Company Description
Discuss about the International Journal of the Production Economics.
Supply chain management is an important process for each and every company that includes the flow of products and services from suppliers, manufacturers and distributors to the final customers. This process refers to manage several businesses and relationship across that supply chain. In retail sector, integration of supply chain works as a significant component. It not only decreases the product costs but also improves the value to customers. As a result of this, organization would be able to gain enhanced competitive advantage over its competing brands. In past few years, there has been a major emphasis on managing supply chains both from business research as well as practical management (Ross, 2016).It plays a vital role in the retail and grocery industry. There are various organizations which are engaged in effective implementation and planning of supply chain and logistics process. ALDI is one of them which have also adopted effective process to implement and plan its supply chain process. This report is focused on the supply chain and logistics process of a popular retailer i.e. ALDI. The major objective of this report is to investigate the ways through which ALDI has approached the planning and implementation of its supply chain and logistics activities. Moreover, it covers different issues which can affect this implementations and related strategies. Benefits and limitations are clearly defined to the company. At the end, some future trends are discussed where the company sees itself.
Aldi is one of the top retailers in the world with around more than 10000 stores in 20nations worldwide. The organization has introduced its business in German where it opened its first store on the year 1913. ALDI is generally known as one of the extremely considered retail giants in global retail market. It is a common brand of two German discounted retail chains with a forecasted combined turnover of over €50billion (Aldi Supermarkets, 2018).Currently, it offers different categories of retail products such as food products, beverages, household items and sanitary articles.In the year 1960, Aldi was split into two groups i.e. Aldi Nord (North) and Aldi Sud (South). Through this separation, the company is able to provide its products and services in various nations like France, Denmark, Portugal, United States, Australian, Ireland, Spain, Poland, United Kingdom and Switzerland etc. By adopting low cost pricing strategies, this organization is able to establish a significant brand image of discounted store. Both Aldi Sud and Aldi Nord operate business in USwith 1600 stores as of year 2017 (Aldi, 2018).It has a strong brand reputation in retail industry as it offers great quality and value of products. Aldi’s products are procured from chosen suppliers who have excellent quality.
Competitive Environment and Market Share
Competition is one of the most crucial threats for Aldi in retail industry as there are various emerging ad discounted stores which pose competition to Aldi. There are various companies in the industry that offer similar products on almost similar prices as Aldi does. These international players are making Aldi’s life tough. Some of the major competitors are Wal-Mart, Coles, Lidl, Kroger, Woolworths etc. Among Australian retailers, Woolworths is a retailer that holds top position in Australia in terms of profits and revenues. It is also a discounted supermarket chain that operates its business in various sectors like petrol, supermarkets, hotel, liquor etc. (Low, 2016).The graph shows that company has attained 32.2% market share in Australian retail industry. In Australian retail market, Coles is another competing firm that is fighting with Aldi with 28.8% market share. Coles has established its supermarkets across Australia and it also provides its products online. Online product offering is major reason behind significant growth of company. In Australia, Aldi is able to cover only 12.1% market share that is comparatively lower than other brands (Roy Morgan, 2018).
Additionally, there are some global retailers like Wal-Mart,Lidl etc. Lidl also poses intense competitive pressure on Aldi as it is approximately 9% cheaper than Wal-Mart and 3% cheaper than it is a major rival Aldi. The customer prefers to purchase the products on cheapest prices so these other discounted stores can pose competitive threat on Aldi in global retail market (Peterson, 2017). Wal-Mart is one of the biggest competitors as there are so many products which prices are similar at Wal-Mart and Aldi. The company receives fierce competitive threat from Wal-Mart. It clearly indicates that Aldi has been facing intense competition in international retail industry. Considering the competitive pressure, it needs to adopt and implement effective marketing and pricing strategies so that it can cover a large market in retail sector.
