Marketing help on: Business Model at IKEA

Abstract

The report below examines the business Model at IKEA which has been very popular and a large contributor for the company to perform great in the furniture market. It further takes into consideration the supply chain management practiced at the company which contributed towards the low cost products available from the company. It gives us a clear review of the innovative designs, methods, and measures taken by the company to reduce their cost of production and provide competitive pricing to their customer. Moving further in the report we would come across the things which the company did right and contributed towards increasing its strengths (Next Level Purchasing 2004).The report also evaluates the IKEA’s sourcing decisions as a part of the vertical integration and outsourcing. Moreover, the efforts have been made to observe the manner in which the activities at IKEA’s supply chain management affect the costs of the products manufactured. At the end of the report the weaknesses of the company has also been pointed out which could have been laid emphasis on to expand to newer markets and reach more customers. The basic motive of understanding the model deployed at IKEA would help in learning about the importance of a well-developed supply chain management for a company and its performance.

Introduction

IKEA is a Sweden based furniture retailer which has been among the world’s largest retailers in terms of sales and is present in almost every continent across the world. Since the day it started its operations the motto of the company has been to provide their customers with stylish, functional yet affordable furniture. The company had always made its efforts to do cost reduction in terms of its operating costs in order to provide their customers with affordable products. The key to its cost reduction strategies had been the elimination of several activities which were added to the final cost of their furniture by other competitors but could have been avoided. For e.g.: the company did not provide free delivery to its customers which made them cut down their transportation expenses and offer products at much cheaper rates.The company was formed in the year 1943 and since then has been offering good quality, stylish and functional furniture to their customers. The added advantage to their products was the low pricing backed by an excellent cost effective supply chain management which included light packaging, effective warehousing and other key decisions taken by the company from time to time. The company had been listed 35^th in the list of best 100 brands in the Business Week for the year 2008-2009. It had been valued at US$10.9 in the same year.

Supply Chain

Going by the report and the industry experts supply chain management has been considered to be the key contributor to the company’s performance. As mentioned earlier consideration of all the aspects which contributed largely to the increased costs for the company but could be done away with was avoided to the extent possible. Thus with prices about 30% lower than the other competitors the company was a favourite for many. One of the other elements which played a key role in the supply chain management of the company was its long-term relationship with the suppliers, well-managed inventory, etc.

What is Supply Chain?

Having discussed all the factors which were a part of the supply chain management for IKEA the actual meaning of supply chain management needs to be assessed. Going by the compact definition of supply chain management we can define it as follows: (SBAER 2004)Supply Chain Management is the management of the network of business activities which are interconnected as process of making available the products and services to the end consumers. It spans all the movement as well as storage of raw materials, WIP-inventory, and the finished goods from the point of origin till the point of consumption.

What is the supply chain management seen at IKEA?

The supply chain management at IKEA had been based on predefined strategies which have been in place since the company started its operations. The primary motive behind the supply chain management at the company was to provide reliable, functional as well as cost effective products to the customers. The report below discusses the supply chain management in place at IKEA by focussing on the elements involved: (Elabeslogn.d)

• Pricing: The Company established its prices beforehand and prepared a break down structure for its costs so that they could make the process efficient enough and provide products at the prices planned at.
• Packaging: The Company followed a policy of using flat packs for packaging its products which was used of recycled product. This was done to save more policy rather than a sell more policy by the company. Also these were pretty cost effective besides being strong enough to pack the products.
• Suppliers: IKEA always maintained a long term partnerships with its suppliers that ensured the company had access to high quality materials at cheaper costs. This helped them to provide value proposition to its customers. The company initially decided the design of their products and materials to be used. After that the company informed the suppliers across the globe for the same and then invited the bid from the suppliers. Thus a centralized planning was in place and later on products were manufactured in respective locations.

How does IKEA’s Supply Chain reduce costs?

Aggressive pricing had always been the key contributor towards the success of IKEA. Everything starting from the mission, vision, concepts, and business ideas at IKEA was targeted at providing products at low prices. The supply chain of the company had been one of the most important elements which helped the management to promote aggressive pricing. With an effort to provide something better, simpler, efficient and importantly at low costs had made the company to adopt a very well-managed supply chain. The measures such as recycling, AS-IS, Automatic Selling, In-house designs, Thriftiness, Transportation costs, economies of scale, minimal packaging and strategic planning which were all part of supply chain management at the company contributed towards lower prices by the company.Another practice the company used to adopt was not to deliver products to the customers. The company made the customers carry their furniture themselves as against the competitors who provided free delivery of goods to their customers. This in turn helped the company to pass on the benefits to the customers by cutting down the transportation expenses and pricing their products lower. With all these in place IKEA’s products were available at 30% less costs compared to its competitors.

Innovative Design and Packaging

IKEA had always been popular to manufacture products which were lasted longer and were way more functional than the other similar products available in the market. To achieve that the innovative designs played a major role as the company followed a centralized form of designing its furniture. They had an in-house team of designers who designed the products at the company head office. After the designs were approved and the materials that had to be used were decided the design was passed on to the manufacturing locations across the globe.

While discussing the packaging methods used by the company it has to be mentioned that they used recycled products and the concept of save more rather than sell more. Keeping in mind the benefits they gave back to the customers and the environment, they used the flat packs in order to pack the products. These packing materials came with minimal raw materials made of brown cardboard which is one of the safest things to use for our environment.

Strength and Weakness

There are hosts of strengths which the company has. To list some of them it would be as follows: (IKEA n.d)

• A well-managed supply chain management
• Huge Range of Products
• Years of experience and goodwill
• Low pricing
• Huge network for stores across the globe

Although there seems to be no weaknesses evident in terms of IKEA’s supply chain management and operations the only weakness which can be highlighted would be promotions. Till now they have largely dependent on word of mouth promotions which definitely had done wonders to the company’s performance. However, a little bit of advertising by the company to counter the increased competition might just help them to reach the top of the ladder.Conclusion

After evaluating the entire Supply chain management structure at IKEA it is evident that SCM plays a big role and contributes towards the progress of a company. It further explains that with a strict system in place helps a firm to fight competition, the economies of scale contributes in cost reduction, and well-planned strategic decisions enhances productivity. The other conclusion which is derived from the above study is that a company always performs better when it provides strong, functional as well as well-priced products. It can take the company from a level to another in virtually no time as people start appreciating the products on offer.

If you want MARKETING Assignment Help study samples to help you write professional custom essay’s and essay writing help.

Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.

To get more information, please contact us or visit www.myassignmenthelp.Com