Lidl Case study- product development

University Degree Business and Administrative studies

Question 1: Use the model of input/output procedure and critically analyse the importance of managing resources and identify the techniques that have been applied to deliver Lidl’s outputs.

Managing resources is the key for survival in the markets. In authors opinion deployment of these resources is very essential to gained profits and competitive advantage in the markets. For instance Lidl avoided expensive flooring, furnishing or embellishments as these added to cots. Apart from a few basic fixtures llike pallets, wire bins for promotional goods, and simple shelves, the stores avoided features associated with regular retail outlets.

Neely (2008) defined the productive system as the means by which we transform resource inputs to create useful good and services as outputs. This transformation diagram can be seen from above figure. The input- conversion-output sequence is a useful way to conceptualize productive systems, beginning with the smallest unit of productive activity, which can be referred as an operation. An operation is some step in the overall process of producing a product or service that leads to the final output. For example, in the case of lidl the products are brought to a buying office has an input. The products are scanned, checked in terms of quality and stacked in the warehouse, and later distributed to every lidl outlets across the boundary i.e. the warehouse process itself. The operation of stacking those products into the shelves and price tagging them and selling to the customers are the outputs of the operation, that the customers purchases. These operations are organised into appropriate sequences to produces larger system of production. The resources used in inputs may take a wide variety of forms.

Lidl places a strong emphasis on low prices in its core retailing brand. The company maintains these low prices by cost-saving measures including volume buying, low-cost raw materials and "just-in-time" calculations for store deliveries, and through a limited product assortment, and thanks to aggressive negotiations with suppliers and logistics service providers. The basic nature of stores also keeps costs down, with the company seeking to avoid what it calls "unnecessary expense" on presentation and store fit. Moreover, like its rivals, Lidl cuts costs by having only trolleys and no baskets, and charging customers for carrier bags. Although Schwarz claims that "Simplicity is the benchmark for all our operations and work processes", it is likely that the company will have to become more refined in its operational strategies as it seeks to adapt to changing market conditions and the diversity of demand across national markets. Lidl, is already offering a more sophisticated, upmarket product range, including organic, health-oriented and Fairtrade lines, as well as shifting from pan-European buying and marketing to a greater focus on national brands.

Lidl's operating efficiency is also based on hard working conditions in its stores, making its employees work overtime and preventing employees from taking breaks, for example. In some German stores, there are reports that employees have been subject to secret video supervision, according to the trade magazine. In addition, it is estimated that Lidl pays its employees 20% less than Aldi. Although employees are ready to accept more difficult working conditions in periods times of high unemployment and economic uncertainty, in the longer term Lidl may struggle to attract new employees and retain staff as a result of its ...

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Lidl's operating efficiency is also based on hard working conditions in its stores, making its employees work overtime and preventing employees from taking breaks, for example. In some German stores, there are reports that employees have been subject to secret video supervision, according to the trade magazine. In addition, it is estimated that Lidl pays its employees 20% less than Aldi. Although employees are ready to accept more difficult working conditions in periods times of high unemployment and economic uncertainty, in the longer term Lidl may struggle to attract new employees and retain staff as a result of its reputation, and could also be affected by labour disputes.

Reference:

Neely, A., (2008) Business Performance Measurement, Ed. 2,Cambridge University Press. Pg. 13.

Question 2: Discuss and provide the evidence of Lidl’ main operation performance objectives to remain competitive in retail industry?

There are number of key factors to be considered whilst, investigating the performance objective of an organisation. With the growing competition and improvisation in every aspect of retail industry, it has become extremely important for a firm to device their performance objective, which would enable them to earn revenue.

Slack, Chambers and Johnston (2004) identified five performance objectives that apply to all types of operation. Focusing on one or more of these can provide a source of competitive advantage to the organization. i.e. dependability, cost, quality, flexibility and speed. On the basis of the above mentioned performance objective, it is easily identifiable that Lidl strategy was high based on cost leadership.

Quality: it is all about the quality of service or product which an organization offers. For Lidl a retail superstore, is about doing things right so that error-free goods and services are delivered that are fit for their purpose. With the standardization of the product it ensured that the quality is maintained in every lidl store.

Flexibility is about the operation being able to change what it does quickly.How

quickly can the organization change the mix of products and services it is offering

to the customer. in some countries Lidl entered into separately supply contracts with local manufacturer or supplier. For example lidl entered into a deal with arla, a Danish dairy group to supply organic milk to lid stores in denmark.

Speed is all about how long customers wait before receiving their service. Addressing the speed objective requires the organization to pay attention to the cycle time involved in their new product development. With the introduction of the fresh meat in its assortment, Lidl has brought their new product. Due to the freshness and tenderness of meat, it will attract high amount of customers. On the other hand, Lidl has just 12 employees working in a store. During the busy period it makes highly impossible for the staff to replenish the empty item, assist the customers and handle the cash. It affects the overall speed of the shopping and revenue is lost.

Dependability is, of course, about consistency. An organization’s processes have to be geared up to consistently meeting a promised delivery time for a product or service. Customers are unlikely to be satisfied by an increase in delivery speed if it is not matched by consistent performance. It can be identified from the case study that due to minimum staffing, time spent by the employee is higher, as customers have to pack their purchased items in their own bag. Moreover, there are neither parking attendants nor trolley assistants; the customers were expected to manage by themselves. This reduces the dependability of the store from customers’ point of view.

