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. Tesco Personal Finance

. Tesco Home Shopping.
In addition Clubcard has recently been extended to Ireland and to the Tesco
Vin Plus store near Calais.
Home shopping

Many people today, both single people and couples, are working longer hours and do not want to spend part of their leisure time making a trip to the local supermarket. To help people save time on shopping, Tesco has introduced Home Shopping, a service which makes use of information technology so that people can do their shopping via the Internet from their home computer. This was first introduced on CD-ROM in July 1996, and Tesco followed this up by becoming the first UK food retailer to offer an Internet-based home shopping service in November 1996.
Personal Finance

In 1997, Tesco decided to extend its customer offer to include personal financial services. In partnership with the Royal Bank of Scotland, Tesco is providing new ways of banking and other services to its customers.

C 3.

The impact of ICT on internal and external communications

Importance of ICT

IT is vital to Tesco because every aspect of its operation is controlled or monitored by IT - stock, distribution, payroll, accounts, and so on. For example, when an item has its barcode read at the checkout, the system not only logs the price onto the till, but also logs the financial transaction between Tesco and the customer and the fact that the stock has been reduced by one item. On the distribution side, instructions from the mainframe computer are sent directly to fork-lift truck operators at depots by radio links.
All stores are connected to the mainframes at Head Office via the Tesco
Network. There are a large number of different applications that stores use both independently and via the mainframe connection. For example there are
Personnel and Scheduling systems in-store, and access to electronic mail via the mainframe.

IT capacity
Tesco has a three-level architecture with mainframe, middle system servers and PC clients. Their main frame has a 6 million Mb storage capacity
(equivalent to 6 million 500-page books!). Their private digital network to
600 stores has a capacity of 11.5 Mb. They use some 100 Tesco-written computer applications and over 200 PC packages.

How much does Tesco spend on IT each year?
Last year, Tesco spent about Ј133 million on IT, that is about 1.4% of turnover.

How does that compare with other companies?
A recent independent survey of Europe's leading 500 companies in all commercial and industrial sectors placed Tesco 112th overall in Europe in terms of IT spending, but 3rd in the list of European supermarkets, and 1st amongst British supermarkets. [Source: Information Week 19-20/12/97].

How many on-line card authorisation requests does Tesco receive each day?
Over one million on-line card authorisation requests are dealt with every day.

Internet site
The Internet site receives 250,000 hits per week and was used to launch
Tesco’s home shopping service and the Tesconet Inertrnet Service provider.
The internet site has proved to be a great success, with the introduction of Tesco Direct, the home ordering and delivery service. Such “home shopping” is becoming increasingly important as more and more customers gain access to the internet via home PCs. Sainsbury’s, one of Tesco’s great rivals, has also now launched its own home delivery service via the internet.

[pic]

Tesco own Internet site. Home page.

ICT systems used by Distribution Department
IT has revolutionised all aspects of the selling, ordering, distribution and analysis of Tesco products. The operation of Tesco large distribution centres is a highly complex business. In recent years new computer systems have revolutionised distribution operations, allowing more effective stock control procedures, increasing productivity and making the best use of time, space and labour.
The base system used to control the distribution operation was purchased from Dallas Systems and customised to Tesco requirements. There are two particularly important sub-systems, known by the acronyms DCOTA and DCAMS.
DCOTA (Distribution Centre On-board Terminal Access) is a system which sends information by radio directly to the special terminals in the trucks of the fork-lift truck drivers at the distribution centres. The system controls the movement of stock and trucks in order to make the most efficient use of time and space, automatically matching up locations and trucks. As soon as one assignment is finished, the next brief will be transmitted to the truck-mounted terminal, showing the driver where to go next. Every warehouse location has a check number prominently displayed on the racks; this number is entered by the driver each time he visits a location, enabling the computer to check that each pallet has been placed in the correct slot.
DCAMS (Distribution Centre Assignment Monitoring System) is the system that monitors how far each job has progressed, and the deployment of staff. It is available to supervisory staff via hand-held radio frequency terminals, enabling them to predict and pre-empt problems by re-deploying staff and, if necessary, changing work priorities.
Radio frequency communications are also used in the checking in of goods.

Ordering by stores now relies heavily on IT, using Sales Based Ordering.
Data is received by the distribution centre from the Head Office mainframe system, and then passed to the warehouse systems described above.

These mainframe computers are among the largest in Britain. The mainframes are either IBM or compatible (Amdahl), running IBM operating systems. There are mainframes situated in two separate locations.

