Tesco (cto cw) final


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Tesco (cto cw) final

  1. 1. COMPETING THROUGH OPERATIONS Module leader: Dr Peter James 10034344 November 2011 1
  2. 2. Table of contentsIntroduction…………………………………………………………………….3Section A……………………………………………………………………….4Section B……………………………………………………………………….9Section C……………………………………………………………………….14Conclusion……………………………………………………………………..15References……………………………………………………………………..16Appendices…………………………………………………………………….17 2
  3. 3. IntroductionTesco Express is a branch of the global grocery and general merchandise retailer ofTesco plc which is located close to Victoria Street in Bristol. It stocks mainly foodwith an emphasis on higher-margin products in combination with everyday essentialssuch us groceries, baked bread, alcohol, household products or toiletries. It is aneighborhood convenience store which is appropriate for the local community(www.localdatasearch.com).In the pages that follow, I will present the results of a research that I have conductedinto Tesco Express. My research is based on the collection of primary data. Throughmany visits to Tesco Express I could make many observations about the way itoperates. Also I have done an interview with the manager of the company (ScottFinnegan) and I gave questionnaires to random customers who buy weekly fromTesco Express. I will explain how operations management applies to this companyand to what extend it gives the potential to improve revenues and decrease its costs.First of all, I will analyse the five performance objectives (Slack et al, 2004) and I willuse Tesco Express examples to explain how they apply to each objective.Furthermore, I will indicate which of the five performance objectives is the most vitalfor Tesco Express‟s success in the marketplace.Apart from these, I shall show definitions and figures of the design capacity, effectivecapacity and actual outputs and I will indicate to what planned loss and avoidable lossare for Tesco Express‟s operation. After that I will outline which are the maincapacity constraints that affect the company.Last but not least, I will present the capability index and I will identify what are thepotential causes for that variation. After that, I will state the fields of Tesco Express‟soperation that need improvement. 3
  4. 4. Section APerformance ObjectivesThe operation needs direction as to how it should manage its resources and activities.The five performance objectives can be considered as “the dimensions of overallperformance that satisfy customers” (Rowland-Jones, O‟Brien, 2004). Thesedimensions consist of quality, speed, dependability, flexibility and cost. This willensure that the service it provides will meet the corporate objectives and the needs ofthe target market and will establish how it will differentiate itself from thecompetition. Quality is about doing things in the right way. It is the most visible part of what an operation does as a result a customer finds relatively easy to judge about the operation. The important point is that quality has both an external impact which influences customer satisfaction and an internal impact which leads to stable and efficient processes (O‟Brien, 2004). So in the case of Tesco Express, quality relates to its customer service, the staff‟s friendliness and helpfulness, the facilities and the quality of products. Tesco provides a fairly good quality of products but it has a limited variety of brands for each type of product. Furthermore, in terms of its facilities, Tesco Express has checkouts, shelves and fridges, 4 cameras and 2 screens which monitor the customers during their shopping, automatic doors, security and 1 coffee machine for the customers who want to buy hot coffee. The staff are very kind to you and if you find any difficulties they do the best they can in order to serve you and make you satisfied (Personal observation, 2011). Speed is about doing things in a timely manner. “It means the elapsed time between customers requesting products or services and then receiving them. For most products or services, the faster customers can have the product or service, the more likely they are to buy it, or the more they will pay for it or the greater the benefit they receive”. (O‟Brien, p124, 2004). 4
