INTRODUCTION
Overview
IKEA was founded by Ingvar Kampard in 1953, and it started as a mail order catalogue business in Sweden IKEA is named after the initials of founder Ingvar
IKEA, founded in Sweden and now headquartered in the Netherlands, originated from Kamprad's upbringing in Elmtaryd and Agunnaryd It has evolved into a global leader in home furnishings, renowned for its quality, affordability, and aesthetic appeal The instantly recognizable blue and yellow logo not only reflects the brand's Swedish heritage but also enhances its uniqueness The blue color draws attention to IKEA's offerings, while the optimistic yellow evokes a positive impression among customers, reinforcing the brand's identity worldwide.
In 1943, Ingvar Kamprad established IKEA as a mail-order sales business, expanding into furniture sales five years later The inaugural IKEA store opened in Älmhult, Småland, in 1958 under the name Mürbel-IKÄ, with "Mürbel" meaning "furniture" in Swedish IKEA then expanded internationally, opening its first stores outside Sweden in Norway in 1963 and Denmark in 1969, followed by further expansion across Europe in the 1970s.
Figure 1: Map of countries with IKEA stores
International Supply chain management Đại học Kinh tế Quốc dân
Tata-Motors-SC2122 - Very good
International Supply chain management 100% (2) 3 chuoi-cung-ung-dich-vu-thuc-an-nhanh-tai-viet-nam supply chain
EMQI-K61 Group 3 Tr ầ n Hoàng Thành Midtemr SCM
In 2019, IKEA emerged as Europe's top furniture retailer and one of the world's most valuable brands, with an estimated worth of $48.1 billion in 2020 The company generated nearly 40 billion Euros in global revenue during the 2020 fiscal year, with Europe accounting for 73% of sales and Asia for 11% Germany is IKEA's largest market, representing 15.6% of total sales, followed by the United States at 12.2% IKEA's competitive advantage lies in its deep understanding of customer preferences, offering a wide range of products at competitive prices, continuously introducing appealing designs, and providing unique shopping experiences that drive higher sales.
IKEA is recognized as the world's largest furniture designer due to its affordable and high-quality products However, it faces stiff competition from major retailers like Walmart, which offers a diverse range of quality products, including furniture, making it a significant competitor Additionally, Amazon, founded by Jeff Bezos in 1994, has become the largest online retailer globally, providing an extensive selection of furniture through its Amazon Home service With benefits like no-cost EMI options, easy installation, free scheduled delivery, and a guarantee of 100% authentic products, Amazon poses a formidable challenge to IKEA in the retail market.
IKEA's culture is characterized by enthusiasm, collaboration, and a proactive mindset, aiming to enhance everyday life for both customers and employees Their vision extends beyond just home furniture, promoting a positive global image through sustainable practices and community engagement The core business idea of IKEA is to provide a diverse selection of well-designed, functional home furnishings at affordable prices, ensuring accessibility for as many people as possible This commitment results in products that combine beautiful design, practicality, and affordability.
As of September 16 2021, there are 460 IKEA stores operating in more than th
In 2019, the company generated a revenue of 41.3 billion euros, operating across 50 markets with approximately 220,000 employees The fiscal year 2020 posed significant challenges for the IKEA franchise system, as retail stores remained robust until February before the pandemic led to the closure of 75% of locations for an average of seven weeks Despite these closures, many stores adapted by continuing to accept online orders By August 31, IKEA's websites attracted 4 billion visitors, resulting in a remarkable 45% increase in online sales E-commerce now represents over 16% of total retail sales, up from 10% in 2019.
Figure 2: FY20 IKEA retail sales per type
Products and services
IKEA specializes in designing and selling ready-to-assemble furniture, kitchen appliances, and home accessories, allowing customers to easily transport their purchases while keeping costs low This self-assembly approach fosters a sense of connection to the product, known as the "IKEA effect," a concept introduced by marketing researcher Daniel Mochon However, some customers, such as single mothers, may struggle with assembly To address this, IKEA acquired TaskRabbit in September 2017, an assembly service that provides on-demand help for customers Following this acquisition, the percentage of TaskRabbit furniture assembly tasks increased significantly from 2% to 10%.
IKEA is renowned for its iconic furniture pieces, such as the Pộng armchair, Billy bookcase, and the best-selling Klippan sofa, which has been popular since the late 1970s The brand's products typically feature one-word names, predominantly inspired by Scandinavian origins Most names follow a unique naming system established by IKEA's founder, Ingvar Kamprad, who believed that using proper names would enhance customer recall and recognition.
