Creating an E-Business System: Tesco - Case Study Example

E-Business System Report E-Business System Report Introduction Tesco is the largest grocery retailer in the UK. Tesco has successfully leveraged information technology in its sales and operations to optimize inventory management and sales. The company initially implemented electronic data interchange (EDI) to manage goods replenishments during the 1980s (Chaffey, 2009). However in 1989 the company began using the EDI system to collaborate with its supplier network to forecast demand; its suppliers were sent EDI messages informing them of the store demand, stockholdings and weekly sales forecasts (Chaffey, 2009). The system enabled Tesco to forecast its sales and demand thereby optimizing its supply chain. The forecasts resulted in greater efficiency in purchasing, warehousing, and inventory management. Further the EDI system allowed suppliers to be involved thereby ensuring product availability and low inventory holding costs. The data provided to suppliers through the EDI system can be analyzed in different ways. Suppliers can accurately predict the store demands for goods and distribute the products efficiently. Suppliers can additionally examine how the demand is distributed based on location or individual store. This helps with promotions as the EDI system ensures the availability of data for both involved parties – the supplier and retailer (Chaffey, 2009). The upside to the collaborative system is that promotions require cooperation between suppliers and retailers as many of the tasks within the process are intertwined. The EDI system therefore innovated Tesco’s operations by integrating different aspects of supply chain including purchasing, inventory, and promotions. Apart from its EDI supply chain management system Tesco also has its online e-commerce website – tesco.com – containing a complete catalog of products and services from which customers can buy online. The website has been active since the year 2000 (Kelly, 2009). Tesco also provides a variety of delivery services to its customers including free collection of goods from collection points or home delivery for a small amount of fee (Tesco, 2015). Its physical stores span across the UK and Ireland and have now expanded to more than 12 countries. Presently Tesco’s online grocery store is the largest in the world which, between 2004 and 2005 generated sales revenue of £719 million (Kornum and Bjerre, 2005). By the end of the financial year 2012 the sales revenue had risen to £2 billion (Cotterill, 2012). Tesco’s website currently has millions of customers with thousands of orders coming in everyday. For this purpose, Tesco has implemented a sophisticated order handling and e-commerce system that manages orders and deliveries. The company makes use of its physical stores to efficiently utilize its space thereby benefitting from the sunken cost of the huge Tesco premises. Tesco has also introduced its loyalty program under which customers apply for a Tesco Clubcard on which customers can shop and save. Altogether Tesco provides a seamless shopping experience to its customers online and offline with high customer satisfaction levels. Tesco’s implementation of information technology in its operations has greatly helped the company to increase customer satisfaction rates and increase its sales. The EDI supply chain system as well as its website, (tesco.com), reflects successful usage of technology which makes use of electronic data. Tesco’s e-business system has enabled the company to save up on its costs and boost operational efficiency in terms of logistics and supply chain. Information Resources Because much of Tesco’s supply chain management and e-commerce system is electronic, it requires timely and accurate data. Inventory data includes stocks available, projected demand, sales projections, and weekly sales. Other information includes supplier details, product lists, customer information, feedback, and so on. The company’s loyalty program demands a considerable amount of insights and analytics as to consumer behavior and customer satisfaction rates. This is why Tesco conducts regular surveys in order to collect feedback from customers who have shopped from their online website. The presence of a large pool of customers in its loyalty program allows Tesco to pick a sample of survey respondents. Tesco subsequently logs its interviews and customer feedback in an aim to improve the quality of its products and services. Therefore Tesco deals with a lot of information from various sources such as interviews, customer feedback, suppliers’ information, product details, and other information. The whole management information system at work at Tesco requires reliable IT systems from barcodes scanners to supply chain logistics system. The IT infrastructure which has been implemented works over strong networked pathways and servers. Additionally the systems require heavy and reliable hardware as well as enterprise management software applications that help integrate the various functional areas of the company for example purchases, inventory, and delivery. Moreover the company’s presence in geographically dispersed countries across the world demands consistency so as to maintain the quality of service. This is why Tesco’s IT infrastructure is specialized to be efficient and has been designed to cater to its international operations by maintaining consistency in the system (Kelly, 2009). Much of the electronic system at work in Tesco processes huge volumes of data through point of sales, warehouses, deliveries and online e-commerce website. The IT infrastructure assists in handling this data which mainly includes sales details, estimated demand for goods, projected inventory, cash flows, suppliers’ details, and product lists. Additionally the loyalty program under the banner of Tesco Clubcard also records customer information including name, address, phone numbers, and most importantly points collected. These information specific to each customer allows discounts to be awarded or other redeemable gifts. System Specification The IT infrastructure implemented by Tesco in order to increase its operational efficiency and reduce costs, involves different hardware and software requirements. Hardware devices include input, output, and storage devices such as printers for receipt printing, scanners for reading bar codes, keyboards for typing in product details, monitor displays for viewing information, scales for weighing, and other electronic point of sales (EPOS) hardware. However the EPOS system is not always an accurate predictor of the available inventory since stock theft is a common phenomenon. The inventory or stock at hand is better reflected by the inventory management system which involves handheld terminals for examining the amount of stock left in the warehouse. The system works side by side with the EDI system which is linked to supply chain logistics. The handheld terminal system uses similar hardware as used at the electronic point of sales (EPOS) the only different being that they are specific for inventory management and reflect the amount of stock available, demand for goods, and so on. In order to