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Aldi

The food retail industry is a highly competitive market. More so than ever,
organisations need to offer customers value for money. Customers want the best
quality products at the lowest possible prices. With such tough competition it is vital
for organisations to understand what their customers want. Aldi understands that its
customers want value for money but do not want to compromise on quality. This case
study will demonstrate how Aldi uses a lean approach to its business operations to
offer its customers quality products at competitive prices.
Since opening its first store in 1913, Aldi has established itself as a reputable retailer
operating in international markets including Germany, Australia and the U.S. Aldi has
over 7,000 stores worldwide. What distinguishes Aldi from its competitors is its
competitive pricing strategy without reducing the quality of its products. In fact, in
some cases Aldis products are 30% cheaper than those offered by its competitors.
Aldi can do this because the business operates so efficiently.
Efficiency is the relationship between inputs and outputs. For Aldi, operating
efficiently involves reducing costs in all areas. Some of the key areas where Aldi is
able to minimise costs are by saving time, space, effort and energy. Aldis approach to
doing this is to run its business around the principles of lean thinking.

Aldi has a no-nonsense approach to running its business. Whereas other food retailers
have elaborate displays, additional services and promotions that draw customers into
the business, Aldis core purpose is to provide value and quality to customers by
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being fair and efficient in all we do Everything Aldi does is focused around giving
customers value for money. Through being efficient and cutting costs Aldi can invest
profits back to the business. They can then be used to meet its objectives for growth.
Efficiency is not something that is achieved overnight. Lean thinking is a continuous
process that constantly enables Aldi to improve the way in which it meets its business
objectives. This enables Aldi to develop an ambitious investment programme to
develop new properties and suppliers as well as to provide benefits for employees.
Lean production
Lean production is about getting more from less. The aim is to reduce the quantity of
resources used in providing goods and services for consumers. At the same time, it is
about making the organisation more efficient. Lean production involves eliminating
waste and using less labour, materials, space and time. This reduces costs.
However, for Aldi, lean production is not just about reducing costs for the business. It
is also about passing these savings on to its customers to offer value for money. Lean
production is based on a number of efficiency concepts, such as:
Continuous improvement a culture whereby all employees are constantly
involved in making improvements to quality
Just-in-time production materials are received just as they are needed,
eliminating the need to maintain large stock levels
Time based management an approach that aims to reduce the time wasted in
business operations. This requires a multi-skilled and flexible workforce.
Total quality management (TQM) a quality assurance ideal where all
workers have a responsibility for getting it right first time
Although lean production is often considered in terms of manufacturing, these
principles can equally be applied to service organisations. The principles of lean
production are planned and built into everything that Aldi does. This starts within its
supply chain. For example, up to 60% of Aldis fruit and vegetables are sourced
locally where possible, reducing the need for long and costly delivery journeys. This
demonstrates a time based management approach.
The principles of time based management are built into training provided for Aldis
employees. Training enables Aldi to eliminate waste and cut costs. Through training
staff to do a variety of tasks around store Aldi can minimise its staff requirements.
This method results in staff gaining knowledge of the whole business, as such they are
able to offer a much higher level of customer service. Staff costs can also be reduced
as fewer staff are required if they can perform a variety of duties throughout the store.
Aldi also applies this time based management approach to its product range. For
example, Aldi sells fewer variations of each product. In contrast competitors may sell
a larger variety of different brands, sizes and packaging. By selling fewer varieties of
each product Aldi can buy much larger quantities. This enables it to take advantage of
economies of scale and source products more cost effectively. This in turn means that
Aldi needs less space to display its products. As a result Aldis stores can be smaller.
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Core values

