Aldi & Lean Thinking

Introduction

Founded in 1913, Aldi is an international markets retailer with over 7000 stores worldwide and a focus on offering quality products at low prices. The organization's mission is "To provide value and quality to our customers by being fair and efficient in all we do". Aldi communicates three core values: simplicity - consistency - responsibility. To achieve sustainability in the long term and be able to offer value for money to its customers Aldi applies Lean Management Practices and focuses its efforts on saving time, effort, space and energy.

Lean Production: Description and Application to ALDI

Lean production is an assembly-line methodology developed originally for Toyota and the manufacturing of automobiles. The idea behind lean production is to apply a cluster of practices to improve organizational efficiency by continuously reducing waste, unevenness, and overburden in the production process. Waste takes many forms, such as excess travel of the product or service through the production process, too much time during which the work is sitting idle (waiting for the next step in production), too much inventory, too much employee physical movement, and too much finished product without a buyer. Lean management generally involves minimizing situations in which people and equipment are overloaded (too much demand per unit time) and smoothing out the production process (e.g. reducing bottlenecks).

Although lean production is often considered in terms of manufacturing, these principles can equally be applied to service organizations. The principles of lean production are planned and built into everything that Aldi does based on efficiency concepts, such as:

* Continuous improvement: All employees focus on quality and every member of the staff is trained to become multi-skilled which consequently allows flexibility across tasks and roles

* Just-in-time production: materials are received just as they are needed, eliminating the need to maintain large stock levels and consequently storage costs. Ready-to-display cases are used for this reason and this reduces handling in stores. As a result, working capital is released as well.

* Time based management: an approach that aims to reduce the time wasted in business operations. This usually requires a multi-skilled and flexible workforce. What Aldi does is: (a) having 60% of fruit & vegetables sourced locally, which reduces fuel miles, (b) ensure efficiency till operations to increase speed of checkout, (c) have shorter store opening hours to achieve sales contained in less time, and have less staff costs as well as reduced use of power and heating.

* Total quality management (TQM) is a quality assurance ideal where all workers have a responsibility for getting it 'right first time' manufacturing, these principles can equally be applied to service organizations. This results in more empowered and motivated staff and stronger relationships with suppliers.

Economies of Scale - The ALDI example

Economies of scale contribute to the efficiency of the companies as long as the size of goods being produced or purchased increases. That basically means that the cost per unit decreases as far as production increases. These variable cost fluctuations give advantage also to the fixed costs which are spread out over an increased number of units.

Aldi achieve economies of scale by making agreements with fewer suppliers who provide Aldi with large quantities of products at lower prices. What gives Aldi the strong bargaining position towards the suppliers is the extend lines of products from grocery to clothes but also limited brand choice which indeed reduce inventory costs and exclude brands cannibalization.

Aldi main core values: simplicity, consistency and responsibility are the main reasons for the offered limited variations of each product. For example milk limited assortment enables strong negotiations with milk producers who are willing to sell big quantities and gain more revenues on this basis. What is also makes Aldi's position strong is the ability to pay in cash quicker its suppliers than its competitors, that is being achieved through many approaches of lean thinking with regards to the cost reductions and waste minimizing.

Customers get the so wanted value for money not only due to the Aldi's well managed economies of scales and but also its own labels. Aldi cooperating with "unknown" producers who are required to keep all Aldi's quality standards while their products are labeled by Aldi