Operations Management: IKEA - Case Study Example

OPERATIONS MANAGEMENT identity number: Introduction While every organization, firm or company strives to achieve more benefit from the services and products its produces, the delivering of these goods should be of high quality and cost-available in order to satisfy customers’ needs. Bamford and Forrester (2010) consider that giving attention to the design of products, processes and the work of the workforce through planning and control will give companies, firms and organizations availability to achieve competitive advantage. This is also what operations management does. It captures the decision making process, enables organizations to develop and operate strategies and controls operations (Bamford & Forrester, 2010). In the following paper, the operations management and operational delivery process will be discussed through describing how it is utilized by IKEA, a multinational group of companies that design and sell ready-to-assemble furniture, appliances, small vehicles and other home accessories. Operations in IKEA IKEA operates in more than fifteen countries worldwide, where its hundred giant stores offer customers its products. Behind the public face, the company is a network of suppliers, which are connected by the wholesale and transport operations. For IKEA it is vital to understand its market and customers and also the supply network as well. However, IKEA realizes that knowledge of its network operations such as design, producing and delivering is as important as being right for its market (Slack, Chambers & Johnston, 2010). Every individual who contributes the common goal of IKEA, staff at stores, staff who liaise with suppliers, those who store and transport goods and those who design, plan and control its operations, are all engaged in operations management. How the inventories and assets are currently managed? In order to increase responsiveness and lower the inventory cost Kristianto (2011) considers different types of collaboration should be utilized by the organization. They are classified by the level of integration, the capability of integration of supply chain planning, forecasting and replenishment. Christiansen (2007) finds collaboration difficult to apply in the supply chain because it has limitations of complexity, location diversity and control limitation. According to Holweg (2005) companies hold the inventory to reduce costs or increase the return to sales. Hou and Liu (2011) state, that if the production lead time is long enough, holding inventory is used to make early sales. IKEA dedicates itself to a distinct product design that enables it to satisfy customers’ desire to lower prices (IKEAs Inventory Management Strategy: Why It Works, n.d.). Its products are designed through maintaining of control over manufacturing costs. More than fifty per cent of IKEA products are made from the recycled or sustainable products. It also uses only few materials in its production that enable the company to cut costs on transportation since it uses then less fuel for shipment of the material. The "cost-per-touch" strategy allows the company to lower its packaging costs through having customers select the furniture and retrieve the packaging cube themselves. Sush approach is considered to reduce costs for packaging and transportation (IKEAs Inventory Management Strategy: Why It Works, n.d). Thus, as shown at Figure 1, in 2013 it is estimated that the company holds more than fifteen million dollars in total assets. Figure 1. Key figures (Key figures, 2012). Operational Delivery Process for IKEA According to Slack, Chambers and Johnston (2010), operations activities define the operations management and strategy of operations that a company sets. IKEA’s operations strategy from the beginnings of the company concentrated on constant reduction of costs, because it aligned with Figure 2. A model of operations management and operations strategy (Slack, Chambers and Johnston, 2010). its ambition to create the better life for people (Caglar, Kesteloo & Kleiner, 2012). That means that IKEA’s all operations strategy is built on offerings of home furniture at lower process so more people could afford. As a part of its operations strategy, the company realizes that an increasing volume would allow it to lower costs of goods and operating costs. As Harvard Business Review reports, Ikea designs its own low-cost furniture to fit its positioning among the customers. The operations delivering is designed in the way that every product of IKEA is sold in room-like settings in order to enable customers to be decorators themselves, which helps them to imagine how to put the pieces together (Porter, 1996). Through developing better functioning of supply chain, IKEA has also improved its operations. It also follows the strategy of empowering its workforce so decision making process to be less complicated. Such approach gives people at stores and factories availability to make their own decisions in order to be closer to the customers and suppliers (Caglar, Kesteloo & Kleiner, 2012). In terms of attracting customers, IKEA serves customers who are happy to trade off service for cost. Ikea uses a self-service in-store display instead of having a sales associate that works in the store. From the model of operations management, competitive role of IKEA is seen in the way it chooses to perform its activities, which are performed differently from its rivals (Porter, 1996). Thus, IKEA offers a number of extra services, such as in-store child care and extended hours. Such approach is closely aligned with the needs of customers, who are young, have not much money and if coming with children, have