As mentioned above, supply chain management is a crucial process in the growth and success of an organization. According to Shukla, Garg and Agarwal (2011), supply chain management is a network of facilities which produce raw materials, convert them into work-in-progress goods and then in final products and deliver the final products to end consumers via a distribution system. Supply chain management and roles of different actors differ from sector to sector and firm to firm (Shukla, Garg and Agarwal, 2011). Each and every organization in any industry is making efforts to implement effective supply chain management process. It plays an important role in retail sector for delivering final products to consumer. According to Whitaker (2005), retail industry has been seeing incredible changes over previous 20 years. Internet and globalization are two major concepts which have changed the retail sector from local industry to one which is dominated by few companies at the top that crush out the costs fighting for each 10th of percentage of very few margins (Whitaker, 2005). This is the reason that it is very important for the retailers to stay on top of the supply chainso that it can reduce the costs and make product available to changing consumer base (Stadtler, 2015).
Planning and Implementation of Supply Chain Management at Aldi
In this context Hingley, et al, (2011) stated that trading products which expire within weeks if not days needs an efficient inbound logistics process and inventory management which finds effective balance between waste reduction and expectations of customers that is related to getting desired products in retail store. There are different business models in place like grocery retailer, supermarket or discounted stores. Each and every retailer makes efforts to adopt effective strategies to implement supply chain process (Hingley, et al, 2011).Aldi is one of the discounted retailers that provide less customer services and restricted product options, but still it is able to attain customer satisfaction and significant growth in the industry. However, Aldi has limited number of suppliers; broader geographical approach and fast growth on sales provide Aldi negotiation power with its potential suppliers. As per the supply chain report of Aldi (2018), Aldi is making efforts to use lean supply chain and focus on reducing the product costs. The research indicates that hybrid supply chain technique can lead Aldi Organization to have better performance and position in international retail industry (Aldi, 2018).
In order to improve and implement the supply chain operations and activities, Aldi is using different techniques and strategies. These techniques and strategies assist the organization to attain an aggressive growth in the industry. One of the major approaches that Aldi has been using is the Lean supply chain management approach (Fernie and Sparks, 2014).Supply chain management approach, techniques and strategies used by Aldi are stated below:
Lean supply chain is buzz word in any industry which all of the organizations are trying to adopt in order to make its process better and provide a satisfied customer experience to the final customers. According to Murrow, Kiemele andPollock (2007), lean is an idea that can be used by an organization to maximize the customer value by minimizing wastage in the process. Furthermore, the author stated that the company that uses lean supply chain understands the value of customer and emphasizes its processes to enhance customer value. Under this process, the major objective of company is to value to the customers through an effective value creation process which has zero wastage (Kiemele, Murrow and Pollock, 2007).
Under its supply chain planning and implementation, Aldi has been using lean supply chain management approach that helps the company to reduce the wastage and cost of products.The company identifies the primary reasons of waste in the firm not adopting lean like excess inventory, transportation, waiting time, unnecessary movement of products and people and over processing. The company believes that lean thinking can change the management’s focus from boosting separate assets, technologies and vertical divisions to boosting the products’ flow via value streams which flow horizontally across the assets, technologies and divisions to customers (Rushton, Croucher and Baker, 2014).
Lean Supply Chain Management Approach
Aldi has adopted lean supply chain operations that assisted it to attain the objective of providing customers with increased value whereas providing a pricing which 30% cheaper than its competitors. This organization uses lean supply chain to reduce the quality of resources which it uses in offering products and services for customers. Through this, this process at Aldi includes removing the wastage and hence using less space, materials, lab our and time. Eventually, it in turn decreases the costs (Martínez-Jurado, and Moyano-Fuentes, 2014).For Aldi, lean approach is not just to reduce the costs for business but it also aims to pass these savings to its targeted customers to provide value for their money. To reduce the costs, this organization sources most of its perishables from domestic marks so travel distance is lesser that reduces the wastage and costs for the company and customers as well.
