Operations Management on IKEA - Report Example

Operations Management Report on IKEA Contents Executive Summary 3 Introduction 3 Overview of the Operation 4 Process Design 4 Analysis of the Operation 6 Quality Control in IKEA 7 OEE Calculation for IKEA 8 Recommendations 8 Use of the Literature 9 Conclusions 10 References 11 12 Executive Summary Different companies have lot of expenses to meet achieve customer satisfaction, but because of ineffective operational management many companies face challenges have faced loss and haven’t achieved the satisfaction. Operations management is a function in business that organises, coordinates and controls the usage of resources required to produce a good in efficient way and create value. IKEA focuses a lot on operational management. IKEA uses mass production which generates high amount of production by reducing per unit cost. IKEA concerns a lot on quality of their product and customer value. It uses various techniques like Lean system for making the process so efficient. IKEA does believes in having good and strong relations with supplier so that it gets the products in time and with its distribution channel through its retail stores across the world it has become as the world’s biggest furniture manufacturing making company. IKEA focuses a lot on its production planning system to have an efficient module for production process and quality of the product to give the customers good quality products at low cost with lots of varieties in offer for the customers. Introduction In every business there is basically two types of managers who manage everything first are line managers and second are the staff managers. Line managers are from various departments like Financial, Marketing and Operations (Bayrakta, 2007, Pp: 2-4). These department line managers’ report to the company head directly and they cover various functions like accounting, purchase, human resource and other aspects in a particular company. Financial department handles the cash-flow issues in the company; marketing department is concerned with the sales and meeting customers’ demands. According to Roy N R, operations management is the management of the process where the land, labour and capital inputs are converted into the desirable outputs. It also takes care of the design and operations of the manufacturing department taking the supply chain and other factors. This report is basically done to understand the efficiency and the amount of success that IKEA’s operational management has achieved and to find the factors that have affected the company’s process in long run. Overview of the Operation IKEA was formed in 1943, by Ingvar Kampard. Ingvar concentrated on making of furniture, in 1956, IKEA started the testing and designing furniture can be flat pack, to reduce cost by reducing the expense on transportation, reduce the space for storage, decreasing the risk for damage and also in reducing the high labour cost (Elmfors, 2010, Pp: 3-5). In 1958 IKEA’s first store was opened in Almhult, and was the largest furniture display in whole of Scandinavia, it followed this with a rapid growth and opened its chain across globally having 285 stores in 36 countries by 2008. It is now world’s biggest furniture manufacturing company with its chain been spread to all parts of the world. It has 2 stores in UAE. According to the annual report of IKEA it has 301 stores worldwide spreading its channel to a total of 41 countries with total revenue of $4billion in 2011; this shows the amount of growth that IKEA has shown over the years (IKEA 2011, Pp:2-4). Process Design As per Slack et al process design is related with the complete process and their details of working. The basic process design or the process flow diagram is been studied as The process design shows that the output of the particular process is the function of combination of all its inputs and it is been represented as O = f (I1, I2…… In) Where, O= is the output which is the function of all its inputs I1, I2…In= are the various inputs which are combined together to form the output like labour, land, Capital and many others that are used. In case of IKEA the output is the furniture which is given as Furniture=f (labour, land, wood, clothes, glue, nails, paint...) The process flow diagram used in IKEA in UAE is given in the below diagram The main aim is that most of the people must find it affordable to avail their designs, so IKEA always tries to decide the price and then followed with the customer needs. Ikea’s production plan is basically depending on two factors one being the strategy for product modification and second being the plan for producing typical products (Srinivas, H, 2012, pp: 25-28). The production planning depends on the customisation of the products from the customers because of which the production rate does go down; normally IKEA produces 10,000 varieties of products, it uses mass production system in its production policy. Mass production is used so that they can have a standard process and machines dedicated to their special purpose to have high production capacity and large volume of products are been produced in a shorter time interval, it also helps in having a less process in the inventory management of the stock, perfect flow of materials and components and reduce the material handling (IISD, 2012, Pp: 5-6). The main purpose of processes measuring is to understand the exact requirement for process development and continuous improvement. To measure the process it is important to know why this measurement is important and how much it helps in improvement (Kippenberger, 1997, pp: 