Aldi’s Lean Inventory Management System

https://www.wsj.com/articles/how-grocery-giant-aldi-plans-to-conquer-america-limit-choice-1506004169

Despite its size, Aldi remains one of the most secretive companies in the world. It started as a local grocery store in Germany after World War II but rose to its magnanimous size because of a simply philosophy: fewer products on its shelves. With the same philosophy, it has penetrated the US market. Its mantra is to implement a lean inventory system by offering customers fewer products to choose from. By implementing this strategy, Aldi gets to keep its costs extremely low. While competitors, on average, carry between 20,000 and 50,000 items, Aldi stocks between 1,300 to 1,600 items depending on its country of operation.

Lower inventory of products means that Aldi’s inventory turnover is high and food wastage is low. With more investors pushing companies towards greener and environmentally sustainable practices, Aldi’s austerity in terms of its inventory management and low food waste are likely to benefit it when compared to other grocery giants. The latest company under scrutiny for its food waste is Amazon (https://www.wsj.com/articles/investors-want-to-talk-food-waste-with-amazon-1519914762) because it recently began its grocery operations and investors want to know how Amazon plans to mitigate food waste. On the other hand, Aldi is likely to never experience this issue because of its implementation of a lean inventory system.

Other than keeping 30 typical household items, it also limits its stock of brand name items, so it is often easier to negotiate low prices from its suppliers. On average, Aldi’s prices are 17% lower than the prices of Walmart. Moreover, Aldi plans to roll out small, nimble stores in the US instead of typical 40,000 square-foot supermarkets to make its stores easier for customers to navigate. With more customers on a tight schedule, Aldi’s easy-to-navigate stores will be a relief for individuals looking for a quick trip to the grocery store. While keeping customers happy, Aldi will also be able to keep its cost of rent low because of the small size of its stores as compared to giant warehouses of other grocery stores. Moreover, another avenue where Aldi is able to cut costs because of its operating philosophy is in the number of employees it hires. Smaller stores sizes and lower inventory items mean that Aldi does not needs tens of workers in its store to handle inventory and manage customers.

Even though Aldi has always focused on keeping its cost slow, it has not compromised on the quality of its products. This strategy is the reason why it has managed to attract middle-class customers – with more money to spend – despite its limited variety of products. Just recently, Aldi’s €4.99 bottle of Spanish Grenache red wine scored 93 out of 100 points on the American wine expert Robert Parker’s rating system, making it an “outstanding wine of exceptional complexity.”

By focusing on a lean inventory system, Aldi has been able to cut costs in so many areas of its business. It is, however, important to notice the disadvantages of a lean inventory system. If the suppliers are unable to cope up with Aldi’s high inventory turnover rate, Aldi can lose millions of dollars in sales because of unavailability of extra stock in its inventory or late delivery from its suppliers. Therefore, a reliable source of suppliers is very important for Aldi’s successful operation. Can you all think of other disadvantages associated with a lean inventory management system?

4 thoughts on “Aldi’s Lean Inventory Management System

  • March 7, 2018 at 9:21 pm
    Permalink

    Price is not always the only thing customers are worried about. I think if Aldi wants to continue running as efficiently as it has in the past it must listen to and implement other things that customers actually want. I think their lack of variety will maybe become a problem in the future. Personally, I look for brands that I recognize because I know their quality. I will pay more for a brand I recognize and have used before than one that may be of similar quality but I have never heard of before. Again, this is just my take on the matter. Nonetheless, I like the simple business philosophy Aldi lives by and I think it does well for being such a unique company in a multibillion-dollar industry.

    • March 8, 2018 at 7:14 pm
      Permalink

      I completely agree with Brianna. I have personally never shopped at Aldi, although it is very close to my house. The only person I know that has shopped there left after about 20 minutes after not being able to find orange juice. I thought this was odd as I figured you could find orange juice at any grocery store. Even though Aldi has extremely low prices and a ver lean system, they sacrifice customer satisfaction which in turn could decrease their customer loyalty. Like Brianna said, I think customers would rather pay more for the products they know and love and for them to be readily available.

  • March 7, 2018 at 9:36 pm
    Permalink

    Aldi’s lean system seems to be working for them because they’ve been successful with two competitive priorities-quality and cost. As we’ve talked about in class normally companies choose to focus on one because trying to accomplish too many things means failure on everything. However, due to the implementation of the lean system, Aldi can afford high quality and low costs because they have little inventory, little waste, and high turnover of the inventory. Although a disadvantage of a lean system is that the will not be able to have diverse products since they intentionally limit their selection of inventory. I don’t think this disadvantage is a super bad thing because like we talked about in class, no company can successfully cover every single competitive advantage. So what Aldi makes in focusing on quality and cost, they lose because they cannot focus on time or flexibility. While they might lose some customers who prioritize time/flexibility to bigger companies like Amazon or other chain grocery stores, Aldi will win over customers who value cost and quality. For example, a customer whose order qualifiers are a grocery store close to home, a grocery store with a lot of options, a grocery store that has nice service, and finally, an order winner of cheap, healthy food will most likely pick Aldi over other grocery stores.
    One other reason I think Aldi will continue to be successful is their ability to deliver an experience that customers want. They have a following of devoted and loyal customers (most of whom actually make above $90,000, which is high considering Aldi was originally developed for low income people). These people shop at Aldi for the novelty of unique brands and for the atmosphere of a little store. This is an experience that cannot be replaced at the larger chain stores.
    Overall, I think Aldi’s lean system allows it to be successful in achieving the competitive priorities of cost and quality, as well as delivering a unique experience to customers.
    https://thenewdaily.com.au/news/national/2016/01/14/aldi-cult/
    http://cmuscm.blogspot.com/2014/11/aldi-and-lean-manufacturing.html

  • March 7, 2018 at 10:27 pm
    Permalink

    I visited an Aldi store this summer for the first time in Philly, and I will admit that I do not prefer its lean inventory management system. I initially went to the grocery store thinking it would have cheaper prices, and I found that this was true for few of the products. The prices were just the same, if not more, than the opposing grocery store I decided to stick with: Trader Joe’s. I walked in and noticed that the inventory size was small, which you mention, but the products were of very low quality, and a few of the boxes had dust on them. This could have been just to this particular store, but a lot of the food was also of low quality and almost expired. The tomatoes were bruised, and the grapes looked dried up. Although I can see this lean management system working when executed well, I unfortunately did not see it at the Aldo in Philadelphia. I think this is a matter where a kaizen event would help. The inventories are already so low, and the problems have been revealed, now all it takes employee engagement and somehow making the rotation of goods a standardized activity.

    https://www.plant.ca/features/war-waste-observations-shop-floor-top-floor/

Comments are closed.

css.php