Tesco’s Ways of Cutting Cost

Based on your observations from the visit to Tesco, identify how Tesco controls its operating costs Making a profit is usually the primary aim of running any business, and although this is normally achieved by increasing sales, it can also be enhanced through the careful control of costs. A business that keeps costs under control will be able to release more resources for growth and be better placed to survive in a downturn or recession. A structured and ongoing approach to cost control is an essential part of any well-managed business. Finding ways to reduce operating costs is typically a priority for Tesco. On our visit to Tesco we observed that Tesco can control its operating costs by reducing the number of staff especially the cleaners who tend to be idle at times. Few cleaners will increase efficiency and reduce the labour costs. The reduction of specific fixed and variable expenses can improve the profit picture of Tesco for example in the electric gadgets side there any more than three televisions on sale of the same type switched on, it will be best to switch of the other two televisions since there are of the same type to cut cost on electricity since electricity is charged based on consumption. Tesco can reduce costs without cutting specific expenses. for example electricity costs, by switching off some of the lights in the shop, this can increase the average income per sale, per customer, per cost centre. Tesco has plenty ways to cut costs without drastically affecting the success of the business. This includes producing Tesco branded products for example Tesco cooking oil, mineral water, Tesco value toilet rolls. Making its own products has proven to be cheaper than buying from other producers. Tesco reduces operating costs by offering special discount for goods and products which are about to expire, the special discounts are there to promote sales and to get read of the products that are about to expire at the same time getting something out of the products which were about to be valueless. Tesco has also managed to reduce its costs by using cheap material on its shelves. Some its shelves are made of wood and light material which is a good thing to reduce costs. The shelves are also have wheels for flexibility, they can be moved to create space especially those shelves which are empty. Its air conditioners were also made of cheap material to reduce cost. Tesco practises bulk selling for instance cooling oil was being sold in bulk. This creates space and also reduces unnecessary stocking of goods thereby increasing stock holding costs. Bulk selling helps to reduce packaging costs. They also have their own bakery which means they do not depend on delivery from suppliers or ordering from other suppliers. This is a good thing in that they only bake according to demand at that period, hence it reduces wastage. This reduces wastage of resources because resources are being fully utilised. The use of cameras as their security system is a good thing because it reduces the number of workers to be recruited as security hence saving cost. Tesco is using energy efficient bulbs to achieve low operating costs, incorporating energy-efficient lighting and cleaner ways to operate into the business and it has no empty refrigerators, this is to reduces space and the electricity costs. Tesco will probably see a reduction in total energy consumption and be supporting a greener planet. Tesco maintains proper stocking levels of the items that they actually sell, this way they can reduce overhead in the form of excess inventory, or inappropriate inventory, whether it's out of season or simply overstocked for the season. This is a no-brainer and will reduce the bottom line operating costs in the business, making everything else they do more profitable. Keeping inventory lean and efficient allows Tesco to be flexible. They can use that extra cash flow to invest in new and innovative products, or the latest styles, positioning there store as a trend leader, rather than a commodities broker. A careful eye on inventory levels allows Tesco to understand the ebb and flow of their business as it relates to overhead, sales trends, and other expenses . This mastery will help it to control cash flows and make them more effective , increasing profits and efficiency. Reducing operating costs should never simply be about keeping a business alive. It should be about making a company profitable. Reducing operating costs should never simply be about keeping a business alive. It should be about making a company profitable once again.