IT Investments and Porters 5 Forces in TESCO - 1996 Case Study

Enterprise Applications and Relation ManagementAssignment #1

Case Study

Niranga MS14901836 | Ruhaim MS14901218 | Nipuna MS14902208 | Shanica MS15903434 | Thakshila MS15900150 | Vishwanie MS14900600

Question 01

Any business should understand the internal and external environments in which it operates. Porter’s

5 Forces model is used to analyze the external competitive environment of a firm. Discuss how and

why Strategic deployment of Information Technology at TESCO case study in terms of Porter’s 5

Forces model.

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Porters five forces3

Porter's Five Forces - Problem Solving Techniques from ...

IT investments by TESCO

● Distribution system

● Electronic Point of sale(EPOS)

● Electronic Data Interchange (EDI)

● Pre planning supply schedules

● DSS for forecasting

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Rivalry among competitors

● Multiple store formats such as superstores, compact stores, metros, express

stores make TESCO more accessible and provide the unified experience.

● Not having to keep excess stock in stores allow the total space to be used for

sales, huge benefit over other competitors.

● E-POS helped to gain advantage over retailers like Boots and WH Smith where

only certain products contained barcodes

● Barcode system eliminated the need for individually pricing products thus saved

a lot of time when stocking and restocking

● Barcode system allowed price changes to implemented rapidly and controlled

from a centralized location.

● Inventory control and DSS helped the stores to be always stocked based on

demand

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Bargaining power of suppliers

● Internet helps invite suppliers to engage in bids or auctions when either the retailer has a specific shortage or a supplier has excess inventory.

● Exposing an instant record of sales and stock movement via Tradanet Electronic Data Interchange (EDI) allow the suppliers to monitor performance and pre-plan delivery schedules.

● Investing on food technology and ethical product labelling allowed TESCO to push own brand products, this keeps its suppliers in check and reduces bargaining power.

● The supply chain backed by IT, only made suppliers to deliver to only a handful of intermediate warehouses, this reduced costs for the supplier.

● Warehouses are managed by multiple specialist distribution companies. So TESCO was not bound to a single one

● IT is used to also monitor warehouse efficiencies – space and vehicle utilization, delivery times linked to route planning, etc.

● IT eliminated need for sales reps to visit or call, also allowed TESCO to work with 2500+ of suppliers

● TESCO created a strong network “community”, with its suppliers through the IT implementations

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Bargaining power of buyers

● Porter’s Five Forces of buyer bargaining power refers to the pressure consumers

can exert on businesses to get them to provide higher quality products, better

customer service, and lower prices.

● Tesco tries to reduce bargaining power of buyers..

○ Tesco Provides loyalty schemes with various benefits like discounts and etc.

○ They Display price differentiations of various products with regards to their

competitors.

○ Late payments and electronic funds transfers are allowed.

○ Sell wider overall product range with many flavours.

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Threat of new entrants

In Porters five forces, Threat of new entrants refers to the threat new competitors

pose to existing competitors in an industry.

How TESCO handles this…

● Move with latest technologies.

● Keep full potential of networked supply-chain management has not yet been

achieved by any retailer.

● Due to high capital investment required and brand name recognition, competing

is difficult for new entrants.

● Come up with new innovations

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Threat of substitute products and services

● Porter’s threat of substitutes definition is the availability of a product that the

consumer can purchase instead of the industry’s product. A substitute product is

a product from another industry that offers similar benefits to the consumer as

the product produced by the firms within the industry.

● How TESCO handles this.

○ All items are available under one roof

○ Many flavours of one product domains are there in various shelves.

○ Publish advertisements to make popular TESCO among customers.

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Question 02In 1985, Porter introduced a generic value chain model that comprises a sequence of activities found

to be common to a wide range of organizations. Porter has said that it is how a company links

activities together, rather than the activities themselves that gives a company advantage over others.

Analyze the TESCO case study, strategic deployment of Information Technology using value chain

analysis.