The loss of a whole mainframe would have serious effects, and for this reason company has two mainframes to provide backup capacity. In the event of a disaster which involved the complete destruction of one of the computer centres, the other could re-establish these vital systems within
48 hours. The backup procedure is tested regularly each year.
The backup systems for the distribution depots include specialist routines that allow depots to switch between computer sites, and are at the leading edge of data processing technology. If a complete computer centre were lost, IT communication with all affected depots would be re-established within six hours at the most.
Goods are now ordered from suppliers using a system called Electronic Data

Interchange (EDI). Orders for goods are transferred to the suppliers electronically using a service called INS-TRADANET. The use of EDI keeps suppliers precisely informed of Tesco requirements for company’s stores. It allows Tesco to run the business more effectively and efficiently because of its speed and accuracy. It is both quicker and more cost-effective than telephone, post or fax, and eliminates errors due to loss, or to wrongly printed orders.
EDI is also used for: sending sales forecasts so that suppliers can anticipate demand and reduce lead-times for stock to reach the stores securing the best payment terms and discounts for Tesco simplifying the invoicing process, so that invoices are generated automatically and postage and paperwork are eliminated working internationally, to eliminate time and language differences.

ICT systems used in Management.
Management Information is data stored electronically for use by business executives at all levels to support their decision making. This type of information is typically historical, and needs human interpretation before a decision is made. Tesco is planning to introduce a new system, called
Data Warehouse, which will give much greater analysis and flexibility, and will further enhance the ability of managers to make informed decisions.

The sections below describe Tesco’s current Management Information environment, and the planned Data Warehouse, broken down into four topics:
Business use, Technology, Data and Analytical tools.

A) Business use
Current Management Information
Access to summarised data at pre-defined levels
Most decisions made at a macro (e.g. regional level)
Planned Data Warehouse
Access to in-depth information for informed decisions
Decision made at micro level, e.g. in store
Use of balanced score carding for suppliers, stores, etc. with supporting details
Use shopper behaviour to influence new lines, promotions, and product ranging.

B) Technology
Current Management Information
Mainframe, text-based reporting and analysis
Downloaded to local PCs for in-depth analysis and graphics

Planned Data Warehouse
Specialised hardware and software to manage data (the 'Information
Warehouse')
Information from the Information Warehouse to be accessible from anywhere within Tesco and available also to designated outside users, e.g. suppliers, agencies
Cost of computer hardware and software is "scaleable", i.e. Tesco can add processing power and storage capacity at reasonable cost and in manageable chunks to keep pace with the information needs
Dedicated NCR machine and peripherals.

C) Data
Over 10 million customers, over 60,000 products and 586 stores
Current Management Information
Data held on mainframe, PC or on paper
Internal data analysed using SAR reports and MAS analysis tool (see below)
External data received by EDI or on paper
Planned Data Warehouse
Data collected from Tesco operational systems and external sources, and stored centrally to provide one consistent source of information
Data is stored on customer behaviour, product performance, branch performance supplier performance, depot performance
Data held at lowest level to enable ad hoc groupings,

e.g. salt sales in stores by the seaside last Easter.

D) Analytical tools
Current Management Information
Mainframe based
FOCUS - report generator
SAR - report viewer
MAS - Tesco-written multi-dimensional analysis tool
PC Lotus suite - spreadsheet and database applications
Planned Data Warehouse
A simple interface with the information using the score card concept, with top level measures and capability to "drill" to the level of information required to support decisions
IT populate the Information Warehouse and users control their reporting requirements
Logical access to information, with user choice of level, groupings, stores, products, measures, and other parameters

ICT systems used in store operations.
IT is essential to the running of a modern store. It is used for planning, monitoring and auditing store operations. In fact, the logistics of running a major store would be severely hampered without IT, and the expansion to
Superstores and Hypermarkets would have been difficult without modern IT developments.

Tesco stores vary greatly in size, from small Express stores covering 2,500 square feet to giant hypermarkets covering 120,000 square feet. The product range depends on the size of the store, and varies from 2,000 lines in a small store up to about 40,000 lines in the biggest. Computerised Store
Merchandising and Planning systems ensure that Tesco get the right products to the right store, and get the right amount of space on each shelf within a store. This allows Tesco to get optimum sales for the space allocated to the product, and gives the customer the most appropriate range of products.

A store can monitor what has been sold through the scanning operation at the checkout. The introduction of barcodes and scanners not only allows items to be checked out more easily, but it provides information that is constantly fed back to the store's computer for the monitoring of sales, both in terms of stock depletion and money taken.

