Ikea Supply Chain Analysis

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Supply Management
IKEA Supply Chain Analysis

Name| Sun Yifei|
| Wu Yanli|
| Zhang Yuting|
Word CountSubmission date| Zhao Yandong4114April 18th, 2012|

IKEA is short for Ingvar Kamprad Elmtaryd Agunnaryd, as the Swedish furniture corporation, which with more than 200 stores in over 30 countries (Chen et al., 2011). In 2011, IKEA had 23.5 billion euros in sales with 2.7 billion euros net income and 127,000employees worldwide (IKEA sustainability report, 2011). The company is known for being good at cost control and continuous product development, which allows keeping its prices competitive and continue its global expansion (Jonsson et al, 2010). In order to have a better understanding, this report will use Porter’s five forces analysis to analyse the organisation and indicate some general potential challenges within IKEA’s supply chain management. Then it will propose the further challenges with a number of practical suggestions on Make-Buy, supplier selection and supply relationship. Porter’s five forces Analysis

1. Power of buyers
IKEA is being well known on high quality and low price (IKEA sustainability report, 2011). They are trying to concentrate on satisfying their customers’ requirements in all aspects and conducting marketing approach on customer needs, especially for quality services (Jonsson et al, 2010). In addition, IKEA has a great public image to customers due to exploiting corporate responsibility on their product quality control (Ikea.com, 2012). Furthermore, the most of buyers have a significant impact on IKEA’s product line (Chen et al., 2011). For instance, in 1960s, IKEA created and developed a new type of model furniture package – self-assembly furniture, which is the furniture is unassembled in flat cartons, in order to make buyer to transfer and handle the furniture easier. This ability is to fit the direct feedback and requirement from the buyers (Caplan, 2006). To sum up, there is little bargaining power of buyers, because there are limited options on low price with high quality product in the market (Chen et al., 2011). For example, IKEA took advantages on customised kitchenware and furniture. As the retail chain, IKEA sells to a fragmented consumer group (Caplan, 2006). In this phase, some of IKEA’s products are not highly standardised due to the specific private design for customers (Hultman et al., 2011). The buyers might not easily switch to another brand product. This makes the IKEA unique in this market among several its competitors (Chen et al., 2011). 2. Power of suppliers

IKEA has its own production factories and designers, which could make it less dependent on other suppliers (IKEA sustainability report, 2011). However, IKEA also has a great number of networks - 1026 suppliers in 2011 and IKEA selects them carefully (IKEA sustainability report, 2011). In recent years, this number decreased steadily, because in this industry, there are plenty of competitive suppliers and few dominate buyers; IKEA could offer them contracts with highly strict conditions but in low price to improve their customer service (Jonsson et al, 2010). For example, in 2009, IKEA tried to figure out a problem, which showed some of IKEA’s furniture was too complex to assemble by consumers. Then IKEA has obtained the collaboration from some suppliers to modify and restructure the complicated unassembled furniture and provided materials that are easier for customers to assemble (ibid). This cooperation has improved and added value to the supplier relationship. Therefore, there is little bargaining power of suppliers, because the most of suppliers work for IKEA might compete with other international suppliers and it is high competition level industry (Chen et al., 2011). In addition, IKEA has contracted with over 1000 suppliers in the world (IKEA sustainability report, 2011). The most of these contracted international suppliers have no independent brand names,...
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