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ALDI Stores: Introduction and History

Question:

Discuss about the Operations Management of ALDI Stores.

Operations Management is defined as the area of management, which is focused on designing and controlling the process of the production and business operation in the product of goods or services. An effective operations Management for a company helps the company to meet the expectation of their customer by ensuring that the meet the demand and the supply at the right time. This report describes about the operation management of ALDI stores. ALDI stores started its first operations in 1913 in Germany. They are known for their discounted product and keep almost 1500 daily staples. More than 90% of the population in Australia buys their groceries from the ALDI store therefore, it is important for the company to have an efficient and effective operations management.

ALDI being a German retail store opened its first small food store in 1913 by Anna Albrecht in Essen, a small mining town under the name “Albrecht Discount”. In1948, the store was operational in 4 location of Germany.  In 1962, Albrecht Discount name shortened into

“ALDI” and in 19688 the company owned almost 200 stores in South location.

ALDI started expanding its business internationally in 1967 by making their debut in US market, Great Britain in 1990, Ireland in 1999, Australia in 2001, Slovenia in 2005 and Hungary in 2008. As of today there more than 7000 store that functional worldwide. The net revenue of the company is more than 53 Euro billion.

Forsa, a German institute did a research in 2002 according to which  approximately 95% of blue collar workers, 88% of White collar worker, 84% of public servants and 80% self employed people shop from ALDI Stores.  ALDI has the maximum market share in German when it came to the retail stores. LIDl is one of the direct competitor internally that is present in the market.

ALDI was known for the low price grocery leader. The growth and success they have achieved is due to their efficiency level that was seen from the entry level. From Store Construction to product in stock everything reflects the efficiency level that company has worked for.  Their main of the operation strategy was to maximize the quality of products and saving of their customers (Wortmann,2004, p.425-441).

Operation Strategy can be defined as the process through which the companies can reach through their objective. By developing the effective operational strategy it helps the companies to meet the expectation of the customers as well as it is able to meet the demand with the supply.

Aldi being the German deep discount has captured the market through it operational strategies where they sell product with lower prices for the customers. Since it is one of the discounted stores therefore, there will be huge demand of the products.

The focus or the vision of the company is to provide the quality of products in best price. This is achieved by the highly efficient operation strategy that they have build over the time period. Their efficient operation strategy has helped them to achieve the leadership in the market and helped them in optimizing the profit (Dawson, pp.253-266).

Operations Management and Strategy of ALDI

Decision making process is one of the most important things in the organization. Every decision that is made by the company directly affects the growth of the stores. The company’s authority makes the company need to make strategic as well as their operational decisions. All the decisions are made keeping in mind the future and the growth of the company. The company ensures that checking the past record of the stores makes all the decisions. Innovation, capital investment, Expansion all comes under the strategic decision making process. Sales forecast, Operational expansion, Store design and process comes under the operational decision making process.

Innovation is the key of growth for any company. The company has to ensure that they keep their level of innovation high and as per the demand in the market. ALDI stores keep innovation their process and design according to the convenience of the customers (Daum, Davies, Kestens and Moorhead, 2007, pp.595-603 ).

The product sold by ALDI stores is at least 20-45% cheaper than its regular competitors. ALDI stores have around 1,500 staple items, which is more as compared to the regular supermarket.

Approximately 90% of the products are stocked with private label product, which is exclusive to ALDI. The company does not select many brands for it is product, on an average only 2-3 brands are offered for every product. The company also works closely with the suppliers to ensure the look of the product is attractive rather than the plain and dull. The packing of the privately labeled product would be colorful and sometimes may have the resemblance of the popular product of that segment.  The limited brand for any product helps the customers to simplify their shopping experience with the limitation of choice. One of major reason for keeping the product selection is that the company does have to manage the supply chain for all entire brand products (Emsell, 2011).

ALDI uses Just-in-time inventory model. Just in time means that the product will be delivered whenever there is a requirement to the companies. The company does not stock their inventory with product for the future uses. This reduces the warehouse cost and the labor costs.

All the ALDI stores are designed and constructed are similar and are kept similar. The store follows the uniform process and system ultimately leading to low operating cost. ALDI store are designed in small size as they also help in customer experience i.e. the customer has to walk minimum number aisle to complete his/her shopping. The store operates in normal business hours, which lead them to reduce the overhead costs.

In ALDI stores, everything is a self-service there isn’t any counter service and no staff to assist the customers for the products. Every customer is expected to bring their own bag for their groceries. ALDI trolley’s can only be used if the customer has a coin, the coin is returned when the trolley is returned. This reduces the cost of finding or replacing the trolleys (Payne, 2015 p.17).

The company has made a huge growth in European as well as the Australian market.

ALDI's Decision-Making Process

The business processes should be designed according to the convenience of customers. The company has to ensure that business process designed should follow the culture of the place where the business is opened. Evaluating a business process from time to time gives an idea to the company about the areas where the improvement is required. The business process should be altered as per the expectation of the consumers.

ALDI store evaluates and measures its business process regularly. Each process from stocking to the inventory till the product is being sold the company ensures that all the processes are running smooth. The company ensures that the labeling and the packing of all the product is simple, the demand forecasting should be done of the regular basis , Quality check for all the products as well as the supply chain process are done in regulated process (Min,2010, pp.283-293).

Value Chain (supply Chain Management)

ALDI Store works closely with the supplier to expand their social and environmental compliance standard of Supply Chain. The company uses Social Monitoring Program to understand the impact of the products and helps in prioritizing continuous improvement (Kleemann, 2011).

ALDI store uses 3 steps for lean manufacturing concept for the successful Supply chain management. The three concept of lean manufacturing, which helps in reducing the resources, are:

5s and its Implementation: 5s is concept of total quality, which stands for sort, set in order, shine, standardize and sustain.  This concept helps the organization to maintain its quality.