IKEA stores, characterized by their iconic blue and yellow colors reflecting Sweden's national hues, feature a one-way layout designed to showcase the entire store Since 1958, each location has included a café, which has expanded its menu to incorporate a variety of specialty foods, with Swedish meatballs being a standout item While the café primarily offers Swedish products, the menu adapts to local cultures and preferences Many IKEA restaurants open early to serve breakfast before the main store opens, and food sales contribute to 5% of the company’s overall revenue Ingvar Kamprad, the founder of IKEA, famously emphasized the importance of the customer experience in his vision for the brand.
‘You can’t do business with someone on an empty stomach!’.
IKEA features a dedicated kids' play area called Småland, which translates to "small lands" in Swedish This allows parents to drop off their children at the playground gate, often receiving complimentary pagers from staff to summon them when needed This setup enables parents to shop for IKEA products without interruptions from their children.
IKEA has long prioritized ecosystem protection by transforming waste into valuable resources and responsibly creating energy and materials The IKEA Foundation supports children's education and assists various programs, including refugee aid, collaborating closely with UNICEF to enhance community well-being Committed to fostering sustainable living, IKEA offers affordable solutions for water and energy efficiency, renewable energy, and waste sorting The company proactively eliminates harmful chemicals from its products, ensuring quality, functionality, affordability, and sustainability By 2030, all IKEA products will adhere to democratic design and circular design principles Additionally, IKEA promotes services that extend the life of products and materials, empowering customers and partners to easily buy, fix, sell, share, and donate items.
IKEA’S GLOBAL BUSINESS STRATEGY
Business strategy
IKEA employs a focused cost leadership strategy to attract young buyers seeking affordable, stylish furniture By fostering strong connections with single young city dwellers, IKEA aims to be a lifelong choice for customers as they transition into adulthood and family life This commitment to low-cost goods is evident in every facet of IKEA's operations, ensuring that affordability remains a top priority.
IKEA's innovative approach to furniture production involves creating modular components that are designed and manufactured separately for easy assembly This simple design promotes the interchangeability of parts, enabling customers to customize furniture in various styles while saving money By utilizing this modular system, IKEA can mass-produce uniform components efficiently, significantly reducing labor costs and enhancing the overall customer experience.
IKEA revolutionized the furniture industry with its innovative flat packaging design, which features detachable and foldable components that lower transit and storage costs The company employs a strategic procurement approach by assigning dedicated teams to select multiple suppliers within each procurement area, fostering competition that enables price control Additionally, IKEA prioritizes the protection of its product designs through design patents, ensuring independence from supplier limitations.
IKEA efficiently reduces staffing costs by organizing its products into room settings, allowing customers to easily visualize their home design Each product is clearly labeled with comprehensive information, minimizing the need for extensive employee assistance in product selection and sizing.
IKEA utilizes cost-effective brochures to promote its products, making them more accessible than traditional advertising methods These brochures, available throughout IKEA stores, provide detailed information about the products while creating a customer-friendly experience that simplifies the shopping process.
IKEA aims to enhance its competitive advantage by focusing on a specific market segment that highlights its unique offerings With a diverse portfolio of over 9,500 products and approximately 2,500 new items launched annually, IKEA caters to various categories, including smart homes, furniture, storage solutions, and kitchen appliances This extensive range allows the brand to appeal to customers of all ages Additionally, IKEA tailors its products to reflect local cultures, such as offering traditional Chinese-style furniture to meet the preferences of Chinese consumers.
IKEA puts a premium on unique design They use professional designers and communicate with their customers to gather input, which leads to fresh product innovation ideas.
Moreover, customers can view how the furniture might look in their homes because of realistic interior settings such as living rooms, kitchens, and bedrooms in
IKEA stores offer a wide range of options and decorating tips, enhancing customer satisfaction This unique sales approach has led to the phenomenon known as "the IKEA effect," where customers value self-assembled furniture more than pre-assembled items By allowing customers to interact with and explore functional elements of the products, IKEA not only boosts customer happiness but also reduces selling expenses.