10-15). The need for the particular process is established by getting feedback from the final customers, from the process itself its internal strategy and the main objectives of the organization. This feedback data is then converted into data, for certain factors the data is assumed approximately and after the process is measured properly the findings are obtained and the findings that does reduces the cost are basically the one that can improve the process (Hansen,2011, pp:56-60). IKEA has a philosophy which helps it to adapt to the changes easily and it came up with the e-commerce strategy in 2006, to reach the customers directly and get direct feedback from the final customers which has helped the company in huge way in improving its process and grow at a constant pace and achieve customer satisfaction at every step with all the needs of the customer been fulfilled. Analysis of the Operation IKEA is one of the companies that do give a lot of emphasis on the operations management to create a competitive advantage over all other competitors in the global market. This company gives functional and creatively designed products at a good price. For IKEA cost is the main community over which it has huge focus from the design to distribution. The company came up with a concept to reduce the prices the product parts are shipped in an unassembled manner in flat-pack boxes so that the price for transportation and storage cost and are easily assembled by customers. The flow can be shown in an equation form where the sum of large volume and flat packs leads to low cost Large volumes + flat packs = low cost IKEA achieves lean manufacturing by having its own global channel of distribution; it does control the price in the distribution channel and also reduces the waste. Having its own distribution channel it helps the company to deliver the products to both the stores in UAE in time so that the final customers do get every variety of products available in the stores every time they visit the stores. IKEA also looked to implement lean by asking its suppliers to reuse the waste items for supplying the materials to IKEA. It uses RFID, in its stores which has reduced the time taken to unload a truck by 44% and the turnover in the warehouse has increased by approximately 55%, which has helped the company to reduce the time needed to search a particular item in the warehouse. Quality Control in IKEA The quality staircase model used in IKEA to achieve the CEPQ (Customer Experienced Product Quality) is given below. Level 1 QMUST- Before delivering of the product to the final customer the suppliers must do a final inspection, test the status summary and also process control. Level 2 QWAY- Suppliers of IKEA, from first date of delivery should implement and have the minimum requirements like the Process for start-up, final Inspection and sample and document control. LEVEL 3 – 4SIP – IKEA has a complete process of supplier inspection programme to have a good inspection over its suppliers and maintains a standard for all the suppliers. LEVEL 4-ISO + 4 SIP- IKEA has a huge test lab in Almhult where different types of tests for quality check are done based on ISO standards for both textile and furniture’s. It has around 50,000 tests in total for quality check based on the standards set ISO. OEE Calculation for IKEA Overall equipment effectiveness (OEE) method is used to judge the effectiveness of all the equipment used in operations. It is calculated based on three different aspects which are seen below The particular equipment is available for how much time. Quality of the products and services been produced. The throughput rate which is the speed at which the equipment operates. Thus the OEE is been calculated by the following formula OEE = Availability rate x Performance Rate x Quality rate Where, Utilisation = total operating Time /Loading time Efficiency = net operating time total /operating time. Yield = Valuable operating time /net operating time. In case of IKEA’s OEE calculation we consider the data gathered from the company on daily basis with time being expressed in hours. Utilisation = 22hrs / 23hrs = 0.95 Efficiency = 20hrs / 21hrs = 0.95 Yield = 395 / 400 = 0.98 Thus, OEE = 0.95 * 0.95 * 0.98 = 0.75 = 75% Thus it is seen from the above calculation that IKEA has 75% of overall equipment efficiency (Sabel and Zeitlin, 2002, pp: 40-46). Recommendations Looking at the operational process in IKEA it can be seen that they have a good and well maintained operational process but the concept of providing products at low price than expected does affects the company as it revenue goes down in huge numbers. In a market n UAE where consumers have a belief of expensive goods having high quality, as a result of which IKEA is not able to cover the premium customers. To overcome from this IKEA should consider in conducting a QFD (Quality Functional Deployment) to know the exact retirement of the customers and this analysis will help in knowing what amount of price customers are looking to pay for a particular product. IKEA should look to implement the Push strategy for its products instead of looking to have low stock and reducing the stock storage cost as this can lead to unavailability of a particular product in a store when the customers requires it. It should also look for Kaizen for a continuous improvement in the process. Use of the Literature According to Reid D R and Sanders R N 2010, Operations management is the administration of practices in a business to achieve maximum efficiency. They have described operations Management as a function in business which is related