  5. 5. Tesco in order to be efficient and fast has 4 employees in 3 cash tills and other2 self-checkouts. The average time that each customer needs to be served foreach till varies from customer to customer as each one buys a different amountof products.Dependability means doing things in time for customers to receive their goodsor service exactly when they are needed, or at least when they are promised.Customers might only judge the dependability of an operation after theproduct or service has been delivered. (O‟Brien, 2004).Tesco Express makes sure that its stock availability is there from early in themorning so the customers can find on time the products that they want duringthe day (Interview, Scott Finnegan, 2011).Flexibility means doing things in a different way and is broken down intodifferent types including mix flexibility. This may mean changing what theoperation does, how it is doing it, or when it is doing it. Also being flexiblemeans being able to give fast service and save time, and keep the operation onschedule when unexpected events disrupt the operation‟s plans (O‟Brien,2004).In terms of speed, Tesco Express is very flexible at busy times, especiallybetween 12 to 2 when people of the close buildings have lunch breaks. Itincludes 5 checkouts (2 self-checkouts) and a maximum of 4 members of staffenabling fast service and saving time (Interview, Scott Finnegan, 2011).Cost means doing things economically. “The lower the cost of producing yourgoods and services, the lower can be the price to your customers. Theoperation will spend its money on staff costs, facilities, technology, equipmentcosts and material costs”. (O‟Brien, p45, 2004).Tesco Express has higher cost products compared to other bigger grocerystores but it always has some specific product offers and special discounts (e.gbuy one, get one free). 5
  6. 6. Using diagrammatic representation (Figure 1.0 and Figure 1.1) the Polar Diagramshows how Tesco Express rates the objectives in importance in order to be a successin its market and its actual performance as rated by its consumers. ThePerformance/Importance Matrix helps target audiences recognise and rate certainproduct or service features based on their importance to the rater and their impact onthe organisation‟s overall performance (Prajogo, 2011)These are the results of customers and the manager: (see Appendix 1) Figure 1.0 Polar Diagram of Tesco Express. Quality 10 8 6 4 Flexibility Cost 2 Customers 0 Manager Dependability SpeedAdapted from Slack et al (2004)The polar diagram suggests that the business demonstrates a very good performancein meeting speed and a fairly good performance in meeting quality and dependabilityneeds. We notice that there is a difference between the manager and the customersregarding the performance of flexibility as the customers believe that is not as wellperformed as the manager thinks. Furthermore, we notice that both manager andcustomers have rated the cost of the products with a very low number, which indicateslow performance. Although, performing disappointingly in this area (cost), togetherwith the results from the diagram and field research, cost is the most vital objective tosucceed in the merchandise retail market. Cost is essential for Tesco Express to be 6
  7. 7. successful, because customers will choose its competitor if the cost is not right as thisis a key factor for customers. Tesco Express, has to ensure an efficient costing systemthat can benefit both the consumer and the business.Now we are going to show the performance of these factors and the criteria thatcustomers regard as important for them (of Tesco Express) in comparison withCostcutter which is a local groceries store located opposite from Tesco Express and itis its main competitor. Because of the limit of time I managed to compare TescoExpress with one competitor. (see Appendix 2)Figure 1.1 Importance/Performance Matrix of Tesco ExpressAdapted from Slack et al (2004) 7
  8. 8. In the figure 2.0 I have presented and analysed the results of thePerformance/Importance Matrix.Figure 2.0 a&b Order winners Better performance factors against competitor c, d, e, h Qualifiers Better performance & i factors against competitor f&g Less important Same and slightly worse factors performance factors against competitor Order Winners Qualifiers Less Important •Factors that can win us •Factors that may not win Factors customers. us new customers. •Factors that will not help •Factors that can help us •Factors that can help us us win new customers or get customers to keep our existing keep our existing switching buying customers loyal to this customers loyal but they patterns. operation. should not be ignored. •Factors that may become more important in the future.Johnston & Clark, 2008 in James et al, (2009) 8
