Operations Management: IKEA Analysis - Assignment Example

? IKEA of the of the Table of Contents Table of Contents 2 Introduction 3 IKEA’s Marketing 3 Value Chain 3 Intangible Products 4 Customers 5 Performance Measures 5 Reference 8 Introduction IKEA is renowned Dutch furniture retailer which has strong Swedish origin and the company is headquartered at Delft, Netherlands. Ingvar Kamprad has founded IKEA during the year 1943 and the Swedish furniture retailing giant has established its presence over 33 countries across the globe (IKEA PS, 2012). IKEA’s Marketing Place or expanded distribution is probably most important marketing mix element for IKEA. For example, in last 60 years the company has penetrated in almost 35 countries by establishing more than 300 retail outlets with the help of joint ventures, foreign direct investment, merger-acquisition, franchising etc. Euromonitor International (2009) has reported that, IKEA has the capacity to earn more than €20 billion annually from its retail operation. When it comes to value delivery, the company delivers value to customers in the form of readymade furniture, functional home furnishing items and tailor made home furnishing solutions. Low price and Scandinavian stylish design can be treated as unique selling proposition (USP) for IKEA (IKEA PS, 2012). Value proposition of IKEA is not limited to its ability differentiate its product offering through innovation but also includes its ability to position itself as a unique brand among its target segment. For example, IKEA targets customers who are ready to engage with the brand and participate in the selling process. These customers are ready to self transport and self assemble the furniture parts in order to get quality furniture products at affordable price. IKEA designs its product for customers after conducting detailed market research for understanding the needs and wants of customers. In some cases, the company establishes strategic partnership with local players in order to understand desired value proposition for local customers. For example, IKEA has established partnership with Ikano Group in order to penetrate in Malaysian and Singaporean furniture market (Ikano Group, 2008). The strategic partnership has helped the Swedish furniture retailer to deliver value to Malaysian and Singaporean which can satisfy their needs and wants. Value Chain Von Krogh & Cusumano (2001) and Nickerson & Zenger (2005) have stated that IKEA uses different sources in order to deliver value to customers. For example, the company has established more than 45 purchasing centers and trading offices in order to collect resources from suppliers (Tarnovskaya, Ghauri & Elg, 2006). Suppliers of different parts of furniture has to sign a contract with IKEA which is states that, all suppliers are expect to adhere all the legal norms, environment act, ethical norms of their respective country while sourcing the supplies. For example, in Russia, supply managers of the IKEA check all the shops of potential entrepreneurs or suppliers in order to find the right suppliers (Tarnovskaya, Ghauri & Elg, 2006). Throughout the supply chain the Swedish furniture retailing giant tries to ensure that their suppliers behave in socially, environmentally and ethically responsible manner. For example, in Poland, IKEA has opened its purchasing offices and supplier base that are capable of sourcing supplies in 20% cheaper rates in comparison to their European counterparts while the IKEA has also forced its supplier base in Scandinavian region to reduce carbon emission in the supplying process. Overall, it can be surmised that IKEA is successful in maintaining the three verticals of value delivery process, 1- delivering affordable products to customers (economic), 2- delivering product which can satisfy the social and cultural dimension of customers and 3- decreasing carbon footprint throughout the value chain in order to offer environment friendly products to customers. Intangible Products Core values of IKEA can be classified as biggest intangible asset for IKEA. However other research scholars such as Nickerson & Zenger (2005) have argued that IKEA’s value proposition such as quality of the product, brand name, trust factors, responsive customer service, ability to innovate products in accordance with need of customers etc can be treated as intangible products. Apart from IKEA, other firms such as Starbucks, Wall-Mart also uses the intangible benefits or the service aspect in order to create entry barrier for competitors. For example, Starbucks provide the ambience and atmosphere inside its store in order to provide the feeling to customers that they are being preferentially treated by the staff inside Starbucks store. In such context, customers will not only buy coffee products from Starbucks but also seek for the unique experience they would get inside the Starbucks store. Conjoint effort of tangible and intangible benefits helps companies to increase loyalty among customers and subsequently, these loyal