Tesco's theory of constraints

Abstract

This study is a critical appraisal and a perceptual analysis of Tesco's (one of the biggest food retailers in UK) Theory of constraints in their project management area of price-fixing in order to achieve an added competitive advantage to boost up their core business and to yield an exceptional profit.

The application of SWOT analysis evidently point towards that Tescos have a very emphatic planning of increasing the flow through the constraint in order to increase the rate of goal of achievements, which is the underlying concept of five focusing steps in Theory of Constraints.

The study also predicts that Tesco's has a much improved profit margin than those of their competitors. However, the study also suggests that Tescos has really become a threat for its competitors as they have a much enhanced competitive advantage in their project management areas specifically with concern to Theory of Constraints

Introduction

The planned aim of this study is to critically evaluate Tesco's Theory of constraints in their project management area of price-fixing with special focus to Tesco's recently recorded profits.

It is been patently said that in spite of the declining standard of living in Britain due to the current recession, Tesco managed to mark a massive profit, which is equivalent in relation to £150 per family. And this learning is an attempt to measure the impartial approach of Tesco in using the kit of Theory of Constraints in achieving the latest glory of profits.

Figures and news gathered from Tesco's website and the recent news article "Tesco set to defy slump with record £3.2 billion profits", published in Evening Standard on 16 April 2010 outlines the major sources for this study

Tesco: Recent News

Tesco has been increasing its market share since 1992 when it had started growing greatly. Ever since then Tesco has increased its market share to 28.3% from 26.5%.

Likewise Tesco has also increased the customer retention rate as it has added up its customers relatively to a larger extent. [Not everyone buys Tesco's strategy

Furthermore, the latest findings of the market researchers Kantar explicates that Tesco shares a vigorous amount of share in the £130 billion grocery market annually, which approximately totals to 30.3 %.

[Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010]

In spite of Britain's falling living standards in the recent recession, Tesco had made record profits equivalent to about £150 for every family. Tesco, one of the supermarket giants in UK is expected to make known the growing graph of its total pre-tax profits, which is around £3.2 billion in the year until February end.. [Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010]

Also it been the sixteenth consecutive year of growing profits for Tesco, which really sets a warning bell for its competitors to get their strategic tools repaired. [Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010]

A SWOT analysis for Tesco

Strengths

A very increased customer constancy and so a very improved customer retention rate is been mainly discussed as Tesco's sole strength.

In the frame of Tesco's loyalty programs, well pricing plays a vital role. The recent scenario of Tesco marking record profits while on the other hand Britain's top retailers been found guilty of price-fixing clearly explains how powerful the price-fixing factor for Tesco, which is obviously strength for this super market giant.

As a usual practise companies gaze at their competitors to compete on price thereby making their price lower to lead the market as price leader i.e. if a company reduces the price for its leading product brand then its competitor will cut the price by same amount and in that way starts the destructive price war although Tesco make use of the data to monitor its price sensitive customers. Therefore Tesco is been able to grow by offering better value of money to its customers. On the other hand Tesco is been capable to widen their market both nationally and internationally with their good will, which also make sure of their brand identity. Economic analysts says that Tesco made it possible to reap such a remarkable profit recently just because of its overseas outposts though the rapid growth in home also is been contributing significantly. Korea stands as a vital example for Tescos international performance. [[Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010]

Strategy of Acquisition is also another important element for Tesco's increased competitive advantage. Though Tesco is been closing down stores nationally and cutting jobs due to weak planning and unchecked performance, they are been reinforcing more and more store formats and new stores at different parts of the country as a result of their acquisition and diversification strategies.

In summation the following can be discussed as Tesco's strategic strengths

  • One of the leading supermarkets (strategic advantage)
  • More and more stores nationally
  • Different store formats at different location. (Market segmentation)
  • Identity of Brand (Strategic advantage)
  • Reputation of good Corporate culture (Organisational process advantage)
  • Strategic planning with special focus to customers (Segmentation of customers)
  • Overseas outposts (competitive advantage)
  • Designing of store formats (Adding value to meet customers)
  • Extensive product range (Adding value to meet customers)
  • Store renovation (Adding value to meet customers)
  • Excellent price-fixing
  • Well planned marketing strategy. Tesco focus on both the internal and external customers (Maximising customer value)
  • substantial buying power
  • Steady in price strategy (Strategic price advantage)
  • Loyalty programmes for customers (Adding value to meet customers)
  • Exceptional performance management (Strategic HRM initiatives)

Weakness

Global dimension is an influential competitive weapon, which pose as a threat for Tesco. And that as all winning retailers Tesco will also has to work to grow profitable market share. Weak planning and poor monitoring is been allowing Tesco to end up with closure of its many stores. [[[Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010]

The huge ranges of old stores are actually a treat of weakness for Tesco because it is deficient in innovation, attraction and improvement.

