Operational Management at Ikea Company - Literature review Example

Developing business processes and operations Place Executive summary If order to categorize company’s distribution or manufacturing operations, there is a need to understand whether these operations would increase customers’ demands or limit budget of the organization, would need for efficient production or would be timely fulfilled. While there is a clear vision the associates fairly compensated for their level of efforts or customers’ goals are met, an organization will be able to improve its manufacturing or distributing operations. In this context, there is a need to pay attention to such keys of operations performance as operations improvement, productivity tracking, standards and performance incentive programs. In addition, operations management provides an organization with the criteria for imposing by the market where company operates, according to Slack, Alistair and Robert (2013). Bamford and Forrester (2010) define the aim of operations management to cover the process of decision making and enable organization to develop its strategies. It strives to allow the company to satisfy the needs of stakeholders, foster the long-term success and understand how, where and what for the operations should be located, its resources and relationships are established. Introduction To be effective in terms of product or service design, developing or manufacturing, delivering and satisfying customers’ needs, an organization or company needs to efficiently manage its operations that would enable it to achieve more benefit from the services and products its produces. Moreover, high quality of these products and services and cost-available position should also be taken into account. For that purpose operational management is an important line management as it helps organization to display its best performance through coordinating and controlling of the resources needed for design, production and operation of business that at the same time give a company to obtain the highest level of efficiency and value add (Waters & Waters, 2002). Operational management of Swedish company that designs and sells ready-to-assemble furniture, appliances, small vehicles and home accessories is the best example of how its effective management led to the success. One of the world’s largest furniture retailers, the turnover of the company is close to four billion dollars. The company’s major idea is to provide the high-quality furniture and accessories at a low price to enable each individual to purchase them. Ikea is also known for its sophisticated design, logistics and distribution concepts (Larcon, 1998). Current situation The Ikea Company presents its operations in theirty-eight countries worldwide with the portfolio of products of twelve thousand pieces. Its global scale of operations and wide range of products are supported by the network of suppliers connected by the wholesale and transport operations. The philosophy of Ikea store operations dates back to the times when the founder operated through the catalogue and to satisfy customers’ needs, created the showrooms of the furniture where each customer could purchase the item. The company has also launched the anti-service approach, which asked customers to pick the furniture by themselves from the warehouse without the need of the company to transport the chosen item from the showroom to the warehouse. Such approach is the foundation of Ikea’s stores in the modern time as well (Operations management, 2000). In addition, company’s operations strategy focuses on the continuous reduction of costs, since it is aligned with the ambition to create better life for people (Caglar, Kesteloo & Kleiner, 2012). The main operational processes of Ikea Company are managed at the head quarters in Sweden, however, some operational issues are reported outside the main office. They are concentrated on customers’ frustrations as a result of overcrowding in Ikea’s retails stores. Besides, there are numeral complaints as to the availability of certain product and the time customers need to wait until the product will be obtained (Novicevic et et al, 2012). In addition to the problems with customers, Ikea faces such challenge as mass production. While it responds the needs of mass production in terms of standardization of product and the sequence of process, along with the high production capacities and output rates, wide variety of products and shorter life cycle, there is a risk of breakdown of the machine that produce goods. In that case the company risks stopping the entire process and then needs to search new ways to change the production of items (Kumar & Suresh, 2008). Besides, the mass production of goods creates such disadvantage for Ikea as inventory control investment. In fact, the problem with the inventory storage is a great problem for the company. Warehouses costs are high and the short life cycle of the products require their utilization, hence, there is a great waste of storage places. The environmental challenge is another problem for the company, since the company is the largest enterprise in the world that uses wood for its production (Gorman, 2013). It is estimated that 23% of all wood is used by the company. However, according to the sustainability report of Ikea, the wood comes from the forests that meet the high standards of the Forest Stewardship Council (IKEA Group Sustainability Summary FY12). Possible solutions Ikea has a lean culture where its people are respected and rewarded; it also enables the company to reach those goals which made Ikea the leading manufacturer of furniture in the world. While Samson and Singh (2008) define lean operation as a flow of product and services to be delivered in accordance to what the customers need, Ikea is the best example that shows how its lean culture works for the company’s success. Lean operations use a little time, inventory and supplies and work in order to develop the dependable product. Lean manufacturing comprises of processes, techniques, strategies and initiatives that if successfully implemented, bring companies reduction of the unnecessary and unproductive tasks and behaviors in the working environment (Melton, 2005). In the context of Ikea, the company asserts its lean operations regarding its success. That is, Ikea optimizes the business operations of its delivery of the flat-packed furniture to the customers. The concept of lean operations is also applied toward the process of product development and standardization production. Costs are cut by the process of decomposition and assembly. Besides, the company also uses the principle of design of manufacturability