customers show lack of interest to switch to competitor’s brand and ultimately, the company achieves competitive advantage over its competitors. Companies like Zara, Starbucks, Disney not only sells product but also offers the exotic experience to customers. Interesting fact is that, these companies include the intangible experience factors while pricing the overall product package. As a result, when the intangible benefits help these companies to create a loyal customer base then these companies automatically covers up the overall product costing (including tangible and intangible benefits) through repeat purchase of customers. In this way intangible benefits help companies to increase its bottom line. Customers According to Tarnovskaya, Ghauri & Elg (2006), IKEA believes in volume of sales rather than selling small amount of merchandise in high value. The company emphasizes on cost leadership strategy in order to earn profit and position itself distinctively in comparison to competitors. For example, in China the company has used the concept of low cost resource sourcing from domestic suppliers and manufactures them in bulk amount through lean manufacturing process. Conjoint impact of lean manufacturing and economies of scale have significantly reduced the manufacturing cost for IKEA up to a great magnitude and ultimately give them the opportunity to make profit despite selling products at low price. In Europe, IKEA uses its long standing relationship with suppliers in order to decrease the overall value chain cost so that they can be able to make profit from low price offering (Ying, 2005). The company is strategically using its contacts and resources in order to decrease its cost of operation which is basically supporting the economies of scale concept. IKEA is optimally supplying its product to market in order to decrease its chance to stack merchandises in its inventory beyond its capacity and the process also helps them to decrease inventory cost (Ying, 2005). Hence it can be inferred that low cost strategy of IKEA is not odd from the theoretical model of supply-demand economics. Performance Measures According to Edvardsson, Enquist & Hay (2006), companies using values-based service need to create performance indicators or performance measures in order to ensure that they can deliver value in holistic and sustainable manner. In such context, performance measures for IKEA can be depicted in the following manner. Process Measure Performance Management Criteria Environmental Manufactures need to decrease the use of toxic material, non-degradable, paper and emission of green house gases by 50% within next three years. Suppliers will be asked to source environment friendly materials and specialized training will be provided to workers in manufacturing facility in order to increase their awareness regarding benefits of eco-friendly production. Social The company should increase its investment in corporate social responsibility activities. Employees will be encouraged to work in rural areas in CSR projects and employees will be sent to NGO’s for once in a year in order to work for unprivileged section of the society. Economic Lean manufacturing and total quality management (TQM) should be used to decrease cost and errors in the manufacturing process. Specialized project management team will be hired for reengineering the manufacturing process in order to decrease cost of manufacturing and offer low cost products to customers. Cultural Local managers will hired for its international manufacturing units who have detailed knowledge of the local culture. These managers will lead the market research team for conducting market research on local customer’s preference, needs and wants. Local talents would be given specialized training in order to help these new recruits to understand the core values of IKEA. Reference Edvardsson, B., Enquist, B., & Hay, M. (2006). Values-based service brands: Narratives from IKEA. Managing Service Quality, 16(3), 230-246. Euromonitor International. (2009). Furniture and furnishings stores - Indonesia, euromonitor international. Retrieved from http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList.aspx. Ikano Group. (2008). The ikano group: Where we come from. Retrieved from http://www.ikanogroup.com/the-group.html. IKEA PS. (2012). Ikea ps collection?2012. Retrieved from http://www.2013catalog.com/files/IKEA_PS_2012_Collection.pdf. Nickerson, J. A., & Zenger, T. R. (2005). Being efficiently fickle: A dynamic theory of organizational choice. Organization Science, 13(5), 547–566. Tarnovskaya, V., Ghauri, P., & Elg, U. (2006). Market driving supplier strategy: IKEA’s global sourcing network in two developing market. Retrieved from http://www.snee.org/filer/papers/482.pdf. Von Krogh, G., & Cusumano, M. A. (2001). Three strategies for managing fast growth. MIT Sloan Management Review, 42(2), 53–62. Ying, P. (2005). Marketing across cultures: A case study of IKEA Shanghai. Lund University: Centre for East and South-East Asian Studies. Read More