Description
ALDI is Worlds largest grocery retailer. This ppt covers the operations aspect of the through jit and lean
Established in 1913
COMPETITIVE ADVANTAGES THROUGH EFFICIENCY
Introduction to Aldi
• Retailer in international markets since 1913
– Over 7,000 stores worldwide
• Takes a distinctive approach to retailing
– Business focuses on principles of ‘lean production’ – Savings passed on to customers – Reinvestment of profits enables business growth
• Core purpose = to provide value and quality to customers
Aldi core values
• Simplicity
– Fewer varieties of brands/products offered at value prices
• Consistency
– All stores have same simple design
• Responsibility
– Active role in the supply chain ensures improvement – Training and developing employees drives quality customer service
• Aldi is the world’s lowest cost grocery retailer • Aldi is a limited assortment discount grocery store, a format characterized by a high turnover on a narrow range of grocery items in a small space • The main appeal of limited assortment stores is low prices. • Aldi acts as a category killer in core grocery lines • Aldi has a low-cost logistics and operational system that works on a 12% gross margin • Privately owned Aldi has a long investment horizon and plenty of patient capital • There are few threats to Aldi or the limited assortment store. Aldi is immune to competition, even from Wal-Mart • In Germany, over 70% of German households shop at Aldi, mostly for basic staples
Definition of “Competitive Advantage”
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition.
There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support.
Distinctive Competences
• Ways to pursue competitive advantage
– Superior efficiency – Superior quality – Superior innovation – Superior responsiveness to customers
LEAN PRODUCTION
Lean production
Lean production refers to the range of measures that can be put in place in the workplace to help reduce waste.
Although traditionally used in manufacturing, lean principles can equally be used in service industries.
Lean production concepts
• • • •
Just-in-time stock control Kaizen (continuous improvement) Total quality management (TQM) Time based management
Just-in-time (JIT)
This is a stock control method whereby materials are delivered just as they are needed. JIT therefore... • reduces need for storage • improves working capital as little cash tied up in stock • reduces risk of stocks becoming damaged or obsolete • relies on the reliability of the suppliers • limits ability to respond to an unexpected order or increase in demand
Limitations of JIT
• Relies on good relationships with suppliers • Cannot increase production quickly if there is an increase in demand or a sudden unexpected order • There is no room for mistakes as there are no buffer stocks to fall back on • Requires excellent channels of communication with both customers and suppliers • Relies on a flexible, multi-skilled workforce
Kaizen and TQM
• Kaizen is a Japanese concept of making ongoing incremental improvements to quality and efficiency • Ideas for improvement come from the workers • Quality circles may be used within Kaizen • Total quality management is a quality assurance approach whereby ALL workers are responsible for quality • TQM aims to ‘get it right first time’
Time based management
Time based management aims to eliminate time wasted during design and production.
Time based management... • analyses where time is wasted and acts to reduce this e.g. equipment set-up times • looks for opportunities to carry out processes simultaneously • reduces new product development and launch times • makes firms more responsive to market changes
Benefits of lean production
• Cuts costs • Increases efficiency • Increases responsiveness of firms to market changes • Provides competitive advantage
What do you mean by limited assortment?
Types of discount format
TYPES Limited Assortment No. of items 600-1000 KEY POINTS Tightly controlled selection Focus on packaged groceries Emphasis on low costs 10-20% cheaper More flexible product selection More fresh, chilled and frozen 5-10% cheaper Full product selection Discount perception EXAMPLES Aldi, Netto, Norma, Save-ALot
Discount Supermarket
1000-3000
Kwik-Save, penny, plus,
Extended Range Discount
3000+
Franklins No Frills, Food Giant, Le Clerc, Intermarche
How do they control costs ruthlessly?
