IKEA Supply Chain Management PDF

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Assignment 1 Supply Chain Management: Company chosen IKEA...

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TABLE OF CONTENTS COVER PAGE ................................................................................................................................................................i TABLE OF CONTENTS.......................................................................................................................ii EXECUTIVE SUMMARY...................................................................................................................iii INTRODUCTION TO IKEA................................................................................................................1 SUPPLY CHAIN MANAGEMENT PRACTICES OF IKEA...............................................................2 IKEA’S STRATEGIC ALLIANCES WITH MAJOR TRADING PARTNERS, HOW AND FOR WHAT PURPOSE.................................................................................................................................3 IKEA’S STRATEGIES FOR PROCUREMENT AND OUTSOURCING.............................................4 CHALLENGES AND RISKS IKEA FACE INTERNATIONALLY AND HOW THEY OVERCOME THESE CHALLENGES:......................................................................................................................5 ...............................................................................................................................................................6 HOW IKEA INCORPORATE SOCIAL AND ENVIRONMENTAL OBJECTIVES IN THEIR SUPPLY CHAINS? CRITICALLY ASSESS THEIR APPROACH TO SUSTAINABILITY IN THE SUPPLY CHAIN...................................................................................................................................6 ...............................................................................................................................................................7 WHAT TECHNOLOGIES ARE EMPLOYED BY IKEA TO DEVELOP A MORE EFFICIENT SUPPLY CHAIN? PROVIDE EVIDENCE FOR YOUR ARGUMENT...............................................7 CONCLUSION.....................................................................................................................................8 RECOMMENDATION.........................................................................................................................8

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EXECUTIVE SUMMARY IKEA is a Swedish furniture company founded by Ingva Kampad in 1943 in Sweden. IKEA has global presence in 52 countries with its headquarters situated in Netherlands. It is known for the largest home furnishing retailer. This study will explain about the supply chain management process of IKEA and all the aspects relatable to its SCM practices are covered by this study. IKEA has some of the best Supply chain practices employed which includes Manufacturing and cost saving, (DIY) Do-it-yourself assembly, in-store warehouse and logistics management and Separate warehouses for slow movers and fast movers. IKEA collaborates with NGOs, and businesses who are committed for reinforcing the impact of productive social and environmental activities. IKEA’s major strategic alliances are with UNICEF, save the children, UNDP and WWF which creates collective social outlook and the goal is to allow IKEA to focus on advancing children’s rights while being eco-friendly and be committed to reduce CO2 emissions. IKEA faced challenges while entering into China market due to the difference of prices. The prices were relatively cheap in North America and Europe but judged unreasonable in China on Average. Because of their design, the furniture had inexpensive prices in local retailers due to the access to low cost labor and raw materials. This strategy confused Chinese buyers and in the result it become critical to follow local rules and regulations and organize a joint venture. As a result of this misunderstanding, IKEA decides to target middle-class and upper income people as these are more educated and engaged in western perspective on furniture purchasing. IKEA working hard to become sustainable leader by huge investments in renewable energy named IWAY which will meet environmental and social objectives. This study concludes that IKEA has been successful in using technology to advance its supply chain including AR, VR, the rethinking of big blue box strategies to help ikea to have a competitive advantage over their competitor.

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INTRODUCTION TO IKEA A supply chain is a network of interconnected activities that involves the transformation of raw materials into finished products that are delivered to customers. Supply chain management (SCM) is a phrase used to describe the flow of goods, cash, and information throughout the supply chain, from the supplier to the manufacturer to the warehouse to the retailer and finally to the customer. In order to better comprehend this, the study will shed light on IKEA's SCM practices. This organization has a global presence in 52 countries, and its supply chain management practices include “maintaining sustainability with suppliers, combining retail and warehouse processes, cost-per-touch inventory tactics, and use of highflow and low-flow warehouse facilities,” among other things. IKEA's logistics management technique is unique in terms of product reordering and logistics manpower management. [ CITATION IKE06 \l 1033 ].