  9. 9. Section BFirst of all, let‟s see what capacity of an operation means. According to Slack et al(2001, p338) “The definition of the Capacity of an operation is the maximum level ofvalue-added activity over a period of time that the process can achieve under normaloperating conditions”. So it is the maximum rate of production. Design CapacityAccording to Slack et al (p335, 2001) design capacity “Is the capacity which itstechnical designers had in mind when they commissioned the operation”. In otherwords, it is the maximum obtainable output, or use, of an operation that the designerhad in mind (theoretically) at the start (Slack et al, 2001). So from informationgathered (see Appendix 4) I know the design capacity of Tesco Express is to serve300 customers per hour (each customer takes 1 minute to be served and there are 5checkouts). In figure 2.0 I present the results of company‟s design capacity, in termsthat all customers buy the same number of products (5 products).Figure 2.1 Design Capacity 1 minute 1 checkout 1 customer 1 minute 5 checkouts 5 customers 60 minutes 5 checkouts 300 customersSo in 16 working hours (1 day) it can serve 4,800 customers. 9
  10. 10. Effective CapacityEffective capacity of an operation is design capacity but with a compulsory plannedloss. The planned losses are unavoidable, acceptable losses that are viewed as „part ofthe process‟ of the operation. In the case of Tesco Express, these losses can be theclosing hours, quiet periods (early mornings and evenings), staff breaks andabsenteeism. Also, it can be the extra seconds of change from one customer who hasbeen served to the next one, or the extra seconds that some customers need when theystruggle to use the self-checkouts and they need help. So the effective capacity is alower figure for the number of customers and for each hour, they actually take longertime to be served (some people at around 2 minutes).Therefore, using the previous figures, we can calculate the effective capacity,formulated in figure 2.2. Design Capacity 300 customers 60 minutes Minus Planned Loss (Equaites 15%) 45 customers 9 minutes Effective Capacity 255 customers 69 minutesHaving subtracted the planned loss that will affect the amount of customers of TescoExpress as it delivers the effective capacity result at 255 customers served in 69minutes. So in 16 working hours (1 day) it can serve 4080 customers. 10
  11. 11. Actual outputActual output is effective capacity minus avoidable loss. So actual output has evenlower value adding time due to avoidable loss-the thing that is unexpected and you arenot ready to see how to solve it. The avoidable losses of the operation include tillfailures, lighting failures, power cuts or weather.Figure 2.3 shows the calculations to find the Actual output of Tesco Express. Effective Capacity 255 customers 69 minutes Minus Avoidable Loss (Equaites to 10%) 25 customers 6.9 minutes Actual Output 230 customers 75.9 minutesSo in 16 working hours (1 day), it can serve 3,680 customers.Diagram of Capacity at Tesco Express 100% 25 90% 45 45 80% 70% 60% 50% 300 40% 255 230 30% 20% 10% 0% Design Capacity Effective Capacity Actual Output 11
  12. 12. Adapted from Slack et al (2009) by Cox (1996)Blue Series 1: capacity. Red Series 2: planned loss, Green Series 3: avoidable lossFigure 2.3 gives a good visual representation of the capacity performance of TescoExpressMain BottlenecksA main issue in determining maximum capacity is the effect of bottlenecks whichlimits throughput rates as they are the most strict capacity constraints. Real capacitycan be much lower than the apparent capacity of rapidly performing machines.(Martin K Starr, 1996). Bottlenecks can occur throughout the retail process for TescoExpress, from communication with a customer to any technical problems.Figure 2.4 illustrates areas where capacity constraints can take place in the operationof Tesco Express. Staff Amount of Tesco Equipment space Express Technology 12
  13. 13. According to Figure 2.4 the main areas where capacity constraints can take place arestaff, equipment, technology and amount of space. 1. Staff availability is linked to the opening hours of Tesco Express. One constraint would be the number of staff working at the checkouts at any one point in time. 2. One more is the equipment. There are only 5 checkouts which means that they can only serve a certain amount of customers over a time period. 3. The physical space of the store limits the amount of products that Tesco Express can stock. 4. In the area of technology, close to the checkouts, there are 2 camera screens, the number of times their page is refreshed gives a constraint as to the amount of people the staff can monitor over a time period. The main bottle neck that affects Tesco Express‟s operation is the amount of the checkouts, 5 checkouts (3 checkouts and 2 self-checkouts), in Tesco Express and 4 checkout staff (3 people for the checkouts and 1 person who can check if people find any difficulties with the self checkouts) would both be the bottleneck as they can only process 5 customers at a time. One more bottleneck is Tesco‟s physical space (2,200 square feet) with the amount of shelves that can provide in the operation. There are 5 lines of 5 shelves of 3 metres in length each and consist of 5 “levels” each one and a certain amount of products that Tesco Express is able to stock per day. 13
