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Evaluate the efficiency of Tesco's stock control methods.

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Evaluate the efficiency of Tesco's stock control methods What is the need for efficient stock control? In April 2001, Tesco announced their �1 billion profits breakthrough. Analysts said their success was due to investment in IT in stock controls, (apx 1)1. For this barcodes are crucial, they link IT and physical distribution. Stocks are essential to every business. Stocks carry an opportunity cost, which include warehouse space, handling, deterioration, insurance and administration, as well as the cost of finance to pay for all of these. The value of having stocks of inputs must be set against the cost. Stocks ensure that the customer has a visible choice and immediate delivery. Tesco must strike a balance between the achievement of customer satisfaction and the cost of holding stocks. Tesco works in an oligopoly and so competition is always high. They must always think of new and improved ideas to give themselves the competitive advantage, which is impossible, if they do not have a firm stock control system that works effectively. Tesco takes into consideration the ideas that many other firms use, which involves the setting of three levels, a maximum, re-orders and buffer, (apx 1). In setting a maximum stock level the firm is able to compare the discounts of buying in larger quantities against the opportunity cost of holding the stock. The buffer stock level is a minimum reserve level, which depends on flexibility and reliability of suppliers. This simple idea is good for firms such as Tesco to find their optimum policy; though Tesco does not use this method exactly much of its stock control is based around the same idea. ...read more.


Having fast and efficient checkouts is a very important part of not only customer service but also stock control. Ultimately good stock control is needed to provide a service to customers that beats all other competitors. Many customers regard stock as one of the most important aspects of a supermarket, a fair reasoning because what is a supermarket without any food, (apx 1). Tesco has said that they aim to deliver not only unbeatable prices but also unbeatable service and most importantly availability, (apx 1). Customers are quick to complain if what they want is not on the shelves. Tesco is so confident with its stock management efficiency that it offers its customers the item free next time if they do not have it in stock; this idea was soon followed up by companies such as Blockbuster. Tesco has around 15 central warehouses which are strategically placed around the country, (apx 1), each of around 300,000 square feet. These aid them to get quicker and more efficient supply chains. When stocks are brought into the country they are instantly sent to one of the central warehouses. It is from these that the stock for each individual store sends their stocking orders. The orders are sent from the main computer in every store which is continuously updated by the tills. This computer is programmed wit the restocking levels for each individual product and it has an automated ordering system. When a certain item runs below the replenishment stock level then the computer sends the details of the product to the mainframe computer situated in the warehouse that is nearest to them. ...read more.


Using their skills the purpose of these specialists is to reduce costs by organizing stock control more efficiently. As Tesco reaps these economies of scale they are able to make average cost fall as output rises. Tesco is effective at using all these advantages and lowering average total cost. The ultimate aim of efficiency is to lower opportunity cost and therefore to make a higher profit. Tesco does this extremely effectively and they employ all systems that are open to them creating one of the most efficient stock control systems of any supermarket, (apx 1). There is only a very small area that Tesco can improve in, and this is extremely difficult to tackle. Often Tesco finds that its stores are in fact over selling, and their turnover is beyond their capacity, (apx 1). This results in the fact that the store is in fact too small to deal with the constant demand being put on it by its customers. This can result in many things, such as not enough staff, not enough tills to cope with the amount of customers and also not enough warehouse space to cope with the amount of deliveries and turnover of stock. There is very little that Tesco can do to tackle the problem of over selling and lack of warehouse space. However they do recognize the problem and them building several new central warehouses and extending the warehouses in some stores that are finding it hard to cope with the constant demand. Proving that, though Tesco are not perfect in their management of stock, they do everything in their power to be so and to uphold their competitive advantage. 1 Appendix one Holly-Marie Curthoys 02/04/03 ...read more.

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