To implement this approach, Aldi has adopted some specific techniques which assist the organization tooperate its supply chain process smoother (Cooper, 2017). These techniques are given below:
According to Xu and Guo(2007), first the company makes selection of suppliers considering some specific measures. After this selection, retailers design the supplier quality evaluation which emphasize on a complete, continuous improvement of quality system and processes of suppliers using benchmarked and time management techniques (Xuand Guo, 2007).Aldi is also using different techniques under its supply chain and logistics process which are stated below:
Being a leading retailer, Aldi is using Just-in-Time technique under which material are received just when they are required at the stores. It means the company purchases the stocks on the basis of need. At Aldi, it eliminates the need of maintaining the large levels of stock. Due to this, Aldi is able to save the costs as there will be need of less storage space.
Total quality management is one of the foremost techniques that Aldi undertakes while delivering products to its end users (Dale, Bamford and Wiele, 2016).It is employing a quality assurance model under which all the employees have an accountability to get it “right first time”.
In addition to above, Aldi is engaged in using continuous improvement technique. It has established a culture where all the workers are continuously working to make the improvement in products and service quality at its retail stores. It has trained its employees to provide great shopping experience to the customers who are reaching to Aldi’s stores.
Moreover, Aldi uses time based management technique which purposes to minimize the time that is wasted in its business operations. Currently, the company is using flexible and multi-skilled workforce. Aldi implements this technique to its product range as well. For instance, Aldi offers less variations of each and every product. In contrary, competing brands may offer a large variety of different sizes, brands and packaging’s. By offering few variety of each product, this company is able to purchase larger quantities. It allows Aldi to take the benefits of economies of scale and purchase the products at cheaper prices. It reflects that this company requires less space to exhibitits products at stores.
In this way, Aldi uses the above approach and techniques in its supply chain and logistics management process. For instance, 60% of Aldi’s vegetables and fruits are sourced from local suppliers that assistthe organization to reduce the requirements for expensive and long delivery journeys. It shows the time based management technique of the company.
Along with the above approach and techniques, Aldi has adopted various supply chain strategies which assist the organization enhance its supply chain and product delivery to the customers. Different supply chain strategies adopted by Aldi are given below:
Sourcing strategy is a supply chain strategy that outlines that how and where to manufacture products and services and with the major effect on cost and associated risks. This is the most effective strategy under supply chain and logistic process of Aldi.To source the products at higher quality and cost effective prices, Aldi has made efforts to develop better and long term relationships with its potential suppliers. Because of lower stock in the stores, this retailer has very few suppliers and it has a good image to make timely payment to suppliers. There are 95% in-store products which are owned by Aldi and these products can be manufactured by some companies (Brandenburg, et al, 2014).Additionally, the geographical approach of Aldi is wider as compared to its competing brands. The market report indicates that Aldi is an enticing customer to its suppliers that provides it a negotiation power. However, Aldi allows to source globally at relatively lower prices. It supports domestic economy and provides fresh quality products.
Demand flow strategy is the strategy that reflects the link between customers and suppliers of products which are offered in the market. It is an important strategy that Aldi uses to flow the demand of products from targeted customers. Aldi develops its operations in various geographic segments as its sales have decreased in its some market. In order to increase demand for products,Aldi uses an effective location strategy for its new retail stores. The new retail stores of Aldi are located in appealing urban and suburban locations. This retailer offers limited options in its every product stores are situated in urban areas (Ododo, Mulholland and Turner, 2015). This supply chain model reduces the challenges related to supplier management and store operations.
Supply chain integration strategy includes the extent of combination of company in terms of decision making, information, operations and finances with their participators like suppliers, distributors, manufacturers, retailers and dealers in its supply chain process (Hill and Fredendail, 2016).
