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IT Investments and Porters 5 Forces in TESCO - 1996 Case Study
Enterprise Applications and Relation Management
Niranga MS14901836 | Ruhaim MS14901218 | Nipuna MS14902208 | Shanica MS15903434 | Thakshila MS15900150 | Vishwanie MS14900600
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
Porters five forces
Porter's Five Forces - Problem Solving Techniques from ...
IT investments by TESCO
● Distribution system
● Electronic Point of sale
● Electronic Data
● Pre planning supply
● DSS for forecasting
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
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
● 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
● TESCO created a strong network “community”, with its suppliers through the IT
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
○ Late payments and electronic funds transfers are allowed.
○ Sell wider overall product range with many flavours.
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
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.
In 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
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.
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
● 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
● Based on centralized system figures monitoring warehouse efficiency, space and
● Receive the supplier delivery note and sending the promissory note via EDI.
● Electronic payment and funds transferring.
● Delivery times planning through route linking.
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
● 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.
Sales & Marketing
Attracting potential customers to enhance business or activity of selling goods
● 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
● Based on system data statistics planning seasonal offers.
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
● Having support desk to facilitate customer care and services.
● Club card records a customer purchases and award a credit for use with
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.
- Compact stores
- 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,
● 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.
The activities that the organization performs to assist the primary activities to gain the
● Procurement - Supply Chain Management
(EPOS, EDI, Pre-planning with suppliers, Decision Support System, Streamlined Distribution)
● Technology Development - Centralized Automated Information
● Human resource management - Structured process for recruitment and
● Infrastructure - Collaborative work systems
(Stronger cash flow and improved profit for all parties)
● 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
● used to minimize duplication.the fewer times that actual deliveris and the
support documentation need to be checked, the speedier and cheaper in
● 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.
● Porter, Michael E. 1987. From competitive advantage to corporate strategy. Vol. 59.
Cambridge, MA: Harvard Business Review, May 1.