• Aldi operates on a 12% gross margin and a 2% net margin • Aldi has a system that delivers the lowest possible cost of goods sold • Aldi has a streamlined checkout and store labour system that minimizes payroll costs • Aldi keeps site occupancy costs low by buying its store sites and having a basic store fit out • Aldi controls SG&A, Distribution and other costs ruthlessly • Low priced, high quality private label is the key to Aldi’s strategy
ALDI’S PROFIT & LOSS STATEMENT OF ONE STORE 1995 US market estimates
percent Sales Cost of Goods Sold Shrinkage 100.0% 88.0% 0.5% weekly $120,000 104,400 600 monthly $6,240,000 5,428,800 31,200
Payroll
Occupancy SG&A, Distribution & Misc. Net Profit
3.0%
1.4% 5.1%
3,600
1,680 7,320
187,200
87,360 124,800
2.0%
$2,400
$124,800
Aldi has a system that delivers the lowest possible cost of goods sold
• Private label accounts for 90-95% of sales • Aldi operates on a true net cost basis and requires no additional trade spending of any kind • No slotting fees • No introductory allowances • No promotional discounts • No volume allowances • No gifts, golf tournaments, event funding, voluntary donations, etc. • Aldi warehouses and delivers 100% of its items, including milk and bread, eliminating the need for direct store delivery and regional warehousing on the part of vendors • Aldi stores do not require in-store sales representative, marketing or merchandising support
• Aldi has a streamlined checkout and store labor system that minimizes payroll costs • Aldi employees are paid well but are non-union where possible • Employees are paid over the industry average and receive performance bonuses • Stores operations are designed to minimize labor • Stores have between four and six full time employees • Checkout operators memorize 600 PLU item codes instead of scanning • Checkout operators average 42 items/minute vs. 15/minute in supermarkets • Average order size is 35 items; total cashing time per item 1.44seconds • Store management is limited to a store manager who works six days, writes the order and operates a checkout • Stores have limited opening hours (56 hours per week coverage in the U.S.) • Product is displayed in the shipping box, on the shipping pallet, which is unloaded from the truck to the store floor by the truck driver • Reducing handling and labour: total replenishing time per item 2.83 sec.
Aldi keeps site occupancy costs low by buying its store sites and having a basic replicated store fitout • Aldi attempts to buy all of its sites freehold to eliminate rent costs and rent increases • Aldi tends to build from scratch rather than takeover an existing property • Estimated U.S. cost to build of US$50/sqft. or $450,000 for a 9000 sqft. site • Total U.S. store fitout cost is estimated at US$115,000 (fixtures, freezers, etc.) • Aldi stores are not remodeled; the store format has not changed in 15 years • Shopping carts require a coin deposit decreasing theft and reducing labor costs • “The company buys cheap land on city outskirts and builds cheap warehouses • “Aldi situates its smaller than average stores mostly in farm towns or bluecollar, immigrant or low-income neighbourhoods –Aldi likes dealing with big working-class families that eat at home and eat heartily. Stores are located away from costly real estate such as strip malls. They generally measure 8,000 square feet, one third the size of a typical grocery store..”
Aldi controls SG&A, distribution and other costs ruthlessly
• Aldi does not advertise other than through a fortnightly price-list flyer • Aldi has a world-class logistics system • The lack of promotions or specials ensures an even off-take from suppliers, who deliver just-in-time in predictable volumes • 90% of product (by volume) is directly cross docked at the warehouse without entering inventory • Stores turnover their inventory weekly (52 times a year) • Aldi’s lean management structure is built around the division, which represents the 30-60 store area serviced by a warehouse • “Each Aldi division or warehouse is made up of an uncomplicated corporate structure that facilitates communication, recognition and advancement. All promotions are from within our organization.”