International strategy
Figure 4: Four types of international strategy
IKEA adopted a global strategy in Europe, focusing on cost reduction while minimizing the need for product adaptation to local markets By leveraging standardized products across the continent, the company achieved economies of scale, allowing for affordable pricing that appealed to a culturally uniform customer base.
When IKEA attempted to enter the North American market, they employed the same standardized product strategy used in Europe, which ultimately led to their failure This was primarily due to the significant differences in local tastes, as Americans tend to favor larger furniture pieces, while European design is characterized by simplicity and efficiency Consequently, IKEA recognized that global standardization poses challenges due to the varying cultural values and norms across different countries.
In response to challenges in the US market, IKEA adopted a transnational strategy that emphasized local demand and cost efficiency, particularly evident in its entry into China The company's European and American pricing was perceived as high in China, prompting a shift in focus towards the affluent, educated, and style-conscious young middle class To lower costs, IKEA established factories in China and enhanced local material sourcing Additionally, the marketing approach was revamped to engage urban millennials through Chinese social media platforms like Weibo Recognizing the transportation habits of Chinese consumers, IKEA strategically located its stores near rail and metro lines, rather than in suburban areas typical in the West This effective strategy significantly boosted IKEA's popularity in China, making it one of the company's top five markets by 2018.
Sustainable strategy
IKEA's 2030 sustainability strategy, "People & Planet Positive," targets three key areas: Healthy & Sustainable Living, Circular & Climate Positive, and Fair & Equal The company commits to conserving and generating renewable energy, eliminating wastewater, and encouraging healthier lifestyles under Healthy & Sustainable Living In the Circular & Climate Positive area, IKEA aims to source sustainable materials and reduce greenhouse gas emissions throughout its value chain Lastly, IKEA strives to create a positive social impact by promoting gender equality, children's rights, and ensuring safe workplaces across its operations.
IKEA’S GLOBAL SUPPLY CHAIN
Planning
1.1 Overview of IKEA centralised planning
IKEA has initiated a program to address challenges like data maintenance issues, inadequate follow-up tools for monitoring forecast deviations, resistance to changing user mindsets, and the lack of synchronization between order and stock data This new planning concept aims to enhance supply chain control and improve delivery services The central planning department of IKEA of Sweden (IoS) manages critical decisions regarding inventory levels, purchasing, suppliers, and distribution By centralizing all forecasting activities and calculations, IoS effectively regulates stock levels and ensures timely replenishment throughout the supply chain.
The planning process begins with corporate sales planning, establishing the foundation for tactical demand planning activities across various business areas These forecasts are then utilized in the need planning process, which subsequently influences the overall operational strategy.
(4) supplier capacity planning process and the planning of the distribution supply chain (transport, warehouse, and retail-store planning)
Figure 5: IKEA’s global supply chain planning process
The sales forecast is a crucial initial step in sales planning, representing an aggregate estimate of total sales volumes in monetary terms for the current fiscal year and the next five years, based on the strategic business plan Corporate sales plans are updated three times a year, while demand planners at IoS provide sales volume predictions for various business areas, considering future growth ambitions After reconciling these projections, the combined forecast is segmented into regional sales frames, which are further detailed by product area Any discrepancies between tactical demand planning projections and these frames necessitate a revision of the forecasts by demand planners.
In the tactical demand planning process, demand planners ensure the accuracy of global sales forecasts and engage in sales planning, product range adjustments, and the development of forecasting methodologies The tactical forecast, managed by IoS, operates on a rolling 84-week horizon at the retail-store level, while the operational forecast addresses replenishment needs for the upcoming three weeks The tactical forecast, which relies on sales history, is applied for weeks four through 84 At the retail-store level, both forecasts are integrated to create a comprehensive product forecast, which is then aggregated, reconciled, and compared to sales frames at the retail forecast-group level, typically at the country level, and the distribution service regional level, covering multiple countries.
Need planning adheres to traditional distribution requirements planning (DRP) principles by adjusting retail outlet predictions to reflect current inventory levels, safety stock needs, and products in transit Retail stores' net requirements are then consolidated into distribution centers (DCs), which are replenished by comparing stock levels and items in transit The demand for the next 84 weeks is calculated for each DC Group, with the upcoming 26 to 52 weeks communicated to suppliers based on plan quality Volume allocation among suppliers follows a predetermined matrix, allowing for multiple sourcing of a single DC product The need planner oversees these computations and addresses any exceptions that arise, including stock, transportation, and supplier-related issues.
