IKEA Supply Chain and Logistics - Case Study Example

IKEA Name: University: Date: IKEA Supply chain and logistics The IKEA operation strategy concentrates on low cost despite the fact that traditionally furniture is sold at higher costs. Basically, IKEA focuses on large volume because of their products’ high specialization as well as repeatability level. The supply chain of IKEA is exhibited below: ondary There key forces that seem to drive the rate of change at IKEA include: globalization, technology as well as UAE government policy and regulation. With regard to globalization, IKEA being a global company uses its IT support so as to facilitate information flow as well as get real-time solutions. Globalisation has enabled IKEA to be naturally creative be able to attain the required as well as correct information. Another force is technology, which have forced IKEA to transform its processes severally. Technology has been a key force in transforming the marketplace dynamics, and has enabled IKEA to be connected 24/7 and be able to access crucial consumer information through the Internet (Coyle, Langley, Novack, & Gibson, 2012, p. 10). Besides that, social networks like Twitter and Facebook play a crucial role in IKEA business given that they have influenced supply chains due to their effect on customer demand as well as the speed of through which information is transferred. UAE government policy as well as regulation is another noteworthy force, since in UAE different levels of government create and oversee regulations, policies as well as taxes, which have an effect on IKEA supply chains. Sourcing and Supply Management At IKEA, there are different types of buyers who are segmented in terms of income level, age as well as life cycle of the family. One type of the buyers is the young, lower-income persons such as young adults as well as college students. They are mostly targeted by IKEA because they are about to buy furniture and accessories for the first time. Another group of buyers is the new families looking for furniture as well as accessories for their new homes. The last noticeable type of buyers is long-established families seeking to replace their old furniture with new ones. One of the main suppliers of IKEA in UAE is Iqlabels which manufactures premium furniture Strategic Sourcing process Step One: understanding completely the spend category. At this step, the IKEA makes sure it comprehends everything concerning the spend category itself. The team also identifies stakeholders’ at all physical locations as well as operating units. The main areas of analysis include: expenditure by supplier; total historic volumes as well as expenditure; expenditure by user, department or division; expenditure characterized by commodity; and future budgets or demand projections (Smith, 2014). Step Two: Assessing Supplier market IKEA runs market assessment of its suppliers with the intention of looking for alternative suppliers to the current ones. IKEA clearly comprehends the current trends as well as the main supplier market dynamics. At this step, IKEA gets ‘should-cost’ information ready from the key products’ main components. Step Three: Preparing a supplier survey At this step IKEA prepares supplier survey for both potential and current suppliers. This aim of the survey is evaluating the capabilities of the supplier. Knowledge is gathers in areas such as feasibility, capacity, maturity, and capability. Step Four: Building the strategy At this step, IKEA builds sourcing strategy by combining the first three steps, which offer crucial ingredients needed for the sourcing strategy. Step Five: Requesting for RFx Since IKEA uses a competitive approach, it has to prepare a request for bid or proposal (ITTs, RFQs, RFP and eRFQs) so as to be able to define and expound the requirements to every prequalified supplier. It must consist of specifications of the product, delivery requirements and pricing structure, criteria of evaluation as well as financial conditions and terms. IKEA always makes sure that all suppliers know that they are competing fairly. Step Six: Selection At this step, IKEA selects and negotiates with the suppliers. At this phase, the IKEA sourcing team uses its evaluation criteria to the responses provided by the supplies. Step Seven: Communicating with the new suppliers Upon notifying the winning supplier(s) they are invited to take part in the implementation of recommendations. For incumbents such as Iqlabels, IKEA has a communication plan, which has all changes in pricing models, specifications and delivery improvements. Customer Service and Demand Management For IKEA to deliver its products to the point of consumption, it relies on distribution. IKEA suppliers’ are tasked with manufacturing the products and transporting them to IKEA stores across the globe, usually through the company’s central distribution and warehouses centres. At IKEA, distribution is concerned with reducing the route from the manufacturer to the customer. With regard to dimensions of customer service, IKEA through strategic implementation maximized its sales through customer satisfaction as well as effective customer service. The company uses its Customer Support Center to answer