Tesco takes on the world

The retail giant is looking to enhance its supply chain management systems

Tesco’s Indian software development centre is to play a key role in the retail giant’s plan to drive down IT costs and improve the efficiency of its businesses worldwide.

The supermarket chain employs 3,000 staff at its services centre in Bangalore, of which 1,300 are technology workers focused on software support and development.

As part of a platform rationalisation project (see below), the company will be making more use of its overseas IT team, said Tesco’s IT director of operations and infrastructure, Nick Folkes.

“One of our key challenges over the next couple of years will be around how to take the advancements and efficiencies made in the store network and technology in the UK and then export that globally to make operations in the other 12 countries where we are based more effective and productive,” he told Computing.

“As we deploy a common way of working across our group, we will be doing increasingly more from our offshore centre. The centralisation of the services we provide as an IT function is part of our core strategy,” he said.

Tesco’s Indian staff already work on projects such as the development of a management information platform and systems supporting voucher redemption and loyalty card schemes. But the Indian team’s growing workload does not signify a risk to UK IT workers, said Folkes.

“We shifted the capability to Bangalore as a business-as-usual activity a few years ago ­ – moving the ‘heavy-lifting’ of IT out to India has already been done,” he said.

One of the main objectives of Folkes’ boss, director of operations and IT Mike McNamara, is to take £250m out of the cost of the UK business and reinvest the cash in projects to drive efficiency, so such initiatives will be high on the retailer’s IT agenda this year.

A new IP network infrastructure, which will deliver 40 times the current capacity, is being implemented with Cable & Wireless and is set to go live this year, taking a “huge chunk of cash” out of Tesco’s telecoms budget.

Other key initiatives will look into improving the way stores are operated, including systems to enhance store shelf replenishment and warehouse stock management. Security will also be a focus, including projects for PCI-DSS compliance.

The acquisition last year of Tesco Personal Finance from Royal Bank of Scotland is expected to change the shape of the retailer’s store offering, said Folkes, with a common set of services to customers in that area expected to go live over the next two years.

Despite reporting its slowest growth rate since the early 1990s in January, Tesco plans to continue using technology to ride out the downturn.

“Our IT strategy is well suited to face the challenges ahead,” said Folkes. “We invest in technology to reduce the operational cost of the business and make it more effective, and that will remain our focus going forward.”

Retailer sticks with own-brand datacentre

While many businesses increasingly treat datacentres as a commodity, Tesco sees its servers as a key part of its operation and outsourcing was never considered as an option to reduce costs, according to IT director of operations and infrastructure, Nick Folkes.

“Our operating model is based on how to drive efficiencies across the business globally and a lot of that is supported by the use of technology, which is seen as a differentiator, so we will not outsource IT as a general rule,” said Folkes.

“You could compare Tesco to an infrastructure company. For example, we own the majority of our stores and get a return on the property we invested in. The acquisition of a physical site for a datacentre is a large cost, but owning and managing property is a core competency, and we feel we can do it more cost effectively than an agency could,” he said.

“With long-term outsourcing contracts, your ability to bring down cost on an annual basis is limited and by having it in-house, we can address that.”

One of the main datacentre projects, due for completion in April, is the virtualisation of 1,500 Windows servers in partnership with supplier Citrix, to drive down spending and reduce datacentre carbon emissions by 20 per cent.

“The main challenge is how to drive change within the business while it continues to operate. With the datacentre, for example, the focus is around how to change the entire mechanical and electrical plan without suffering an outage,” said Folkes. #

“Today, we trade round the clock online and for almost the entire week in our stores, so driving productivity, enhancements and change in that environment is challenging.”