The supplier capacity load planning process ensures that IKEA meets its commitments to suppliers without overloading them By guaranteeing a specified volume, IKEA encourages suppliers to invest in the necessary infrastructure for production Suppliers, in turn, communicate their capacity limits for volume delivery At IoS, effective supplier capacity planning involves load leveling across weeks to consistently fulfill committed volumes, which may include reallocating volumes among various suppliers while adhering to capacity constraints.
Procurement
Procurement has always been an important contributor to pursuing the global business strategy of IKEA
The company utilizes an e-procurement system for its purchasing procedures, collaborating with IBX to implement advanced procurement and sourcing technology A demand planning software was integrated into the consolidated procurement system to keep suppliers updated on their delivery requirements To guarantee timely order fulfillment, the company also employs order fulfillment software Ongoing system enhancements aim to optimize the purchasing process, with the ultimate goal of fully integrating it into the overall supply chain management.
IKEA, the world's third largest wood user, produces over half of its 9,500 products from wood or wood fibers To address the growing demand for wood resources in furniture manufacturing, the company has acquired a 25,000-acre forest in Lowndes County, Alabama, which will be managed by Campbell Global from Portland, Oregon.
Alabama Forest is a leader in sustainable forestry investment, managing approximately 250,000 acres of forest property in Romania and the Baltic States through the IKEA Group To enhance the management of its wood-based product production, the company created Swedwood, a subsidiary dedicated to sourcing all raw materials from legally compliant logging operations.
In 2016, China was the largest supplier for IKEA, holding a 26% share, followed by Poland at 18% and Italy at 8% With over 445 stores globally, primarily concentrated in Europe (about 65%), IKEA benefits from proximity to major suppliers, such as Sweden and Lithuania This strategic positioning helps the company reduce transportation costs and minimize its carbon footprint within the value chain.
IKEA prioritizes long-term relationships with suppliers who align with its environmental values, selecting them based on strict criteria rather than profit margins This approach is guided by IWAY, the IKEA Way of Purchasing, which serves as the supplier code of conduct for responsible sourcing of products and materials IKEA is committed to providing low prices to consumers while adhering to its principle of "low price but not at any price," ensuring that corporate values are upheld in the purchasing process.
IKEA is committed to ensuring that its suppliers and sub-contractors comply with IWAY standards through surprise visits and evaluations Suppliers are required to maintain IWAY compliance at all times, and their performance is assessed annually In cases of contract breaches, such as the discovery of child labor, suppliers must not only cease such practices but also enroll affected children in educational programs IKEA will follow up with visits to the schools and conduct ongoing surprise checks on the suppliers If no improvements are observed, IKEA will terminate the supplier's contract.
Figure 7: IKEA supplier selection and evaluation process
(Source: Ramana K.V., 2020)2.4 Supplier Relationship Management
IKEA collaborates with around 1,600 suppliers across 55 countries, emphasizing strong, long-term partnerships through enduring agreements On average, suppliers have been with IKEA for 11 years, reflecting the company's commitment to sustainability and collaboration To effectively manage these relationships, IKEA operates 42 commercial service offices globally, ensuring a sustainable supply chain and fostering enduring connections with its diverse network of suppliers.
Operations
These strategic operation management decisions approached by IKEA show the efforts to streamline operation and have high productivity with low cost at a global level.
IKEA is renowned for its distinctive product designs that balance low manufacturing costs with high standards for functionality, efficient distribution, quality, and environmental impact From its inception, design has been central to IKEA's product development, with in-house designers cultivating a cohesive and recognizable IKEA design identity across the product range.
IKEA's research and development process begins in customers' homes to identify genuine needs, highlighting the brand's commitment to a customer-centric approach Additionally, the design team focuses on maintaining affordability while meticulously planning for efficient packing and shipping of each product.
Circular Product Design is how IKEA actively responds to the sustainability trend For IKEA, the starting point is always our customers’ needs and wants
Figure 8: IKEA Circular Product Design Principles
IKEA employs circular loops through reuse, refurbishment, remanufacturing, and recycling to maximize value retention and extend the lifespan of resources, products, parts, and materials for both customers and the company.
IKEA's naming scheme emphasizes consistency, which reduces misunderstandings and enhances efficiency This approach fosters a quality-driven business culture that not only elevates product quality but also minimizes the need for extensive quality assurance testing at the end of the development process.
