Supply Chain Management at IKEA - Case Study Example

Supply chain management al Affiliation) Table of Contents Introduction 3 Good supply chains help firms in increasing its competitive advantage and have cost benefits. 3 The impact and risks on the Supply Chain upon transferring all the manufacturing to factories in China and Brazil. 4 Steps required introducing a new product range successfully through the Supply Chain and importance of collaboration in the process 6 The characteristics of both “push” and “pull” 7 Modes of transportation. 10 Conclusion 12 Bibliography 13 SUPPLY CHAIN MANAGEMENT Introduction The supply chain is the linkage of all organizations, individuals, activities, technology and resources included in the creation and sale of the product from the supplier of the materials to the manufacturer. Supply chain concern is in getting the finished product from the manufacturer through to the customer. Hence, it is known as the distributor channel (Wigmore, 2013). Entire links of entities, indirectly or directly interdependent and interlinked in serving similar customer or consumer. It includes retailers that provide raw material, producers who manufacture raw material to finished products, storing warehouses, retailer’s distribution centers and retailers who bring the product to the vital customer. Supply chains motivate value chains because they help the producer to supply the consumers with what they want, where they want and when, at the price of their choice. Supply chain management involves maximizing organization’s operations by its efficiency and speed. Speed is crucial since customers want quick services. Increasing efficiency goes hand in hand since much speed can lead to skyrocket. Top firms accomplish this by exercising complicated logistics tools like computer logarithms and company databases. The tools allow distant employees get information and synchronize their efforts in real time. Good supply chains help firms in increasing its competitive advantage and have cost benefits. Since the company is delivering good quality of goods and services in a fast way, the customer will select it and hence, giving the company a competitive advantage in the industry. The cost benefits include; elimination of redundant steps and increasing the firms negotiating power with business partners. IKEA supply chain management wants to increase its competitive advantage and cost benefits. The planned strategies are; transferring manufacturing to factories in China and Brazil, introducing a new technology, satisfying their customers and increase its efficiency. The impact and risks on the Supply Chain upon transferring all the manufacturing to factories in China and Brazil. Transferring manufacturing to factories in China and Brazil has many advantages to the supply chain. First, it is near to a good Chinese domestic market. It is a great advantage because Netherlands have no many rich customers clamoring for the stuff. Therefore, a positive increase in the customer numbers will help the supply chain management quickly supply their goods and maximize their profits (The economist, 2012) Second, even though the Chinese wage increase fast so does its productivity. The exact numbers can be disagreed but not the trend. The workers are hence; earn more because they produce more. The IKEA management, therefore, may have an increase in labor cost but gain more in the final products. Thirdly, Compared to Netherland, China and Brazil are huge. IKEA then will find a good supply of labor and flexible to accommodate seasonal productions. The management can easily respond to a sudden demand since they are enough people to handle the job. Chinese laborers are also good in technology that makes the production easy and faster. The supply chain would, therefore, achieve their goal of satisfying their customers and maximizing their profits (The economist, 2012). Fourthly, China supply chain is supple and sophisticated. Manufacturing competitiveness is not measured by comparing labor costs only but also includes the entire supply chains. Even though, Netherland’s labor costs are a quarter of those in China to manufacture a certain product, the unavailability and unreliability of many elements may hinder to make things economically elsewhere. Therefore having a sophisticated supply chain in China and Brazil IKEA can easily have trade with the country (The economist, 2012) Even though, they are many advantages in the transfer of manufacturing to China and Brazil they are also some risks that can occur. The company can lose money in the innovation that can suffer the distance between design and manufacturing. The cost of customs duties, customs and other fees can as well affect the supply chain and increase its production costs. Therefore, the IKEA can be subjected to increase in production cost. The company may not get a balanced production of their products. IKEA can end up bringing back only a few products that are destined for the Netherlands market. Much of the goods they may move over may remain overseas. Also, the work that they will send to China and Brazil can outweigh the product brought back onshore (The economist, 2012). China and Brazil being among the emerging markets, their real wages are increasing. Therefore, the company may have a risk of paying the senior management as those in Netherlands or even exceed them. Therefore, IKEA supply chain management can have a financial crisis in manufacturing due to the reduced wages in Netherlands. The solution to the crisis is to invest in other countries with low cost and no shortage. For instance, Myanmar is where the west is raising economic sanctions and hence, attracting interest for Myanmar. The skill, scale and labor force productivity does not match China’s and the workers demand for their rights and better pay. Steps required introducing a new product range successfully through the Supply Chain and importance of collaboration in the process A successful marketing organization advances to meet selected groups of consumer’s needs. The groups identified by the researchers, analyses consumers’ needs and compare with the available product currently. Hence, permits the identification of space in