IKEA-Case_Study_Supply_Chain_Management.pdf

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

IKEA- Case Study Supply Chain Management

Marketing II Seminar 2 (10th February 2016)

Group paper from:

Lisa Buchholz 920225T360 Giulia Catena 921211T349  Nicoló Tassi 920210T318

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

Table of Content

1. Introduction ............................................................................................................................ 3 2. Supply chain management strategies & value- adding factors............................................... 3 3. Relationships within the chain ............................................................................................... 5 4. Future prospects and possible measures for improvement ..................................................... 6 5. Conclusion .............................................................................................................................. 7 6. List of References ................................................................................................................... 7

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

1. Introduction IKEA can be stated as the world’s largest furnishing product vendor (Kotler et. al., 2009) with sales of over 20 billion Euros in 2009 (Kelly, 2010). The company is known all over the world, especially Europe, North America, increasingly in Asia and Australia and is popular for offering “ a wide range of well designed, functional home furnishing products at prices so low as many  people as possible will be able to afford them” (Kelly, 2010, p.1). In order to be able to fulfil this aim and promise, IKEA had to and also did implement certain strategies with the aim to be as efficient as possible and provide their customers with the expected quality and mutually satisfy their needs for the reasonable price. In the following it is to discuss the main supply chain strategies IKEA chose in order to work effectively with their respective members and achieve their business goals. Furthermore it is to enlighten the major advantages and value adding factors IKEA gains from their strategies and good relationships and networks with their supply chain members, as well as the assumable measures for improvement IKEA could develop in the future.

2. Supply chain management strategies & value- adding factors  Analyze  IKEA’s supply chain management strategies, and explain how the value is created through these strategies. This part is committed to analyse every step of the supply chain and examine the numerous strategic factors which contribute to IKEA’s success. It seems striking that the superior levels of the supply chain are sustainability and long-term relationship with more or less every supply chain member, which are aimed to be incorporated in all areas of the supply chain. The other steps of the supply chain comprise the sophisticated distribution, internal quality and control measures as well as the regulations for production. IKEA’s mission is to offer functional, well designed, low priced and sustainable furniture. In order to scrutinize how IKEA has implemented its supply chain management to reach its goals, the paper will refer to the model proposed by Lambert and Bennion (1982), to get a holistic overview of IKEA’s success.

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

First it is to enlighten the area of Suppliers. According to the case study of Kelly (2010), IKEA’s 1,220 suppliers are operating in over 55 countries. The vast sum of suppliers makes it possible for the company to be very flexible in adapting to external changes (Håkansson & Johansson, 1992). So for example if some suppliers do not fu lfil the code of conduct of IKEA (IWAY), the firm can easily switch to another supplier without having any problems within the network. Furthermore it is not as risky as to rely on one’s own subsidiaries or company. Therefore, opportunity costs can be saved, as well as time and labour, considering a substitution of supply  partners (IMP-Group, 1982). At the same time, if a company is relying on many suppliers, the market uncertainty is increased. IKEA preferably choose their suppliers considering their production capacities and prices as low as possible to achieve high profitability. Another determining factor for the decisionmaking process is the IWAY, which is a code of conduct, listing the different regulations that the suppliers have to meet in order to enter IKEA’s network (Kelly, 2010). Hence, the Trading Service Office ensures the control of each supplier and offers them help to reach higher levels which subsequently strengthens the relationship between the parties. In terms of Manufacturers, IKEA achieves its economies of scale by relying on mass production that enables very low costs because of high quantities of the standardized products. Moreover, the just-in-time approach gives them the opportunity to reduce costs taking into account all the costs related to logistics, including inventory and storage (Kelly, 2010). Another essential part of the supply chain is the Distribution which is optimized thanks to a global network able to provide products in the right place, at the right time by mutually enhancing the efficiency of transports in term of space and quantity. Taking advantage of the large volumes which are transported in flat packages gives IKEA the competitive advantage to save costs for transportation. The final step of the chain, considering the underlying model of Lambert and Bennion (1982), is about the Retailers. The catalogue and the web site are the main means of communication and also of the first contact able to meet needs and desires of the consumers. The physical retail experience is a capturing and emotional engagement inside IKEA’s lifestyle and thus displays an essential part of the supply chain that appeals directly to the consumers. It is crucial to see the different steps in cohesion, because they are all interrelated and determine each other. The success can only be enabled if every supply chain member, respectively

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

supplier, supplier’s supplier and other associates work together in an effective and thoroughly committed way.