IKEA adheres to the "IWAY Standard," guiding its extensive network of suppliers on crucial aspects such as CO2 emission limits, fair wages, and appropriate working hours for all employees By following IWAY's rigorous criteria, IKEA ensures the procurement of high-quality materials from ethically responsible companies.
"IKEA's core value of 'Renew and Improve' emphasizes the importance of continuous supplier evaluation and support With over 42 trading service offices worldwide, IKEA maintains strong relationships with its suppliers, ensuring rigorous monitoring of product quality and working conditions This commitment to ethical responsibility fosters a culture of care, enabling IKEA to excel in supplier relations and enhance manufacturing excellence."
Lean manufacturing is used by IKEA to manage process and capacity design.
To maximize capacity utilization and process efficiency, IKEA focuses on minimizing waste In its process and capacity design, the company always encourages cost- effectiveness and business efficiency
IKEA employs a comprehensive location strategy that integrates global, regional, and local elements, structured into three main divisions: franchise, property, and finance, with the franchise division acting as the core The Range & Supply division, which includes IKEA of Sweden AB, IKEA Communications AB, IKEA Food Services AB, and IKEA Supply AG, is tasked with designing and supplying the complete IKEA product range Additionally, IKEA Industry, the primary business of the Inter IKEA group, focuses on manufacturing wood-based furniture, offering both solid wood and lightweight board-based options With 43 production units across nine countries—China, Hungary, Lithuania, Poland, Portugal, Russia, Slovakia, Sweden, and the USA—the majority of production occurs in Poland, Russia, Slovakia, Portugal, and Sweden.
IKEA's innovative store and warehouse layout sets it apart in the market, allowing customers to explore a showroom filled with merchandise before purchasing items directly from accessible floor pallets Unlike traditional retail models, IKEA features an on-site warehouse that enables self-service shopping, with additional low-demand products stored on higher racks To ensure safety during store hours, stock is lowered at night, and a restricted warehouse section holds larger items that require assistance for loading This design emphasizes IKEA's commitment to maximizing self-service while minimizing bulk storage.
3.6 Job design and Human resource
IKEA’s focus on the efficiency and satisfaction of its employees has grown in recent years Overall, the company employs around 211,000 people worldwide
IKEA fosters a collaborative work environment by treating all employees, from store managers to sales advisors, as co-workers without a strict hierarchy The company emphasizes training and development programs, investing significantly in the strategic management of its workforce This approach reflects IKEA's belief that the success of its business is closely tied to the growth and development of its employees.
IKEA prioritizes hiring and retaining top talent while offering appealing programs that assist employees in managing their growth and discovering career advancement opportunities As employees play a more significant role within the company, these initiatives will increasingly enhance the value chain.
IKEA has implemented lean supply chain management to enhance its global operations, ensuring the delivery of high-quality products that align closely with customer demand while effectively minimizing waste.
Figure 9: 7 types of waste within the operation
IKEA's implementation of Lean Supply Chain practices has led to significant benefits, including improved information sharing through effective communication, reduced operational risks, enhanced quality, continuous improvement, minimized downtime, and boosted employee morale, ultimately resulting in greater customer satisfaction.
IKEA has optimized its supply chain network to improve efficiency by strategically positioning product supply near production sites and aligning production close to sales locations This thoughtful planning of distribution unit locations significantly reduces transportation costs.
IKEA has established effective inventory management strategies that have positioned it as the leading furniture retailer globally, characterized by low operating costs and strong product demand Key strategies that contribute to IKEA's success include streamlined logistics, just-in-time inventory practices, and a focus on customer self-service, all of which enhance operational efficiency and customer satisfaction.
Cost-per-touch strategies encourage buyers to select their furniture and handle delivery themselves, as increased handling typically leads to higher associated costs By minimizing the number of interactions with the product, businesses can effectively reduce expenses and streamline the purchasing process.
● Maximum/minimum settings as a proprietary system for better demand forecast, inventory control and variance reduction
● Usage of high-flow & low-flow warehouse facilities for efficient warehouse resource management
Market channels
IKEA, a leading consumer durables company, excels in sales and trade promotions, leveraging its strong brand reputation and competitive pricing The company emphasizes providing customers with frequent opportunities to benefit from various deals, including coupons, price discounts, and festival promotions, ensuring a consistent engagement with its marketing strategies.
