part one :
-breif introduction about IKEA,
-apply Porter’s value chain to Ikea: explain the value chain through Ikea
-make recommendation for Ikea to improve their supply chain.(550 word
part two :
Plan and Risks (largely diagrams, equivalent to 550 words)
Develop a project plan to improve the supply chain scenario you discussed in part 1 (i.e. implement your recommendation). This will include the risk assessment plan for the project.
Case Study Paper
IKEA Supply Chain Management
Ingvar Kamprad found IKEA in 1943 as a small mail-order sales business. The name IKEA is an acronym from Ingvar Kampard’s name, Elmtaryd, which is a farm he grew and Agunnaryd his hometown in Smaland. The firm grew to become the world’s largest retailer of furniture, home appliances, and other home accessories; they also retailed small personal vehicles. The company uses modern architectural skills in their designs on their products; their interior designing is also highly eco-friendly. Currently, IKEA owns and operates about 378 stores located in 47 countries worldwide (IKEA, 2015). The company emphasizes on cost reduction throughout its structure; this evaluates to low prices on their products in their stores worldwide and maintains its high competitiveness in the market (Clara, 2014). These achievements have been linked to their well-structured supply chain within the company. This paper will explore IKEA supply chain management and give recommendations on how the company can improve the supply chain. It will also analyze the plans and risks facing the supply chain and how well to implement the given recommendations.
Supply Chain Management
Supply chain management involves all actions within the interconnected businesses aimed at ultimate delivery of goods and services as per given standards of the final consumer. IKEA exercises Make-to-Stock supply chain strategy, they only have a few products made as per customer demands (Clara, 2014). This strategy fits well to the Porter’s value chain in the company’s bid to improve the value the final customer enjoys. Porter in his book “Competitive Advantage,” proposes several activities to determine costs and, therefore, influence the profits to the company (Porter, 1985).
- Inbound Logistics
These are activities related to receiving and storing inventories (Porter, 1985). IKEA has a good system of monitoring and recording deliveries, which enhances the flow of goods from their stores. The company has also set a minimum level of inventory that would trigger reordering and a maximum limit of products ordered at a time. IKEA also has also combined their warehouse and retail process; this lowers the costs related to renting rooms and transportation.
IKEA has unique designs of products that incur very low manufacturing costs to the company as well as maintain high quality for the customers. More than 50% of their products are also made from recyclable or sustainable products (Clara, 2014). The company also uses minimum material that reduces the transport and labor costs.
- Outbound Logistics
The company has a cost-per-touch supply tactic; this involves reduction of costs within the supply process. The longer the supply chain and intermediaries the higher the costs, IKEA, therefore, has reduced the number of touches on their products and ensure that the product reaches the customer faster (Jonsson, Rudberg, and Holmberg, 2013 p. 338).
- Marketing and Sales
IKEA maintains a very close relationship with their customers; this enables the company to be well conversant with the customer preferences (Henley, 2008). The in-store sales attract customers as they display their products and give suggestions to customers on how they can arrange them in their houses. They also maintain self-service model in their stores in that customers can select for themselves what they want rather than sales personnel dictating them.
The company practices a Do-It-Yourself packaging allowing the customers to assemble for themselves. The parts are conveniently arranged in flat packages; they are therefore easy to transport as well as taking up low storage space. This strategy has reduced the costs to the company regarding transport and storage (Clara, 2014).
Supply chain expands and becomes more complicated due to Market changes and stiff competition. One platform has emerged as the perfect tool to solve supply chain issues, the internet (Raskob, 2000). The global market is united into one small market by the internet. IKEA should adopt online supply management to improve its supply chain. This move will improve customer and larger market access; it will also reduce the costs associated with physical supply chain within the company’s structure (Lief, 2008).
Plan and Risks
Planning on Internet use
- Strategize and Identify Opportunity
IKEA should first strategize on the targets and methods of achieving these targets of the supply chain. They should also research on the market, their customers, channels, and potential benefits and risks Jacobs, (Chase, and Lummus, 2010).
- Streamline and Synchronize Processes and Operations
Those processes and products that can be improved by e-business should be recognized. The company should manufacture products that can fit well to the online portal. The company should also be well conversant with online marketing and be ready to handle customers and suppliers online. A forecast of demand should be conducted to ensure how the available workforce and resources meet this demand; the new platform should not require the addition of more human resource costs (Jonsson et al. 2013 p. 345).
- Capability of Production and Distribution Facilities
Online marketing and delivery will increase demand and wider market coverage. The facilities of production by IKEA should be able to meet this demand, if the existing facilities cannot cover the demand, then it should be redesigned to cope with the supply chain changes. Production facilities should be located near markets. The distribution network should ensure that customers will have access to the products wherever they are. They should be efficient to cover the increased market (Bartlett, Dessain, and Sjoman, 2006).
- Identify Organizational Capabilities and Outsource Functions
IKEA should then identify areas they are best advantaged within the supply chain and concentrate on them. The company should put its efforts on production and controlling the online platform; they should then outsource the transport and delivery duties to transport firms (Verma and Boyer, 2010).
- Performance and Targets Measures
In the beginning, the company had set targets and level of performance to be achieved, they should, therefore, be assessed to ensure if the plans were correctly implemented and the targets achieved. Necessary corrections will be made to ensure that the company achieves the set goals of the internet in the management of the supply chain (Bowersox, Closs, and Cooper, 2013).
- Educate Personnel
All through the implementation process, the company employees should be educated on the best ways to use the internet to benefit company supply chain. After the assessment of targets and performance, they should be educated in places that they did not perform correctly and to improve the future performance (Raskob, 2000).
(Track and Trace)
|Enterprise Resource Planning|
|Order and Freight System|
|Electronic Data Interchange|
A Web-Based Supply Chain
Before the project is undertaken, the management of IKEA should undertake a thorough analysis of associated risks and impacts the risk will cause, they should also generate possible responses towards a risk occurring (Robert, 2008). The following diagram illustrates the risk assessment process.
- Risk Identification
All stakeholders will be involved with risk identification; this will be done through evaluation of the impacts of the project to both environmental factors and corporate culture.
- Risk Analysis
The risk will then be analyzed quantitatively and qualitatively on their range of impacts. They will then be prioritized as high, medium or low risks.
- Risk Response Planning
The company will then plan on how best to respond to a risk before becoming a menace to the company. A risk can be approached in the following ways:
- Avoiding the risk through elimination of the cause
- Mitigating through ways that will reduce the impacts
- Accepting the risk and doing nothing
- Contingency methods on how to deal with the risk
- Transferring the risk to a third party especially insuring
- Monitoring, Controlling and Reporting
Through the project, the risk should be tracked and recorded on its level, this will allow for corrections to curb the risk.
- Risk Contingency Budgeting
This budget will act as a backup in case a risk will not be effectively managed and causes losses. Funds should be allocated to a project to help in financing activities that will occur due to a risk.
- Closing a Risk
A risk should be closed when it is fully managed, and the organization feels that there is no further possibility of the risk occurring. The risk should be closed when:
- It is no longer Valid
- It does not occur
- Is no longer considered a risk
IKEA has managed to control a huge market and maintain a competitive edge trough its supply chain management. Their global market has continued to grow, and they need to adapt a better means to serve better this market. The use of internet and e-business within its supply chain will help them access wider markets at the same time reducing marketing costs. The company needs to exploit online platforms and outsource transport services to best suit the production and customer handling (Lief, 2008). A good plan should be set up to enable the company to adopt online marketing and proper analysis of risks done; this will ensure IKEA continue to dominate the market.
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