However, acquisition and diversification are at times huge debacle.

Using of advanced technologies can cause more troubles in the operations of the compass any, which could lead to loss.

Frequent complaints against the firm regarding its price, campaigning and competition may weaken the development of the company.

In fact the following general points can be discussed as weakness for Tesco.

  • Improper international scale (Affects the marketing competence)
  • Huge range of old stores (Trouble in managing)
  • Available of shares at stock exchange
  • Largeness of the company lacks good management
  • Deviation from the core business
  • More share holders (Risk of innovation and change)
  • More expense involved

Opportunities

In the wake of globalisation, Tesco's expansion internationally can be rightly said as its sole opportunity. In short the below factors can be claimed as components as Tesco's wide opportunity for better competitive edge.

  • Market segmentation in Eastern Europe and Asia
  • Moe business other than food (Competitive advantage)
  • product development
  • Implementing new technologies
  • International reputation (competitive advantage)
  • Use of advanced tools for marketing and promotion (Marketing competence)
  • competitive position (Competitive advantage)
  • Highly Skilled work force (Strategic HRM initiatives)
  • Change in global economy (Strategic change)
  • Hike in share price (Strategic financial advantage)

Threats

As in the flow of international expansion for any company, an improper tool of global measurement is a threat for Tesco. In addition, the frequent price war raised by the competitors is always a threat for Tesco. Also it warns as threat in the way of price fixing as well.

However, the following points explain the factors that pose as threats for Tesco.

  • way in to the international market
  • Destructive price-war
  • More often implemented economic regulations and business laws
  • Food scares
  • Higher competition
  • huge stock
  • unskilled workforce
  • poor Maintenance of all the stores
  • weak maintenance of reputation on quality and service
  • customers demand of new products of different taste
  • marketing errors
  • Global recession

How Tesco applies the theory of constraints to increase their competitive advantage - a shot view

In the light of above SWOT analysis done, it is clear that Tesco's fundamental approach of overcoming the hurdles in their ways to success is based on the premise that the rate of goal achievement is limited by at least one constraining process.

The recent profit made by Tesco, which is £150 for Britain's each family is a sound example for Tesco's approach on Theory of Constraints.

Further, Tesco practically follow the five focusing steps as part of their constraint strategy like Tescos

  • identify their constraint even at the primary stage -[ they are always aware of the price wars, which is pose to be their both strength and weakness]
  • Overcome their constraint - [By good price-fixing]
  • Subordinate all other process to their decision - [less focus on other planning, eg closing of many small business every year, cutting down jobs, withdraiwng
  • money local communities.
  • Elevate the constraint - [Even when a store is turned down, Tesco comes back again and again with an army of legal and planning consultants to try to force
  • through]
  • Remove the constraint - [Tesco sets record £3.2 billion profits]

The current circumstance of Britain's two biggest tobacco companies and Ten retailers including Asda, the co-op Morrisons and Safeways found guilty of price fixing while Tesco is been confirming the position of being the nation's leading retailer very emphatically and this clearly demonstrates Tesco's strategic use of the project management tool i.e. Theory of Constraints. Moreover, The Office of Fair Trading has now substantiated that Tesco has a method of always not colluding with their suppliers and competitors.[[Tesco set to defy slump with record £3.2 billion profits - published in Evening Standard on 16/04/2010] very much proves that Tescos has an efficient system of project management tools with special focus to Theory of Constraints. Furthermore, Tesco's approach of international retail restructuring within the global context and by upholding the relationship between investment and divestment is another strong way of overcoming the constraints in their project management areas.

Above all Tesco follows a unique model of production to cover the demand of their increasing customers, which is again an exceptional way of jumping the hurdle of constraints. In fact Tesco's product modelling covers the maximum threshold of constraints. Well planned distribution also enables tesco to an extensive extent to excel in their project management by easily eradicating the constraints. Besides efficient information management in an excellent ways allows Tesco with more space to nullify the constraints in achieving their scheduled projects. Tescos exclusive move towards the usage of data in competing the price war invites huge applaud internationally too.

Above all, Tesco's operations management including the performance management, which involves proper planning and frequent checking at all, levels of operation, have a strong say on the company's means devised to expel the constraints. In short, Tesco has a stunning pattern of project management kit, which spins around the five focusing step process in the Theory of Constraints, which can be largely discussed as their competitive advantage.

Conclusion

Thus the study clearly indicates that Tesco's fundamental approach of overcoming the hurdles in their ways to success is based on Theory of Constraints, which is an overall management philosophy that is geared to help organizations continually achieve their goal and therefore Tescos effective system of project management tools with special focus to Theory of Constraints attributes a wide space for Tesco to increase their competitive advantage, which adds more to their increased profits over years. However, Tesco also sets an example for their competitors in overcoming the constraints in the field of retail business though particularly in price-fixing.

Reference

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