marketing, productions and finance for successful running of the organization, this must add value to the overall process and increase the output with more efficiency by performing activities in a proper way and at low cost. One of the important roles of operations is to analyze the whole process and increase competitiveness by improving value and efficiency (Mabin and Balderstone, 2011, pp: 45-50). According to Slack et al, lean operation is the flow of products and services in an order that it always directly gives what exactly the customer needs with perfect quality and in the exact amount and to deliver the product in the right time at the right place (Wireman, 2004, pp: 34-38). As stated by Grooms D lean practices use a little time and less inventory and supplies and work to create a dependable product (Hounshell, 1985, pp: 42-45). This process can help business to save money with better techniques and strategies by reducing the unnecessary and unproductive products and tasks in the whole process that makes the process more complex (Bass, 2010, pp:67-71). As per Roy N R , quality is the combination of features and characteristics of a particular product or service that are build to satisfactions needs of the customer. In 1980’s Nakajima came up with the concept of total productive maintenance(TPM), the concept of Overall Equipment Effectiveness (OEE) to measure the productivity of equipment was given my Nakajma in TPM. As per him OEE identifies the main loss of important aspects of manufacturing based on three factors availability, performance and quality rate. The OEE concept is a quantitative tool used to find the productivity of the equipments in the factory and this can be used to increase the productivity which is the main factor in every production process (Manos and Vincent, 2012, pp:80-85). According o Friedman in 2003 it is difficult to differences between the design and to identify the correct criteria for finding the differences, thus according to him most of the differences differ on the basis of three basic attributes design refers to the process, the process is goal oriented and the set of goals have problem solving, meeting specific needs and the specific improvements which are useful for the process improvement (Liker and Meier, 2005, pp: 76-80). Conclusions This study implies that the factors behind success of IKEA’s operational management are effective analysis and control on every step of the company’s. IKEA has looked to have strict constraints on the price, quality and developing the process. IKEA looks to implement Lean system in its manufacturing process and also in the supplier’s places to reduce the waste and cost in a large way. The company has an efficient and well organised process along with the use of RFID and e-commerce which has helped the company to provide good quality of products and also at the right time with large number of varieties and variants all wit high quality. The major factor for the success of IKEA over the year is its vast channel of distribution along with products at low price. The company looks to decide over the price before making the product to reduce the cost incurred in the production process. With overall equipment efficiency of 75% the company needs to work towards improving the productivity and implement Kaizen in its process policy. It also has a strong long term relations with suppliers across the world which helps it to get the materials in time from all its suppliers in time and helps it to undergo a continuous production process with having mass production system. References Bass, 2010. Lean Six Sigma. New Delhi. Tata McGraw-Hill Education. Bayraktar, E., 2007, New challenges & opportunities for operations practioners in the new millennium, [Pdf] Available at: http://www.opf.slu.cz/vvr/akce/turecko/pdf/Bayraktar.pdf. [Accessed on March 2, 2014]. Elmfors, H. F., 2010, A conversion from sales in money into volume in cubic meter, [pdf] Available at: http://www.pm.lth.se/fileadmin/pm/Exjobb/Exjobb_2011/Flink_Elmfors_o_Josefsson/Article.pdf. [Accessed on March 2, 2014]. Hansen, R., 2011. Overall Equipment Effectiveness: A Powerful Production/maintenance Tool for Increased Profits. New York: Industrial Press Inc. Hounshell, D., 1985. From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States. Maryland: JHU Press. IISD, 2012, The IKEA code of conduct for suppliers, [ONLINE] Available at: http://www.iisd.org/business/viewcasestudy.asp?id=119. [Accessed on March 2 2014]. IKEA, 2011, Annual Report. [pdf] Available at: http://populationaction.org/wp-content/uploads/2012/06/PAI%202011%20Annual%20Report.pdf. [Accessed on March 2, 2014]. Ikea, 2014, All Products. [Online]. Available at: http://www.ikea.com/ae/en/catalog/allproducts/. [Accessed on March 2, 2014]. Kippenberger, T., 1997, ‘The story of IKEA’, Antidote, Vol. 2, No. 5, pp.33 – 34. Liker and Meier, M, 2005. The Toyota Way Fieldbook. New Delhi: Tata McGraw-Hill Education. Mabin, V. and Balderstone, S., 2011. The World of the Theory of Constraints: A Review of the International Literature. New York: CRC Press. Manos, A and Vincent, C., 2012. The Lean Certification Handbook: A Guide to the Bronze Certification Body of Knowledge. Milwaukee. ASQ Quality Press. Sabel, C. and Zeitlin, J., 2002. World of Possibilities: Flexibility and Mass Production in Western Industrialization. Cambridge: Cambridge University Press. Srinivas, H., 2012. Green Procurement, [Online] Available at: http://www.gdrc.org/sustdev/concepts/14-gproc.html. [Accessed on March 2 2014]. Wireman, T., 2004. Total Productive Maintenance. New York: Industrial Press Inc. Read More