various questions provided by the consumers (IKEA, 2014). The different elements of customer service at IKEA include: Patience (helping customers fix a problem regardless of how irritated they are); expeditiousness (ensuing the problems are solved faster); positivity (embracing customer service as a good fit). The number of customer complaints has been increasing recently; therefore, IKEA can improve their customer service by ringing special services and face-to-face interactions so as to create a unique community for its customers. IKEA measure customer service by the number of customer complaints it receives. The main assumption is that when the number of complaints is high, then the customer service quality is poor. Therefore, IKEA pays attention to its quality of service to avoid unintentionally sending dissatisfied customers to the competitors. Order management Order Management steers IKEA order fulfilment process of any business by capturing multi-channel demand from telesales, XML and EDI sources. Order management is integrated to IKEA transportation management. Though an inventory strategy dubbed ‘cost-per-touch’, IKEA customers can select the furniture as well as reclaim the packaging cube. Order Fulfilment So as to manage the current global economy challenges, IKEA has transformed its supply chain into value chains that is driven by information. IKEA Order Fulfillment involve: Bulk products storage for distribution; receiving requests from customers by phone or internet; assembling the order; securing the consignment; shipping the consignment; processing returns as well as recording complaints. If IKEA runs out of stock customers can buy the products directly from its suppliers though online markets such as Alibaba.com. However, at IKEA has put measures in place to ensure it does not run out of stock; identifying a minimum stock level and having regular stock reviews. Inventory Management There are different types of Inventory that the IKEA carries: Raw Materials, work in progress, finished goods and transportation. Without a doubt, raw materials are crucial for production of furniture, and are sourced from the suppliers. The second type of inventory is work in progress, which consists of goods being produced by the suppliers and at the company. Finished goods are normally controlled by IKEA warehouse and distributors. Transportation is crucial type of inventory, wherein finished goods are conveyed to the market. At IKEA, they have classified their inventory as current assets, considering that the company usually sell them within twelve months from the time they were listed on the balance sheet.  The different types of inventory costs include; purchase costs since IKEA buys finished goods inventory from its suppliers and resells it; processing costs, IKEA buy inventory that need more processing before it is sold; distribution cost, IKEA ships the inventory items numerous times before they become sales revenue. Transportation Management Basically, a good transportation system can be achieved through planning for certain needs considering that transportation plays an important role in seamless operations of supply chain (Stank, 2010). Transportation facilitates the inbound materials to be moved to IKEA manufacturing facilities, then moving inventory between different facilities as well as distribution centres, and finally, conveying finished products to the market (IKEA, 2014). IKEA products are designed in a way that they are conveniently packed in flat boxes for easy transportation. IKEA uses intermodal transportation because reduces the cost of transportation by moving consignment in intermodal containers. Intermodal transportation provides reliable and has less competition.  IKEA measure the performance of its transportation through vehicle traffic, which is somewhat easy to measure. The company has data on all its drivers’ licenses, registrations of its trucks as well as vehicle mileage. In this case, performance indicators consist of average traffic speeds, traffic volumes, congestion delay, crash rates, parking supply, roadway Level of Service and cost of operating the vehicle (Litman, 2003). Distribution Management The role of distribution at IKEA is to increase the efficiency of delivery utility, place and time. Distribution channels serves as the link connecting IKEA and consum­ers, and it generates place utilities and time by reducing the gap between the place and time of manufacturing as well as those of consumption. IKEA has numerous warehouses in countries like China, US and Sweden, but it main operations are centered at IKEA Distribution Centre in the US. Distribution decisions concentrate on creating a system that enables customers to access as well as purchase the company’s products (Sharma, 2009, p.123). In terms of in terms of warehousing costs, transportations costs and inventory costs, IKEA should reduce its inventory holding costs by improving the use of space in its warehouses by reducing passageway handling. Basically, material handling is about transporting and storing materials. At IKEA, they use conveyors, automated warehouse systems, automatic palletizers and aggregate conveyors to handle its finished goods. The figure bellows show material handling at IKEA warehouse: Fig 1: Using Forklifts Fig 2: Cross-docking at IKEA Fig 3; Using Pallets Fig 4: Using Ledge load carriers With regard to use of packaging, IKEA uses verified scientific techniques that offer fit-for-purpose, as well as cost efficient packaging solutions.  