IKEA utilizes a diverse range of advertising strategies, including social media, print media, television, apps, and websites, to effectively reach their audience Their print ads are characterized by a direct and concise approach that captures customer attention By adapting their communication to various platforms, IKEA emphasizes localized marketing to connect with community interests Additionally, they maintain websites to facilitate client interaction and gather valuable feedback regarding customer service and product quality.
IKEA efficiently manages its supply chain by transporting about 20% of products directly from suppliers to stores, while the remaining items are routed through its distribution system Products are received at distribution centers, where they are stored and prepared for delivery to retail locations Acting as wholesalers, these centers facilitate local storage and global procurement With 32 distribution centers across 16 countries, primarily located near seaports, IKEA emphasizes maritime transport, as 60% of its production occurs in Europe Customers also have the option to pick up products directly from stores, enhancing convenience.
Erfurt, Germany serves as a key distribution center for IKEA, where products are consolidated and dispatched to furniture stores nationwide All incoming cargo, whether transported by truck, rail, or container, is electronically recorded and cross-referenced with existing data in the IT system This process ensures that only complete and undamaged goods are processed for delivery.
IT system automatically allocates the locations of the goods and controls the quality.
IKEA's distribution center in Doncaster, UK, serves as a key logistics hub, offering essential services such as warehousing, traffic planning, picking, and quality control As one of two central distribution centers for IKEA in the UK, it has achieved the status of the largest IKEA product distribution center globally, boasting a remarkable capacity of 270,000 pallets.
Bakersfield, CA, serves as a strategic distribution center at the heart of the California Golden Empire, surrounded by major companies like IKEA, Wal-Mart, and Nestle This prime location offers significant benefits, including low operational costs, access to a large and productive workforce, logistical advantages, and a supportive environment for entrepreneurs, making it an ideal hub for serving California, the western US, and Canada.
IKEA regularly assesses customer satisfaction by collecting feedback from direct consumer interactions, customer service channels, and their website The site provides comprehensive information about products and services, allowing customers to easily access details Additionally, customers can reach out to IKEA staff through the website to address any feedback or issues related to their products.
IKEA Place is an innovative app designed to enhance the shopping experience for consumers by allowing them to digitally furnish their homes with items from the IKEA catalog Set to launch for iOS 11 at the end of September, the app enables users to take a photo of their space and select furniture, which is then automatically resized to fit the room's dimensions This feature not only aids customers in making informed purchasing decisions but also offers guidance on selecting suitable products With a claimed accuracy of 98 percent, the app's virtual tape measure competes with traditional measuring tools, while its advanced augmented reality technology allows users to view the texture of fabrics and the interplay of light and shadows on their chosen furnishings.
Logistics
In-house logistics is the practice where a company, like IKEA, manages its own logistics services, including planning, network management, and communication for product distribution This approach involves utilizing trained human resources to execute logistics operations, requiring significant investment in both workforce and resources to effectively support the supply chain.
IKEA stands out in the retail market with its unique product designs and distinctive two-level store layout, featuring a warehouse-style bottom level and a comfortable browsing environment on the second level Unlike its competitors, IKEA commits to offering a stable catalog of products at fixed prices for an entire year The brand's emphasis on low-cost manufacturing and self-assembly design allows for efficient packaging and transportation, making it an appealing choice for customers seeking affordable home furniture solutions.
IKEA stores function as both showrooms and warehouses, featuring a ground-floor warehouse stocked with approximately 9,500 products Customers can browse merchandise in the upper-floor showroom, where each item is labeled with a unique article number, aisle, and bin number, enabling easy location in the warehouse For safety, larger items are stored in a restricted lower-level warehouse, inaccessible to customers Additionally, IKEA aims to minimize bulk storage to enhance self-service options for shoppers.
IKEA stands out by employing in-store logistics managers who oversee all inventory processes, a rarity in retail These managers handle tasks such as monitoring deliveries, sorting goods, and organizing items in designated slots Utilizing a proprietary inventory tracking system, they establish unique reorder points for each store, determining both minimum stock levels for reordering and maximum quantities for procurement This innovative approach enhances efficiency in material handling logistics, ensuring optimal inventory management.
