The Operations and Process Management Systems of IKEA - Research Paper Example

Introduction IKEA, Ingvar Kamprad Elmtaryd Agunnaryd is the company selected for this study. The Company is started in the year 1943 at Sweden by Ingvar. IKEA is considered to be the world’s largest manufacturer of furniture. IKEA is a retail outlet which sells flat pack furniture, bathroom accessories, kitchen accessories and bedroom set etc. all over the world. IKEA has 278 retail outlets in 36 countries; most of these stores are in Europe, United States, Canada, Asia and Australia. The motto of IKEA is that, it wants to create a better life for people around the globe with their products and to sell their furniture and other products at affordable prices. IKEA wants to serve the society and the environment along with the objective of making reasonable profit. The objective of this study is to evaluate operations management of the company. Controlling steps and other monitoring and evaluating the company performance are analysed. Company background: IKEA is one of the leading furniture manufactures and retailers in the world. IKEA is a Swedish firm and started in the year 1943.They operate in more than 32 countries. They have around 9500 products in their entire product ranges. All of the IKEA retail outlets carry all their ranges, but mostly it depends on the size of the retail outlet that how many ranges it can carry. But all the retail outlets do carry the core range of the company. The products of IKEA are known for their modern and utilitarian designs. The products of IKEA are designed in such a way that they can even be assembled by the customer him or herself, rather than them buying the pre-assembled version of the product. (IKEA, n.d) For example, the garden furniture of IKEA have the names of the Swedish Islands, the children items would have the name of mammals, birds, adjectives, bathroom articles would have the name of the Scandinavian lakes, rivers and bays, whereas the beds, wardrobes and hall furniture would have Norwegian place-names and chairs and desks have men’s names and materials and curtains have women’s names and dining tables and chairs have Finnish place-names etc. IKEA operates in the furniture industry; this industry is very highly diverse. For example, the furniture industry made somewhere around $23 billion in 2001, from only wholesale shipment and the industry made $64 billion from retail sales that year as well. There is a great deal of countries like México, Italy, China, Canada, Brazil and Philippines that import their furniture, rather than making it. The household furniture it the most used furniture around the globe and it sells a great deal too. The household industry is made up of 2 major elements and they are as follows: Case Goods: case goods can be defined as furniture that is made from wood; these goods are basically packed and shipped in cases. This is where the product got its name from. Case goods would include beds, sofa sets, kitchens, cabinets, chairs etc. There are a lot of variety and designs within each category of the furniture. Upholstered Furniture: upholstered furniture can be defined as furniture that has leather or any other fabric covering. This kind of furniture has springs, webbing or padding etc. Upholstered furniture is mostly based on frames. 1. Customer requirements: Internal customer: Internal customer is a technical terminology which is used in the study of management. Every function in the organisation is done with the help of internal customer. Order processing, engineering or production can be undertaken by internal customer who receives an order and in exchange provides product or service. Thus each person employed in the process is considered as the customer of the preceding process. In other words internal customers are those people of an organization who acquire the goods and services for further processing. For example the packing department of IKEA is the internal customer of the manufacturing department that is when the manufacturing of a product, let’s say flat pack designed furniture, is done then it is sent to the packaging department; where the flat pack furniture is packed, labeled and then sent to the company’s warehouse for further selling. IKEA also believes that, when caring about the internal customers of the company it would leave a positive effect on all the company’s decision making and processing systems. For example, hiring, manufacturing, training and development systems, performance review practices, motivation practices and reward systems etc. A successful company has to make sure that its employees are happy with their jobs. The best way for employees to perform well on their jobs would be through motivation and motivation can be defined as a reason to do something, over here the case would be to provide en employee to perform better on his or her job. In IKEA’s work environment there are three characteristics that affect the motivation of the employees. They are as follows 1) harmony, 2) attitude and 3) expectancy. (Fullmer, 1983) External customer: External customers of the company are those people who use the product or service of a company for consumption. They are the people who influence the sale of product or service. External customer involves current customer, prospective customer and lost customer. A customer can be defined as a person who brings a company his or her wants. It is the company’s job to handle those wants profitably for the customer and for themselves. When a company realizes that a loyal customer may account for a substantial amount of revenue over the years, it also realizes how foolish it is to risk losing the customer by ignoring a grievance or quarreling over a small amount. IKEA firmly believes in customer satisfaction, if the customers of the company are happy they will return and bring with them more customers, which means that their sales and profits will increase. Therefore customer service is considered to be one of the most important operations of IKEA. As they know that the customers are the ones who provide information regarding their products and service operations and the customers are the ones who also provide information regarding any improvement for their products. One of the company’s external customers is the end user, who buys the product for final consumption. The expectations of the customer are influenced by their past buying experience, friends’ and associate’s advice, marketers’ and competitors’ information and promises. The requirement of these customers is that they want their product to be of a good quality, easy to afford, durable or long lasting, branded and user friendly etc. For customer centered companies like IKEA, customer satisfaction is both a goal and a marketing tool. Companies that