an opportunity to choose IKEA products with no fuss (The secret of IKEAs success, 2011). Where the delivery system may fail to align between performance objectives? Corporate culture along with focus and alignment and shared values constitute organizational agility followed by the objectives of the company (Buytendijk, 2006). However, on the way of execution, there is a risk of failing to align Figure 3. Interaction of major characteristics (Buytendijk, 2006). between the performance objectives. For IKEA, such risks are connected with the supply chain, which for years maintained the stock of items constituting IKEA’s biggest challenge. Therefore, the company is focused on improving of this area. As it states, some progress is already seen. There is an increase in purchases of hand-woven textiles, carpets and blankets, towels, metals and from India, Bangladesh, Pakistan and Sri Lanka (Arrigo, 2005). The number of suppliers is also expected to increase, from fifty in 2003 to two hundred in the nearest years. However, since the supply chain involves many parties on the way IKEA products appear on the shelves and in stores, it can also meet different challenges. Such problems can be connected with the raw material delivery and differentiation of products from competitors, such as Wal-Mart and Carrefour as well. A challenge can be in maintaining and improving its corporate image that is possible only by involvement of social and environmental responsibility (Mittal, 2013). IKEA can improve the supply chain with track and trace solution, while its main problem is in absence of tracking the orders from customers and provision of customers with the printed receipt (IKEA Improves Supply Chain Accuracy With Track and Trace Solution, n.d.). Improvement of a specific operation Within the specific store on Ikea there are about nine thousand and five hundred products. That requires the company to have a warehouse on the premises of each store. While customers on the showroom floor can browse for items, they can obtain the chosen products from the floor pallet location with racking as high as the typical person can reach. Then the furniture can be purchased. The additional products are stored in reserve racks. In order all the process was established well, the company can use the flow chart to be able to look at the system in depth so the in-store logistics was analyzed, understood and communicated to others. Thus, in Ikea Manchester the process of purchasing is as follows: Customer Ikea store in Manchester Showroom First floor Ordering process Warehouse Self-Serve Furniture Area Cash clerks Product There is a possibility in the store on Ikea as in any other stores of this company to return a chosen product within 365 days. The company guarantees full refund by the same method as the original payment for product. However, in order to avoid the returns, the company should give more assisting and consulting in order to satisfy customers’ need at the stage of choosing the product of Ikea. References Arrigo, E., 2005. Corporate Responsibility and Hypercompetition. The IKEA Case, Emerging Issues in Management, n. 2, [pdf] Available at: http://www.unimib.it/upload/gestionefiles/symphonya/lasteng/f20052a/arrigoeng22005.pdf [Accessed: 10 March, 2015]. Bamford, D R and Forrester, P L 2010. Essential guide to Operations Management: concepts and case notes. John Wiley Buytendijk, F., 2006. The Five Keys To Building A High-Performance Organization, Business Finance, [online] Available at: http://businessfinancemag.com/business-performance-management/five-keys-building-high-performance-organization[Accessed: 10 March, 2015]. Caglar, D., Kesteloo, M. and Kleiner, A., 2012. How Ikea Reassembled Its Growth Strategy, Strategy business, [online] Available at: http://www.strategy-business.com/article/00111?pg=2[Accessed: 10 March, 2015]. Christiansen, P.E., Kotzab, H & Mikkola, J,H., 2007. Coordination and sharing logistics in leagile supply chains, International Journal of Procurement Management Vol. 1, No. 1/2, pp. 79 – 96 Holweg, M, D, S., Holmström, J & Smäaros, J., 2005. Supply chain collaboration: Making sense of the strategy continuum, European Management Journal Vol. 23, No. 2 Hou,Y. and Liu, L., 2011. Time –based strategy in distribution logistics Gaining competitive advantages in IKEA, [pdf] Available at: http://www.diva-portal.org/smash/get/diva2:424429/FULLTEXT01.pdf[Accessed: 10 March, 2015]. IKEA Improves Supply Chain Accuracy With Track and Trace Solution, n.d. Zetes, [pdf] Available at: http://www.zetes.co.uk/~/media/files/internal/uk/case%20studies/ikea_case_study.pdf [Accessed: 10 March, 2015]. IKEAs Inventory Management Strategy: Why It Works, n.d. Supply Times, [online] Available at: http://www.supplytimes.com/inventory-management/ikeas-inventory-management-strategy-why-it-works/?mode=featured [Accessed: 10 March, 2015]. Kristianto, N, Y., 2011. Production ramp up in built-to-order supplier chain, Journal of Modeling in Management Vol.6, p2. [Accessed: 10 March, 2015]. Li L., 1992. The role of inventory in delivery-time competition, Management Science Vol.38, No. 2, pp. 182-197 Mittal, N., 2013. Ikeas Low Price Strategy, Supply Chain Management, [online] Available at: http://cmuscm.blogspot.com/2013/02/ikeas-low-price-strategy.html[Accessed: 10 March, 2015]. Porter, M., 1996. What Is Strategy? Harvard Business Review, [online] Available at: https://hbr.org/1996/11/what-is-strategy [Accessed: 10 March, 2015]. Slack, N., Chambers, S., and Johnston, R., 2010. Operations management, 6th ed., Pearson The secret of IKEAs success, 2011. The Economist, [online] Available at: http://www.economist.com/node/18229400 [Accessed: 10 March, 2015]. Read More