Aldi has formulated a simple supply chain integration strategy. Under this, Aldi offers fewer products and there are a small number of suppliers. To integrate all the processes and participators, the company has established a simple information technology and logistic system. It is less expensive than its competing brands in retail industry (Prajogo, Oke and Olhager, 2016). As a result of this, managers at Aldi’s stores are capable to operate its supply chain and logistics system physically.
In this way, Aldi has implemented its supply chain and logistics process so that it can deliver the products and services to its potential customers effectively.
From the above supply chain management process and strategies of Aldi, it can be stated that this retail giant is very attentive towards its supply chain process. Considering the industry trends and other related things, Aldi is making a huge investment in implementing its supply chain and logistics process. This investment includes both monetary and non-monetary sources of company. Non-monetary sources include human resources, techniques, and effective technologies and know how to implement supply chain activities in process. In addition to this, Aldi invests specific funds in its supply chain processes for example Aldi has invested $5 billion in United States to improve its brick and mortar operations (Sit, 2017). Moreover, it has made investment of £2.3billion in its UK operations that now has 726 stores and 9 regional distribution centers (Myerson, 2012). It indicates that Aldi has a major focus on its supply chain and logistics activities. It is making large extent of investment on implementation of supply chain processes.
However, Aldi is planning and implementing its supply chain and logistics activities effectively, but still there are various issues which may affect the implementation decisions of Aldi. These issues are given below:
Traceability issue is one of the major issues which can impact the decision to implement, implementation and specific strategies used by Aldi. By conducting a research, it is analyzed that Aldi is unable to track the movement of goods from the suppliers to the retail stores. This is the major reason that sometimes Aldi has to compromise on offering quality products. The company needs to constantly review the suppliers which are engaged in its supply chains like it needs to analyze their performance and conduct based on safety and quality standards and existing sourcing of materials. Incapability to track the suppliers can cause the issues to implement the decision to integrate all the parties and buy materials from local suppliers.
As mentioned above, Aldi plans to use just-in-time technique under its lean supply chain approach. Sometimes, the use of this technique can cause empty shelves at Aldi’s retail stores. Under Just-in-time technique, the company always receives the material when it is needed. So, it may face the issue of empty shelves and it shows the shortage of material at stores. It can frustrate the customers and affect the brand image of Aldi’s retail stores. Due to this issue, the people can shift to other retailers (Rodionova, 2018). Thus, this issue can affect company’s decision to adopt just-in-time technique in supply chain and logistics process.
In addition to above issues, the company is facing the issues related to its working conditions for the truck drivers who are transporting the materials from suppliers firms to Aldi’s retail stores. According to the Transport Workers Union, truck drivers of Aldi are being overwhelmed due to pressure from the supermarket to speed, skip the breaks and avoid the transportation rules. Due to this, the company has been alleged of increasing poor work practices which have left the truck drivers whirling and pressurizing them into dangerous and long hours. It has affected the supply chain management process of Aldi for some time (Palin, 2018).It had an adverse impact on company’s brand image among customers and suppliers as well. This issue can have negative impact on the supply chain operations and activities of Aldi as future drivers can deny working with the company.
Thus, these are the major issues and problems which can impact the supply chain decision and implementation of supply chain activities in the process (Silva, 2005).
There are various benefits of Aldi’s supply chain processes and activities. The supply chain management process used by Aldi assists it to reduce the costs and wastage under its operations. Also, it supports the organization to satisfy the customers at the fullest. One of the major benefits of company’s supply chain is that it improves the operational efficiency of Aldi its international market. The supply chain decisions and approach can eliminate the need to maintain the larger inventory levels at its stores. Under its supply chain processes and activities, Aldi has hired talented and multi-skilled that helps this company to complete the task and provide the service to its targeted customers at desired time. Utilization of supply chain operations enables the organization to develop quality working environment in which all the workers are committed to make improvement in the quality of products and services(Silva, 2005). It can be stated that lean supply chain of Aldi is emphasized on the time management concept.
