distinct with its own set of information. Any defects or problems with the products can easily be tracked, avoiding possible problems to occur again. Coupled with radio frequency (RF) identification technology and highly miniaturized computers, products can be tracked at any point in the supply chain. An added bonus to the consumers is the ability to track products that were lost or stolen. This is differentiation of Tesco's services from the rest. It will not be demanding for Tesco since their bargaining power as buyer is high and thus can make such requests from suppliers easily.
Picture of Auto ID
Consumer Auto ID. Retrieved April 12, 2004 from the Azalea software, inc. website: http://www.azalea.com/ConsumerBarcodes/
APPENDIX S SMART CARDS
Smart cards are smarter versions of credit and debit cards. Smart cards contain personal information about the owner, including a pin number. Such that a pin number must be entered for every transaction the card is used. This minimizes fraud. This again is an added service to the customers ensuring them of a more secure payment for their transactions.
APPENDIX T EXPIRY ALARM SYSTEM
An Expiry Alarm System is aimed to inform the retailer of any near-to-expiry products. This system may record the expiry dates of the goods. When the time nears, the alarm system will send a warning so that something may be done to dispatch of the goods. Such products may be discounted. This way, no products are wasted, while at the same time increasing sales.
APPENDIX U INTERACTIVE KIOSK SYSTEM
The Interactive Kiosk System will allow for interactive query on products by customers. The exact location, with the shelf number can be shown, together with the number of stocks remaining on the shelf. This system can also handle requests for unavailable goods. Currently, a customer can request that an unavailable good be purchased by requesting it in the customer service counter. With they system, this request can be done on-line. The system will post a questionnaire to the customers as to how many stocks of a certain good he wants to purchase. If there is no stock left, the system will query the customers if he wants stocks to be ordered stating the minimum requirements. This way, interference of staff is minimized, saving on staff cost and having the staff do more important functions. The information gathered by the kiosk will be a basis for sales information, hinting on the number of goods to be supplied in the future. Kiosk system may be extended so that it becomes a point where customers can add in their personal preferences to their shopping. They may want a ripe mango, or a bit fatty bacon.
APPENDIX V SELF SCANNING CART SYSTEM
Once the product is put into the cart, the scanner automatically captures and displays on the LCD screen how much the item is. This will allow the customer to determine if he/ she is buying within the desired budget. This eliminates the hassle of customers not having the money to pay as well as saving time from arguments. Also, the time for customers to look for a staff to ask about the price of product is also eliminated because of the scanner that is capable of determining the price.
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