Barcodes and scanners provide several benefits to company’s customers:
As purchases are no longer entered manually into a cash register, accurate pricing is guaranteed.
The scanning till is faster, reducing the time for which customers have to queue by about 15%.
Produce is now weighed at checkouts, removing the need to queue twice (once for weighing and once at the checkout) as used to happen.
Improved promotions may be offered, such as Multisavers.
The customer gets an itemised till receipt giving details of the product purchased, price, weight (if weighed), total cost and method of payment. It also shows the store telephone number, plus details which will trace the sale quickly if a customer has an enquiry.

Tesco benefits as much as the customer from the new systems. Notably:
Improved transaction accuracy: operator error is removed; fraud is limited as there is no opportunity to enter a lower price on the keyboard.
Improved customer service - customers are important!
Improved productivity. There is no need to label each item with its price, which can now be displayed on the shelf edge near to the product. Removing separate weighing stations removes the need for a manned point in the produce department; customers move through the checkout faster.
Selective promotions can be initiated.
Stock levels can be reduced as the exact quantity held is always known and re-ordering can be made more accurate
Wastage of perishable goods is reduced, as they too can be ordered more accurately.
Monitoring sales analysis and the effectiveness of promotions provides valuable information for Tesco buyers and also the company's suppliers.

Every product has a unique number, the European Article Number or EAN.
This number is allocated to each product by the Article Number Association, which oversees the operation of the numbers for all businesses in the UK.
The number can be found below the bar code. The bar code is a representation of that number in a binary form that can be read by a scanner. The scanner uses a laser and measures the difference in reflection to the laser of the bars and spaces.
The EAN and barcodes normally consist of 13 digits, although there may be only eight on smaller products. The first two digits are a national code, representing the marketing country. The next five digits identify the supplier of the product and the following five identify the product itself.
The final figure is a "check digit" based on the other twelve numbers, which allows the computer to validate the code.

The introduction of IT in shopping has been matched by banks. This has resulted in new developments in payment. The simplest of these is that cheque details can be printed out by the till, based on the information used to produce the receipt. Credit card vouchers can be printed similarly, and credit card details read electronically from the card.
A further advance has come with Electronic Funds Transfer at Point of Sale
(EFTPOS). This allows Tesco to transfer money from a customer's bank account or credit card account automatically. Two developments that have come from this are the debit card and "cashback".
Debit cards are a means of purchasing without cash or a cheque. Unlike cheques, there is no limit to the amount a customer can spend with a debit card as the transaction is automatically checked at the customer's bank and, providing there are sufficient funds in the customer's bank account, the payment is then guaranteed to Tesco. Unlike credit cards, the customer pays at the time of the sale.
The facility to give customers up to Ј50 in cash also comes from being able to check the customer's bank or credit card account, and has proved a popular innovation with customers, who are saved the necessity of a trip to a bank or cashpoint.

Within a store there are two crucial systems that enable Tesco to sell products. These are the front-end system, called ProgreSS, and the replenishment system, SBO.
The ProgreSS system holds pricing details of the 60,000 different products that Tesco sells, their description, and details of any special offers on them. It records details about each sale, not just the amount of each item sold, but whether the price has been reduced, the amount of money tendered and the change given. It also controls Clubcard processing, registering the points earned on the card. Whilst the system manages the main grocery tills, it also has the ability to be aligned to specific business functions. So different "personalities" are used within the garage, pharmacy, hot chicken counter and pizza areas.
The system is also used to control the back office and cash areas. During a normal day's operation the system will transmit batches of information to the mainframe systems at Head Office. This is primarily sales data, but also includes details on reduction sales and Clubcard details, together with daily totals and so on. In return it receives price changes, and new and delisted product information.
The ProgreSS system runs on an RS6000 machine.
The stock replenishment system is called Sales Based Ordering (SBO). As its name implies, it orders new stock on the basis of what has been sold. It also manages in-store stock control and the central ranging and ordering process.
Whilst there are some 60,000 products sold by Tesco, even the biggest hypermarket will stock only about 40,000 of them. Some Express stores will stock only 2,000 lines. The system keeps track of what products are stocked and how much is in the store, and is then able to use this information, together with the sales data, to calculate how much more should be ordered.
Most products have to be calculated every day, on a one or two day lead time (the time between ordering and delivery).
The SBO system also manages the recording of all store-based stock movements (for example damaged goods, out-of-code waste, transfers to other stores), stock count scheduling and validation. The stores also use the system to influence their orders, for example factoring up expected sales of ice cream when a hot spell is forecast.