the market where a brand product could be introduced to meet the needs that are not profitable satisfied. They are seven steps that can successfully bring the new services and products to the market. The first one is studying the competition in the market. The company can perform analysis on strengths, weaknesses, opportunities and threats surrounding them. Analyzing the competitors help the company to decide their competitor and review their marketing tools and evaluate how the new product will outdo the others (Gordon, 2005). The next step is targeting the ideal customers. The firm should exclusively focus on prospects that can make the customers purchase from them. Customers buying similar thing may appreciate the additional features on the new product. The firms prospects have perceived need what it offers, can afford to buy, and have showed a willingness to do so (Gordon, 2005). The firm should then create a unique value proposition. They should be a clear understanding on what must be offered in order to avoid competition and those who takes advantage of the firms offer. The service and products should be unique and meet the desires and of the customers. Next, the company defines their market strategy and tactics by choosing its sales and marketing links. For example, through market online, catalog or dealers. The firm can choose traditional direct marketing along with online sales as its primary channels and employ tactics like direct-response Television spots and email and online ads that link to its website. The next step is to test the firms marketing approach and its concept. It is good to examine the service or product bundle and the company’s marketing message and materials. Depending on the firms marketing plan and budget, it can employ focus groups, online research, mall intercept studies or distribute the product to a specific group of users for testing. When the testing is finished then the company can proceed in the final creation of marketing materials and tools (Gordon, 2005). The company should then roll out its campaign. Public relations adopt a crucial role in the launch of a service or product. The firm can make use of the media relations tactics and place articles to win interviews, get covered through allowing key press to review a product or hold a launching event. During the publicity, the company should make sure the service or product is ready and available for purchasing to maximize returns from the coverage it receives. Lastly, the company should know the lifecycle of its product. The campaign or service launch used should be updated as the product or service matures. There should be monitoring of marketing results so that the firm can easily notice the diminishing returns that indicates the time to revise the product or service (Gordon, 2005) Collaboration is important when introducing the new product because it navigates all information that remain in silos and tied to distinct systems, backend server, application or individual. Collaboration gives the capabilities in IT that encompasses a number of inter and intra-company, collaborative tools, stakeholders and communication formats. Therefore, IKEA can adapt Cisco’s strategy that allows collaboration in supply chain firms (Kin T. Gordon, 2005). The characteristics of both “push” and “pull” Changes in consumer demographics or product category consumption results in a reduction of product demand. Consumer preference may change because of various factors like, general population aging, health effects of ingredients to consumers, social trends changes, leisure activity patterns or negative publicity. These changes may affect the customers’ demands. The inventory manager should develop an effective inventory system to control customer demands. Product demand controls the carrying costs, inventory costs, storage costs and ordering costs. The inventory control systems are categorized to push and pull models (Kokemuller, 2009). Push system of inventory control it concerns meeting customers’ needs by forecasting inventory needs. The company predicts the kind of products customers will buy and produce enough products to meet the targeted sell and demand or push the goods to the consumers. The limitations of push control system are that a lot of the product is left in inventory. Another disadvantage is that, the forecast can be fake because sales are unpredictable and change from one year to another. Pull inventory control starts with customer’s order. Therefore, the firm only manufacturer enough products to satisfy the customer. One advantage is that, and there will be no excess stored inventories hence, reducing levels of inventories and carrying and storing goods costs. However, the main disadvantage of pull system is the possibility of the company to run out of order resulting to customer dissatisfaction(Kokemuller, 2009). The type of the inventory control system depends on different products types manufactured. For example, automobiles cannot be able to handle pull inventory system. Therefore, managers should carefully select the kind of system to avoid customer dissatisfaction and meet their needs instead (Kokemuller, 2009) Recovering inventory data and its practical use for future planning. Inventory data is the information of work-in-process goods, raw materials, and finished goods that are termed as portions of assets has for the purpose of resale. Every organization should know the recovery time objective and recovery point objective and have an effective data plan (Cath, 2009). A firm can start by performing an impact analysis. The analysis helps to understand the organization DR needs that involve the establishment of systems in place, how critical they are position of risks and the company’s compliance requirements and auditing. The company needs also to evaluate the potential disaster impact and how the company can recover from the problem. Therefore, it determines how much data the organization would prepare to lose and how fast it can gain the information. `The next step is to define amidst two and four disaster recovery level, such as, medium, high and low criticality. The company can adopt the tiered storage approach. It facilitates a business