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Profits from the lean business model

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When the CEO of the mighty Wal-Mart asks the UK government for protection from competition from Tesco, one fifth its size, it is clear something significant is going on. The rise of Tesco is not explained by its being better at dominating its home trade than Wal-Mart in the markets it serves in the US. Both benefit from enormous scale and purchasing power.

The difference is that Tesco has developed a superior lean business model that is exposing the cracks in the Wal-Mart equivalent. Through its loyalty cards Tesco knows exactly who its customers are and what they want; Wal-Mart does not. Tesco has opened a range of formats to mirror customer circumstances – a strategy which Wal-Mart is just thinking about; and Tesco has developed a rapid, reflexive replenishment supply chain to serve all its formats, including home shopping.

A walk through Tesco's supply chain is an eye-opener. Quite simply, Tesco is getting more of its customers exactly what they want, where and when they want it, and at lower costs. The good news is that none of this is a secret; competitors can follow their example. It is not an exaggeration to call Tesco the Toyota of the grocery business. Tesco is by no means perfect, however, and, like Toyota, it has not lost the drive to keep improving all of its processes.

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