Olent University Master Of Science In International Shipping And Logistics.pdf

IKEA’s Products Born in 1943 in Sweden, IKEA quickly dominated the world with 459 IKEA stores in 62 markets sca ered across all con nents IKEA, 2022a.. IKEA stores around the world Sour

SOLENT UNIVERSITY MASTER OF SCIENCE IN INTERNATIONAL SHIPPING AND LOGISTICS

Assignment Title (Number) Supply chain challenges and strategies (AE1)

Lecturer/Supervisor Dr Ho Thi Thu Hoa

Table o

Table of Co f Co f Conte ntents nte nts nts

SOLENT UNIVERSITY 1

I INTRODUCTION 3

II FINDING 4

1 Global Supply Chain of IKEA 4

a Input supply activity 5

b Manufacturing ac vity 5

c Output supply ac vity 6

2 Data visualiza on 6

2.1 Planning 6

2.2 Inventory Management 7

3 Increasing Perfect Order Deliveries 9

4 Sustainable Supply Chain Prac ce 10

4.1 Sustainability Strategies 10

4.2 Sustainable Resources and Recycle Products 11

4.3 Sustainable Rela onships With Suppliers 12

5 Consumer Behaviour Dominate Supply Chain 13

6 Increasing the Role of container shipping in Supply Chain Management 14

III CONCLUSION AND RECOMMENDATION .14

IV APPENDIX 15

V REFERENCE 15

Topic: Challenges & Strategy to achieve be er supply chain performance at IKEA Global Supply Chain

I INTRODUCTION

IKEA is an interna onal company specializing in the design of semi-assembled furniture, home appliances, and accessories And most of all, this is the largest furniture retailer in the world According to informa on from IKEA's sales website, the brand has up to 9,500 product lines for customers to choose from, customers can even buy a whole house with IKEA!

IKEA’s Products

3 Storage & organiza on 14 Outdoor

4 Kitchen & appliances 15 Laundry & cleaning

10 Kitchenware & tableware 21 Working from home

11 Home electronics

Table 1 IKEA’s Products

Born in 1943 in Sweden, IKEA quickly dominated the world with 459 IKEA stores in 62 markets sca ered across all con nents (IKEA, 2022a) IKEA also has an impressive process for managing its supply chain and stock

Figure 1 IKEA stores around the world

Source: IKEA, 2022a Recently, due to the impact of in a on, cost imbalances, labor shortages, and poli cal con icts, IKEA also tried several new supply chain op miza on tac cs while businesses everywhere were

su ering from supply chain interrup ons The report will analyze the current supply chain strategies and prac ces adopted by IKEA to meet the e cient administra on of supply chains through aspects including the u liza on of data visualiza on, sustainable supply chain, the customer behavior a ecting the supply chain, as well as the increase of the role of container shipping

II FINDING

1 Global Supply Chain of IKEA

The process that IKEA uses for its supply chain is illustrated in Figure 2 below includes the It primary sector, the secondary sector, and the ter ary sector, which are responsible for the procurement of raw materials, the produc on of goods, distribu on, and retail sales to the nal customer, respec vely

Figure 2 IKEA’s global supply chain planning processes

Source: Jonsson, Rudberg and Holmberg, 2013 This concept is an integrated, global planning process and is formally located in a central planning func on called IKEA of Sweden IKEA of Sweden supervises the IKEA universe and develops long-term marke ng, logis cs, and purchasing strategies IKEA of Sweden greatly in uences the decisions concerning the number of items being carried, purchasing, suppliers, distribu on, store coordina on, etc The global planning process starts with sales and demand planning (1) which sets the frames and generates future demand data for IKEA’s business areas The demand data

is therea er input to the global materials planning process (2), which in turn drives the supplier capacity and load planning processes (3) and the planning of the distribution supply chain (4) More specifically, IKEA’s supply chain includes 3 main activities:

a Input supply ac vity

The input sourcing system developed by IKEA is capable of managing 10,000 products manufactured by more than 2,000 suppliers, distributing and shipping to IKEA stores from 38 distribu on centers in 18 countries

b Manufacturing ac vity

IKEA has opera ons in 28 countries, of which 340 are a liated with the company, the rest are franchised stores Produc on is o en outsourced, helping IKEA focus its business on other core

ac vi es Globally, there are 44 units that manufacture products for IKEA IKEA through ver cal integra on produces goods through its owned manufacturing a liates

c Output supply ac vity

One of the special features that allow the company to add value to its products while keeping costs as low as possible is this: at IKEA, the customer is the one who ships the nal product