to understand and provide staff with a clear running order (Cath, 2009). The third level is to attribute and understand high-level pricing to every defined DR Service levels. Hence, giving storage professionals with a framework to assist the business explore the cost implications involved with service levels allowing departmental managers base decisions on what truly require. Finally, after following the steps then storage professionals explore their disaster discovery site options. They are categorized to hot, warm and cold site. Hot site give fastest recovery times but expensive, while cold sites offer cheapest but slower recovery. In warm sites, recoveries are in between hot and cold sites (Cath, 2009). The company may also consider using remote-office locations or managed service provider facilities. The decision depends on cost-benefits calculations, individual circumstances related to disaster recovery site availability and corporate policy. Inventories are useful in the future help in controlling and managing company’s assets. They are also useful for financial planning and insurance. Therefore, all companies should ensure all their inventory data is available for future reference. Modes of transportation. Transportation of operations determines the efficiency of moving products. The techniques and management principle progress improves the moving load, delivery speed, energy saving, reduce operating cost and usage of facilities. Transportation, therefore, takes the role in the manipulation of logistic. Therefore, a strong team needs clear logistic frame and proper transport techniques and implements to connect the producing procedures. Logistics assist in optimizing existing distribution and production processes based on similar resources using management techniques for promoting the competitiveness and efficiency of enterprises. Logistics key element is transportation system that joins separated activities. Transportation conquer one-third of logistics costs and the system influence logistics performance hugely. Transportation is necessary for the entire process of production procedures; beginning from manufacturing to delivery to the customer and returns. A good coordination between the components would result to maximum benefits (Brian, Jean-Paul, Claude, 2009).. Its complexity can be effectively implemented in high- quality management. Transport system makes products and goods movable and gives timely and regional efficiency to develop value-added under the least cost principle. Transport is regarded as a restriction of market’s objective in the logistic systems. Transport value changes with different industries. Products with low weight, small value and high value, transportation cost occupies a small portion of sales. The big, heavy and low-valued products occupy a large part of the sale. All transport systems are secure depending on the management how they carry out there recruiting processes. There are different types of modes including; road, sea, rail, pipeline, telecommunication and air. Road transportation is huge consumers of space with a low level of physical constraints among other modes of transportation. It is flexible since it can serve various purposes but have high maintenance cost for both infrastructure and vehicle. Mainly, they are connected to industries in rapid transportation of freights. Road transport is crucially connected to freight distribution (Brian, Jean-Paul, Claude, 2009). Rail transportation has average constraint level. Heavy industries are connected to rails its flexibility has been improved by containerization by linking it to roads and marines modes. By far, rails are the mode of transportation that offers the highest capacity. Even though, it’s slow it is flexible. Pipelines are unlimited practically because they are laid under water or land. It transports fluid in a faster way, and it’s not cost effective in managing. Pipeline terminals are very significant since they link with harbors and refineries. Due to water physical practice offering buoyancy and less friction, maritime transportation is the most effective way to move huge quantities of goods in long distances. Due to economic activities location, maritime circulation occurs on specific regions of the maritime space. This mode of transportation has a high terminal cost and inventory costs. Maritime is connected to heavy industries more than any other mode (Brian, Jean-Paul, Claude, 2009). Air transport is not efficient because of limited air routes. It is linked with notably finance, tertiary and quarters sectors and tourism which depend on long distance mobility of people. Recently it has been accommodating high quantities of high value and hence playing a major role in global logistics. This mode is expensive though fast. Conclusion The suppliers, manufacturers and distributors should interact to ensure the goods and services reach the customers on time. Effective product delivery to the customers results to good business for every chains link. In order to achieve this, then an effective collaboration and effective plan should exist among all partners. Therefore, IKEA should strategically manage their performances to increase their productivity. Bibliography Wigmore Ivy. 2013. Supply Chain. Retrieved from http://whatis.techtarget.com/definition/supply-chain. Date of access. 11th October 2014 The economist. 2012. The End of Cheap China. http://www.economist.com/node/21549956 Date of Access 11th October 2014 Gordon Kim T. Marketing Tips for launching a New Product. Retrieved from http://www.entrepreneur.com/atricle/76364 Date of Access 11th October 2014 Everett Cath, 2009. Data asset inventory key to disaster recovery planning and design. Retrieved from http://www.computerweekly.com/news/1355316/Data-asset-inventory-key-to- disaster-recovery-planning-and-design Date of Access 11th October 2014 Rodrigue Jean-Paul, Slack Brian and Comtois Claude 2009. Retrieved from http://people.hofstra.edu/geotrans/eng/ch3en/conc3en.html Date of access11th October 2014 Kokemuller Neil, 2009. Retrieved from http://yourbusiness.azcentral.com/push-system-versus- pull-system-inventory-control-23991.html Date of Access 11th October 2014 Read More