  14. 14. Section CAccording to Slack et al (2007, p555, in James et al, 2009, p215) if the capabilityindex is “less than 1, it is taken to indicate the process is “capable”...assuming that thedistribution is normal”. I will now find out how long it takes to serve a customer inTesco Express (in terms that each customer buys the same amount and type ofproducts-milk, bread, shampoo, cereal and orange juice). To do this I will use the dataI gathered from the business itself (see Appendix 5) to substitute figures into theformula of Capability Index:CP = Upper Specification Limit – Lower Specification Limit 6 * Standard DeviationUSL: 120 (Interview, Finnegan, 2011)LSL: 60 (Interview, Finnegan, 2011)σ: 18.99501 (see Appendix 5)Capability Index= 0.52 (see Appendix 5)As we notice, the capability index is less that one, which basically means that it variestoo much to be reliable. The potential causes for that variation is possibly the poorleadership and the poor management of the company (Interview, Store Manager,2011). As a result, there is a lack of the staff‟s efficiency because the staff are not thatmotivated to work and this has a negative effect on their performance. The limitednumber of tills and the slow speed of staff are some causes that create that variation.However, according to the customers (see Appendix 1) the speed of Tesco Expresshas a good performance because customers don‟t really care if the checkout process isgoing to take 10-20 seconds longer. On the other hand, the company‟s policy is verystrict. In order to reduce the variability and make this operation more capable, TescoExpress should increase the number of tills in order to serve a greater number ofcustomers, in less time and therefore increase its sales. One more initiative I wouldsuggest is to train the staff to be more efficient and faster, in order to serve eachcustomer in less time. Alternatively the company could provide some extra rewards soemployees will be more motivated. 14
  15. 15. ConclusionTo conclude, what we have done so far is to see how an operation works within TescoExpress.In Section A we used the five performance objectives and concluded that cost is themost vital objective for Tesco Express in order to succeed in its marketplace.Therefore, with the use of field research and the diagrammatic representation, TescoExpress needs to improve its performance in this area in order to match its actualperformance with what is required to succeed. Furthermore, I have compared TescoExpress with a competitor and I discovered that it performs slightly better in most ofthe performance factors and both companies are the same in terms of flexibility. Also,I found out that customers regard the cost and variety of products as more importantbut the flexibility and dependability as less important.Section B calculated the business capacities, concluding that avoidable losses need tobe decreased, through further planning, because currently Tesco Express‟s actualoutput is 25% less than the design capacity which is too big a loss.Section C concluded that the time each customer needs to be served is not capable andvery unreliable due to big variances. This issue needs to be addressed, although, it is asmall operation and as long as customers are not reporting this problem, it does notneed immediate action.Word Count: 2,496 15
  16. 16. List of References Interview with the Store Manager from Tesco Express Scott Finnegan November 2011. James, P., Rowland-Jones, R & O‟Brien, L. (eds.) 2004. Operations and Business Management. Harlow, Pearson. Local Data Search (2011) Supermarkets : Tesco Express . Available from www.localdatasearch.com [Accessed 24 November 2011]. Martin K. Starr, 1996. Operations management: A Systems Approach. USA: Boyd & Fraser publishing company. Prajogo, D., McDermott, P., 2011, “Examining competitive priorities and competitive advantage in service organizations using Importance-Performance Analysis Matrix”, vol.21, no.5, pp465-483. Slack, N., Chambers, S. & Johnston, R., 2001. Operations Management. 3rd Ed. London: Pitman Publishing. Slack, N., Chambers, S., & Johnston, R., 2004. Operations Management. 4th ed. London: Pitman Publishing. Johnston, R., & Clarke, G., 2008. Service Operations Management: Improving Service Delivery. 3rd Ed. Harlow, Pearson 16
