IKEA, the Swedish retailer, is known for its good-quality, inexpensive products, which are typically sold at prices 30–50% below those of its competitors. While the price of products from other companies continues to rise over time, IKEA’s retail prices have been reduced by a total of 20% over the last four years. At IKEA, the process of cost reduction starts at product conception and continues throughout the process of design, sourcing of materials and components, production, and distribution. For example, the “Bang” mug has been redesigned many times to realize shipping cost savings. Originally, 864 mugs would fit into a pallet. After redesign a pallet held 1,280 mugs, and with a further redesign 2,024 mugs could be squeezed into a pallet, reducing shipping costs by 60%.
IKEA strives to deliver the right number of goods to the right stores at the right time to make sure that the deliveries are efficient. IKEA’s mantra in shipping has always been the same stating “We don’t want to pay to ship air”. IKEA’s products are shipped in flat boxes by not only reducing shipping for IKEA, but making it easier for customers to be able to slip it in the cargo hatch of a station wagon.
New Product Process:
The process of developing a new product at IKEA starts with a team of designers, product developer and purchasers who get together to discuss design, materials, suppliers and pricing. Everyone contributes and purchasers use their contacts with suppliers all over the world to find who can make this product at best quality for the right price at the right time.
IKEA’s products are often developed in close cooperation with suppliers. IKEA has introduced a code of conduct governing working conditions and environmental awareness among suppliers. This deals with matters of health and safety at workplace that forbids use of child labor. IKEA implements quality control with external audits who check IKEA and external suppliers. The...
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