achieve high level of customer satisfaction make sure that their target markets know that. IKEA can keep a track of customer satisfaction through the following tools:- Complaint and Suggestion System: a customer centered company like IKEA, makes it easy for its customers to deliver suggestions and complaints. Some companies provide hotlines for their customers so that they can make a suggestion or register a complaint. These information flows provides a company with many good ideas and it also enables them to act more quickly to resolve all the complaints and problems. Customer Satisfaction Survey: studies show that customers are dissatisfied with one out of every four purchases, therefore less than 5% customers will make a complain. Most of the customers will decrease their buying or they would shift to another company, therefore the companies cannot use complaint systems as a measure of customer satisfaction and retention. Responsive companies like IKEA use a direct method to obtain information, they conduct customer satisfaction surveys. While collecting customer satisfaction data, it is also useful to ask additional questions to measure the customer’s repurchase intention; this will normally be high if the customer’s satisfaction is also high. Ghost Shopping: companies can hire people to pose as potential buyers of the company so that they can report back their findings on strong and weak points they experienced while buying the company’s and the competitor’s products. These ghost shoppers can also pose some problems to test whether the company’s sales personnel can handle the situation well. Not only should companies hire ghost shoppers but the executives of the company should also leave their office from time to time so that they can also experience the first hand treatment as customers in their own company’s outlets or competitor’s outlets and see what kind of treatment they get. Lost Customer Analysis: companies should get in contact with customers who have stopped buying their products or have switched or another company, to learn that why did this happen. When IKEA losses a customer it goes through a great deal to learn that why did their customers stopped from buying or why they have switched to their competitors. It is important for a company to conduct exit interviews, when the customers stopped from buying. The company should also monitor the customer loss rate, which means that if it is increasing it clearly states that the company is failing to satisfy its customers. (Kotler, 1997) 2. Managing the design process and system: Operations management involves a series of activities. Operations management is very important in manufacturing firms. Operations strategy plays a crucial role in organisational activity. Design in operations management, design of products, design in operations network, layout and flow and process technology are the factors which are required to consider operation management. “The operations function of the organisation is the arrangement of resources which is devoted to the production of its goods and services.” (Pycraft, p.6). The operation management of IKEA involves designing, operation, innovation, improvement, planning and control. The main service objective of the operations management is to provide quality goods on time and should ensure flexibility in usage and with reduced cost. In addition, customer’s problem must be solved and should provide required information and other sales support. In order to attain competitive advantage, the organisation is required to have product specification, positioning in market and operations. Operations are the way the products and services reach to the customers. IKEA is required to store goods for selling purposes, required to pay for staffs whether sales are high or low, needs to develops new design for their goods, requires assembling goods in an attractive way. In order to attain long term success, it is always necessary to identify the changing customer’s needs, raising funds for development, developing product quality and finally distribute goods in an effective way which should ensure further sales. Operations management is mainly concerned with producing and delivering of goods or services. All operations management involves the transformation process which involves input process and out put process. Input process involves inputs of four M’s, such as materials, money, man and machinery. Out put process involves providing services and marketing of goods. Out put can be tangible or intangible. Tangible goods are the goods which can be stored and transported. Intangible goods are quality of the product, customer satisfaction etc. Operations management activities of the IKEA can be improved by adopting a series of activities such as Designing of store layout for smooth and effective flow of goods Encouraging staffs in their jobs for contribution in business Continuously examines and improving operations practice Monitoring and enhancing quality of service towards customers Arranging of fast distribution of the products Maintenance of cleanliness and safety in the storage place Site selection in the mist appropriate locations in appropriate size Designing of the elegant products which can be flat- packed efficiently. Ensuring Quality of service and production Effective manufacturing strategy Operations management in the IKEA can be improved by adopting effective implementation of quality measures such as JIT TQC, TQM and effective supply chain management, Just in Time (JIT): JIT is a management philosophy aimed at elimination of all waste in the production process. It is technique of improving return on investment by reducing unnecessary wastages. It also aimed at producing goods in required quantities at the required time. Thus JIT helps to improve the efficiency and decreasing of wastes Total Quality Control (TQC): It aims at defect free manufacturing system, quality development and improvement of overall function of the management. It involves all people in the organisation and involving managing their efforts towards improving performance. Total Quality Management (TQM): It is a management strategy and is aimed at quality in all organisational process. Management is viewed that the responsibility for achieving quality rests on everyone in the organisation irrespective of their functions. It aims at continuous improvement in the performance. TQM provides principles as well as tools and techniques for improvement. It is a combination of managerial efforts and statistical tools aimed at designing and delivering of quality goods and services to the customers. Supply Chain Management: Basic objective of the supply chain management is to ensure supply of goods in the right time at right quantity. It also involves activities such as supply