IKEA: target costing - Research Paper Example

The company was founded by Ingvar Kamprad. The company works with the aim of lowering the prices of its complete set of offerings each year by an aggregate of 2% to 3%. The signature or the most noticeable feature of IKEA is the offering of ‘flat packed product’ which is assembled by the customers at home. This feature helps the company in reduction of transportation costs. The motto of the company, “low price but not at any price” depicts a unique example of business growth and sustainable innovation.

The furniture are designed by the company itself and these are made by around 1500 suppliers spread over 50 countries in the world. The company follows the success ingredient of discovering the most appropriate manufacturer for the most appropriate product (IKEA, “Profile: IKEA”). IKEA operates in the furniture industry globally. IKEA is considered as the most successful retailer in the furniture industry. The success of this company has been possible because it states to sale ‘experience’ unlike other retailers who sells furniture.

Due to its competitive advantage in the world, despite the battered furniture industry during the recent years, IKEA has performed far better than all its competitors in the same industry. At present the furniture industry is growing after the economic downturn and IKEA holds a strong competitive position in the world’s furniture industry. During the time of recession, IKEA managed to remain at the second position in terms of sales among all other furniture manufacturers of the world (IKEA, “Profile: IKEA”).

Cost Management Strategy of IKEA The cost management strategic objective of IKEA was to evolve as the “low cost leader”. For achieving this objective, IKEA had concentrated on several practices with the aim of reducing its cost of operations which include: 1. Reduction of travel expenditure. 2. Reduction of the cost of raw materials through continuous search for inexpensive materials such as pinewood. 3. Sorting of inexpensive and creative solutions to the management structure through straightforward management style. 4. Building up of long term relationship with the suppliers (Suarez, “International Business Strategy IKEA”).

The most potential strategy of IKEA was to manufacture furniture of high quality designed especially for the middle and low income class. With the shrinking of this segment class, IKEA had diversified into several other lines of products such as kitchen, office and bath among others. A number of exclusive concepts were brought in by IKEA in the industry of furniture such as self selection, ‘cash and carry’, ‘knock-down kits’, and catalog, ‘off city showrooms’, large parking lots’ and several similar unique ideas.

As a source of saving the cost, IKEA introduced the strategy of self servicing without home delivery by the company (Ingvar Kamprad and IKEA, “IKEA Final Report”). Overview of the Strategy Implementation IKEA targeted on maintaining strong relationship for a long term period with its suppliers in reaching its strategic goal of becoming the low cost leader. The company provided both technical as well as financial help to its suppliers with respect to their factories’ designs, purchasing machines and operations setting.

IKEA focused on achieving maximum level of production from its suppliers through placing separate contracts for each raw material with various