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The purpose of this report is demonstrated the understanding and application of operation management theories and concept through the analysis of an operation management based case study related with ALDI operation and the concept of lean manufacturing that implement in ALDI.
The overview of lean production philosophy and the analysis of lean implementation and application in ALDI also include in this report.
This report will also address the given question related with lean manufacturing and the implementation of lean in ALDI that provided in this case study as well as provide further information regarding to lean production theories and concepts.
This report only utilizes the information that provided in ALDI case-based operations management to evaluate the implementation of lean manufacturing application in ALDI. Other operation of ALDI that does not include in a given case study will also not include in this report.
Operation management becomes controversial issue in today's business. The firm with excellent operation management practice is likely to perform higher business performance and produce better business outcome. This philosophy involves number of framework and concept that help reinforce operation process. One of the most popular frameworks in operation management is lean manufacturing. Lean productions in interesting concept in modern organization which allow the firm achieve more output from less input. The purpose of this report is using the theory and concept related with operation management to analyze the case study related with ALDI operation. This report will demonstrate critical understanding of operation management application through the analysis of a given case-based operations management. The question in the case study will be answered according to the concept of operation management. Firstly, the brief overview of lean manufacturing will be provided. Concept of lean production and lean implementation will also include in this section. After that, the implementation of lean production framework in ALDI will be analyzed. Then the comparison between lean manufacturing and Six Sigma framework will be given. Similarities and differences between both concepts will also be illustrated.
2. Lean manufacturing overview
2.1 Lean manufacturing concept
Lean manufacturing is popular production concept that originated in Japan. Lean framework aim to improve process efficiency and productivity through waste elimination concept. Developing continuous improvement that focus on reduce eight type of waste. Lean concept is obtaining the right thing in the right place at the right time. Lean concept define waste as non value added process existing in the production or service process. Eliminate waste in the process will permit the firm improve quality, productivity and performance (Evans and Lindsay, 2008). According to lean production framework, there are eight major type of wastes define in lean system include defect, over production, waste of inventory, waste of human capital, processing waste, waiting time, transportation loss and unnecessary work (Lean manufacturing concept, 2011). The purpose of lean manufacturing is using continuous improvement activity in order to continually reduce this waste until finally eliminate all waste from the system. Lean was developed together with the famous Toyota production system (TPS) since 1950s. Reducing waste or "Muda" in Japanese language recognize as essential objective of TPS together with just in time production system (Arnheiter and Maleyeff, 2005). Furthermore, lean also help adopted company reduce process variation through efficient working procedure. According to Kempton (2006), the essential benefit that lean offer to the corporation is the opportunity in creating quality improvement together with cost reduction which finally lead to the increase of customer satisfaction. The firm that implementing lean production is likely achieve cost reduction venue through the elimination of unnecessarily work. Value stream mapping (VSM) knows as the popular tool under lean concept that help the corporation identify waste that exists in current system. Lean production is excellent production concept that allow adopted enterprise eliminate waste in the entire system.
Lean system permit the company achieve maximum output from less resource input. This concept help the company save millions from eliminating waste. For instance, United State Environmental Protection Agency (2009) stated that the pioneer project in implementation lean manufacturing concept help New United Motor Manufacturing Inc. (NUMMI), the business alliance between General Motors and Toyota reduce vehicle assembly time from 31 to 19 hours. Furthermore, it also helps NUMMI reduce assembly defects from 135 to 45 defects per 100 cars. Lean method permit the company save operating cost by eliminate waste in every area.
2.2 Lean implementation
The concept of lean production was firstly developed for support manufacturing organization however, this concept is not only limited for manufacturing industry. Recently, lean concept was adopted by many service organizations. Due to lean provide optimal solution to enhance process performance, the firm that involve with process design, service and administrative process also able to adapt this system to improve process efficiency (Johannsen and Leist, 2009). In term of manufacturing process, lean also suitable for both make to order (MTO) and make to stock (MTS) production environment. Because the concept of lean focuses on waste elimination regardless of any process characteristic so, the system could be adopted by both mass production and craftsmanship manufacturing (Dahlgaard and Dahlgaard-Park, 2006). Lean consider as a never ending development that every company could adopted in no time. Lean manufacturing junction (2012) stated that the concept of continuous improvement means that the firm should continue using lean to reduce waste in the organization. The company who aim of adopting lean production could establish lean concept immediately by using VSM to identify waste in current process. Lean appropriates for both manufacturing and service organization. Adopted company could establish lean at anytime by begin waste identification and improvement.
The common mistake in implementing lean was the company tend to stop using lean after achieve their primary goal. Continuous improvement recognize as crucial element of lean production concept. Therefore, this method requires continuous identifying and eliminating of waste. The most important aspect of lean implementation is everything can always improve. The company require continuously find waste that existing in the organization process. Moreover, another difficulty of lean is this system requires high commitment and collaboration from every member in the organization. Lean is not only limited in quality department but it is the responsibility of everyone (Sim and Roger, 2009). The study by revealed that top management involvement and senior manager commitment are important issue in implementing this framework. Strong psychological commitment is the key to permit the firm successfully implement and maintain lean manufacturing philosophy.
3. Lean concept implementation in Aldi
ALDI supermarket from Germany is one of the most successful companies that implement the lean concept within their company. The lean manufacturing is holding key issue in the development of the company itself. The strategy to reduce the cost in every aspect of their business will open the chance for them to further develop their business more efficiency.
The main principle of ALDI lean management is to improve efficiency and quality while minimize the cost of production in order to reduce the prices, time, space and effort. The main strategies being used by ALDI store is to make the shop as simple as possible such as shows the displays or shelves without flashy decorations, selling limited product range, reducing the service to minimum or etc. Also the low store and personnel cost combined with low production cost, will make ALDI being able to sell their product on discounted prices (Wortmann, 2004). These combinations will create high turnover ratio for ALDI which will help them to gain the profit and achieves its objective efficiency.