and design for logistics that takes into account product assembly, transport and packaging. Hicken (2012) reported about the company’s release of assembly videos that are aimed to ease customers’ frustration on assembling the products from the company. This is the solution to customers’ need through use of technology to take customer service beyond the store operations and into the people’s lives. The problem of mass production has become more complicated as customers are more demanding in the present, buyers tend to choose their own colors and textiles in products and designers spend a great deal of time thinking about the modernization of smaller spaces for furniture (Shanley, 2013). This creates greater risks for Ikea with its mass production of goods. Hence, to solve such problem Ikea should look beyond the furniture industry, for example to produce a new table and a bucker maker to punch out a chair. Besides, the risks of mass production can be evaluated if the company wants to have fewer costs in terms of storing of its products. Meredith and Shafer (2010) consider that inventory storage is the important factor of the copany’s ability to sustain its competitive advantage. To enhance the lower costs for inventory different types of collaboration should be used by the organization (Kristianto, 2011). According to Holweg (2005), companies reduce costs or increase the return to sales using the inventory. In addition holding inventory makes early sales. Ikea has a distinct product design in order to satisfy customers’ desire to lower prices (IKEAs Inventory Management Strategy: Why It Works, n.d.). If to consider warehouse and inventory process of Ikea stores, they should be designed to facilitate the purchase of goods and the process of delivery from the warehouse to store without any additional costs for delivery. Another issue of Ikea that needs to be solved is the environment impact that the company makes. According to Salisbury (2011), to meet the environmental issues, the company has already moved toward the powering all of its stores with the renewable energy and cut its power consumption. In its sustainability report, the company strives to be more sustainable by reducing the amount of energy and water used for its products. Proposal of change Heizer and Render (1999) consider that operations management aims to create activities for developing goods and services by transformation of inputs into outputs. In the modern context, product design, marketing and human resource management are essential in operation management since they challenge organization in its global focus, growing service sector, global competitiveness and rapid product development. In terms of global market, companies such as Ikea should understand that well-structured global supply chain is critical be achievement oriented. Along with it, technological advancements should be also utilized to be closer to the modern customers and companies’ stakeholders. Some changes in the operations management should be presented by the digital technologies. The importance of information technology and new digital solutions cannot be underestimated by the modern business, especially by such global retailer as Ikea. The technological development gives Ikea those new processes that are necessary for the company to be more customer-centric. Since customers and the bottom line may benefit from upgraded daily operations management, Ikea should think about implementing new change strategies toward following-up the process of planning, designing, producing and delivering of products it makes. In the context of managing warehouse activities, the company can think over centralization of its operations beside the activities of the head quarters. The optimized management of business and network operations will enable Ikea to control its costs, appear faster in the new market, assure quality of products and be more effective in control of better treatment of its customers. In terms of following more environment-friendly activities, Ikea should offer its customer products that would help them to save money using less natural resources. Despite the communicated “People and Planet Positive” initiative, the company should also educate stakeholders about the sustainable practices. New situation in the company According to Wall Street Journal (2012), in its goal to be more productive, Ikea spent more than two-thirds of its marketing budget on building and furnishing the living quarters. However, to curb its costs, the company used mothballed approach in the real-world production instead turning to 3-D graphics to fill its pages. Its catalogues and brochures are rendered virtually. It is Ikea’s plan to have its prices down. Scientific and engineering advances may be useful in implementing of new changes in the way businesses operate. These are the creation of commercial opportunities and new business developments with attention to the operations management of the organization. Thus, CNN article reported about Ikea to launch the new range of high-tech furniture that will wireless charge the smartphones and tablets. The company wants to be closer to the up-to-date consumers allowing them to purchase the furniture with purpose. Wireless charging has been embraced by a few key players (Goldman & Petroff, n.d.). Ikea has also developed a new approach in managing warehouse distribution. Thus, it incorporated a design foundation of a model which is used by other similar distribution centers around the world. The new distribution center employs a global warehouse design and best practices in order to serve a growing regional market by paying attention on location, recognition of Ikea brand and automation, which enable customers use the services of Ikea and its facilities. The new center has reduces the turnaround on orders to the stores, reducing the customers overcrowding and decreased the distance from the distribution center to the stores and from the port to the center. In terms of mass production, Ikea has changes the mass produced products into more handcrafted items with a personal touch. Such approach of production raised the psychological self evaluation of customers who felt important when they were consulted in Ikea. Related to such approach was the ability of co-producing consumers to feel self-fulfillment because they were able to show they could complete specific tasks. The production allows consumers to enhance benefits from purchasing different items and be more involved in the creation of product (Etgar, 2009). After analyzing the corporate social responsibility practices, Ikea has implemented new initiatives toward its stakeholders. Thus, Ikea has developed an , Sustainability Product Scorecard to measure sustainability and classify the products in groups of more sustainable and less sustainable. They are directly related to the product itself and to suppliers (Komassi & Pal, 2013). Justification of change  In order to estimate the strengths and weaknesses of transactions and activities for the company, Sen (2000) proposes to use the cost benefit analysis. It will enable organization to view the benefits considering implementing a new strategy or technology. The analysis is suitable for the smaller organizations, where there is higher risk of error in investment that can result operating capital loss. However, the rationale of cost-benefit analysis is in the things that are worth doing in order to bring outweigh costs. While Sen (2000) speaks about the cost-benefit analysis to be standardly practices, the framework of costs and benefits has a very extensive reach and goes beyond the variables in the usual techniques of cost-benefit analysis. Generic cost–benefit analysis consists of the list of stakeholders of the company; it selects and measure all cost elements and converts them into the common currency. In case of Ikea, the cost reduction starts with the complete knowledge and mapping of all costs, cycle times and purchases as well as inventories, suppliers, customers and logistics of the company (Effective operations and performance management, 2012). The cost reduction includes the product conception and then the entire process of design, sourcing of materials and components as well as production and distribution are managed through the cost reduction. The cost reduction needs to be executed in time and to enable the organization to improve its decision making for common processes under the each of such drivers as procurement, design of the supply chain and inventory, transportation and collaboration. In case of Ikea, the company along with its franchise uses the idea of showing its expensive cabinet that contains certain products and along with the cheap prices, offers other products that consumers were not going to purchase. Hence, making the explicit the idea that one can buy more, it gives Ikea a considerable advantage and real incentive to the increase of its ROI. In fact, such approach helps to improve Ikea’s ROI. Besides, the company uses the discount service by which the customer can use more of opportunities of the retailer and purchase more. The company has an advantage due to its simplicity of operations. Starting with the designed Bang mug for 50 cents in cost, it was later redesigned and due to lowered logistical costs by more than half enabled the company to reduce its prices despite inflation. In the present the basic mug costs 39 cents. The cost reduction concerns also the setting of simple targets and assigning of clear owners. At Ikea each designer gets the price target, which is usually below the competition, and figures out the design that should be met the specification and Ikea’s profit targets (Allen, 2012). Implementation plan In manufacturing facilities such as Ikea, production schedules state about the activities that should take place. These schedules enable organization to increase productivity and minimize operating costs. Herrmann (2010) argues that organizations are able to define resource conflicts, manage the jobs release, ensure the raw materials to be ordered in time and idenfity if the delivery promises are met along with the identification of time periods for preventive maintenance. To improve production scheduling, companies have adopted many decision support tools and Gantt charts is one of such tolls that enable scheduling decision-making to be improved. In case of Ikea, there are some of the measures that the company can implement in order to address its operational performance. These may be the Source: Business process diagrams (n.d.). establishment of checkouts for customers, enlargement of the number of employees for assistance at certain items. In order to help a smooth flow of customers, the company can implement the system and operations management principles for several processes including the store arrangement and layout, design of products and flat packing, job design and the overvall store effectiveness. In addition, Ikea can expand its retail stores in those places where there will be an opportunity to develop an effective supply chain. While guaranteeing on-shelf availability, the company will use its inventory management systems and monitor and measure the quality of its products (Novicevic et et al, 2012). Conclusion and recommendation The success of organization operations is called by the result of the effective analysis that each enterprise and company is able to conduct and then the ability to implement new strategy and vision into the reality. Ikea is very strict organization in terms of its own operations management with the pricing, quality of goods, procurement policies and establishment of long-lasting relationship with its stakeholders, where customers are among the most vital. While the company is aware about the market, it also known the need of the area and trends that need to be changed and customers whose demands should be met as well. Such vision of the stakeholders makes the company to believe in its low costs and set higher standards and value products. However, as the business environment is rapid changeable, Ikea should also keep abreast on the new trends of production and delivering its products as well as hear and meet the ever changeable demands of the consumers. For that purpose, the main factor of the success would be to implement new policies and strategies, such as e-commerce system, that would enable the company to capture more customers. Besides, less production of items would enable the company to reduce risks connected with the overproduction of its goods and would enable the company to spend less on the storage of its products. As stated in the report, effective operations management will enable the company to coordinate and manage its resources needed for design, production and delivery of Ikea’s products. References Allen, J. 2012. Three Things Your Company Can Learn from a Bottle of Water, Harvard business review, [online] Available at: https://hbr.org/2012/08/three-things-your-company-can-learn [Accessed: 6 March, 2015]. Bamford, D R and Forrester, P L 2010. Essential guide to Operations Management: concepts and case notes. John Wiley Business process diagrams, n.d. [online] Available at: http://www.conceptdraw.com/samples/business-process-diagrams[Accessed: 6 March, 2015]. Caglar, D., Kesteloo, M. and Kleiner, A., 2012. 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