Additionally, it provides effective training and development to employees regarding time management. It allows the company to reduce the costs and wastage of materials at stores. Training offered to the employees assists them in performing different tasks and responsibilities at retail stores. It also supports company’s top management in managing the staff’s requirements. The team of Aldi can have the information pertaining to task and will enhance their abilities and skills to provide higher customer service and satisfaction (Prakash and Deshmukh, 2010). Furthermore, Aldi can minimize the cost of human resources as a smaller staff will be needed to perform tasks and duties at its retail stores.
Apart from above benefits, there are some limitations of Aldi’s supply chain processes and activities. One of the major limitations is that company has very limited number of suppliers that can cause harm to its brand image in comparison to its competing brands. Due to this, the company may face the issue of shortage of materials at stores that can lead to the empty shelves. Other limitation of Aldi’s supply chain is that it has limited product offering that can have adverse impact on its competitive advantage in international retail industry. Currently, the company is not using proper and effective channels of distribution and supply chain. It can increase complexity as it is leveraged to generate significant value via increased output at comparatively lower costs. Aldi is adopting a traditional method of supply chain management and other competing brands like Wal-Mart is using modern supply chain operations (Clifford, 2011). Considering the change and market trends, Aldi needs to focus on using updated technologies in its supply chain operations.
Considering the above issues and limitations, Aldi needs to focus on developing some future trends which can enhance its operations and overall business in global retailing industry. These are the trends and direction where the company sees itself moving towards in the coming future. The major future trends for Aldi Organization are given below:
Technology is the most significant trend that needs to be followed by Aldi to enhance its supply chain activities and processes. Currently, it is using traditional approach of supply chain management whereas there are so many competing brands like Wal-Mart is using modern technology like RFID (Harsoor, and Patil, 2015). This technology makes its supply chain management best among all the retailers. In the future, Aldi can use RFID to track its suppliers and material delivery (Fan, et al, 2015). It will improve the supply chain process and its implementation in the benefit of organization.
In today’s competitive business environment, cross docking system is another future trend that can be adopted by Aldi in its supply chain operations. It is the best technique that can be used by retailers. Through this system, inbound shipments are delivered directly to outbound trailers at their distribution centers. Adoption of cross docking system can lower the time that is needed to transport the goods to company’s retail stores. Also, it can save the retailer in storage costs of materials. In the future, Aldi can adopt it avoid the issues related to just-in-time techniques under lean approach (Agustina, Lee, and Piplani, 2014).
Considering the trend in society, the company should try to become more environment friendly as people are becoming very concerned towards environment. To attain a sustainable competitive advantage over other retailers, Aldi needs to recognize them as socially responsible supermarket. In the future, it should adopt the supply chain process which does not affect the environment adversely. In addition to this, Aldi must make contribution to communities and environment. It should use sustainable strategies under supply chain activities (Rushton, Croucher and Baker, 2014).
In addition to above, Aldi Organization needs to innovate its store format to engage more people towards its supermarket. Additionally, it should use modern preservation system so that it can store the products if they are not sold and have chances of expiry.
In this way, these are the future trends where Aldi wants to be so that it can improve its supply chain and logistics activities.
Conclusion
From the above analysis, it can be concluded that Aldi is a leading organization in international retail industry and it is very much focused on managing and implementing its supply chain activities. The company is using lean supply chain process to plan and implement its processes and activities. It is facing intense competition from other biggest retailers like Wal-Mart, Lidl and Woolworths. Wal-Mart is using the most effective supply chain activities and techniques which make it the best retailer in the industry. This is the biggest competitor for Aldi. The above report shows that Aldi is using effective and efficient supply chain strategies which enable it to receive the material and to provide the final customers. These activities are beneficial for the growth and efficient management of Aldi but still it has some limitations. There are some issues which affect the implementation of supply chain techniques and processes in practices. The company needs to focus and overcome the issues. Future trends can assist Aldi to overcome the issues and limitations.
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