ICT systems used by Customer Service Centre.
The centre provides a central customer service operation for the company; it handles requests for information and customer enquiries. It also handles the management and administration of Tesco Clubcard, and the processing of orders for the Baby Catalogue and the Home Shopping service.
The scale of the operation, and the efficient organisation of staff to provide exceptional customer service, requires the extensive use of IT both in telephone and information systems.
To give you an idea of the scale of company operation, Tesco employs over
400 staff, both full and part-time. The Clubcard loyalty scheme has over 10 million customers. In a typical week Tesco get 100,000 telephone calls,
5,000 letters, and 1,500 e-mails from customers, and company generates
7,000 outbound letters to customers.
Tesco uses IT to manage 100,000 calls a week, both to organise the calls efficiently and to provide information on the timing and length of calls for planning and monitoring purposes. Among the systems Tesco uses are:
ACD - Automatic call distribution (Meridian)

This system manages the way calls get routed to Customer Service Centre staff. Calls into the centre are distributed to ensure that call queues are managed effectively. Real time monitoring facilities provide information on service levels.
Call forecasting and scheduling system (QMax)

The distribution of calls varies significantly throughout the week. This system is used for forecasting when calls are likely to be made. The information is then used to schedule staff availability so that they are there to take the calls.
IVR - Interactive voice response

This is a menuing system on the telephone to filter out those calls that can be handled without an operator. The customer selects various options so that calls can be transferred directly to the appropriate service or person.
There are many ways in which IT provides and organises information for
Tesco. For example :
Customer services have systems to assist in logging customer enquiries, handling responses and tracking progress on outstanding issues.
Tesco has an addressing system, based on the Post Office Address File, that enables accurate addresses to be captured quickly.
Tesco has a knowledge base on an intranet to help staff deal with customer queries. This contains frequently asked information about the company’s stores, products, services and policies, as well as general information about nutrition and healthy eating.
Management reporting is used extensively to provide information to the business on customer concerns. Tesco is now looking at new technology as a way of pro- actively reporting on any serious issues that emerge requiring close, urgent attention.
Orders from Home Shopping customers may be received over the telephone, by fax or via the Internet. These are collated by store and go through a delivery scheduling system which plans the most efficient delivery route, and are then transmitted to the stores for packing and delivery.
The Clubcard system enables staff to deal with customer queries related to the service. This involves managing a large number of routine calls with regard to changes of address, lost cards, and so on. IVR systems are used to intercept these routine calls so that they can be handled automatically.

A1

Alternative approaches which might enable the business to better meet its objectives.
The retail grocery market is intensely competitive today and no serious contender can afford to rest on its past achievements. This should encourage Tesco to pioneer many new ideas. By listening and responding to customer needs, Tesco will continue to bring in new ideas and services. Its latest venture, with the Royal Bank of Scotland, launched in November 1997, is to offer customers competitive financial services through its stores. It is fifty years since Jack Cohen opened his first self-service shop, and we expect Tesco stores in fifty years' time to be as different from those we know today as Tesco’s current stores are to the stores of fifty years ago.
Non-food retailing is a major part of Tesco strategy. Tesco is increasing competition and offering customers real value and choice in all areas from sportswear to software, electricals to spectacles. By introducing these ranges to more of company’s stores Tesco also offer customers the convenience of shopping for great value non-food along with their food and household goods.
More choice in-store includes many new lines for the home and garden, motoring and leisure, fashion and cosmetics. Opticians, mobile phones and health and beauty are examples of departments that have been expanded to meet customer demand. Tesco relaunched its clothing range to offer better value, quality and choice.
In this year Tesco should continue to bring its customers big names at competitive prices. Last year, for example, Tesco sold 14-inch Bush TVs and
Vodafone, Orange, One 2 One and Cellnet mobile phones at record low prices.
Film and batteries came down by 30% and cuts of between 15% and 50% are being made on stationery, pet accessories, video tapes, CDs and DVDs and many other popular products.
The convenience of shopping for non-food alongside food is what Tesco should offer customers. At the start of the year Tesco already had 90 stores trading with full non-food offer in the UK. During the year Tesco should increase this as much as possible through extensions, refits and new store development programmes.
Through these programmes Tesco will have more Tesco Extra stores including its newest at Newcastle upon Tyne. It is Tesco’s first UK store to be designed and built to hypermarket blueprint, using many of the elements which Tesco has found to be successful in European and Asian stores. It has given to the company the opportunity to introduce a much wider range of non-food products to the UK, giving its customers even more choice when they shop at Tesco.