  17. 17. APPENDIX 1Customers‟ questionnaire: I collected 22 questionnaires from random customers about TescoExpress. 1. On a scale of 0 to 10, with 0 being “very slow” and 10 being “very fast”, how would you rate the speed of Tesco Express? E.g checkout speed. 2. On a scale of 0 to 10 with 0 being “very expensive” and 10 being “very cheap”, how would you rate the cost of the products of Tesco Express? 3. On a scale of 0 to 10, with 0 being “very low” and 10 being “very high”, how would you rate the quality of Tesco Express? (quality of facilities, of products, of the variety of products and the customer service). 4. On a scale of 0 to 10, with 0 being “unreliable” and 10 being “reliable”, how would you rate the dependability of Tesco Express? E.g stock availability. 5. On a scale of 0 to 10, with 0 being “inflexible” and 10 being “flexible”, how would you rate the flexibility of Tesco Express? 6. What do you think about the store‟s cleanliness? 7. What do you think about the location? How would you rate it? 8. What is that, that you thing needs improvement within the operation of Tesco Express? E.g cost/variety of products, speed of service, quality of facilities/staff‟s service and friendliness e.t.c 9. What are the criteria that you regard as important in Tesco Express? 17
  18. 18. Results of questionnaires of 22 customers in Tesco ExpressQuality Speed Cost Dependability Flexibility Location Cleanliness6 7 6 7 6 9 45 8 4 7 2 7 75 8 7 3 3 7 610 8 7 9 7 8 86 8 3 8 6 6 86 8 7 8 6 4 66 8 6 5 4 7 88 8 5 6 4 8 81 10 6 8 6 8 98 7 4 8 6 8 910 9 2 5 8 8 96 8 6 3 6 5 88 8 5 8 2 9 65 10 7 7 6 9 86 7 3 5 6 7 810 8 4 5 4 8 610 8 2 7 8 7 96 8 6 8 3 7 41 7 7 8 6 6 98 8 6 6 7 8 75 9 4 9 4 5 96 8 7 8 6 9 86.45 8.09 5.18 6.72 5.27 7.27 7.45According to my visit in Costcutter, I noticed that the physical space of the store isless than the half of Tesco Express. Also it has a smaller variety of products and thecost of the products is higher. Furthermore there is one till, no self-checkouts, andonly one person as a staff. Apart from this, its opening hours are less that TescoExpress and it has poorer quality of facilities (there are no automatic doors, nosecurity staff, no signs which indicate the types of products that you are looking forand the lights are not so strong). 18
  19. 19. APPENDIX 2 Results of questionnaires of 10 customers in CostcutterQuality Speed Cost Dependability Flexibility Location Cleanliness5 7 4 6 8 7 77 6 5 8 6 8 84 6 4 7 3 8 96 9 6 7 4 6 96 5 7 5 4 5 96 5 4 6 4 7 55 6 8 8 7 6 35 7 5 4 6 6 73 7 2 6 3 8 47 6 3 8 7 7 75.4 6.4 4.8 6.5 5.2 6.8 6.8(for the quality objective, each figure that is given for each customer for both companies, is aresult of various things that I asked customers rate. I asked them rate the quality of products,the quality of facilities, of customer service and the variety of products. So the numbers ofquality are the average of all these factors).APPENDIX 3For section A in Performance/Importance Matrix I‟ve added the opposite numbers of these inan appendix with this system:1 2 3 4 5 6 7 8 9 with 1 very bad performance and 9 very good performance.9 8 7 6 5 4 3 2 1 with 9 very bad performance and 1 very good performance. 19
  20. 20. Here is a table which shows both Tesco Express and Costcutter performanceaccording to customers. Performance Factors Factor Tesco Express Costcuttera Cost of products 5.18 6.8b Variety of products 5.3 6.9c Customer service 3 4.3d Quality of products 4.2 5.4e Speed of service 2.9 4.4f Flexibility 5.27 5.2g Dependability 4.72 4.5h Quality of facilities 3.5 5.8i Location 3.27 4.8In terms of 1 2 3 4 5 6 7 8 9 with 1: much better than competitor, 2& 3: slightly better thanthe competitor, 4: not that better than the competitor, 5: exactly the same with the competitor,6: not that worse than the competitor, 7&8: slightly worse than the competitor and 9: muchworse than the competitor I found how much better, worse or same Tesco Express iscomparing to its competitor Costcutter and putted the numbers on thePerformance/Importance Matrix.So:Performance factors Tesco Express’s performance comparing to Costcuttera Cost of products 6.8-5.18=1.62 which means that Tesco is slightly better so is somewhere between 2&3b Variety of 6.9-5.3=1.6 which means that Tesco isproducts slightly better so is somewhere between 2&3c Customer service 4.3-3=1.3 which means that Tesco is slightly 20