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SUPPLY CHAIN MANAGEMENT PRACTICES OF IKEA According to [ CITATION Ros20 \l 1033 ], these are practices employed by IKEA to optimize the supply chain management: Manufacturing and shipment cost saving: Because IKEA's furniture and home accessories are constructed of recycled and sustainable materials, the company's manufacturing and shipping expenses are cheap. As a result, the corporation utilizes fewer materials and resources to manufacture and distribute replacement parts. Do-it-yourself Assembly: The most prominent aspect of IKEA furniture is that it is selfassembly. The furniture is sold in pieces, which are then packaged flat for easy transport. IKEA saves money on transportation and fulfilment as a result of the items taking up less space in trucks. IKEA is able to send more things for less money. The DIY philosophy also helps the company to make better use of storage space, saving IKEA money on inventory management. Finally, many products are transported directly from suppliers to stores, which decrease warehousing and storage expenses dramatically. In-Store warehouse and logistics management: Unlike other retailers, IKEA employs instore logistics managers who are in charge of all inventory-related tasks such as tracking deliveries, sorting and separating goods, and guiding them to the appropriate areas. Each IKEA shop features an upper-floor showroom and a ground-floor warehouse with over 9,500 goods in stock. Customers can touch and feel the objects in the showroom. Each item has a unique article number, as well as a bin and aisle number. These numbers can be used by customers to find things in the warehouse. One-third of the warehouse, however, is off limits to shoppers since it is reserved for large merchandise, and cannot be collected without the assistance of staff members. Separate warehouse locations for slow and fast movers: IKEA warehouses are divided into automated and manual areas for fast-selling and slow-selling merchandise, respectively. This allows IKEA to cut handling expenses for low-demand items while maintaining a smooth flow of high-demand items across the supply chain.

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IKEA’S STRATEGIC ALLIANCES WITH MAJOR TRADING PARTNERS, HOW AND FOR WHAT PURPOSE The IKEA Group coordinates and collaborates with labor unions, non-governmental organizations, and businesses that are committed to expanding or reinforcing the impact of constructive social and environmental activity. IKEA creates a collective social outlook through strategic collaborations with organizations such as UNICEF, Save the Children, UNDP, and WWF. The goal of these collaborations is to allow IKEA to focus on enhancing children's rights while also being environmentally conscious and committed to reducing CO2 emissions [ CITATION IKE20 \l 1033 ]. With the assistance of partners, the respective organization is able to develop long-term objectives with the help of advanced technology solutions through which the government can be impacted in terms of bringing about significant change in the life of youth, ultimately contributing to the country's improved condition. There are other enterprises and labor unions with whom IKEA creates strategic alliances that would significantly contribute to environmental improvement. These strategic alliances have several advantages, including “getting competent consultancy with advanced technology, high competitive energy, pulling monetary value during recession period, promotions, ability to maintain a productive CRM, and empowering population growth would help in handling furniture demand” [ CITATION Vic20 \l 1033 ]. IKEA's selling strategy encourages the company to concentrate on "geographical, demographic, social standing, and other relevant elements." However, there are certain concerns with strategic alliances, such as "private information, contribution from each party, internal confusion minimization, and partnership commissions." As a result, the organization must continue to focus on improving its capabilities so that it can better address the current difficulties. Furthermore, in terms of CSR, customers, and focusing on competitors, the input of stakeholders is critical. As a result of the strategic alliances outlined above, IKEA has taken the following steps:

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Providing loans to refugee businesses 3

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Frequent flier miles can be donated.

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Producing organic compost

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Purchasing seasonal and local foods

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Avoiding the use of plastics

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Eliminating phantom loads while being environmentally conscious

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Investing in solar and other renewable energy sources.