3. Relationships within the chain  How does IKEA managing the relationships with its chain members? The relationships within the supply chain of the global player IKEA can be seen as a real challenge. By means of the sophistication of ties, both weak and strong, IKEA, being a global company with thousands of suppliers and distributors all over the world, requires a simplified model to capture the complexity of the main and affecting relationships. Evidently, “relationships evolve over time. Their content, strength and nature is changin g as those involved interact” (Håkansson, H. & Johansson, J., 1995, p.22). For this reason the paper applies the ARA model to understand the natu re and the characteristics of the network between the different actors (Håkansson, H. & Johansson, J., 1992).  Resources of IKEA are mainly raw materials as wood, plastic, paper and hardware like nails and bolts. It would be interesting to understand the level of control and power of IKEA on the resources to understand also the negotiation power of itself but the company does not reveal enough information about this. However, the exchange and use of knowledge is a crucial part of the resources as it displays the basis for further commitment in the relationship. The actors of the relationships are IKEA itself, the suppliers and the manufacturers. The suppliers are in Europe (60%) and in China as the manufacturers. Moreover IKEA is the owner of Swedwood, a manufacturer company, and has to coordinate relationships between distribution centres, retailers and logistics centres (Kelly, 2010). The activities actuated inside IKEA, intended as the cycle of transformation and transfer of the resources operated by the different actors, are the fruit of complex synchronization between the different stakeholders. The characteristics of the networks established in the IKEA environment are characterized by long term relationships, an average of 11 years per supplier (IKEA Group, 2014) which also reduces the uncertainty in terms of transaction costs. Those stable long-lastin g agreements make it possible to be more flexible considering adjustments and to be more competitive in the market (Håkansson, H. & Johansson, J., 1992). IKEA understands the dyadic relationship with the

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

suppliers as it creates mutual advantages for both, this is possible by sharing knowledge and the expertise in a way to create a trusted relationship and strong expertise.

4. Future prospects and possible measures for improvement What do you think IKEA can do to improve its supply chain in the future? After having scrutinized the sophisticated supply chain management of IKEA one can state that there are always small and maybe also bigger issues that can be improved and need further maintenance and monitoring. In case of IKEA it seems that the company is very successful in the implementation of their strategies concerning the relationship with suppliers, manufactures, the distribution channels and retailers, referring to the above. The company managed it to become the world’s largest furniture retailer, thus is in urgent need of a well-functioning system. Since the last decade, IKEA is increasingly focussing on sustainability which it wants to implement in every step of the supply chain. Obviously, this may not be that easy as the intended strategy can vary from the real performance. However, in its Code of Conduct (IWAY) and the numerous alliances with for instance the Rainforest Alliance, IKEA manages it to produce more ecologically friendly. According to the BGGB report (2014) there is a difference between the perc eption of the efforts of brands from the outside and their real performance. IKEA achieved to be on the 14th rank (BGGB, 2014), which means that the company is balancing out its communicated efforts with the real performance in a reasonable manner. However, there is room for improvement to get even more “green” and monitor their ecologically friendly efforts in every part of the supply chain and thus really achieve the aimed goals. Additionally, it might be beneficial to improve the communication of the company in terms of  being more transparent for the consumer. The improvement of the relationship to the consumer can be extraordinary ameliorated by revealing more information about its sustainable efforts and also assuring their effectiveness. In this way, the whole brand identity can even be enhanced. In view of the fact that for IKEA it is of utmost importance to establish and keep long-term relationships with its partners, it is still important to keep track of the company’s internal aims and requirements in order to be successful in the overall network with all its supply chain members in the future.

Seminar 2: Industrial Marketing Marketing II (FÖ1017), 7.5hp

5. Conclusion In order to conclude it is to state that an overview of the main steps of the supply chain management could be established. The paper has depicted the ties and the relationships in this complex environment focussing on the Supply Chain Metrics-model from Lambert and Bennion (1982) and the ARA- model from Håkansson and Johansson (1992), illustrating the dynamics of IKEA and of the other actors in the business scene.

6. List of References

BGGB. (2014, 06). The Power of Participation.  Retrieved from http://interbrand.com/wpcontent/uploads/2015/08/Interbrand-Best-Global-Green-Brands-2014-Overview-8.pdf  Håkansson, H., & Johansson, J. (1992). A model of Industrial Networks. In B. Axelsson, & G. Easton, Industrial Networks- A new view of reality  (pp. 28-34). London: Routledge. Håkansson, H., & Snehota, I. (1995). Relationships in business. In Developing relationships in business networks. London: Routledge. IKEA Group. (2014). IKEA Group Yearly Summary. Retrieved from http://www.ikea.com/ms/en_US/pdf/yearly_summary/ikea-group-yearly-summary-fy14.pdf IMP-Group. (1982). Interaction approach. In International Marketing and Purchasing of Industrial Goods (pp. 10-27). Chichester: Wiley. Kelly, S. (2010). Written Examination Stimulus Material Case Study- IKEA. Kotler, P., Keller, K., Brady, M., Goodman, M., & Hansen, T. (2009). Marketing Management (13th ed.). Upper Saddle River : Pearson Education Limited. Lagrosen, S., & Svensson, G. (2006). Marketing-Broadening the Horizons. Lund: Studentlitteratur. Lambert, D., & Bennion, M. (1982). New Channels Strategies in the 1980s. In M. Harvey, & R. Lusch, Marketing Channels: Domestics and International Perspectives  (p. 127). University of Oklahoma: Center for Economic Management Research.