Cost is the last objective to be discussed but clearly not the least. For Lidl that have adopted a low cost strategy it is the most important objective. The lower the cost of producing the goods the lower price that can be offered to customers, which in turn will boost sales and profits. To be able to deliver a cost advantage a Lidl has to analysed where operation costs are incurred. The major cost categories are staffing, facilities that include technology and equipment costs, and materials. In every lidl store staffing is kept maximum to 12 employees, cardboards boxes are used to save the cost of employing a person to stack and arrange the shelves. To reduce the operational cost lidl did not use refrigerator for perishable products like fruits and vegetables. The store interiors were kept simple, unlike the big superstores e.g. ASDA and Tesco.

The above case study proves that performance objective was on lidls top priority challenges list. LIdl has been constantly striving hard right from the time it had opened to be a brand. However they did manage to prove themselves as the discounting brand in the retail markets. Customers had faith in this brand as it did provide lowest price compared to its competitors. Other strategies were also adapted by the management such as cost leadership, effective supply chain, flexibility, variety in products and also few post sale strategies. These helped the firm gave competitive advantage in the market.

The author has provided evidence of the above adapted strategies by the firm in the paragraph ahead.

As Porter, M suggests” cost advantage occurs when a firm delivers the same service as it competitors but at a lower price”. The author completely agrees with the above theory. For instance lidl centralised its buying function with the central buying office at a headquarters in Neckarsulm. Thus from the above example it is very clearly isslustrated that adapting a central buying function helped lidl gain speed and efficiency of cost. The author also feels that centralising the buying function helped lidl to gain an effective supply chain management.. There was flexibility in the brand through buying function being in form.lidl also came up with special offers in addition to its bi weekly offers. For example in November 2007, in Germany lidl ran a joint promotion with six age where fahr and spa charge cards were offered to customers at 21% discount.

Another important strategy adapted by lidl with regards to cost leadership was the cost budgeted stores management. Lidl avoided expensive flooring, furnishing or embellishments as these added to costs. Apart from few basic fixtures like pallets, wire bins for promotional goods, and simple shelve, the stores avoided most features associated with regular retail outlets.

The company followed a centralized approach to its product assortments, keeping an almost similar product range in all countries. Lidl offered own-label and private-label products in almost every category. In fact, according to some source, close to 35% of the merchandise sold at lidl was own label or private label. However although it offered the same private label products in all countries its assortment of branded goods was more country – specific.

Thus from the above paragraphs it is very clearly illustrated that lidl had established an effective performance management objective as a brand. And the various strategies adapted by the management also helped the brand gain a unique place in the market with a firm place as compared to its competitors. Thus lidl was so truly the leader with regards to discount retailing.

Reference:

Michael E. Porter (1998) On Competition. Harvard Business Review, Boston, 1998, p.40-42.

Johnston, R., Chambers, S., & Slack, N., (2007), Operation management, ed. 5th, Pearson Education, Pg. 593.

Question 3: Apply Slack, Chambers and Johnston’s adaptation or Parasuman’s SERVQUAL Model to discuss how quality gaps can be diagnosed; and evaluate how Lidl’s quality planning and control can be improved by understanding any gaps evident from your examination of customers/operation domains.

Quality planning and control is very essential for any organisation to survive and prosper in the markets. In authors opinion lidl has been reasonable enough to get its quality control strategy in place in the due course of time. As servqual approach suggest that competitive sustainability is very essential to survive in the markets. Quality comprises of these major components of sustainability. The author also feels that giving quality to a brand results in giving a unique identity to a brand, thus there should be more emphasis on quality in order to be the market leaders and attain a unique brand image. For instance Lidl introduced fresh meat in assortment. Unlike Aldi, Lidl also sold unpacked vegetable and fruits. Aldi was reluctant to do this because there were perishable items that required refrigeration, and the cost of refrigeration would increase cost. From the above instance it could be very clearly seen that lidl was emphasizing stronger than their competitor in the market and giving more benefits to the customers regardless of the cost factor. Thus these kind of strategies give the brand an aggressive brand image, if the organisation has been striving so hard to give benefits to their customers. And also at Lidl products went through several quality checks from production to the time they reached the stores. Officials from Lidl visited factories to carry out quality checks.

All the production used minimal packing. This is evidence which shows companies focus regarding the concern of quality in the organisation. From the above two instances it could be very clearly illustrated that Lidl has put in required efforts to put enhance their quality planning and there was control. However there were few gaps in adaptation and application of these strategies. One of the major ones that author felts was quality controls with regards to segmentation of groups. For instance superstores are used by massive groups of people. People of all ages become user and the most aged group of user fall between 22-40. However quality could also be maintained by realising which market segment group are our major customers and then working out on it. Market research could have helped lidl achieved it. If there were more emphasis on the feedback from guests. Thus from the above paragraphs it could be very clearly illustrated that quality control was at top priority in the organisation. However if done in a right direction and with right inputs it would have been more effective.