Reverse logistics is a crucial component of the supply chain that focuses on the processes involved in returning products from the end-user back to their point of origin, enabling proper disposal or value recapture The growing rates of customer returns and the increasing emphasis on recycling and reuse are driving the demand for reverse logistics It encompasses two main types: return logistics, which includes the return of goods by customers, unsold items from distributors, and maintenance or repair activities, and waste logistics, aimed at minimizing environmental impact through the revision or disposal of unusable stock This includes practices such as the reuse of goods and packaging, refurbishment, remanufacturing, recycling, and responsible disposal.
IKEA and Apple are notable brands that excel in reverse logistics, with IKEA specifically promoting a program that encourages customers to return unused items like plastics, light bulbs, and furniture for recycling This initiative primarily enhances customer service and manages the return flow efficiently To ensure timely and damage-free returns, IKEA aims to address common issues, such as products being damaged during transport or customers changing their minds Returned items may be resold at a discounted price, returned to inventory, or scrapped as necessary.
IKEA stands out in the retail sector by offering a vast selection of affordable products along with an exceptional 365-day return policy When returning an item, customers have two options: if the product is in good condition, it can be restocked and sold at its original price However, if there are issues with the product or its packaging, it undergoes a repackaging process before being assessed for resale at a discounted price or for recycling.
Figure 12: Sustainable process of IKEA
IKEA's buy back services promote a circular economy by allowing customers to sell back their used furniture, reducing waste and encouraging sustainability Each year, millions of second-hand items are discarded, but through this initiative, IKEA gives these pieces a new life Customers can easily participate by filling out an online buy back estimator form and bringing their furniture to the nearest store After an evaluation by IKEA staff, customers may receive up to 50% of the original value in the form of an IKEA refund card, making it easier than ever to reuse, recycle, and reduce.
IKEA’S GLOBAL SUPPLY CHAIN ACTIVITIES’ CONTRIBUTIONS
TO THE IMPLEMENTATION OF ITS GLOBAL BUSINESS
IKEA's centralized sales frame planning enabled effective supply chain integration and hierarchical alignment by consolidating planning responsibilities and reconciling sales and tactical forecasts This approach enhanced demand-supply connectivity from merchants to suppliers, leading to improved forecast accuracy, reduced safety stock levels while maintaining or enhancing service levels, and increased supply chain visibility Furthermore, the new planning processes not only vertically integrated the supply chain but also facilitated standardized software support through a centralized planning organization.
IKEA has achieved a global perspective on its supply chain through centralized planning authority and management By establishing two centralized planner roles, the company enhanced its demand and materials planning expertise while ensuring cost-effective and standardized operations This initiative has fostered shared learning and continuous improvement across the organization’s practices.
It sparked dialogues between demand and need planners regarding shared objects and challenges, enhancing the supply chain's holistic picture.
IKEA sources a significant portion of its materials from overseas suppliers, with China being the largest, accounting for 28% of total purchases The retailer collaborates strategically with around 300 suppliers in China to enhance procurement efficiency and reduce costs Additionally, IKEA is committed to ambitious initiatives aimed at fostering a more sustainable future.
IKEA leverages e-procurement as a strategic advantage in its purchasing processes, enhancing supplier interaction and streamlining material requirement declarations and pricing negotiations This system not only facilitates the assessment of supplier quality and performance but also allows for ongoing evaluations based on supply effectiveness By utilizing e-procurement technologies, IKEA minimizes supplier risks and reduces costs by simplifying traditional purchasing procedures.
IKEA is committed to responsible sourcing by evaluating materials comprehensively, considering factors such as climate footprint, water use, biodiversity, land use, and human rights The company prioritizes renewable materials, and when those are unavailable, it opts for recycled or recyclable alternatives Ultimately, IKEA aims to ensure long-term access to sustainable raw materials.
Wood is a renewable and durable natural material that can last for generations, making its careful and sustainable use a priority for IKEA management However, the presence of multiple brokers complicates the verification of wood origins, especially in underdeveloped countries where enforcement against illegal timber harvesting may be lacking To ensure the sustainable sourcing of timber and enhance long-term health and productivity, IKEA has taken proactive steps by owning and managing its own forests and establishing a wood sourcing subsidiary.
IKEA is committed to sustainability by implementing innovative design solutions that minimize material usage By reducing reliance on cotton and blending it with lyocell fiber in a 1:1 ratio, the company enhances the comfort of high-quality products like bedding and sofas while also lowering waste treatment costs Additionally, the production process utilizes a closed system to recycle chemicals, further decreasing environmental impact and resource waste As a result, IKEA customers benefit from high-quality, eco-friendly products at more affordable prices.
