Introduction to Tesco.
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Introduction to Tesco Tesco is Britain's leading food retailer employing 160 000 people in the U K throughout its 702 stores. Over the past five years Tesco has expanded from a traditional U K based supermarket into new countries, products and services including a major non food business, personal finance and internet shopping. Tesco has progressed into a truly international retailer employing a further 140 000 people throughout 214 stores in nine markets worldwide. The increasing scale and internationalization of Tescos sales and purchasing operations contributes to a significant increase in efficiency and profitability. In this assignment I will be examining Tesco's position in the economy, explaining the role of economies of scale within Tesco and drawing up a detailed swot analysis of the organisation. I will also be examining the role of production within the firm. Tescos position in the economy Tesco is a public limited company (plc). Public limited companies are businesses with share price on the stock exchange. To become a public limited company, a business must have an issued share capital of at least £50 000. The company must have reissued at least 25% of the nominal value of the shares. Tesco can raise significant sums of capital by selling shares to the general public. Shares are bought and sold on the stock market. Management of Tesco is in the hands of the board of directors who are appointed by the major shareholders at the annual general meeting (AGM). Tesco has approximately 100 000 active shareholders within the company. Tescos share holders do not have any say in the day to day running of the company. There is a distinct division between ownership and control within Plc companies.
Internal economies of scale - Growth in Tesco is evident by the rise of sales and turnover as discussed in the financial analysis of Tesco. As a result Tesco can enjoy certain benefits that arise within the firm. These are known as internal economies of scale. They occur for a number of reasons. Managerial economies - Specialist managers are employed by Tesco in different areas of the company such as finance, marketing, personnel and customer services. These are required due to the sheer size of the business. Managers specialise in their own departments rather than attempting to perform several different roles. This results in high levels of efficiency and will ultimately reduce average costs. Financial economies - Tesco is a huge company and a financially stable institution. Therefore they find it easier to get large bank loans. This is the case as Tesco is considered less of a risk and can offer large assets as security. Tesco can also negotiate lower rates of interest on loans as banks see them as less of a risk compared to smaller companies. Selling shares are also an easy way of raising capital. Purchasing and Marketing economies - Tesco will benefit from lower rates when buying assets in bulk. Tesco enjoys special privileges from their suppliers as it is considered a valued customer. The sheer volume of materials it buys from its suppliers will result in lower rates and prices. Tesco also has the financial power to use the media to advertise its products and legendary service. Risk-bearing economies - As Tesco grows it has moved into different areas of retail such as non-food products and financial services, therefore it is diversifying to reduce risk.
This method is cost effective as it replaces the need for expensive 100% inspection of every item. Quality problems can be caused by poor staff performance. In many cases this can be addressed by training, improving the manual skills of workers through training courses or improving management techniques through management development programs. Stock control in Tesco Modern stock control systems make use of bar coded information that is scanned into computers. This ensures that the computer knows exactly which products have entered and left the stockroom. Tesco uses a new system called the EPOS system. The system is used at the checkout to scan barcodes in a new and efficient way. This allows staff to serve many more customers and ultimately leads to reduced costs as it means less staff will be required to work on the tills. In addition to this the new system is used to record exactly what has been sold which allows up to date stock records to be kept. This data assists staff when deciding how much to order and when to order. This in turn, can help to reduce cost as there will be less wastage in the stock room. The new system employed by Tesco will also give a permanent electronic link with suppliers that can automatically reorder stocks. Again this reduces costs. Tesco will not need to employ staff to process all of the paper work that is involved in the ordering of goods, as computers will do it automatically. All stock information can be held in a database. Tesco can then use this information to produce a printout of the stock in order of age. This can help the manager to make decisions about future stock purchases. Management can reduce orders of goods if there is a surplus. Again this helps the business to reduce costs as there will be less wastage. 1
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