The lean production is the simply way to minimize the cost from more to less. The main purpose of lean production is reduce the resources that providing good and services for the customers. (The Times100 and Wilson, 2011) Otherwise, the lean production is not just reducing cost for its business, it also throughout these saving to its customers to provide the value of money.
Lean production is relies on the efficiency concepts which are: Continuous improvement, Just in time (JIT), Time based management and Total quality management. At the same time ALDI also applies the seven wastes and Muda into the lean manufacturing process to minimize the wastes and reduce cost in organization.
-ALDI's fruits and vegetables are sourced in local areas where possible. This will help ALDI to cutting the cost about the long needed and the delivery journeys. This concerned about time based management approach. It related to the seven wastes as 'Transportation'.
-ALDI will give a training provided for employees to understanding all environments of this business and also training staff to do a variety of tasks around store. Training staff able to reduce the cost and eliminate waste and other thing is able to minimize staff requirements too.
-ALDI has a few product range to sell in store which different from the competitors that provide variety of products ranges which means they will use more space to display their products. ALDI limits its produce range because it realized that selling fewer varieties of each product ALDI enable to buy larger quantities and does not use much space to display the products as well. (The Times100 and Wilson, 2011)
-ALDI has a specific time to open and close the shop that only trades on busiest time in a day because it was concerned to reduce the wastes and reduce the staffing costs too. It can related to 'Waiting' in seven wastes.
-All ALDI's products will have a display numerous bar codes when the customers come to pay at the counter will minimize the time for both ALDI's staff to scan and the current customers and the next one too.
All the examples are demonstrate on time based management which related to lean production concepts able to help an organization reducing the costs and eliminate the waste more efficiency.
Just in Time: this is efficiency reducing processing in lean implementation and ALDI uses it to run its business as ALDI only holding stocks that its need and will not investment a large stock because it means ALDI should pay for large warehouse to store stock or hire staff to monitor the warehouse.
ALDI just applies the Seven Wastes into its organization but not all of them, it only concerned about over production, waiting and transportation which related to ALDI-cased.
ALDI become a successful retailer in the world today by relies on lean implementation to reducing the costs and eliminate the wastes. ALDI has an efficiency operation management to run its business even it has different competitive pricing strategy from competitors. ALDI provides quality products with lower prices but at the same time ALDI gain lots of turnover. Moreover, ALDI building the own labels to offers another option to customers to consume. The best lean resources at ALDI is itself because now ALDI has an own labels which still based on quality product with lower prices and enable to reduce the costs even more than the previous time.
4. Comparison between Lean and Six Sigma
Six Sigma know as management strategy that aims to improve quality by reducing process variation. The purpose of Six Sigma concept is reduce defect in acceptance level in according to Six Sigma acceptance which recognize as 3.4 defect per million of opportunity. In fact, Six Sigma is a statistical method that uses for limit the number of defect under Six Sigma (Baghel and Bhuiyan, 2005). This system created by Motorola back in 1987. Motorola develop five years product improvement program and the company develop this concept as a main paradigm helping the company achieve their goal. As a result, Motorola save $14 billion USD in ten years with the implementing of Six Sigma. According to Dahlgaard and Dahlgaard-Park (2006), Six Sigma concept consists of DMAIC and DMADV sub methodology that permit adopted organization achieve the defect less than 3.4 defect per million. DMAIC refer to define, measure, analyze, improve and control. DMADV refer to define, measure, analyze, design and verify. While DMAIC develop for further improve of the existing process, DMADV design for the development new process with less than Six Sigma defect acceptance. Six Sigma method help the company reduce process variation and improve process in order to control defect under acceptance level.
Compare with Six Sigma, lean manufacturing framework introduce the method to reduce and eliminate waste in manufacturing and service process which does not focus on the outcome of improvement while Six Sigma focus on the result of defect under 3.4 defect per million.
Lean method focus on waste elimination and reduce process variation through continuous improvement process which make lean does not have specific target of improvement. The companies that adopt lean production require continue using lean to improve production and service process. In contrast, Six Sigma provide specific target under six sigma defect. Once the company achieves this target, it means that the company already completed Six Sigma method
Lean framework does not associate with statistic control which make lean could not measure process effectiveness after improvement (Blitz, Byrne and Lubowe, 2007). Nevertheless, both concepts share common issue in quality improvement and defect reduction. Therefore, the new concept that establish on the basis of lean manufacturing and Six Sigma was developed under the name of Lean Six Sigma. Blitz, Byrne and Lubowe (2007) stated that this new concept will use continuous improvement under lean concept combining with statistical tools of Six Sigma in order to improve process quality and the organization effectiveness. Lean focus on continuous improvement process where small improvement consider as a big achievement but Six Sigma only focus on achieve 3.4 defect in millions of opportunity. Lean Six Sigma utilizes benefit from both concept developing waste reduction activities under effective statistical control.
ALDI had an efficiency operation management to run its business underpinned provides quality with the lower price and also understand what customers needed. Even in the business world today, the retailers around the world are competing with minimizing the price with reducing the quality of products as well. ALDI unlike them by uses pricing strategy without reduces quality of product and still cheaper than other about 30%. Lean implementation enables to help ALDI achieve the objective efficiency and improving the quality of its business too. The new own labels which ALDI building to offers to customers can minimizes the reduction costs such as suppliers, transportation, materials or etc. Now ALDI is a retailer offers the quality products with lower price even it really challenge to become a 'blind' brand completing with the biggest competitors which have brand for long time. ALDI will be a good option for customer to consume because what its produce or provide is based on customers needed.