IKEA operations management

Topics: IKEA, IKEA Catalogue, Customer Pages: 23 (4802 words) Published: June 1, 2012
Operations Management

Critical Evaluation of Relevant Issues - IKEA case


2Executive Summary �

2Introduction �

2Company profile and Situational Analysis �

3Growth and profitability �

5Culture �

5Goals �

5Competitors �

5SWOT analysis �

6PESTLE Analysis �

6Political Analysis �

6Economic Analysis �

6Technology Analysis �

7Sociological Analysis �

7Legal Analysis �

7Environmental Analysis �

7Input-Transformation-Output �

8Corporate Objectives �

9Quality �

10Speed �

10Dependability �

10Flexibility �

11Cost �

12Polar representation �

12Process Design �

12Process type �

15Cost �

16Flexibility �

17Quality �

17Process Design - Product Design �

18Recommendations �

19Conclusion �


Operations Management is how organizations produce goods and services (Slack et all, 2010).

Organizations must be able to align their processes to fulfill customer requirements and ensure they are satisfied, which leads to careful planning and if successful to a competitive lead.

This reports focus on IKEA, and how IKEA operations management has made them one of the leaders in retail in the world, with a deep analysis of IKEA corporate organization and operations management.


IKEA is the most successful furniture retailer in the world. The product line consists of well-designed furniture at low prices. During 2011, IKEA has reported 25.2Billon Euro total revenue and 2.966Million Euro net income. This success was not achieve in one day; it took long time and careful planning in order to achieve customer requirements


IKEA's is global organization with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centers, or directly from the 2000 suppliers in more than 50 countries. IKEA's supply chain consequently has a global spread with both sales and purchasing in all major regions of the world. IKEAs growth has been tremendous and sales are still growing. Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the coming five year (IKEA, 2012).

Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs.

The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This has led to a fragmented supply chain planning with local optimization and a lot of manual intervention with plans throughout the supply chain.

Furthermore, due to frequent shortage situations some regions have purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand coverage. Hence, some markets have suffered from stock outs during long periods, whereas other markets have ended up with obsolete inventories. Forecasting has been done on a regional level with approximately 120 users striving for different goals and using different methods. Part of the explanation to this is that IKEA has lacked a common and structured tactical planning of demand and replenishment. In terms of capacity planning, all different parts of the supply chain (stores, warehouses, regions, etc.) tried to optimize its own part of the supply chain, leading to a set of imbalanced supply plans with a low and unstable total throughput with long

Replenishment times for the supply chain as a whole....

References: Baraldi, E. (2008), "Strategy in Industrial Networks: Experiences from IKEA", California Management Review, vol 50, no. 4, pp 99.
Dolgui, A. & Proth, J. M. (2010), Supply chain Engineering: Useful Methods and Techniques, Springer
Ikea (2010), The right quality for IKEA products. Available from http://ikea.com/ms/en_GB/about_ikea/press_room/rightquality.pdf [Accessed: April 8, 2012]
Ikea (2010) , Welcome Inside. Available from http://ikea.com/ms/de_CH/about_ikea/pdf/Welcome_Inside_2010.pdf [Accessed: April 1, 2012]
Koenig, W. (2000), Geschichte der Konsumgesellschaft, Franz Steiner Verlag.
Schroeder, R. G. (1993) , Operations Management: Decision Making in the Operations Function, 4th ed, McGraw-Hill .
Margonelli, L. (2002), How Ikea designs its sexy price Tags, Business 2.0. Available from : http://www.ise.ufl.edu/ein43333/articles/How_Ikea_Designs_Its_Sexy_Price_tags.pdf [Accessed: March 28, 2012]
Slack, N., Chambers, S. & Johnston, R. (2010), Operations Management, 6th ed, Pearson Education.
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