Supply chain case study analysis: IKEA case

Supply Chain Assignment brief

IKEA-CASE STUDY??

The case examines the supply chain management practices of IKEA, a Sweden based on furniture retailer. IKEA, the world’s leading retailer by sales had its presence across the globe. The company focused on providing its customers affordable yet stylish and functional furniture. It made efforts to eliminate several activities that added to the final cost of the furniture but could be avoided. Its USP lied in its packaging. IKEA designed its products in a manager to disassemble the whole unit and transport the parts of the furniture in flat packages. That saved IKEA huge costs in transport. The case explains the evolution of ILEA’s business model, expansion strategies, and supply chain planning process, relationship management with its suppliers, warehouse operations and store design. Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective, its most differentiating factor was its flat packaging system which had significantly improved. IKEA was ranked 35^th in the list of the top 100 brands by Business Week for the year 2008-2009. The company’s brand value was estimated to be US$10.9 billion in 2008. For the financial year 2008, IKEA registered sales of US$28.8 billion. According to industry experts, IKEA’s supply chain management was the key factor for the success of the company. The company considered factors like carriers used for transportation and pallets used in warehouses to base its decisions like furniture design and packaging. As a result, IKEA was managing its casts better than its competitors and was able to offer products at 30% lower costs. IKEA maintained a long-term relationship with its suppliers and assisted them in improving their processes so that it would help in cutting costs further. The company did not offer free home free delivery as other furniture retailers did and expected its customers carry the products with them in their vehicles and assemble the products themselves. This helped IKEA cut down on a part of its transportation costs and pass on the benefits to its customers in the form of low priced goods.

 Managing supply chain

IKEA first established a target price before designing a product. This practice was in contrast to the generally followed method of designing the product first and then pricing it according to the cost and markup by other furniture manufacturers. Designers at IKEA had to accommodate all the costs like raw material, manufacturing, and transportation till the product reached the stores within the given target price. IKEA does not design flat packs to sell more but to save more. Flat packs means optimized loads and fewer transports, which reduces emissions. IKEA uses of recycle package which requires minimal raw material helps, Brown cardboard is one of their best friends as it saves costs and the environment. The company offers unique value proposition to customers such as maintaining long-term partnerships with its supplier. These steps ensure that the company has access to high-quality materials at reasonable price. IKEA is a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide, its visions are to create a better everyday life for many people puts the concern for the environment and people at the heart of business, IKEA also emphasize a strong concept based on offering a wide range of well designed, functional products at low prices. However, IKEA also have some weakness for example, IKEA helps to ensure same quality in products and labor standards. The IKEA’s code of conduct specifies what the IKEA requires from its suppliers and their relationships with suppliers. Meanwhile, the technical innovation and environmental adaptions are crucial for a growing IKEA. IKEA wants to offer sustainable home furnishing solutions that enable many people to create sustainable lives at home. IKEA always ensures that their products are safe for people, the environment, durable functional and well-designed. IKEA uses many different functions to improve their techniques, quality and environment. Understanding production techniques is a competitive advantage that benefits the IKEA customer. Thus, workers in IKEA are well acquainted with their suppliers and they are always dedicated in exploring innovative ways of using existing technology.

Supply Chain Planning

Supplier Relationship Management

After the design of product the material to be used will be decided, trading offices across the world will be instructed to find the suppliers in their respective region. Bids are then will be invited from them.

Warehouse management

IKEA’s DC’s uses highly automated, using systems like automatically storage and retrieval system (AS/RS) and conveyor belts. IKEA sues AS/RS to improve the efficiency of its warehouse operations significantly.

Store Design and Pricing

IKEA chose its store location on the city outskirts as the company’s store were large and required huge parking spaces. IKEA realized that its customers were visiting stores in their cars and that resulted in higher carbon emissions. Low prices are the cornerstone of the IKEA vision, business idea and concept. The basic thinking behind all IKEA products is that low prices make well-designed, functional home furnishings available to everyone. After all, IKEA’s vision is to create a better everyday life for the people. They constantly try to do everything a little better, a little simpler, more efficiently and always cost-efficiently. All IKEA units play an important part in creating low prices. Basically IKEA takes up various measures for reducing the cost such as recycling, AS-IS, Waste Reduction, Automatic selling, Thriftiness, In-house design, Economies of Scale, Transportation, Strategic Placement, Minimal packaging.

2. Details of assignment task

You are required to:

1. Research and investigate to ensure that you understand IKEA’s business model.
2. Examine the supply chain management practices of IKEA.
3. Evaluate IKEA’s sourcing decision from the perspective of vertical integration and outsourcing.
4. Assets the manner in which the activities of IKEA’s supply chain influences the cost of the product.

 Plan phase

1. Decide on the approach for this essay
2. Formulate the plan

 Implementation plan

1. Collect the information
2. Analyze and interpret the data
3. Present your findings
4. Conclusions

The key function of analysis is to communicate the value of your findings. You need to supply the evidence that justifies claims that the research changes belief or knowledge and is of acceptable value. You need to structure the data/information that has been gathered.

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