2 Data visualiza on

As the complexity of global supply chains increases over me, businesses are under constant pressure to deliver their products on me and at minimal expenses They must devise strategies and u lize technology to overcome while also minimizing the impact of the factors above in the future by building more resilient supply chains Inventory management, logis cs, ful llment, and supply chain overall had to be modernized through data IKEA is also not out of the race IKEA has applied speci c tools combined with strategies to achieve a consistent informa on ow through the whole chain

2.1 Planning

a APS System

Figure 3 Typical APS planning structure and categorization of APS modules

Source: Jonsson, Kjellsdotter and Rudberg, 2007

IKEA has u lized APS system so ware to assist demand and need planners in its integrated planning opera ons, as seen in Figure 3 Unlike tradi onal enterprise resource planning systems (ERP), APS tries to nd feasible, near-op mal plans across the supply chain as a whole, while

poten al bo lenecks are considered explicitly (Stadtler, 2005) However, the planning procedures do not totally rely on the APS system, but rather on a combina on of ERP, APS, and legacy systems, with Access and Excel, employed to support the planning processes to varying degrees Nonetheless, standardized APS system so ware supports the tactical forecas ng process Standardized APS so ware also supports the materials planning process as well as the supplier capacity and load planning process

b Demand Sensing

To be er predict customer needs, IKEA has created cu ng-edge technology The applica on

u lizes AI in combina on with both historical and current data to provide excep onally precise forecasts Demand Sensing can leverage up to 200 data sources per product in order to make forecasts and es mate future demand more intelligently and accurately More speci cally, the applica on can u lize shopping preferences during holidays, the impact of seasonal changes on purchasing pa erns, and weather forecasts

2.2 Inventory Management

IKEA has a di erent warehouse opera on than other companies Every IKEA store has an in-store warehouse At the showroom, customers can visit and choose their favorite products to take home Items are displayed on shelves at a height that a normal person can't reach And in the higher posi ons, where people can't reach, is the place to store addi onal products Inventory is stacked on lower shelves at night (forkli s and pallet jacks are not used during opening hours for safety reasons)

IKEA also has combined solu ons with automa on and so ware op mally to achieve high

e ciency in Inventory control Those processes and technology enable the correct product to be

in the store with be er con dence and at a lower cost than typical retail forecas ng and restocking

a Leverage automa on

The IKEA DCs are designed using an automated storage and retrieval system using 13 di erent cranes that are housed in a 100-foot-tall warehouse At full capacity, the system can handle 600

pallets/hour, or nearly 1 pallet/minute from each crane This automa on system reduced order rota on from 72 hours to 24 hours At the same me, saving a distance of nearly 700 miles o the route from DC to stores and from port to DC by increasing the number of stores and the volume handled at that facility, the ROI was improved The loca on and design will also allow IKEA to double its warehouse capacity

b Using Reorder Point System method for minimum/maximum inventory replenishment system se ngs

With the characteris c that each IKEA store acts as a warehouse, the use of the Reorder Point System helps IKEA ensure a higher level of service, reduce inventory costs and op mize inventory space in the warehouse IKEA uses the Min/Max Inventory Replenishment system Due to the fact that all IKEA inventory is sorted only at night a er opening hours, the logic of the max/min setup

is based on how many products will be sold in a one or two-day period The in-store logis cs manager will rely on POS (point of sale) data and inventory data entering the store via direct shipping from the distribu on center through the warehouse management data system to forecast sales for the next few days and the number of products to order to meet demand This process both meets customer needs and minimizes ordering too few or too many products

c Dis nguishing High-Flow and Low-Flow items

Applying Pareto's Principle - the 80/20 rule, which is a theory maintaining that 80 percent of the output from a given situa on or system is determined by 20 percent of the input IKEA , dis nguishes High-Flow and Low-Flow items to op mize Inventory

High- ow merchandise with 20% SKUS accounts for 80% of IKEA warehouse inventory volume These products sell quickly, are easily accessible for self-service, and use inventory tracking If the products at IKEA are easy for customers to nd and get, they belong to high-tra c merchandise Automated storage and retrieval systems in warehouses for high- ow to reduce costs-per-touch

Low- ow goods are those that sell more slowly This is a product that has a lot to do with cost-per-touch A manual process is used for low-tra c items as there is li le demand

d Using Automa on warehouse inventory checks

Source: Spires, 2020 IKEA aims to guarantee product availability for its customers and improve the ergonomics of its workplace for its employees With automa on, employees can concentrate on value-added tasks IKEA also partnered with Verity successfully pilot-tested an autonomous drone solu on to for warehouse inventory inspec ons The system consists of a eet of autonomous drones that take o from a charging sta on and collect photos, videos, and 3D depth scan data as they move from pallet to pallet The primary advantage of automa ng warehouse inventory checks is digi zing data collected via camera and other sensors

