Ikea Distribution

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Table of Contents:
1. IKEA – An Introduction …………………………………………………………………………….. 2 2. The reason of why distribution is such a key element of IKEA’s value chain.. 2 3.1 Distribution System of IKEA ………………………………………………………………………… 2 3.2 Porter’s and IKEA modified value chain ……………………………………………………….. 2 3.3 Importance of distribution for IKEA value chain …………………………………………… 2 3. SMA techniques in IKEA for managing its distribution network ………………….. 3 4.4 Target costing ………………………………………………………………………………………………. 3 4.5 Customer profitability ………………………………………………………………………………….. 3 4.6.1 Customer Revenue …………………………………………………………………. 3 4.6.2 Customer Costs ………………………………………………………………………. 4 4.6 Rolling forecasts strategy …………………………………………………………………………….. 4 4.7 Balance score card ……………………………………………………………………………………….. 4 4. Recommendation/Conclusion ……………………………………………………………………. 4 APPENDIX ………………………………………………………………………………………………….. 6

1. IKEA – An Introduction
IKEA, a home furnishing product seller and distributor, was originally founded in Sweden and becoming the world leading and internationalize company in its field with more than 300 stores, 27 distribution centres and 11 customer distribution centres over the world in 40 countries. It has created more than 9,500 products with a low cost, good quality, flat package, unpronounceable name and do-it-yourself concepts. An effective system in IKEA has been renowned in many areas including supply chain management, cost management and human resource management. The background and business function of IKEA can be found in Appendix 1. 2. The reason of why distribution is such a key element of IKEA’s value chain

2.1 Distribution System of IKEA: IKEA distribution system starts from receiving finished goods supplied from suppliers or manufacturers into IKEA distribution centres and retail stores. IKEA perform an inventory management and warehousing system. Customers come to purchase products from IKEA store and bring the home as part of transportation (Appendix2). In addition, internet online service has become another channel for purchasing IKEA product. Customers can order online and products will be delivered from the nearest distribution centre to them directly.

2.2 Porter’s and IKEA modified value chain: The concept of value chain as described by Michael Porter identifies that the competitive positioning and customer value can be enhanced through the linking activities (Appendix3). IKEA modifies value chain by involving customers and suppliers into the system (Appendix4). It tries to make customers and supplies realize that they can add value not just consume it or not just from the firm’s internal management. In IKEA, customers do their own shopping process by searching through catalogue, going to the store, looking for products in the showroom, and finally bringing home and assembling by themselves. These help in reduction of cost of sales. On the other hand, supplies can add value by producing high quality goods which help in reducing inspection time, customer complaint, replacement cost; by lowering production cost and by operating with highly skilled worker and technique which help in diminishing coaching, training and knowledge transferring time from headquarter.

2.3 Importance of distribution for IKEA value chain: Since manufacturing of products has already been outsourcing to supplier, distribution becomes a core activities for local and global IKEA business. There are numbers of activities in the distribution process that can be added value to the chain in order to reduce cost and enhance efficiency at the same time. Distribution process| Benefit| Value added Activities|

Ordering| * Reduce labour cost of sales person| * Catalogue distribution * Showroom * Self-checkout * Online service| Logistics| * Reduce transportation cost * Increase time utilization * Reduce labour cost * Enhance...
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