Through innovating and investing for its customers Tesco is leading the way in new forms of retailing. Tesco is the largest on-line grocer in the world, and through the rapid development of its e-business Tesco is now offering customers real choice and value on the internet.
Tesco.com is new 100% subsidiary company that runs company’s e-commerce business, which is an important part of company’s future strategy. Tesco should ensure that it has a real focus, the relevant resources and can move quickly.
Grocery home shopping business offers customers shopping on-line choice, value and convenience. Hundreds of new customers are registering every day and Tesco has the capacity to grow this business at a significant rate.
On the internet Tesco is not constrained by space as the store can be as large as you like. Company’s Internet customers now have an exciting range of non-food offers beyond food shopping - just a few clicks away. Tesco’s new book store offers a choice of 1.2 million titles, with 50% off top lines and Tesco has an entertainment store selling over 300,000 CD, video and DVD titles.

Tesco’s European business is focused on the Republic of Ireland and the four Central European countries of Hungary, Poland, the Czech Republic and
Slovakia accessing a population of 68 million people. In Ireland the business is progressing well as Tesco near completion of rebranding programme. And in Central Europe Tesco continue its rapid hypermarket roll- out opening 11 stores and 1.3 million square feet in the year.
Regional focus and market leadership is a key objective of Tesco’s strategy in Central Europe. Tesco is the only retailer in all four countries -
Hungary, Poland, the Czech Republic and Slovakia. Company’s portfolio now includes 19 hypermarkets totalling two million square feet of retail space.
Tesco is meeting and stimulating demand in these markets as customers begin to recognise the better choice, quality and value that Tesco offers.
Tesco is pursuing an active programme of store openings which will take the company to 69 hypermarkets by the end of 2002, and will make the company the market leader across the region.
The hypermarket blueprint is the focus of Central European activities. At
100,000 square feet or more, hypermarkets give Tesco the space to offer customers extensive food and non-food ranges at outstanding prices.
Tesco is learning all the time. The format is internationally transferable and adaptable to different regions, and part of the success has been to supplement UK skills in grocery retailing and customer service with international expertise.
In the Republic of Ireland Tesco should continue to make good progress.
Without the benefit of any new stores, sales increased by 6.1% in the year.
Cumulative sales growth since acquisition is now 20%, moving market share to 23.3%.
Ireland and Central Europe are already a significant part of the Group employing 27,000 people which will grow even further as Tesco move forward.

Asia is the second international region where Tesco is expanding. The Tesco
Lotus business in Thailand now has 17 hypermarkets and is well on the way to market leadership. In South Korea, through Tesco’s partnership with
Samsung, Tesco now has two outstanding hypermarkets which are among the highest turnover stores in the Tesco Group. Now Tesco should open its store in Taiwan. These three markets will give to the company access to 130 million people.

In South Korea, a country where 50% of households own a PC and 78% a mobile phone, the retail industry has huge growth potential. In 1999 Tesco invested Ј142m in a partnership with Samsung, which brought two world-class hypermarkets operating under a top retail brand as well as a number of sites that Tesco will now develop. Tesco should t expand more hypermarkets in next years.
Tesco now should move rapidly towards global sourcing, which will enable company to buy quality products at the best prices and deliver them at the lowest cost. Tesco has already set up three sourcing centres in Hong Kong,
India and Thailand. These now source 30% of Tesco non-food products
(excluding Health and Beauty). Tesco should move this higher in next years, with the opening of a fourth sourcing centre in Central Europe.
As a student from Russia (I live in Kazakstan) I would like to see Tesco further expand its activities in Eastern Europe, and therefore why not
Russia? At the present time there is nothing similar to Tesco on the
Russian market, so I think Tesco won’t have any problems to get into it.
It is difficult to suggest alternative approaches for Tesco’s strategy because the firm is evidently doing very well. I would suggest however that
Tesco continues to seek markets overseas to further develop its growing global presence.

As mentioned above, Tesco has been very successful over recent years, and it is therefore quite difficult to suggest “Alternative strategies”.
However, from my I might suggest the following:
. Expansion overseas – e.g. Russia.
. Increase market share – e.g. merge with Safeway. If Walmart took over

Asda, why can’t Tesco take over Safeway, for example.
. Expand into new market / product – e.g. cars, travel.
. Rewards to staff, introduce a widespread – bonus or share ownership (if

Tesco doesn’t do it yet)

A2

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