IKEA Asset and Process for Supply Chain

IKEA is a large Swedish furniture company specializing in designing and selling home accessories and furniture in a ready-to-assemble form. The ways in which the company has organized its cooperation with suppliers and relations with customers allows it to offer thousands of products in its stores for low prices while having much in stock (Lu, 2014). The affordability and high quality of furniture form the foundation of IKEA’s supply chain management strategies that are based on the unique techniques that entail outsourcing, low prices, ease of delivery, and store accessibility.

The chain of IKEA stores is distributed around 37 countries of the world where 298 stores are open for the customers. IKEA’s overall strategy is consumer-centered, according to which all the furniture designed by IKEA is functional, of high quality, efficiently distributed, and environment-friendly (Lu, 2014). The concept of “Do-It-Yourself assembly lowers packaging costs,” allows for providing goods for competitive lower prices, and necessitates the design to contain minimum parts and materials for the most efficient and practical use (Lu, 2014, para. 15). Such a product design approach reflects the company’s vision of providing affordable and high-quality furniture to as many people as possible and displays its concerns related to environmental issues (IKEA, n. d.).

Sustainable development is a significant aspect of IKEA’s overall business strategy. The firm commits to utilizing only renewable and recyclable materials that predominantly include wood, glass, and cotton (Rangan et al., 2014). Since wood is the main raw material used by the firm, IKEA has developed the IKEA Way of Purchasing Products, Materials, and Services (IWAY) that necessitates all suppliers to maintain an environment- and forestry-friendly use of wood and other materials (Rangan et al., 2014). IKEA particularly works on the energy use strategies, according to which it minimizes the use of energy across the process cycle and aims at producing as much renewable energy as it utilizes (Rangan et al., 2014). The environmental impact of the furnishing produced by the company is of significant concern to IKEA’s management, which advances its People & Planet Positive strategy that incorporates renewable material use, consumers’ sustainable life, and resource independence (Rangan et al., 2014). Thus, the company contributes to improving community life by producing sustainable products for consumers’ sustainable life.

Despite the main focus on low prices, functional design, and high-quality, sustainable materials, IKEA chooses suppliers by prioritizing long-term business cooperation. IKEA has generated a system of relationships with its suppliers by outsourcing production services instead of owning its manufacturing facilities (Huy et al., 2011). Having more than 1,000 suppliers worldwide, IKEA enters into alliance relationships with the suppliers. The company provides technical and financial support in terms of facilities and materials. However, it does not develop a strategy of supplier ownership, with the only exception of Swedwood as a fully IKEA-owned company (Huy et al., 2011). Since maintaining a sufficient level of supply, and the high quality of products for customer satisfaction are the priorities for the firm, the establishment of long-term contracts with suppliers is key. It allows the company to concentrate on designing and selling processes while outsourcing the production processes.

Some other unique features of IKEA’s supply chain processes include an in-store logistic service, a cost-per-touch principle, and inventory replenishment. Firstly, warehouses function as physical stores accessible to customers, due to which the costs and management efforts are reduced (Lu, 2014). Secondly, the company shifts the outbound logistic cost to the customer and eliminates unnecessary costly steps of shipment, storage, and delivery. Finally, the inventory replenishment process allows for “the minimum amount of products available before reordering” and “the maximum amount of a particular product to order at one time” (Lu, 2014, para. 24). However, the COVID-19 pandemic has had a negative impact on IKEA’s supply management since its continuous prioritization of physical store selling slowed down the development of online purchasing. Therefore, according to Pacheco (2020), the company plans to invest in the digital domain to improve its remote selling capacity.

In such a manner, the company’s long-term alliance with outsourced production and functional and efficient design of do-it-yourself assembled furniture minimize costs and maximize customer satisfaction. When comparing the asset and processes for the supply chain of IKEA to Wayfair’s supply chain, the two frameworks are similar in the utilization of a wide range of suppliers and distribution centers. However, they differ in the approaches to customer experience, where Wayfair offers competitive delivery terms, and IKEA is concentrated on minimizing costs by allowing customers to pick up and assemble the goods individually.

References

Huy, Q., Jarrett, M., & Duke, L. (2011). IKEA: A furniture dealer. INSEAD. 

IKEA. (n. d.). Delivery

Lu, C. (2014). How does IKEA’s inventory management supply chain strategy really work? Supply Chain 247. Web.

Pacheco, I. (2020). IKEA can’t reopen stores fast enough after flubbing online orders. The Wall Street Journal. 

Rangan, V. K., Toffel, M. W., Dessain, V., & Lenhardt, J. (2014). Sustainability at IKEA Group. Harvard Business School, case 515-033. Web.

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