Ikea Supply Chain

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INTM 543 PURCHASING

IKEA SUPPLY CHAIN

November 2012

1. INTRODUCTION

Ikea is a Swedish international home products company that designs and sells ready-to-assemble furniture. It was founded in 1947 by 17-year-old Ingvar Kamprad, who currently is one of the richest people in the world. He borrowed some money for his parents and create a small local furniture store, 65 years later Ikea is one of the leading home furnishing companies in the world with its vision to ‘’create a better everyday life for the many people’’ (Kamprad). The company’s 2011 sales jumped 6.9 percent to €24.7 billion and its net profit rose 10.3 percent to €2.97 billion ($3.85 billion) (Local, 2012).

The Ikea concept is based on their market positioning statement ‘’Your partner in better living. We do our part, you do yours. Together we save money’’ and focuses on a commitment to product design, consumer value and clever solutions. By using inexpensive materials in a novel way and minimizing production, distribution and retail costs, their customers benefit from low process.

Consumers may be not be aware that before they find the product in a IKEA store, this product must be move from being raw material through several stages to became finished product. This process is known as the Supply Chain. IKEA has 250 own stores in 24 countries and 32 external franchisees in 16 countries also, there are 590 million visitors per year to its stores and 450 million visitors are tracked entering the Ikea website. Due to this facts a well design and effective Global Supply Chain is necessary.

2. SUPPLY CHAIN PROCESS
Supply chain in Ikea was mainly make-to-stock (MTS), which means that the production is matched with the consumer demand forecasts (The Logistics $ Supply Chain Management Society). This method forecasts demand to determine how much stock should be produced. In Ikea only a few products are made to customers orders.

Traditionally, stores had a high level of freedom in terms of planning and refilling requests. In consequence, the supply chain planning was fragmented with a lot of manual intervention throughout the supply chain. Ikea led all different parts of the supply chain to optimize its own part so now there are many imbalanced supply plans.

This situation led to several problems, which affected the whole performance of the supply chain. Stock-out and over-stock situation might happen more often than expected. Also, there was an issue related to the trust between different parts of the supply chain due to the fact that the planning processes were fragmented and the information was unreliable. Furthermore, monitoring tools were not very well used so synchronization of order and stock data had difficulties.

However, Ikea began a new program in order to overcome these problems and have better control of its supply chain. This new project consists in a new global centralized planning organization using advanced software support.

Ikea centralized all forecasting activities in order to control stock levels and replenishment calculations (Swedwood). In figure 1 we can appreciate the supply chain.

Figure 1: Supply Chain

1. IKEA SWEDEN
Sales Planning
A sales plan contains the objectives of the sales process, the responsibilities and incentives of those involved in the sales process, and the resources that will be available or used for the sales process. In the sales planning step, forecasting is made in terms of total volumes in monetary units for Ikea. These sales plans may be broken into sales frames per region (group of countries) because differences between forecasts. These frames and sales plans are reviewed three times per year.

Demand Planning (Forecasting)
The Forecasting is divided in two, the tactical forecast and the operational forecast. The tactical forecast is done on a rolling 84 weeks planning horizon by the Demand Planners, each responsible for forecasting parts of the assortment. The sales...
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