meet the demands of the IT infrastructure, Tesco has regularly used external solutions point of sales solutions from Axiohm plc (Maxatec, 2012) and enterprise systems from Microsoft (2011). Tesco has also invested on solutions from other companies so as to consolidate its system which is also implemented in its overseas operations across the world. This is done to ensure consistency in the quality which is associated with Tesco. Electronic Commerce Tesco has perhaps the most sophisticated system for e-commerce which is largely based on its website which enables online shopping for consumers. This system of e-commerce dates back to 1984 when Tesco started an electronic service which allowed registered customers to buy a limited range of products through a TV interface (Cotterill, 2012). Because computers were not as prevalent then and the consumer base was relatively small the system was conveniently sufficient. The users included only 450 members then. However, the emergence of new technology and growth in its consumer base allowed Tesco to extend to the World Wide Web where its website Tesco.com was formally introduced in the year, 2000. Today the e-commerce website has grown considerably large having millions registered members. To cap this, the service is so reliable that thousands of orders are made each day through the online website. However beneath the online e-commerce website is a strong IT infrastructure and an electronic system that processes orders, adds Clubcard points, and deliver the orders to those who opt for home delivery. The success of its e-commerce website triggered the company to also set up a mobile application for customers, which is currently available for free download on platforms including iOS, Android, and Windows Phone. The arrival and popularity of smartphones as well as its prevalence among the people has provided organizations with an opportunity to engage their customers on their devices. The mobile application of Tesco allows users with the convenience of shopping while on the go. The steps involved in mobile application development are another process which certainly counts as an element of IT infrastructure. The mobile application is connected to the larger order processing system which is present on Tesco’s website however the fact that the website is for mobile devices greatly puts the constraints on the extent to which the mobile application can support tasks. Because of low storage space on mobile phones it is important for the application to be small in terms of size but still powerful enough to process online orders. Tesco’s mobile application is also a success because it allows customers to conveniently place orders and later collect it from Tesco’s stores at a location and time of their own convenience. Tesco’s loyalty program under Tesco Clubcard also plays an important role in the company’s e-commerce business. The website as well as the mobile application allows customers’ purchases to be linked to their account which keeps adding loyalty points at each purchase. The points can be redeemed in the form of discounts and other promotional giveaways. While the e-commerce set up by Tesco has enabled to its to earn huge revenues in sales, it is also true that competition is growing. The availability of internet, Web 2.0 and mobile technology for organizations to exploit has also brought the competitors to the digital space bandwagon. Emerging Trends and Technologies Major trends in management information system are influenced by the shift towards mobile technology as well as new forms of enterprise management systems. The current e-business model of Tesco resembles an enterprise resource planning system which is highly integrated and sophisticated. Its inventory planning system which allows Tesco to collaborate with its suppliers allows Tesco to get a measurable overview of its stock and sales demand. The system allows analytical operations to be carried out on the data which can be used to project and forecast the budget as well as demand, sales, and other financial information related to purchasing of stocks. The popularity of smartphones and the accessibility of smartphones among people have necessitated the development of mobile applications. However the availability of mobile applications must be in addition to a fully fledged e-commerce website. Tesco’s usage of its mobile application is as an added application in addition to having a fully functional website which has full lists of products. That said, the mobile application can also be used as a standalone ordering application. The bottom line is that mobile platform is also becoming an important channel for engaging customers which organizations are considering as part of their digital strategies. Additionally online presence over social networking sites has also become obligatory due to its impact on consumer engagement and potential sales conversions. Conclusion Tesco is a British retailer in the FMCG sector which has grown as the largest retailer of the UK and has its presence in over 12 countries across the world. Tesco is known for its innovative approach at handling supply chain and its popular e-commerce website – Tesco.com. Tesco’s innovative approach at its supply chain logistics has greatly increased the efficiency of its operations and inventory management. The EDI system enabled Tesco to maintain close collaboration with its suppliers which allows stocks to replenish as soon as stocks drop to a minimum level. The EDI system is also able to project demands and provide an estimate so that en economic quantity of product units is reordered to avoid wasting money. Therefore, the e-business system has helped the company to not only reduce its costs and efficiently use its resources but it has also enabled the company to collaboratively work with suppliers. This collaboration extends beyond just supply chain but includes suppliers in the overall value chain of the company where suppliers are also important entities for promotions. References Chaffey, D. (2009). E-business and e-commerce management. Harlow, England: FT Prentice Hall. Cotterill, S. (2012). Top 400 Europe - Tesco is going global with e-commerce. Internet Retailer. Retrieved 7 January 2015, from https://www.internetretailer.com/2012/10/05/tesco-going-global-e-commerce Kelly, P. (2009). Tesco: use of IT and information systems ‐ Introduction to MIS. Cengage Learning. Retrieved 7 January 2015, from http://cws.cengage.co.uk/colekelly7/students/Video%20Cases/Chapter%2030%20-%20Video%20Case%20Study%2027.pdf Kornum, N., & Bjerre, M. (2005). Grocery e-commerce. Cheltenham, UK: Edward Elgar. Maxatec,. (2012). Tescos Supermarket EPOS & POS Systems use A756 hybrid POS printer - Maxatec Europe. Retrieved 7 January 2015, from http://press.maxatec-europe.com/providing-tesco-with-a-point-of-sale-pos-solution-to-count-on/ Microsoft. (2011). Microsoft Case Study: Microsoft Enterprise Strategy Services - Tesco PLC. Retrieved 7 January 2015, from http://www.microsoft.com/casestudies/Case_Study_Detail.aspx?CaseStudyID=4000011408 Tesco. (2015). Delivery options. Retrieved 7 January 2015, from http://www.tesco.com/groceries/zones/default.aspx?name=delivery-options Read More