Strengths
Weaknesses
Simplicity of operation Cost efficient Powerful price points Private label sourcing Price edge over other retailers Understands economics of business Deep pockets of parent company Low breakeven stores Parasite stores feed off supermarkets
Manual systems used Limited assortment, limited appeal Minimal perishables, marginal quality Dependent on well trained cashier
Opportunities expand in other markets increase market penetration continue to improve quality tap into institutional markets hold tight to lowest cost positioning
Threats
other limited assortments who understands business and can operate better
doc_991188439.pptx
ALDI is Worlds largest grocery retailer. This ppt covers the operations aspect of the through jit and lean
Established in 1913
COMPETITIVE ADVANTAGES THROUGH EFFICIENCY
Introduction to Aldi
• Retailer in international markets since 1913
– Over 7,000 stores worldwide
• Takes a distinctive approach to retailing
– Business focuses on principles of ‘lean production’ – Savings passed on to customers – Reinvestment of profits enables business growth
• Core purpose = to provide value and quality to customers
Aldi core values
• Simplicity
– Fewer varieties of brands/products offered at value prices
• Consistency
– All stores have same simple design
• Responsibility
– Active role in the supply chain ensures improvement – Training and developing employees drives quality customer service
• Aldi is the world’s lowest cost grocery retailer • Aldi is a limited assortment discount grocery store, a format characterized by a high turnover on a narrow range of grocery items in a small space • The main appeal of limited assortment stores is low prices. • Aldi acts as a category killer in core grocery lines • Aldi has a low-cost logistics and operational system that works on a 12% gross margin • Privately owned Aldi has a long investment horizon and plenty of patient capital • There are few threats to Aldi or the limited assortment store. Aldi is immune to competition, even from Wal-Mart • In Germany, over 70% of German households shop at Aldi, mostly for basic staples
Definition of “Competitive Advantage”
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition.
There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support.
Distinctive Competences
• Ways to pursue competitive advantage
– Superior efficiency – Superior quality – Superior innovation – Superior responsiveness to customers
LEAN PRODUCTION
Lean production
Lean production refers to the range of measures that can be put in place in the workplace to help reduce waste.
Although traditionally used in manufacturing, lean principles can equally be used in service industries.
Lean production concepts
• • • •
Just-in-time stock control Kaizen (continuous improvement) Total quality management (TQM) Time based management
Just-in-time (JIT)
This is a stock control method whereby materials are delivered just as they are needed. JIT therefore... • reduces need for storage • improves working capital as little cash tied up in stock • reduces risk of stocks becoming damaged or obsolete • relies on the reliability of the suppliers • limits ability to respond to an unexpected order or increase in demand
Limitations of JIT
• Relies on good relationships with suppliers • Cannot increase production quickly if there is an increase in demand or a sudden unexpected order • There is no room for mistakes as there are no buffer stocks to fall back on • Requires excellent channels of communication with both customers and suppliers • Relies on a flexible, multi-skilled workforce
Kaizen and TQM
• Kaizen is a Japanese concept of making ongoing incremental improvements to quality and efficiency • Ideas for improvement come from the workers • Quality circles may be used within Kaizen • Total quality management is a quality assurance approach whereby ALL workers are responsible for quality • TQM aims to ‘get it right first time’
Time based management
Time based management aims to eliminate time wasted during design and production.
Time based management... • analyses where time is wasted and acts to reduce this e.g. equipment set-up times • looks for opportunities to carry out processes simultaneously • reduces new product development and launch times • makes firms more responsive to market changes
Benefits of lean production
• Cuts costs • Increases efficiency • Increases responsiveness of firms to market changes • Provides competitive advantage
What do you mean by limited assortment?
Types of discount format
TYPES Limited Assortment No. of items 600-1000 KEY POINTS Tightly controlled selection Focus on packaged groceries Emphasis on low costs 10-20% cheaper More flexible product selection More fresh, chilled and frozen 5-10% cheaper Full product selection Discount perception EXAMPLES Aldi, Netto, Norma, Save-ALot
Discount Supermarket
1000-3000
Kwik-Save, penny, plus,
Extended Range Discount
3000+
Franklins No Frills, Food Giant, Le Clerc, Intermarche
How do they control costs ruthlessly?
