Tesco Porter Value Chlain and Environmental Analysis

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Porter's Value Chain is a chain of activities for a firm operating in a specific industry. According to Lynch (2003) it can defined as the links between key value adding activities and their interface with the support activities. The five primary activities namely inbound logistics, operations, outbound logistics, marketing and sales and service are more important in value adding process than support activities: firm infrastructure, human resources, technology development and procurement, so focus will be given to primary activities as they are crucial for distinguishing the strengths and weaknesses of Tesco's performance.

The overall cost leadership strategic management of Tesco is exhibited in its lean and agile inbound logistics function. The company uses its leading market position and economies of scope as key barging powers to achieve low cost from its suppliers. According to Office of Fair Trading (OFT) 2006 report, the largest retailers were able to obtain non-cost related discounts from suppliers to such as extent that suppliers were forced to charge higher prices to smaller retailers. Tesco also constantly monitor and upgrade their ordering system , and in-store processes to increase effectiveness and efficiency of the company inbound logistic process.

Innovative IT systems are the heart of Tesco's supply chain management strategy. According to Tesco (2010) the company has invested over £176 million in streamlining its operations through their Tesco Digital program, which is a third generation ERP solution for the firm. The system helps with for example minimisation of stock holding within the company. Technology except of operation have also an application in others sectors of Tesco's primary activities, namely marketing and sales.

The Tesco's Club card loyalty shame involved the issue of points according to the value of the customer shopping bill (Rowley, 2005) Rewards in the form of discounts and opportunities to use points in payment for products encourage customer to shop on regular basis. Turner (2006) states that there is a positive moderate relationship between the owning of a club card and loyalty to store. Adding brand value and collecting data about customer spending habits are other benefits of the club card shame. Innovative technology systems like DM and CSR analyse the data collected: customer details (address, age, profession) and spending habits. Information collected from over 13 million active card holders give an organisation clear and reliable picture of what customers want, which is then used for manufacturing and promotion purposes.

Outbound logistics refers to a range of store formats: Tesco Express, Metro, Superstore and Direct developed and strategically placed to achieve maximum customer exposure. Different formats of stores aim to suit the varied shopping patterns of customers. Big families tend to shop a lot once/twice per week in large stores as they offer a range of food and non-food products (baby staff, cosmetics etc), while single working people usually grab a ready meal when back home from work. Online shopping system launched by Tesco few years ago and free delivery service aim to increase sales to possible maximum by providing new shopping experience even without leaving home.

Tesco has been pursuing a dual strategy of cost leadership and differentiation, which has led to an increased importance placed on customer service. The idea of this dual strategy refer to the development of self-service kiosks, financial services (insurance and mortgage) and direct marketing and promotions.

In light of the above analysis, it can be concluded that Tesco continues to hold its leadership position within the highly competitive retail industry, where companies required to pursue both cost leadership and differentiation strategies. Tesco has been able to achieve both with the help of a lean and agile supply chain management, along with the strategic use of...
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