3 Increasing Perfect Order Deliveries

IKEA has taken advantage of the DIY assembly method (Do it yourself) and flat-packing to enhance its perfect custom order delivery IKEA's delivery concept is not just about ge ng the product to the customer but about how the customer feels and enjoys that delivery Most IKEA furniture is designed and sold in pieces for customers to assemble themselves Dividing products into pieces contributes signi cantly to reducing transporta on costs because they take up less space in the truck and maximize the number of products that can be transported In addition, leveraging the consumer's mind when they involve in the product and the best way to ensure hand- -hand to interac on through assembling a piece of furniture can add value to the overall feel of the

product There is the fact that the more e ort consumers put into making an object, the more they love it, thereby increasing customer loyalty to the brand

4 Sustainable Supply Chain Prac ce

A sustainable supply chain refers to an organizational structure that promotes long-term development while maintaining the natural environment As can be known, sustainability has been part of IKEA’s identity for decades

4.1 Sustainability Strategies

The overall IKEA ambi on is to become people and planet posi ve and to inspire and enable many people to live a be er everyday life within the boundaries of the planet by 2030 IKEA’s three primary focus areas are Healthy & sustainable living, Circular & climate-posi ve, and Fair

& equal as a response to the three signi cant challenges impacting the IKEA business (Climate change, Unsustainable consump on, and Inequality rising)

Figure 4 IKEA’s Sustainability Strategies

Source: IKEA, 2021

4.2 Sustainable Resources and Recycle Products

a Responsible sourcing

IKEA's goal is to use exclusively sustainably sourced renewable or recycled resources, and the company will strive to secure and enhance responsible sourcing standards IKEA’ raw materials have been divided into four major material categories: Wood, Agriculture (Co on, palm oil, etc), Inorganics (metals, glass, ceramic, chemicals, and electronic components), and Recycled materials (Polyester)

i Sustainable Sourcing

IKEA sources all of its co on and 85% of its wood from more sustainable sources Every year, IKEA serves over 100 million cups of co ee The company's PTR co ee line is UTZ and EU Organic cer ed

ii Waste Reduc on and Recycling

In 2020 IKEA reached the milestone of 90% recycled content in the polyester used for our tex le products Today, even with this broader scope, IKEA has secured that 88% of the polyester in the supply chain is recycled

In FY21, IKEA reached a waste reduc on of 46% compared to baseline (FY17)

In FY21, 55.8% of the materials the Swedish furniture chain sourced were renewable and 17.3% were recycled

73% of the material sourced for the IKEA range for the same period was renewable or recycled

About 60% of all products o ered by the furniture retailer are based on renewable materials and 10% of products contain recycled materials (People & Planet Positive IKEA SUSTAINABILITY REPORT FY18, n.d.)

The retail giant has an ambition to use 100% renewable and recycled materials by 2030 The IKEA catalogue is the largest print produc on ever to be printed on 100 per cent Forest Stewardship Council cer ed paper

b Buy Back & Resell Policy

IKEA’s ‘Buy Back’ or ‘Sell your Furniture’ Programme aims to extend the number of mes a piece

of furniture is used before being recycled or discarded It is the rst me the program is going to

be scaled globally across 27 countries (Taylor, 2020) Products bought back by IKEA through the Buy Back Program in other countries will be sold in the AS-IS sec on of IKEA stores (Ingrams, 2020)

4.3 Sustainable Rela onships With Suppliers

In order to support its interna onal business opera ons, IKEA took the ini ative to play a pioneering role in developing sustainable supplier rela onships By educa ng its vendors and suppliers on the how, why, and signi cance of sustainable produc on, IKEA was able to set itself apart from rivals in the market In addi on, IKEA's success is mainly a ributable to its strong communica on and connec ons with its suppliers and manufacturers, which enabled IKEA to obtain high-quality materials at the best prices

IWAY code of conduct (Appendix A)

IKEA implemented its "IWAY" code of conduct, which includes standards, regula ons, and recommenda ons to help suppliers and manufacturers avoid the nega ve consequences of their opera ons on the environment in which they operate It is the IKEA way of responsibly sourcing products, services, materials, and components It sets clear expecta ons and ways of working for environmental, social, and working condi ons, as well as animal welfare It is mandatory for all suppliers and service providers that work with IKEA