Operational Efficiency at Ikea

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History of IKEA

IKEA, the world’s largest furniture manufacturer, began from humble roots near Agunnayrd, Sweden. In the late 20’s and early 30’s a young Ingvar Kamprad began buying matchsticks in bulk, only to sell them individually to neighbors for a small margin. The business savvy boy expanded his sales to include Christmas cards, seeds, pens and pencils. But it wasn’t until, at the age of 17 with money he received from his father for his academic performance, did Ingvar have the means to expand his offerings to include picture frames, wallets, and jewelry; ultimately formalizing his retail operations under the name IKEA.

The 1940 and 50s brought a burgeoning demand for furniture, largely as a result of the innovative and attractive designs originating from local artisans and manufacturers. Recognizing the opportunity to address this demand Ingvar opted to drop all other products and concentrate solely on furniture. 1951 also saw the birth of an IKEA icon – the company’s first printed catalog, which became a hallmark of the IKEA marketing process (by 2010, 197 million copies of the IKEA catalog were printed in 61 editions and 29 languages).   In 1953 IKEA opened its first showroom to give customers an opportunity to touch and feel the furniture before placing an order.  1956 marked two revolutionary steps for the company: primarily, IKEA decided to design and manufacture its own furniture, and secondly the furniture would require customer assembly and be available in flat boxes—a function which serves as the precursor to “design for logistics”.

The first IKEA store opened in 1958 in Almhult, Sweden; with domestic success, it did not take long for Kamprad to expand internationally.  In 1963, IKEA opened its doors in Oslo, Norway.  Today there are 321 IKEA stores in 38 countries. As of fiscal year 2010, this retail behemoth employees 127,000 associates and generates sales of more than 23.1 billion Euro. Despite its size, the company maintains its Swedish roots and prides itself on developing innovative ways to design, manufacture, and distribute furniture to ensure the company’s mission can be maintained: that of “offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”.

Design for logistics

An essential competitive advantage for any modern Fortune 500 company, particularly a manufacturing firm, is to minimize overhead while maintaining high performance.  Many companies strive to achieve this by implementing highly efficient machine tools, energy saving capabilities, and leverage economies of scale for discounted, outsourced services. IKEA, has not only adopted some of these measures, but has also embraced and enhanced its 1950’s flat packaging innovation to augment its superior operational efficiencies. This methodology for packaging, coupled with complementary processes defines the “design for logistics (DFL)”

Ken Homa, distinguished professor at Georgetown University, argues, Design for logistics is an often neglected methodology in business operations.  In many cases, product designs decisions are made between marketers and engineers without regard for possible logistical implications.  After the design is complete, it is logistical personnel who attempt to maximize transportation efficiency, but the results are typically inferior.  A central tenet to design for logistics is the integration of the logistics function along with product design teams in developing products and packaging in order to optimize supply-chain efficiency.  A successful implementation of design for logistics within a company can increase success in supply chain objectives: high service levels, low costs, and high asset productivity.

IKEA has arguably perfected the DFL process; however this excellence has evolved from years of trial and error. These advances have an interesting history which serves as a prime...
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