chain design, distribution channel defining, production scheduling so on. Supply chain management enables to make quick response towards changes in internal or external environment and thus optimising the flow of goods in the required areas and distribution. SCM is the integrated process of planning, implementing and controlling operations for organisational efficiency by satisfying customer’s requirements. Reengineering: It is the process of reinvention and improvement. A process selected for reengineering should be a core process, such as a company’s order-fulfillment activities. Reengineering mostly requires that how a company focuses on the process by using cross functional teams, information technology, leadership and process analysis. Bench marking: It is adopted generally for evaluating and comparing performances and is a continuous, systematic procedure which measures the product, services and process against the industry leaders. It involves series of process for improvement in terms of cost, quality and time saving which involves steps such as planning, analysis, integration and action. Timeline and Gantt chart: It is expected that it will take at least a year to get the whole of the suggestions and recommendations to be implemented in the company. This is represented in the form a GANTT chart for reference. It should be noted that many of the suggestions like total quality management, just-in-time, and total quality control are continuous processes once implemented. GANTT CHART FOR IKEA   Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec                           Store layout improvement                         Staff participation/contribution                         Efficient distribution                         Cleanliness/Safety                         Training for just-in-time                         Implementation of just-in-time                         Training for total quality control                         Implementation Total quality control                         Reengineering                         Designing benchmarking system                         Benchmarking                         Supply chain management                         3. Controlling the implementation of two projects in IKEA: IKEA is a large multinational manufacturer and seller and has many operations and projects going on at the same time. It is proposed that two of them be selected for improvements in operations and process management. The two projects are manufacturing and franchising. It is to be mentioned here that the company has an option to franchise its marketing activities. Manufacturing: IKEA has nearly 9,500 products under its brand and managing an operation of this scale is a complex job. But one advantage that the company has is that its raw material consists mainly of wood, particle boards, plastic and other materials used in manufacture of furniture. It also has metal inputs like screws, nails, and linings. The steps that the company can take in improving its manufacturing process will be mentioned here. It should be noted that some of the recommendations given in the previous section have already been in place. They include the following. The company has a well designed store layout whereby customers are left alone to decide for themselves the products and the design they need. Sales staff will be at hand only if they require any assistance. Quality of service by the sales personnel is also very high. The quality of products is very high and its packing method is also very efficient. In other words, the products are shipped in flat packs which take up minimum of space. This is because all the products are shipped in knocked down kits which have to be assembled at the customer’s premises. Improvements can be done in the following areas. All departments should be actively engaged in the concept of customer satisfaction. This can be represented by the following diagram All staff should be encouraged to actively participate in generation of ideas as well to focus on customer satisfaction. IKEA’s success is its innovative design coupled with quality and low price. Another area is improvement in supply of raw materials. Since a lot of raw materials are required, the cost involved in storage will be very high. The company should implement the Just-in-time process whereby raw materials will not be stored at the company premises longer than necessary. The Japanese philosophy of Kanban is the basic concept behind just-in-time. Kanban means “A system of continuous supply of components, parts and supplies, such that workers have what they need, where they need it, when they need it.” (Hudgik). Products and raw materials required by each internal customer in the manufacturing department will be made available only when they need it. For example, wood which is the most basic raw material will be supplied to the factory only when there is a requirement for it. This will depend on the requirement of the retail outlets. A close association with outside raw material suppliers is needed because their cooperation is essential for the success of a just-in-time plan. Another area where improvements can be made is the fast distribution of its finished products. Transportation costs can be saved and also the time spent in transit. Size of retail outlets is also important. Some markets need large floor space while others can be managed with a smaller area. Each market should be studied and the appropriate store space calculated keeping in mind area for future expansions. Total quality management concepts like Six Sigma can also be implemented. By implementing Six Sigma, errors and manufacturing defects can be drastically reduced. This will also result in reduction of costs for the company. The Toyota philosophy of getting it right the first time even at the cost of a little additional time can be implemented here. Even if production takes a little longer, product defects will be minimized leading to customer satisfaction and also lower levels of damaged goods. The cost incurred in additional time taken can be more than offset by the improvement in quality and lowering defect levels. The operations process and management systems should be continuously monitored and fine tuned until a perfect balance is achieved. It can be seen that the management system presently in place is quite efficient. But much improvement can be made by the implementation of the recommendations given above. Franchising system: IKEA franchises its store concept to aspiring and existing individuals and companies and is managed by a subsidiary called IKEA Systems B.V. According to the company the basic aim behind franchising is to expand the IKEA concept to as many people and markets as possible. The IKEA concept is to provide high quality, low priced furniture