Supply Chain System of IKEA

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Supply chain system of IKEA|
SCM TERM PAPER|
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Annika Albuquerque|
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Contents
INTRODUCTION3
BACKGROUND NOTE4
MANAGING SUPPLY CHAIN7
SUPPLY CHAIN PLANNING8
SUPPLIER RELATIONSHIP MANAGEMENT9
WAREHOUSE MANAGEMENT11
STORE DESIGN12
THE ROAD AHEAD14
Exhibit I15
Note on IKEA Way of Purchasing Home Furnishings (IWAY)15
Social & Working Conditions15
Environment and Forestry: Suppliers must agree to:15
IWAY Implementation:15
Support and Monitoring:15
Exhibit II16
HOLISTIC VIEW OF IKEA17
ORGANIZATION STRUCTURE AT IKEA17
References and Suggested Readings:18

IKEA’S COST EFFICIENT SUPPLY CHAIN

On January 01,2009, Modern Material Handling announced that IKEA (IKEA), world’s largest furniture retailer4, had won the Modern s Productivity Achievement Award5 for the Warehousing/Distribution segment for the year 2008-09.Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective. Its most differentiating factor was its flat packaging system which had significantly improved its operational efficacy

INTRODUCTION
On January 01, 2009, Modern Material Handling announced that IKEA Group3 (IKEA), world s largest furniture retailer4, had won the Modern s Productivity Achievement Award for the Warehousing/Distribution segment for the year 2008-09. Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective. Its most differentiating factor was its flat packaging system which had significantly improved its operational efficacy. IKEA was ranked 35t h in the list of the top 100 brands by Business Week6 for the year 2008-09. The company’s brand value was estimated to be US$ 10.9 billion in 2008. For the financial year 2008, IKEA registered sales of US$ 28.8 billion.

According to industry experts, IKEA s supply chain management was the key factor for the success of the company. The company considered factors like carriers used for transportation and pallets used in warehouses to base its decisions like furniture design and packaging. As a result, IKEA was managing its costs better than its competitors and was able to offer products at 30% lower costs. IKEA maintained a long-term relationship with its suppliers and assisted them in improving their processes so that it would help in cutting costs further. The company did not offer free home delivery as other furniture retailers did and expected its customers carry the products with them in their vehicles and assemble the products themselves. This helped IKEA cut down on a part of its transportation costs and pass on the benefit to its customers in the form of low priced goods.

BACKGROUND NOTE

IKEA was founded by Ingvar Kamprad (Kamprad) in 1943 in Agunnaryd, Sweden, when he was 17 years old. Kamprad started by selling goods like pencils, wallets, jewelry, picture frames, and watches. Kamprad tried to keep costs low by purchasing goods in large quantities and passed on a part of this benefit to his customers. In 1947, Kamprad introduced furniture in his product...
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