IKEA Supply Chain
IKEA is a private Dutch company with a Swedish origin, which designs and manufactures furniture that is ready to assemble. This includes chairs, beds and desks among others. At the end of 2011, the company had more than 330 stores that were distributed in 38 countries (Dahlvig, 2012).
The company’s supply chain is well organized and aims at satisfying the needs of all the relevant stakeholders involved. It is responsible for the acquisition of raw materials, manufacturing and delivery to the end consumer. Designing of the products is done in Sweden. During the design process of the products, IKEA tend to give the needs of its consumers a priority. They are more consumer oriented as opposed to product orientation. The organization designs its products based on consumer preference and tastes. The company’s design model aims at satisfying a majority of people hence targets individuals with limited spaces and limited incomes. Price and quality are the ultimate determinants of the designs so as to ascertain that the final products will sell. As the company does this, it enhances environmental sustenance. More than 50% of the company’s products are made of wood fibers or wood. This paves way for the recycling process (Stenebo, 2012).
Manufacturing of the products is mainly done in developing countries. This strategy was adopted in order to reduce the costs hence develop a profitable venture. Raw materials are derived from over 50 countries. Manufacturing takes place in the plants that have been developed all over the world on a standard basis. The countries with the highest supplies include China, Italy and Poland. The assembling aspect is usually done by the end consumer.
Recently, the company has purchased 15-hectare of land in Melbourne to act as its national distribution centre. Furniture will be distributed to other distribution centers all over the world from this point. In each country of operation, the company has a national distribution centre which ensures that the products reach the consumer. IKEA’s products are transported in flat-packs. This ensures that the company has the ability of getting more items in a single load (Ferrell & Hartline, 2011). The company has hired a network of transport companies to help move products from factories to warehouses. Before moving to the warehouses, they have to go through the distribution centers. The store is usually the final destination. The stores have been located in different parts of the countries involved depending on the population demographics. There is no standard size for the stores. It depends on the amount of inventory that each store is required to hold. Stockholm Kungens located in Sweden is the largest store with an area of 55,200 square meters.
Supply Chain Issues
Among the challenges that IKEA faces in its supply chain is maintaining high quality products while offering low prices. This has been among the competitive advantages of the organization. The raw materials used by the organization are of high quality hence making the end products to be of high quality too. High quality raw materials are usually expensive. This has been a great challenge to the organization since it needs to attain a break-even despite this occurrence. As a result, the company has been forced to reduce other costs so as to cater for the cost of raw materials. Taking the manufacturing process to developing countries has been among the measures. In developing countries, labor and other factors of production are cheap. This enables the company to attain a break-even.
Another issue that has been facing the company is criticism from some bodies associated with environmental aspects. IKEA works on a model that aims at enhancing social and environmental sustainability. Some people have come to this criticism claiming that some products being used are not environmentally friendly. A good example is the formaldehyde scandal that was experienced by the organization. This is an organic compound that has effect on human health. Its wide spread results to volatility and toxicity. Due the scandals, the company had to reduce the level of formaldehyde in the manufacturing of its products (Collin, 2010). There was also the need of employing scientists that would help in formulation of strategy that would improve the environmental aspects. All this has resulted in increased cost in the company’s supply chain.
IKEA is also being faced with the aspect of receiving low quality products from the suppliers of raw materials. The company is dealing with more than 50 suppliers in its supply chain. These suppliers have different objectives and goals. This means that their actions are driven by their motives. As a result, instances of supplying low quality raw materials are likely to arise. Once these events occur, the company has to return the raw materials to these suppliers. This delays the production process hence jeopardizing other operations (Edvardsson & Enquist, 2009). At the moment, the organization is dealing with suppliers that have already built a name for themselves over their years of operation. The assumption behind this is that such suppliers must have been good with their work hence gaining the recognition.
The company has also been criticized of charging twice the price for products found in Canadian stores. The other market of reference for this criticism was United States. There was an assertion that prices in Canada were twice those in United States. If the issue was not taken with caution, it would have resulted in spoiling the company’s supply chain image. In its defense, the company came out and denied the allegations. It accepted that the prices were not the same but were not double all together. The differences had been caused by currency parity and other economic features.
Supply Chain Management
IKEA’s supply chain management has taken effect due to the strategy developed by the organization. The management has made sure that all the parties to the supply chain work in partnership. This aspect of working in partnership ensures that every member of the supply chain works with a common goal. With this ideology, it is possible to attain the strategic objectives of the organization. The culture was initiated from time memorial and has been a great pillar in the company’ success.
Another supply chain management aspect is that the organization ensures that there is adequate communication among the members of the supply chain. This way, it is easy to identify what the end consumers want and is availed to them. There are measures to ensure that there is no form of conflict that exists between the stakeholders. For this to be achieved, the company has set jurisdiction with regard to everyone’s role in the supply chain. With such an environment, aspects of conflict are mitigated (Arlbjørn, 2008).
Over the years, the company has also subjected its suppliers with contracts of quality assurance. The code of practice available to them entails conformity with international laws, not delivering products from unsustainable forests, avoiding usage of child labor and contribution to recycling among others.
Arlbjørn, J. S., 2008. Northern lights in logistics & supply chain management. Køge: Copenhagen Business School Press ;.
Collin, R. W., 2010. Encyclopedia of sustainability. Santa Barbara, Calif.: Greenwood Press.
Dahlvig, A., 2012. The IKEA edge: building global growth and social good at the world’s most iconic home store. New York: McGraw-Hill.
Edvardsson, B., & Enquist, B., 2009. Values-based service for sustainable business: lessons from IKEA. London: Routledge.
Ferrell, O. C., & Hartline, M. D., 2011. Marketing strategy (5th ed.). Mason, OH: South-Western Cengage Learning.
Larsen, T., 2007. Managing the global supply chain (3rd ed.). Copenhagen: Copenhagen Business School ;.
Stenebo, J., 2012. The truth about IKEA: how IKEA built its global furniture empire. London: Gibson Square.
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