Value Chain-Ikea

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1. IntroductionIKEA, the famous Swedish company, is the one of the largest furniture retailers in the world, which specializes in modern but inexpensive Scandinavian designed furniture. According to Echeat (2006), the IKEA had more than 175 stores spread over 31 countries at the end of 2002 and worldwide sales of about 12.8 billion euros in 2004. During the IKEA financial year 2001-2002, a total of 60,000 people are employed by IKEA worldwide and there are 323 million people visited IKEA stores around the world (Kronos, 2006). IKEA mission is to offer consumers good value for their money. The typical IKEA customer is young low to middle income family. IKEA success in the retail industry can be attributed to its vast experience in the retail market, product differentiation, and cost leadership (Echeat, 2006). As a global organization, the company is the world most successful retailing firms based on its unique concept that the furniture is sold in kits that are assembled by the customers at home. 1.1 Operating strategyIKEA dose not manufacture its own products, but works through a complex network of suppliers around the world to help company maintain its low-cost position. Actually, it has 1,800 suppliers in 55 countries. By providing the manufacturers with technical and financial assistance, IKEA establishes durable partnerships with furniture producers and suppliers. To secure suppliers and help suppliers develop, IKEA also has launched partnerships as joint owners in several countries including Poland, Russia, and China. Due to ypically Swedish?style, all research and development activities are centralized in Sweden where determined what materials should be used and what manufacturers would do the assembly work. In addition to using high volume runs to cut costs, IKEA always believed that costs are kept under control starting at the design level of the value-added chain. IKEA designers work closely with suppliers to build savings into the products by designing products that can be produced at a low cost. It sells most of its furniture as kits for customers to take home and assemble themselves. Those knock-down kits are packed in flat boxes, which can eliminate wasted space and transport and store goods more efficiently in the logistics process (Economist, 1994:101). With the fierce competition increasingly, IKEA is attempting not only to globally integrate operations and centrally design products, but also to find an effective combination of low cost, technology, and quality. IKEA realized strong in-stock position in which the most popular style and design trends were correctly anticipated is crucial to keep satisfied customers (Geocities, 1996). For that reason, Just-in-time concepts are applied to decision making. Apart from that, IKEA has developed its own global distribution network to make sure the firm is able to insure timely deliver of products to retail stores all over the world. In order to cater for customer tastes and preferences, IKEA stores all over the world carry the basic product range which is universally accepted, but also places great emphasis on the product lines that appeal to local customer preferences (Retail Business, 1994: 78). 2. Insights and Reflection of Ikea2.1 Ikea Modification of the Value ChainAccording to Porter (1980), an organization can enhance its competitive positioning by performing key internal activities in the value chain at a lower cost and do better than its competitors. The value chain approach identifies two major activities, primary activities include production, marketing, logistics and after-sale function, and secondary activities include firm infrastructure, human resource management, technology development and procurement. The ultimate purpose of the firms is to add as much customer value in each of the primary activities. See appendix 1However, Ikea has modified the value chain approach by integrating the customer in the process and introducing a two-way value...
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