Aldi Lean Production - Business Studies

1 IntroductionThe food retail industry is a highly competitive market. More sothan ever, organisations need to offer customers value for want the best quality products at the lowest possibleprices. With such tough competition it is vital for organisations tounderstand what their customers want. Aldi understands that itscustomers want value for money but do not want to compromiseon quality. This case study will demonstrate how Aldi uses a leanapproach to its Business operations to offer its customers qualityproducts at competitive prices.

2 Since opening its first store in 1913, Aldi has established itself as areputable retailer operating in international markets includingGermany, Australia and the Aldi has over 7,000 storesworldwide. What distinguishes Aldi from its competitors is itscompetitive pricing strategy without reducing the quality of itsproducts. In fact, in some cases Aldi s products are 30% cheaperthan those offered by its competitors. Aldi can do this because thebusiness operates so efficiently. Efficiency is the relationshipbetween inputs and corresponding outputs.

3 For Aldi operatingefficiently involves reducing costs in all areas of the of the key areas where Aldi is able to minimise costs are bysaving time, space, effort and energy. Aldi s approach to doing thisis to run its Business around the principles of lean thinking. Aldi has a no-nonsense approach to running its Business . Whereasother food retailers have elaborate displays, additional servicesand promotions that draw customers into the Business , Aldi score purposeis to provide value and quality to our customersby being fair and efficient in all we do.

4 Everything Aldi does isfocused around giving its customers value for money. Through being efficient and cutting costs Aldi can then investprofits back into the Business . They can then be used to furthermeet its Business objectivesfor growth. Efficiency is notsomething that is achieved overnight. lean thinking is acontinuous process that constantly enables Aldi to improve theway in which it meets its Business objectives. This enables Aldi todevelop an ambitious investment programme to develop newproperties and suppliers as well as to provide benefits Topics lean Production Reducing costs andeliminating waste JIT Benefits of lean thinking:Using a series of ideasto improve efficiency and quality whilereducing costs, time, space and purpose:Broad statement ofintent like a objectives.

5 Outcomes that abusiness seeks to | Competitive advantage through efficiency09 Competitive advantage through efficiencyAldi sbusiness objectivesMaking Aldimore efficientInvesting profitsback into the businessDevelopinglean thinking39639_ALDI 2/9/11 13:25 Page 1 lean productionLean productionis quite simply about getting more from aim of lean Production is to reduce the quantity of resourcesused in providing goods and services for consumers. At the sametime, it is about making the organisation more efficient. Leanproduction involves eliminating waste and therefore using lesslabour, materials, space and time.

6 This in turn reduces , for Aldi, lean Production is not just about reducing costsfor the Business , it is also about passing these savings on to itscustomers to offer value for Production is based on a number of efficiency concepts,such as: Continuous improvement a culture whereby all employees areconstantly involved in making improvements to quality Just-in-timeproduction materials are received just as theyare needed, eliminating the need to maintain large stock levels Time based management an approach that aims to reducethe time wasted in Business operations.

7 This usually requires amulti-skilled and flexible workforce. Total quality management (TQM) a quality assurance ideal whereall workers have a responsibility for getting it right first time Although lean Production is often considered in terms ofmanufacturing, these principles can equally be applied to serviceorganisations. The principles of lean Production are planned andbuilt into everything that Aldi does. This starts within its supplychain. For example, up to 60% of Aldi s fruit and vegetables aresourced locally where possible, reducing the need for long andcostly delivery journeys.

8 This demonstrates a time basedmanagement approach. The principles of time based managementare also built into the training provided for Aldi s employees. Trainingenables Aldi to eliminate waste and cut costs. Through training staffto do a variety of tasks around store Aldi can minimise its staffrequirements. This method results in staff gaining knowledge of thewhole Business , as such they are able to offer a much higher level ofcustomer service. Staff costs can also be reduced as fewer staff arerequired if they can perform a variety of duties throughout the store.

9 Aldi also applies this time based management approach to itsproduct range. For example, Aldi sells fewer variations of eachproduct. In contrast competitors may sell a larger variety of differentbrands, sizes and packaging. By selling fewer varieties of eachproduct Aldi can buy much larger quantities. This enables it to takeadvantage of economies of scaleand source products more costeffectively. This in turn means that Aldi needs less space to displayits products. As a result Aldi s stores can be smaller. The three core valuesof Aldi are simplicity, consistencyandresponsibility.

10 lean Production ties in closely with these example, Aldi stores are simple in design and all stores arevery similar which creates consistency. Responsibility is animportant aspect of all areas of the Business , from training anddeveloping employees to drive the Business forward as part ofcontinuous improvement, to taking an active role in its supplychain to ensure continuous improvement. Such actions havehelped it to develop an international influence in different Production :Organising anyproduction process to minimise wasteand increase :An approach to stockcontrol meaning that all materials, work-in-progress and finished goods arescheduled to become available onlywhen they are needed.