IKEA Warehouse System - Essay Example

IKEA furniture are cheap, durable and stylish. Source: The Economist, 2011, http://www.economist.com/node/18229400 From the start, IKEA was perceived as the David of furniture stores who was willing to challenge the Goliaths of furniture dealers, for which reason it concentrated on developing top-quality, low-cost furniture (Elsner, W & Hanappi, 2008). On the other hand, the challenges posed by the group of competitors was much like that of a cartel. The Swedish furniture dealers pressured suppliers not to sell to independent manufacturers to create an artificial shortage of raw materials.

They also excluded unaffiliated furniture makers and dealers from their trade fairs. Ingvar Kamprad, the founder of IKEA, saw social problems in the furniture industry, as well as a business opportunity. He saw that the great majority of people had needs which were not being met as far as the need for beautifully crafted but affordably priced furniture and household items were concerned. At the same time, he felt that this exclusion of the masses was not fair nor warranted, and that people of all walks of life are entitled to good furniture (Reichert, 1998, p. 3). .

The house is designed with architecture by IdeaBox, mostly straight lines with little detail. Source: Dornob, http://dornob.com/flat-pack-ikea-house-built-shipped-for-under-100000/?ref=search Kamprad was not a social idealist without a practical agenda. He saw a business opportunity in the fact that a huge market existed which was not being serviced by the existing manufacturers and their contract-bound suppliers and retailers. However, this market had a relatively low price target, therefore if the company intends to realize a profit out of its sales to this market segment then it should be able to maintain its production and distribution costs at a margin below the selling price (The Economist, 2011) Flat-packed IKEA furniture can be carted home at the back of a car without need for incurring delivery costs.

The packaging also saved on store and warehouse space. Source: http://earth911.com/wp-content/uploads/2010/05/IKEA-Flat-Pack-300x199.jpg?84cd58 Based on this strategic direction, the Company developed most of its product designs, supplier relationships, and customer service practices in a way that was intended to minimize production costs and maximize value for the customer. The novel idea was to produce low-cost furniture that were easy to build, and easy for the customer to assemble by himself.

The principal innovation that sets IKEA apart is its flat-pack packaging that made IKEA furniture easy and cost-effective to ship, store, sell, and later set up through self-assembly. The cost savings the company realized in terms of saved store space, delivery and labour costs were passed on to the customers in terms of lower prices. In marketing, what the company essentially pioneered in is “the self-service method of selling” which, aside