Competitive advantage through efficiency An Aldi case study
Page 2: Lean production
Lean productionis quite simply about getting more from less. The aim of lean production 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 therefore using less labour, materials, space and time. This in turn 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-timeproduction – 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 usually 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’
Principles of lean production
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 Aldi’s 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 also built into the training provided for Aldi’s 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 scaleand source products more cost effectively. This in turn means that Aldi needs less space to display its products. As a result Aldi’s stores can be smaller.
The three core valuesof Aldi are simplicity, consistency and responsibility. Lean production ties in closely with these values. For example, Aldi stores are simple in design and all stores are very 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.