The company designs protective packaging products so as to offer the needed amount of protection and strength to meet its supply chain physical requirements. The company’s paper-based packaging can be recycled by the end-user. Supply Chain Relationships and Outsourcing The success of IKEA is attributed mainly to its relationship management as well as communications with materials manufacturers and suppliers. Even though, Ikea promotes competition amongst its suppliers so as to ensure the best materials and prices are realised, it still has an enduring business relationships with them (Lu, 2014). This is achieved by long-term contracts. Basically IKEA has transactional relationships as well as strategic relationships with other companies, NGOs and trade unions intended for reinforcing and developing the impact of its work in the environmental and social fields. Through IKEA Foundation, the company has a strategic relationship with UNDP, Save the Children and UNICEF. Besides that, IKEA in UAE has strategic relationships. Whereas the majority of the designs of IKEA products are sourced from Sweden, the company has outsourced the manufacturing to China as well as other Asian countries. The key advantage of outsourcing is cost savings (Loeb, 2012). Therefore, the lower labour and operation cost and reduced overhead costs have made IKEA to outsource. On the negative side, IKEA risks losing confidentiality through data loss and can also lose business functions’ management control since the company cannot control deliverables as well as operations of outsourced activities. Supply Chain Performance Measurement Evidently, IKEA uses Key Performance Indicators (KPI) to measure its strengths as well as to assess the advancement of the company long-term goals as well as vision by monitoring as well as setting targets. IKEA measure =supply chain performance through quantitative metrics, which is further classified into financial and non-financial metrics. Non-Financial metrics measures inventory levels, use of resources, customer service level, quality and flexibility. The company’s supply chain financial performance is evaluated by assessing the raw materials cost, the company income, transportation costs, and other costs. Strategies for Logistics and Supply Chain Management IKEA is applying the principles of supply chain management by segmenting customers with regard to the needs of different groups as well as adapting the supply chain in order of these segments to be served cost-effectively. The company has also customized its logistics network and pay attention to market signals (Anderson, Britt, & Favre, 1997). IKEA has aligned demand planning in the supply chain, making sure resources are allocated ideally and forecasts are consistent. Besides that, IKEA has adopted performance measures with the intention of gauging collective success so as to reach the customers efficiently and effectively. Through financial strategies, IKEA supply chain finance has brought about a number of benefits. The company suppliers have been able to access low-priced working capital as well as have been able to improve their cash flow. With regard to relationship based strategies, the company has ensured it has good relationship with governmental and regulatory bodies with the intention of avoiding roadblocks to various opportunities in UAE and globally. References Anderson, D. L., Britt, F. F., & Favre, D. J. (1997). Principles of Supply Chain Management. The Best of Supply Chain Management Review, 3-8. Coyle, J., Langley, C., Novack, R., & Gibson, B. (2012). Supply Chain Management: A Logistics Perspective. New York: Cengage Learning. IKEA. (2014). Contact information. Retrieved from IKEA: http://www.ikea.com/ae/en/store/dubai/dubai_contacts IKEA. (2014). Home delivery. Retrieved from IKEA: http://www.ikea.com/ms/en_AU/customer_service/ikea_services/home_delivery.html Litman, T. (2003). Measuring Transportation Traffic, Mobility and Accessibility. ITE Journal, 73(10), 28-32. Loeb, W. (2012, December 5). IKEA Is A World-Wide Wonder. Retrieved from Forbes: http://www.forbes.com/sites/walterloeb/2012/12/05/ikea-is-a-world-wide-wonder/ Lu, C. (2014, April 24). IKEA’s inventory management strategy: how does IKEA do it? Retrieved from TradeGecko: Inventory Management Software: https://www.tradegecko.com/blog/ikeas-inventory-management-strategy-ikea Sharma, K. (2009). Marketing Management: How to Create, Win and Dominate Markets. Delhi: Global India Publications. Smith, G. (2014, July 9). Seven Steps to Strategic Sourcing in the Supply Chain. Retrieved from Supply Management: http://www.supplymanagement.com/resources/2011/the-seven-stages-of-a-sourcing-strategy Stank, T. P. (2010, October 8). Transportation Decision-Making in an Integrated Supply Chain. Retrieved from Supply Chain Management Review: http://www.scmr.com/article/transportation_decision-making_in_an_integrated_supply_chain Read More