By Jennifer Zaino

Moving fast is critical for Tesco PLC. With 2008 sales of £59.4 billion (roughly $87 billion), the British company is the largest retailer in the U.K. and third largest worldwide, operating some 3,960 stores globally. Last year alone, Tesco opened more than 500 additional stores worldwide, including 118 Fresh & Easy stores in the U.S. In its current fiscal year, Tesco plans to add more than 200 stores in the U.K., more than 100 in the rest of Europe, and more than 60 new U.S. outlets. The retailer is expanding in China, too, where it now has more than 60 stores.

To help make good on these ambitious plans, Tesco employs a standard set of optimized business processes. These well-documented and rigorously defined processes — part of what the company calls the Tesco Operating Model — cover everything from planning and building a store to opening and running it. Indeed, the operating model is the backbone of Tesco’s leanness, helping the company achieve reduction of excess applications and wasteful process steps. It’s a model that enables Tesco’s regional market flexibility and drive toward continual best practice improvements. It also helps Tesco standardize the technology and processes that drive its business, shaping the company’s supply chain operations and creating a strong IT operations framework upon which applications are built.

Standardizing IT has been a large factor in defining Tesco’s international success, says Mike Griswold, VP of Retail with AMR Research, who follows the company. The Tesco Operating Model evolved from the retailer’s Tesco-in-a-Box approach, a worldwide operating model that integrates store operations through a common set of technologies and processes. The Tesco-in-a- Box approach was designed five years ago to give its stores, regardless of location, access to standardized applications and systems in a “virtual box.” It includes technologies that support the stores and perform key operations, such as a lean supply chain which includes one-touch replenishment — the idea that only one person should touch stock as it goes from truck to shelf. Creating the approach was no small job. In some cases, core commercial supply chain systems had to be changed. But the benefits, including the ability to make innovations to the model and then quickly roll them out anywhere in the world, are worth it.

Previously, Tesco relied on a set of in-house, customized legacy systems. When the retailer expanded operations in Eastern Europe, Turkey and Asia, it was forced to customize IT systems again to support country-specific requirements. Further complicating matters — and making it difficult to share sales performance metrics from a central location — was both the lack of integration among Tesco’s disparate systems and the complexity of incorporating changes spread across geographies.

The answer: Tesco-in-a-Box. This approach was so successful that Tesco expanded it into the Tesco Operating Model. “Actually, it’s not just about the applications,” says Mike Yorwerth, Tesco’s Group Technology and Architecture Director. “It’s much more about how we use them for the business processes. It’s the end-to-end lifecycle of how the Tesco business operates,” Yorwerth says. (See sidebar, “The Backbone Behind the Processes,”.)

Tesco can now quickly get a new geography up and running, then get its data fl owing back to the main offices in the U.K. While the integrated operating framework of processes and systems is centrally supported, it is also flexible enough to accommodate local requirements. “What goes out to different geographies is standard Tesco, balanced with the ability to be very local in the markets it serves,” explains Griswold of AMR.

Adds Yorwerth: “We’re such a big business, and it’s … complex. So you’ve got to make everything as simple as you possibly can, and standardizing makes things simple for people. Making things simple for people means it makes their jobs easier to do. If their jobs are easier to do, it means they can focus on customers. Ultimately, that’s what we’re here for.”

No Redundancy
The Tesco Operating Model is deployed whenever the retailer enters a new market, but it’s also critical to Tesco’s strategy in more established markets. The model serves as an example of how IT can drive lean in the extreme: It helps the company avoid technology redundancy and make the most of automation to remove unnecessary processes from Tesco’s supply chain. It also ensures rapid replication of successful processes. A completely integrated supply chain and sales-based ordering process means Tesco can centrally track quantities of products sold throughout the day in each store, and can communicate accurate product reorder forecasts to partners. Using this information, Tesco can order precisely the right amount of inventory to ensure that its stores don’t run out of a product. At the same time, the retailer avoids the financial and logistical burden of having unneeded crates of inventory sitting in a warehouse.