Standardized Work: Every organization works for its expansion and innovation, so the company should have a standardize process so that the company does not forget the existing product.

Flow of work: This concept of lean manufacturing helps the company to streamline the flow of work ensuring the process is streamlined to have uninterrupted flow of product and services.

Through the lean manufacturing concepts the ALDI stores provides it’s the customer product with 30% cheaper rate than the other rivals. This has also reduced the waste production and quantity of resources used.

ALDI store product are owned brand, which helps them to make their supply chain more effective and efficient. Since, the store use JUST-IN-TIME inventory model for the store management, which means that the products are stocked whenever there, is a need of it. ALDI does not invest much to stock their inventory as it may be held for longer duration if  in future the demand of that product is not high which was increase the cost of warehouse and labor cost. The whole focus of ALDI stores is to reduce the cost by holding and managing the stocks. Once the stocks arrive in the store, they are directly put in for display for the customers to shop.  In this type of Inventory model, the demand forecast need to be done effectively (Huchzermeier, and Iyer, 2010, pp 373-392).

Since the company uses Just-in-Time inventory model therefore it is important for the company to demand its forecast correctly so that they can always meet the supply with the demand. The company also does not believe in stocking the inventory as it increase the warehouse as well as the labor cost for the company. To forecast the demand of the entire product line it is important for the company to have track record of material in flow and out flow.  If the inventory is more than the actual demand, then there will be an increase inventory holding cost. If the inventory is less than the actual demand then it will be effect in the company profit and sales. It is important for the company to have the correct the demand forecast so that the company does not lose the profit but also have low inventory holding cost. 

Innovation and Product Quality at ALDI

In ALDI stores the company forecast their demand according to the flow of product sold in a particular time period. For example, if there is any product which is consumed frequently by the consumer in very short period of time then that product will have to stocked more frequently so that the demands are being met at the right time (Geboers, Broekmeulen, van Donselaar, Boersma and Bakkersland, 2013).

Decision making process is an important for a company for its long term as well as the short term growth. The company will have to ensure their decision should not have any negative effect on the company’s growth. Demand forecast, change in process, inventory cost are the examples of short term decisions and Expansion, Sales Forecast and Capital investment can be the examples of long term planning.

It is also important for any organization to take the feedback from all the stakeholder of the company such as the customers, supplier, third party team and employees. The feedback from the consumers can help the company to improve their services and this will also create a good image of the company in the customer’s mind. The feedbacks from the consumers also give the company an idea about the expectation of the customers.

Quality of any product is the major concern of ALDI stores. The company has set a separate department, which looks into Quality and Safety of the products. The team closely monitors all the ingredients and materials use to make the products. Their Quality Assurance team ensures that the quality of every product reaches to the high standards and meets the expectation of the customers. The company also has a third party testing program, which verify the quality and safety of the product before they, reaches to the store.

Every product, which is sold by the ALDI stores, is complied with US consumer legislation and follows all the safety standards. All food articles get audited by their third party food safety team and their quality assurance team. This quality ALDI store makes them unique for their products.

ALDI Stores has a test kitchen where all the products are being test regularly to meet the high quality standard. Apart from their testing kitchen the company also uses an independent lab to analyze the 100% surety of their products (Min, 2010, pp 283-293).

Conclusion

ALDI stores is a German originated store expanded its stores in across the Europe, Australia, Canada and US with more than 7000 stores owns approximately 95% of market share in retail. This report focuses on the operations of the store from its operations strategy to their process design. ALDI stores have a very efficient design of process as the company clearly track every moment of the employees as well as their consumers. The Quality of every product, which goes on display and sale for the customer, is monitored by the quality assurance team and their third party quality partnered. The Company also focuses on their inventory. The company uses Just-in-time inventory to reduce the inventory holding cost. This model of just-in-time also helps the company to meet the demand of the customer. The demand forecast also done regularly and depends according to the flow of products. The demand forecast is also done is regular time period. ALDI stores motive is to bring the product to the customers in the deep discounted prices. The company also ensures that the packing and the labeling of the product are kept simple. The packing is done keeping in mind that every product catches the attention of the consumers. ALDI stores have been successful in Australian market.

References

Wortmann, M., 2004. Aldi and the German model: Structural change in German grocery retailing and the success of grocery discounters. Competition and Change, 8(4), pp.425-441.

Dawson, J., 2001. Strategy and opportunism in European retail internationalization. British Journal of Management, 12(4), pp.253-266.

Daum, J.H., Davies, D.C., Kestens, J. and Moorhead, D., 2007. Innovation management and the role of finance: status, challenges, and vision. Innovation, pp.595-603.

Huchzermeier, A. and Iyer, A.V., 2010. Supply chain management in a promotional environment. In Retailing in the 21st Century (pp. 373-392). S

pringer Berlin Heidelberg.

Emsell, P., 2011. Aldi–“The No Frills Retailer”.

Payne, A., 2015. A High Water Mark for Comparative Advertising. Managing Intell. Prop., 252, p.17.

Min, H., 2010. Evaluating the comparative service quality of supermarkets using the analytic hierarchy process. Journal of Services Marketing, 24(4), pp.283-293.

Newing, A., Clarke, G.P. and Clarke, M., 2015. Developing and applying a disaggregated retail location model with extended retail demand estimations. Geographical Analysis, 47(3), pp.219-239.

Kleemann, F.C., 2011. Supply Chain Strategy Analysis for Aldi.

Geboers, F., Broekmeulen, R.A.C.M., van Donselaar, K.H., Boersma, H. and Bakkersland, B.V., 2013. Demand forecasts and ordering implications for the bread assortments of Dutch retailers.

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