  21. 21. better so is somewhere between 2&3d Quality of 5.4-4.2=1.2 which means that Tesco isproducts slightly better so is somewhere between 2&3e Speed of service 4.4-2.9=1.6 which means that Tesco is slightly better so is somewhere between 2&3f Flexibility 5.27-5.2=0.07 which means that Tesco is exactly the same so is almost 5g Dependability 4.72-4.5=0.22 which means that Tesco is slightly worse so is somewhere between 5&6h Quality of facilities 5.8-3.5=2.3 which means that Tesco is much better so is somewhere between 1&2i Location 4.8-3.27=1.53 which means that Tesco is slightly better so is somewhere between 2&3Here is a table which shows what are the criteria that customers regard as mostimportant for both the operations of Tesco Express and Costcutter. Importance Factors Factors Tesco Express Costcuttera Cost of products 2 2b Variety of products 2 1c Customer service 6 4d Quality of products 6 5e Speed of service 4 5f Flexibility 8 7g Dependability 8 8h Quality of facilities 5 6i Location 6 5 21
  22. 22. APPENDIX 4Interview with Scott Finnegan-Store Manager of Tesco Express 1. On a scale of 0 to 10, with 0 being “very slow” and 10 being “very fast”, how would you rate the speed of Tesco Express? 9 2. On a scale of 0 to 10 with 0 being “very expensive” and 10 being “very cheap”, how would you rate the cost of the products of Tesco Express? 4 3. On a scale of 0 to 10, with 0 being “very low” and 10 being “very high”, how would you rate the quality of Tesco Express? 8 4. On a scale of 0 to 10, with 0 being “unreliable” and 10 being “reliable”, how would you rate the dependability of Tesco Express? 6 5. On a scale of 0 to 10, with 0 being “inflexible” and 10 being “flexible”, how would you rate the flexibility of Tesco Express? 10 6. Which of the five performance objectives (quality, cost, speed, flexibility and reliability) do you thing it‟s the most vital for the company‟s success in the marketplace? Why? Flexibility because people want to buy things faster and we need to have a flexible staff. 7. How many customers do you want to serve per day? Do you have a specific amount of people as a goal? 22
  23. 23. It depends of the number of sales that we have per day because we serve approximately 3,500 customers per day but doesn’t mean that all of them buy equally. Some of them buy loads of things and spent a big amount of money for example 75 pounds and some others spent just 4 pounds to buy cigarettes.8. What factors can be planned loss??? The possibility that sometimes some of the people of staff can be sick one day so we have to recover this gap.9. What is the percentage of difference to get from planned loss to design capacity??? Around 15%10. What is the number of staff and how do you distribute them? The maximum number of employees on busy times and the minimum number of employees at non-busy times. We have 22 people here but of course it’s impossible everybody be here. The staff is distributed each one of them on different time shifts. So the maximum number of people who operate check-outs is 4 and the minimum number is 2 people who used to work at night.11. What is your avoidable loss? Do you meet any difficulties e.g the self-service machine goes wrong or customers wait for a longer time to be serviced in the queue. We don’t have any avoidable loss. Everything is maintained.12. What is the opening hours? 23
  24. 24. Tesco is open from 7am to 11pm. 13. How long each customers needs to be served for each till? What is the average? It depends from how many things there are in the basket but if I have to give an average number that would be around 1 to 2 minutes. But again it depends from how many things each customer has in his/her basket. Our goal is to serve each customer in 1 minute. 14. What improvements do you thing there should be made? I could talk the whole day for that..i think that the main disadvantage is the bad leadership and the bad management. There are many different conflicts each day between the staff and the managers and this can affect the customers as well because if there is a lack of communication among the people who work there then customers do not see a balance response. 15. How often do you use to refresh your stock availability? Twice per day early in the morning and late in the afternoon. Thank you.APPENDIX 540 Observations at Tesco ExpressNumber of seconds Number of Timesserved each customer Customers were Served at this Particular Time 60sec 3 62sec 2 24
  25. 25. 64sec 166sec 068sec 270sec 272sec 274sec 076sec 178sec 180sec 082sec 284sec 086sec 388sec 090sec 392sec 194sec 196sec 198sec 0100sec 2102sec 0104sec 2106sec 2108sec 1110sec 4112sec 0114sec 1116sec 0118sec 1120sec 2 25
  26. 26. Calculation of Standard Deviation in Excel 2007 26
  27. 27. So basically, I used Excel (2007) to type in each entry into one column each of theseconds that takes to serve per customer, from 60 seconds to 120 seconds, and afterthat I clicked on Insert, function and I clicked on STDV. After that I highlighted allthe numbers entered and I clicked ok. With this way, I found out that the StandardDeviation is 18.99501. 27