The core values of Aldi are simplicity, consistency and responsibility. Lean
production ties in with these values. For example, Aldi stores are simple in design and
all stores are similar which creates consistency.Responsibility is an important aspect
of all areas of the business, from training and developing employees to drive the
business forward as part of continuous improvement, to taking an active role in its
supply chain to ensure continuous improvement. Such actions have helped it to
develop an international influence in different markets.
Reducing costs and eliminating waste
Lean principles involve minimising waste. Aldi have adopted different time-based
approaches to ensure waste is kept to a minimum, which can reduce costs e.g.:
Aldis shopping trolleys have a 1 deposit system. This ensures customers
return them which results in fewer trolleys being lost. It also means Aldi do
not have to employ someone to collect them as customers return their trolley.
A time based approach that Aldi has adopted to reduce waste is through its
opening hours. Aldi trades from 8am until 8pm from Monday to Saturday and
from 10am until 4pm on Sundays. In contrast some of Aldis competitors are
open for 24 hours. This means Aldis sales are spread over a shorter period. It
also means that staffing costs are not incurred at times when there would be
fewer customers. As a result Aldi is more productive during its trading hours.
Consumption of utilities for power and heating can be reduced through trading
only during the busiest times of the day.
How staff can support waste reduction
To underpin these principles Aldi requires competent staff. A combination of total
quality management techniques and a time based management approach help ensure
employees take responsibility for their job roles whilst minimising the amount of time
wasted. Employees are paid market-leading salaries within the grocery industry.
A comprehensive training programme enables them to become multi-skilled. This
means that staff can undertake a number of different roles within each Aldi store,
allowing staff to be flexible with the tasks they can do. It is therefore easy to produce
a staff rota as employees can fulfil a variety of tasks. Employees can carry out
whatever tasks are needed throughout the day, leading to time-based savings.
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Training, high wages and a diverse job role all help to motivate staff. This in turn
leads to lower sickness levels and a more empowered team.
Efficient processes
The process of buying and selling within Aldi operates on time-based management
principles and means that they require fewer tills and cashiers. For example:
Products display numerous bar codes. This means that cashiers do not have to
search for them and they can be scanned more quickly.
Customers place products back in the trolley after scanning. They pack their
bags away from the till after paying. This helps throughput. It is also more
efficient as another customer can have their shopping scanned as the previous
customer packs. Again, these cost benefits can be passed on to customers.
These processes contribute to savings which help Aldi to operate more efficiently as
an organisation. The savings are then passed on to its customers. This is in the form of
quality products at prices that are lower than the competitors.
Just in time
Aldi uses a just-in-time (JIT) approach to store management by only holding stock it
needs. Stock is expensive. The company only buys the stock required at any given
time. When stock levels are reduced an organisations working capital is improved.
Aldi is not tying up too much investment in stock that is going to be held for a long
period before it is sold to generate income. It also means Aldi does not pay for large
warehouses to store stock or pay for additional staff to monitor warehouse stock.
From the moment stock arrives at an Aldi store everything is focused on reducing the
cost of holding and managing the stock. For example, products are delivered in
display ready cases. Once the top of the case is removed it can simply be lifted onto a
shelf for display to customers. Units of 12, 24 or more can be handled easily and
quickly merchandised.
It means that individual units are not picked and lined up on shelves. In fact some
products are sold in store from a pallet. This is a platform for large loads that can be
brought mechanically into a store. This is an efficient way of getting a large volume
of products into the shop very quickly.
Benefits of lean production
Aldis no-nonsense approach to retailing leads to cost saving in numerous areas.
These cost savings are passed on to customers through lower prices, allowing the
business to differentiate itself from competitors in terms of price and quality.
As money is not wasted on unnecessary expenses, Aldi is able to allocate spending to
other important elements of its business. For example, Aldi is also focused on
corporate social responsibility (CSR). These are Aldis wider responsibilities to
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society, its employees and the community. Aldi works with many different charities.
For example, in 2014 Rainbows Children's Hospice was Aldis charity of the year.
Working with suppliers
Through using a total quality management approach, Aldi is able to create strong
business relationships with suppliers. These relationships help Aldi to continuously
improve product offerings whilst also ensuring suppliers meet international standards.
Aldis international standards go beyond consumer legislation and nutritional
information. Products are carefully labelled for consumers so they can make informed
choices, which supports Aldis continuous improvement culture.
Aldi has a distinctive approach to retailing. Its operations focus on providing
customers with quality products that are value for money and it achieves this by
ensuring that operations are as efficient as possible whilst adhering to its core values
of simplicity, consistency and responsibility. Through adopting a variety of lean
approaches Aldi is able to offer customers the highest quality products at the lowest
possible price.
Questions

1. How is lean production appropriate for retailing, rather than solely for
manufacturing?
2. Aldi use their own fleet of vehicles for logistics purposes, which is unlike the
approach adopted by other large retailers who use organisations like Eddie
Stobart Transport and NFT. What particular advantages and disadvantages are
associated with this approach?
3. What particular segments (e.g. social class, age, geographical, gender, etc.) do
you feel Aldi attempts to serve? Justify your answers.
4. Evaluate how Aldi could use developments through the processes of
continuous improvement to meet the needs of new groups of customers for the
produce it sells.