• Aldi operates on a 12% gross margin and a 2% net margin • Aldi has a system that delivers the lowest possible cost of goods sold • Aldi has a streamlined checkout and store labour system that minimizes payroll costs • Aldi keeps site occupancy costs low by buying its store sites and having a basic store fit out • Aldi controls SG&A, Distribution and other costs ruthlessly • Low priced, high quality private label is the key to Aldi’s strategy
ALDI’S PROFIT & LOSS STATEMENT OF ONE STORE 1995 US market estimates
percent Sales Cost of Goods Sold Shrinkage 100.0% 88.0% 0.5% weekly $120,000 104,400 600 monthly $6,240,000 5,428,800 31,200
Payroll
Occupancy SG&A, Distribution & Misc. Net Profit
3.0%
1.4% 5.1%
3,600
1,680 7,320
187,200
87,360 124,800
2.0%
$2,400
$124,800
Aldi has a system that delivers the lowest possible cost of goods sold
• Private label accounts for 90-95% of sales • Aldi operates on a true net cost basis and requires no additional trade spending of any kind • No slotting fees • No introductory allowances • No promotional discounts • No volume allowances • No gifts, golf tournaments, event funding, voluntary donations, etc. • Aldi warehouses and delivers 100% of its items, including milk and bread, eliminating the need for direct store delivery and regional warehousing on the part of vendors • Aldi stores do not require in-store sales representative, marketing or merchandising support
• Aldi has a streamlined checkout and store labor system that minimizes payroll costs • Aldi employees are paid well but are non-union where possible • Employees are paid over the industry average and receive performance bonuses • Stores operations are designed to minimize labor • Stores have between four and six full time employees • Checkout operators memorize 600 PLU item codes instead of scanning • Checkout operators average 42 items/minute vs. 15/minute in supermarkets • Average order size is 35 items; total cashing time per item 1.44seconds • Store management is limited to a store manager who works six days, writes the order and operates a checkout • Stores have limited opening hours (56 hours per week coverage in the U.S.) • Product is displayed in the shipping box, on the shipping pallet, which is unloaded from the truck to the store floor by the truck driver • Reducing handling and labour: total replenishing time per item 2.83 sec.
Aldi keeps site occupancy costs low by buying its store sites and having a basic replicated store fitout • Aldi attempts to buy all of its sites freehold to eliminate rent costs and rent increases • Aldi tends to build from scratch rather than takeover an existing property • Estimated U.S. cost to build of US$50/sqft. or $450,000 for a 9000 sqft. site • Total U.S. store fitout cost is estimated at US$115,000 (fixtures, freezers, etc.) • Aldi stores are not remodeled; the store format has not changed in 15 years • Shopping carts require a coin deposit decreasing theft and reducing labor costs • “The company buys cheap land on city outskirts and builds cheap warehouses • “Aldi situates its smaller than average stores mostly in farm towns or bluecollar, immigrant or low-income neighbourhoods –Aldi likes dealing with big working-class families that eat at home and eat heartily. Stores are located away from costly real estate such as strip malls. They generally measure 8,000 square feet, one third the size of a typical grocery store..”
Aldi controls SG&A, distribution and other costs ruthlessly
• Aldi does not advertise other than through a fortnightly price-list flyer • Aldi has a world-class logistics system • The lack of promotions or specials ensures an even off-take from suppliers, who deliver just-in-time in predictable volumes • 90% of product (by volume) is directly cross docked at the warehouse without entering inventory • Stores turnover their inventory weekly (52 times a year) • Aldi’s lean management structure is built around the division, which represents the 30-60 store area serviced by a warehouse • “Each Aldi division or warehouse is made up of an uncomplicated corporate structure that facilitates communication, recognition and advancement. All promotions are from within our organization.”
Strengths
Weaknesses
Simplicity of operation Cost efficient Powerful price points Private label sourcing Price edge over other retailers Understands economics of business Deep pockets of parent company Low breakeven stores Parasite stores feed off supermarkets
Manual systems used Limited assortment, limited appeal Minimal perishables, marginal quality Dependent on well trained cashier
Opportunities expand in other markets increase market penetration continue to improve quality tap into institutional markets hold tight to lowest cost positioning
Threats
other limited assortments who understands business and can operate better
doc_991188439.pptx