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Porters Value Chain Model - Analysis

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Key Elements

Electronic point-of-sale (EPOS)

● It is self-contained, computerized bar coded system that enables an efficient

recording of the sale of goods or services to the customer

Electronic data interchange (EDI)

● Electronic Data Interchange (EDI) is the computer-to-computer exchange of

business documents in a standard electronic format between business partners.

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Inbound Logistics

Inbound logistics is an integral element of business operations for a manufacturing firm,

involving the processes of receiving, storing and disseminating incoming goods or material

for use

EPOS● Inspect the goods on shelves & bar code scanning using portable data-capture

machines used for checking shelf stock levels and send the data to centralized

system.

● Based on centralized system figures monitoring warehouse efficiency, space and

utilization.

EDI● Receive the supplier delivery note and sending the promissory note via EDI.

● Electronic payment and funds transferring.

● Delivery times planning through route linking.

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Operations

Operations transform resource or data inputs into desired goods, services, or results,

and create and deliver value to the customers.

● Suppliers have systematically joined Tesco’s network (‘community’)

● Provide knowledge of EDI for suppliers by seminars

● EDI is not just for PO releasing and invoices, but to broadcast forecast

information.

● Up-to-date product information's

● Faster movement of information and shorter supply times

● Handling large number of suppliers through the network

● Effective operation by efficient procurement and customer services.

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Sales & Marketing

Attracting potential customers to enhance business or activity of selling goods

or services

● Efficient Customer Response (ECR)

● likelihood of stock-outs and the consequent loss of sales is minimized.

● Sales & cash flow monitoring via system

● Loyalty programs through IT discourage the customers from brand switching

● Based on sales patterns through system make sure product availability with

competitive prices

● Based on system data statistics planning seasonal offers.

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Services

All the activities required to keep the product / service working effectively for the

buyer after it is sold and delivered.It enhance the product’s value.

● Introduction of virtual super markets by using IT infrastructure is another

competitive advantage.

● Having support desk to facilitate customer care and services.

● Club card records a customer purchases and award a credit for use with

future purchases.

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Outbound Logistics

Required to transfer the finished products to the customers via warehousing, order

fulfillment, transportation, and distribution management.

● The company has developed four convenience store formats.

- Superstores

- Compact stores

- Metros

- Express stores

● EDI has developed in parallel with composite, multi temperature food warehouses and trucks.

● EPOS extract updated information from centralized systems. eg. transmit orders via Tradanet,

evaluate profitability.

● EPOS reduce the cost of all outbound operations eg. lower cost to suppliers and company.

● EPOS has developed to predict demand patterns for individual stores.

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Support Activities

The activities that the organization performs to assist the primary activities to gain the

competitive advantage

● Procurement - Supply Chain Management (EPOS, EDI, Pre-planning with suppliers, Decision Support System, Streamlined Distribution)

● Technology Development - Centralized Automated Information Management System

● Human resource management - Structured process for recruitment and Selection

● Infrastructure - Collaborative work systems

(Stronger cash flow and improved profit for all parties)

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Competitive Advantage

● The central computer system will contain information on the margin and relative profitability of every item.

● Making decisions concerning which products to boost and promote and which ones drop.

● Speed up the warehouse efficiency and to reduce the costs of distributing the products.

● used to minimize duplication.the fewer times that actual deliveris and the support documentation need to be checked, the speedier and cheaper in the system.

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References

● Porter, Michael E, and Victor E Millar. 1985. How information gives you competitive advantage. Harvard Business Review, Reprint Service, July.

● Management: a methodological approach". 4th Edition, 1994. Addison-Wesley. Reading Mass.

● Porter, Michael E. 1987. From competitive advantage to corporate strategy. Vol. 59. Cambridge, MA: Harvard Business Review, May 1.

● http://en.wikipedia.org/wiki/Tesco

● http://www.mindtools.com/pages/article/newTMC_08.htm

● http://researcharticlebase.blogspot.com/2011/11/tesco-porters-five-force-model.html

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Thank you!!