Tesco's Value Chain Analysis Value Chain Is Essay

Excerpt from Essay :

Tesco's Value Chain Analysis

Value chain is defined as the special links that exists between the key value adding activities as well as their interfaces with all of the supporting activities (Lynch,2003). The concept of value chain has for along time been implied as a very strategic tool for evaluation purposes and is used for the purpose of distinguishing the various strengths as well as weaknesses that exists within the value chain process as noted by Audrestsch (1995).


Tesco's cost leadership strategic management initiatives are indicated in its agile and lean inbound logistics functions. According to Abeysinghe (2010), Tesco employs is leading market position as well as economies of scope as its main bargaining powers in order to achieve a relatively lower cost from its numerous suppliers. The other factors is the constant upgrading of the company's ordering system, in-store processes as well as approved vendor lists in order to induce efficiency and effectiveness into its inbound logistics operations at all levels.

Operations management

The company has often been praised for its effective utilization of Information Technology systems in order to facilitate its low cost energy initiative/strategy. Tesco (2010) indicated that the firm invested close to £76 million in the process of streamlining its various operations via its Tesco Digital program, a third generation Enterprise Resource Planning (ERP) solution that its relies on. This saw the company realize a £550 million in crease in profitability in their FY2009 as a result of the introduction of the system. This ERP solution has seen the reduction of stock holdings within Tesco.

Outbound logistics

The company holds key leadership positions in both the online and offline consumer food retail segments. This is attributed to the effective and efficient outbound logistics. According to Mintel (2010), Tesco has managed to develop a wide range of store types and formats that are placed strategically in order to achieve a maximum level of customer exposure. These formats comprise of Express, Superstores, Metro, Homeplus as well as Extra and are segmented in order to serve target population.

Marketing and Sales

The use of Loyalty programs like the Tesco Clubcard is currently being introduced via IT advances which are effective in dissuading the clients from migrating to other retailer/competitors. The company even introduced the Greener Living scheme in order to provide its clients with advice in matters environmental.


The company has for the last few years been pursuing an improved dual strategy of differentiation and cost leadership, a strategy that has shift being made towards customer service. According to Keynote (2010) this particular strategy is implemented via the development of various self-service financial services, kiosks as well as focus in promotions as well as direct marketing.

Flow chart

Tesco's Business domain



Strong Financial Performance

Leader in e-commerce retail

Market leader in the UK as well as Europe


Strong brand image

Increasing market share


Tesco online


High prices

Lacks elaborate developments in areas that are non-food

High transportation costs

The large amount of fuel used in transportation causes pollution concerns

Overdependence on the UK market

Debt reduction


Strategic partnership with other companies

Joint ventures

Opening of new stores

Expansion to other global markets

Non-food retail


Tough competition from Carrefour, Wal-Mart and ASDA

Fluctuations in taxes

Rising cost of raw materials

Government regulations

International expansion


The fishbone diagram is utilized in operational management in order to help in understanding the main relationship and issues that exists between the different problems that affect a company in the cause and effect format. The work of Slack (2002) highlighted the application of the diagram in the operational management and is a suggestion that the tool is very critical in the process of highlighting the causes as well as sub-causes of system inefficiencies within a company's operational domain. These inefficiencies can be identified and be eliminated in order to improve efficiency. In the case of Tesco, it can be positively suggested that a change of strategy be effected in order to reduce the operational costs. The fishbone diagram below summarizes the main causes.


Reports indicates that the FY2011 was Tesco's worst performance in 20 years (Hawkes,2011).It reported profits of close to of £3.8bn but it admitted that there is a need for the company to perform better in its UK operations.It is however worth…

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