Lean Provision Is Tesco's Secret Weapon in Battle with Wal-Mart
CAMBRIDGE, Mass., June 7 /PRNewswire/ -- The key behind the success of Tesco PLC's loyalty card program, recently described in a page-one story in The Wall Street Journal, is Tesco's lean provision system that efficiently delivers exactly what customers really want, exactly when they want it, and exactly where they want it.
"Tesco in Britain is a pioneer in lean provision," said James Womack, co-author with Daniel Jones of Lean Solutions: How Companies and Customers Can Create Value and Wealth Together (Free Press; October, 2005; hardcover).
The British retailer's lean provision system allows it to respond rapidly to the wealth of data collected from its 12 million Clubcard users that give discounts to frequent shoppers, explained Womack.
Tesco's lean provision system combines point-of-sale data, cross-dock distribution centers, and frequent deliveries to many stores along "milk-runs" to stock the right items in a range of retail formats. These include Tesco Express convenience stores at gas stations and busy intersections; Tesco Metro (small supermarkets in cities); traditional Tesco supermarkets in cities and suburbs; Tesco Extra ("big box" superstores in suburbs); and Tesco.com for web shoppers.
"The range of retail formats, plus detailed knowledge about specific consumers and rapid replenishment of each store, will progressively permit Tesco to offer each household convenient variety at lower total cost," Womack explained, founder and chairman of the nonprofit Lean Enterprise Institute (LEI).
He said the strategy has worked "brilliantly," permitting Tesco to establish the lowest cost position among British retailers (including Wal-Mart's Asda chain) while posting progressively higher margins and steadily increasing its share in every format.
Tesco's has 31% of the U.K. market share, nearly double the 16% held by Asda, according to the Journal story. Last month, Wal-Mart abandoned an eight-year effort in South Korea by selling its 16 stores there to a local competitor. Tesco, which plans to open a chain of small stores on the U.S. West Coast next year, has 39 Korean stores.