IKEA’S STRATEGIES FOR PROCUREMENT AND OUTSOURCING IKEA's procurement and outsourcing tactics aid in the optimization of their value chain, which begins with raw materials and ends with finished goods delivered to customers. IKEA initiated an organizational transformation in “purchasing and sourcing methodology” in 1995, with the goal of expanding their manufacturing and becoming globally competitive [ CITATION San17 \l 1033 ]. The company then developed a new strategy that revolved around shifting the focus from individual items to a package of products. Among other methods, IWAY (IKEA's Supplier Code of Conduct) has been legally implemented to demonstrate the company's commitment to consumers and the environment. Supplier governance and corporate social responsibility have both become more important as a result of the Code of Conduct. Effective procurement and outsourcing methods include having a shared “language for improved communication, developing a clear vision, addressing supplier-related risks, complying with supplier compliance and other standards, and building shared value” [ CITATION Jia18 \l 1033 ]. Furthermore, the organization's entire business strategy includes cheaper pricing, reduced costs, higher sales, and higher purchasing volumes. Initially, the company was a discount store; but, after implementing flywheel, the company began to reach new heights of success, and this technique was adopted from Amazon and Lidl. The focus on low-cost production and long-term relationships with suppliers has increased the organization's efficiency in generating new goods by justifying the suppliers' efforts. Following the implementation of these procurement and outsourcing techniques, the company has placed a strong emphasis on product purchasing power, setting a goal of lower purchase prices, working with high-volume suppliers, and committing to a process-oriented organization. IKEA's overall business strategy is consistent and capable of weaving related activities together, while also 4

emphasizing the importance of planning and coordination in facilitating flexibility within the

organization [ CITATION Giu16 \l 1033 ]. By sticking to their own vision and goal, the IKEA's procurement policy is excellent for controlling and addressing unique situations and knowing the importance of adaptability.

CHALLENGES AND RISKS IKEA FACE INTERNATIONALLY AND HOW THEY OVERCOME THESE CHALLENGES:

IKEA's biggest issue is its prices, which were relatively inexpensive in North America and Europe but are judged to be exorbitant in China on average. Because of their design, the furniture in local retailers had inexpensive prices that are because they had access to low-cost labor and raw materials. Focusing on China, the corporation ran into a number of issues, including a low-price strategy that confused Chinese buyers. As a result, it's critical to follow local rules and organize a joint venture. This method could help IKEA get into the Chinese market. Customers in China have expressed a desire for functional yet modular solutions due to the fact that apartments in China are quite small. As a result, the organization focused on several areas that would be used to modify the furniture to satisfy the needs of local consumers. Continuing on this theme, IKEA faced similar challenges when entering the US market. The company first attempted to replicate its existing business model and products in the US market, but instead had to focus on customizing their products to meet the needs and tastes of their clients. Buyers in the United States, as opposed to Chinese customers, want larger beds, closets, and furniture with more room and opulent appearances. China's problems are far more serious than the risk it faces in the United States. Local stores, on the other hand, were not as profitable. Apart from that, IKEA has been plagued by high prices, which have acted as significant barriers to Chinese consumers purchasing IKEA products. This is because IKEA's global branding promises low prices, which were not followed in China, and the products were also lacking in aspiration when compared to Asian markets[ CITATION Wad16 \l 5

1033 ]. As a result of this misunderstanding, IKEA decided to target middleclass and upper-income people, as these people are more educated and engaged in having a western perspective on the furniture they will be purchasing for their homes.