so that most people who need it will be able to own one. The problem with the current franchising concept is that it is extremely expensive to start one. While most people can afford to buy furniture, very few can afford to start an IKEA franchise. Most of the franchisees are required to have floor space in excess of 25,000 square feet. This will be very expensive and may not be suited in some markets. For example, in a developing country like India or China (where the company does not have a presence), may not need such a large floor space to attract customers. Another aspect that can be implemented is the expansion of the company either directly or through franchising to the above mentioned markets. The final step with regard to franchising is the development and introduction of a well planned and comprehensive service delivery system (SDS). The SDS is the back bone of any franchising concept. It will provide all the necessary information to start and manage a store and be successful in the business. It will also provide uniformity in design, processes and marketing across all franchisees. The one thing that should be included is that certain areas like design are market specific and should be tailored to meet the tastes of individual markets. 4. Monitoring and evaluation: It is proposed to monitor and evaluate certain areas within the organization like customer service, resource utilization, costs and benefits to the organization. It is also proposed to monitor and evaluate the implementation of the above mentioned recommendations and suggestion. Customer service: Customer service at IKEA is taken very seriously and the company has several strategies in order to achieve maximum customer satisfaction. The company has trained staff which will provide free advice on managing and furnishing the homes, kitchens and offices of potential customers. IKEA has a well designed and informative website that customers can browse and obtain relevant information. It has pages to give information on store location, availability of stock, free catalogues, assembling knocked down products etc. The most striking feature of the customer satisfaction strategy is the idea of leaving the customers alone once they have entered a store. Customers are given the space and the time to create a design on their own or select from pre-arranged furnished spaces. There is no hassle or hurry caused by a hovering salesman that is usually present in retail stores in any business. Resource utilization, costs and benefits: IKEA has a well established system to mange the large amount of resources that it needs for its businesses. . An example would be designing of distribution network. For example, the company uses simulation models for setting up its supply chain and distribution. “The modeling technique, developed by Ikea and Establish, Inc., a Fort Lee, NJ-based supply chain consulting firm, not only produced facilities that delivered products to customers in the most efficient way but also became an operational tool that could be used years afterward.” (Behn). The company also ensures that there are always adequate raw materials as well as finished stock so that customers will get whatever products they need. It could be better with the implementation of the recommendations like just-in-time and Six Sigma. Earlier the company would ship all the goods needed to a particular area and sort them manually before shipping them to its mail order and ecommerce customers. The company has a system called Vendor Managed Inventory (VMI, similar to just-in-time) where the supplier has access to customer orders and can plan supply of raw materials and other inputs as required. “The company’s feeling is that by implementing VMI they have been able to increase the service level and decrease supply chain’s inventory level.” (Henningsson and Linden, p.4). Designing, planning and implementation: The recommendations given are more departmental interaction, introduction of Kanban or just-in-time inventory, introduction of Six Sigma, quicker distribution of finished products, smaller store sizes, introduction of a perfect service delivery system in case of franchise and expansion into new markets like China and India. The company had formed committees in each of the cases so that the recommendations can be studied to see whether they are fit for implementation. It was recommended that the following suggestions namely, more departmental interaction, introduction of Six Sigma, a comprehensive service delivery system and expansion into new markets be implemented. The just-in-time inventory system was rejected because the IKEA has its own version namely the Vendor Managed Inventory System. Regular meeting among departmental mangers now take place at least once a month. So the process now reflects what has been shown in the figure given earlier. New ideas and designs are also welcomed from all employees regardless of the department they work in and are reviewed by an expert committee. If found innovative or useful, they are incorporated into the product design and manufacture. This has resulted in a huge increase in the design and innovation of products. An independent firm that specializes in Six Sigma implementation has been retained and the process is being incorporated. It is estimated that the process will be completed within six months. A new and comprehensive service delivery system has been developed and the necessary training to franchisees has started. The concept of smaller store size is still being studied since it would be difficult to display all the products of the company in a smaller store. Options of displaying selected products are a solution and are being studied by the company. The company has sent a team to markets in India and China to have a feasibility study there. Their report will be ready within a period of two months after which a decision will be taken. Conclusion: IKEA is an efficiently managed company that produced high quality, innovative and low priced furniture for offices and homes. A study was done on the operations and process management systems followed and it was found that the company does have efficient systems in place. Only a few recommendations were made and the company has implemented all of them except the one for introducing a just-in-time inventory system. Once the suggestions are implemented, the company will be more efficient and profitable in the future. Works Cited Behn, Jeff. Super Model. Multi Channel Merchant. 2001. 04 Feb. 2009. . Henningsson, Erica., and Linden, Therese. Vendor Managed Inventory: Abstract. Department of Business Administration and Social Sciences. 2005. 04 Feb. 2009. . Hudgik, Steve. What is Kanban. Graphic Products. 2009. 04 Feb. 2009. . Pycraft, Mike. Operations Management. 2002. 04 Feb. 2009. . Read More