2.3 IWAY - IKEA’s Supplier Code of Conduct
IKEA is committed to sustainability through its IWAY Supplier Code of Conduct, which sets mandatory standards for environmental, social, and labor practices among its suppliers This initiative helps manufacturers minimize their environmental impact and promotes sustainable operations, ensuring that materials meet quality standards By enforcing IWAY, IKEA enhances supplier awareness of environmental issues, enabling them to implement these standards throughout their supply chains Ultimately, IWAY plays a crucial role in shaping IKEA's sustainability strategy and transforming industry practices.
Supplier relationships play a crucial role in enhancing business efficiency and profitability IKEA's success is partly due to its effective communication and management of supplier relationships, allowing the company to secure favorable pricing on purchases By focusing on a select few high-volume suppliers instead of numerous smaller ones, IKEA benefits from significant order volumes, prompting suppliers to provide better service and lower costs Additionally, the company fosters long-term partnerships with suppliers, enabling it to negotiate advantageous long-term contracts that clearly define the responsibilities of both parties, ensuring attractive market offers.
The major source of value in IKEA operations derives from cost optimization and customer satisfaction, as well as sustainability practices.
IKEA subsidiaries are given strategic roles to play by the parent company and help determine what the customer wants
IKEA's expansive franchise system is crucial to its global success, operating stores in 30 countries through 11 franchisees across over 50 markets The Inter IKEA Group owns the IKEA concept, with Ingka Group being the largest franchisee, managing 367 stores As of 2019, the total number of IKEA stores worldwide reached 433 Additionally, IKEA enhances its international reach by leveraging e-commerce in 50 markets and diversifying its approaches with smaller store formats, effectively connecting with a broader customer base.
“By locating the massive chunk of its manufacturing units in Eastern Europe and China, the company saves on the cost of human resources to a significant extent.
IKEA ensures high-quality standards for its products by conducting all manufacturing processes within a single country, allowing for effective quality monitoring Additionally, by choosing a country that is both economically advantageous and dynamic, IKEA can attract suppliers and manufacturers to meet its design specifications and pricing goals efficiently.
The technological integration in production, distribution, marketing and human resource activities helps IKEA maximize cost-effectiveness and operational efficiency.
IKEA is leveraging digital technology to enhance its production, supply chain, and marketing strategies By investing in digitalization, the company aims to improve manufacturing capabilities and effectively respond to the evolving demands of its customers.
“The home improvement and furnishing chain takes the opportunity of acquiring technology know-how from their franchises and stores around the world.
It uses the latest and sophisticated technologies in manufacturing processes in each of its stores with positive implications on operational efficiency.
IKEA is enhancing its production processes through increased automation and data-driven manufacturing, leading to greater operational efficiency, cost savings, and improved product quality Digitalization not only fosters ergonomic workplaces for employees but also aims to create a seamless end-to-end supply chain that enhances traceability and promotes circularity Additionally, automation systems facilitate real-time adjustments in supply chain activities, effectively minimizing the bullwhip effect.
IKEA is committed to transitioning from a linear to a circular business model, integrating circular principles throughout its operations The company is focused on maximizing resource efficiency by designing all products to be 100% circular and aims to utilize only renewable or recycled materials by 2030 Additionally, IKEA strives to achieve climate positivity by 2030, intending to reduce greenhouse gas emissions beyond those generated by its value chain while simultaneously expanding its business.
Figure 13: Four phases for IKEA's circular transformation
IKEA designs have long been the premise for the company’s huge success.
IKEA is committed to innovation and sustainability by closely collaborating with suppliers to enhance production capabilities and design affordable, long-lasting products The company's circular economy approach emphasizes creating durable goods, with a focus on quality and sustainability as core principles of democratic architecture By prioritizing customer needs, IKEA offers maintenance, upgrades, and options for extending product life through its Circular Product Design model, which includes reuse, refurbishment, remanufacturing, and recycling Additionally, IKEA supports customers with spare parts and repair kits, which have gained popularity, evidenced by the shipment of 155,000 repair kits in the fiscal year 2015.
Through strategy that shifts the focus to longer product lifespan, IKEA benefits in lowering manufacturing costs thanks to efficient reuse and recycling of materials.
In addition, their team really cares about the customer’s decision to design the suitable product to meet customer expectations.