HOW IKEA INCORPORATE SOCIAL AND ENVIRONMENTAL OBJECTIVES IN THEIR SUPPLY CHAINS? CRITICALLY ASSESS THEIR APPROACH TO SUSTAINABILITY IN THE SUPPLY CHAIN The IKEA Group is working hard to become a sustainable leader by adding goals that will improve its commitment and make sustainable supply chain planning more equitable. Renewable energy investments have been made by the organization. IKEA employs IWAY as a means of meeting environmental and social objectives. The corporation has put about $1.1 billion into a sustainable supply chain, with a focus on "recycling technologies, renewable energy, and biomaterials." This is not only good for the environment, but it is also good for business. IKEA's brand benefits are aided by their commitment to sustainability. “Reforestation projects, sustainable packaging, and sustainable sourcing” are among the company's priorities [ CITATION Lar16 \l 1033 ]. IKEA primarily employs cotton and wood as raw materials, prompting the corporation to invest heavily in organizations such as Global Forest Watch. Furthermore, IKEA does not utilize tropical forest wood as a raw material because it is critical to the ecosystem. As a result, it is possible to conclude that IKEA has a holistic approach to sustainability. To meet their objectives, IKEA intends to switch to 100 percent recyclable and renewable products. The company is also built on the community dynamics of the three E's of sustainability, which are beneficial in creating a healthy community with long-term success goals. Aside from that, by 2030, IKEA will have set a new standard for sustainable furniture. The corporation, on the other hand, has already begun to make its stores more environmentally friendly. Recycling, reusing, repairing, and reselling would all contribute to lowering the use of plastics and making IKEA a more sustainable company [ CITATION IKE20 \l 1033 ].

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WHAT TECHNOLOGIES ARE EMPLOYED BY IKEA TO DEVELOP A MORE EFFICIENT SUPPLY CHAIN? PROVIDE EVIDENCE FOR YOUR ARGUMENT

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Augmented Reality (AR): IKEA uses augmented reality, which “superimposes a computer-generated image” on the real world to create a view for consumers. The company first introduced this technology in 2017. With the help of augmented reality, the company was able to create a composite view and grasp the views of customers. This is useful for customers who read through the catalogue and imagine how the things will look when they get them home [ CITATION Ngu18 \l 1033 ].

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Virtual Reality (VR): IKEA uses virtual reality to improve consumers' virtual experiences and help them develop a better experience throughout their journey. VR is also responsible for fostering innovation in the SCM process, as it aids in enhancing sales configuration and upselling opportunities, as well as offering customers with a 3-D experience, improved design process, supplier management, manufacturing, distribution, and other associated activities [ CITATION Ver19 \l 1033 ].

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The big blue box Thinking: IKEA is known for its large retail presence and distinctive blue, boxy megastores. IKEA's first foray into the classic mom-and-pop furniture store included these locations (which served as hybrid destination showroom spaces and warehouse pick-up hubs). The development of ecommerce in this decade, however, has called into question the commercial justification for IKEA-style real estate investment. Furthermore, the move toward city life and away from car ownership puts IKEA's brick-and-mortar customer value proposition at jeopardy.

IKEA, was among the first major stores to implement a Click-and-Collect service, which allows customers to place orders ahead of time and pick up their items more quickly in the IKEA parking lot. This necessitated the integration of POS systems, an ecommerce front-end, and up-to-date inventory management technologies. While this service model innovation required a significant upfront expenditure, it improved technology available in-store and made future dives into direct-delivery ecommerce less onerous.

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CONCLUSION In the context of IKEA, the study focuses on the Supply Chain Management process and related topics. The Supply chain management practice of IKEA which includes Manufacturing and shipment cost saving strategy, do it yourself assembly, in store warehouse and logistics management strategy and separate warehouse locations for slow and fast movers helps IKEA to be at the top and builds competitive advantage . IKEA’s strategic alliance is able to develop long-term objectives with the help of advanced technology solutions through which the government can be impacted in terms of bringing about significant change in the life of youth, ultimately contributing to the country's improved condition.

IKEA's

outsourcing and procurement practices aid in the optimization of their value chain, which begins with raw materials and ends with finished goods delivered to customers. It has also been informed regarding various dangers and obstacles, as well as related mitigation solutions. The company's social and environmental responsibility has received a lot of attention. The IKEA Group is working hard to become a sustainable leader by adding goals that will improve its commitment and make sustainable supply chain planning more equitable.

RECOMMENDATION It is possible that IKEA will need to regulate its price strategy in order to succeed in the Chinese market. For this, businesses must cut their production costs, including overhead charges, during the manufacturing process, which will help to lower the overall price of the finished product. IKEA, on the other hand, mu...