Analysis of Supply Chain Management of IKEA
All IKEA stores are huge and they hold more than 9,500 products. Have you ever wondered how do they manage to offer so much at a nominal price and never run out of stock? This organizes always manage to impress its customers by providing them with high-quality furniture at an affordable price. At the same time, they woo their competitors across the globe as well with their unique inventory and supply chain management techniques. This sample gives you an overview of the company. Afterwards, it analyses its supply chain and related operating-level processes and lastly provides the Impacts on the Operations Management of the Organization. Here is a project on the supply chain management of IKEA.
Choose an organisation or an operating division with it. The organisation can be from the private, public or third-sectors. Analyse the organisation’s supply chain network. This should include an explanation of how the supply chain network:
• Sustainably operates in support of the company’s strategic and customer needs and,
• Integrates with the company’s operating level processes.
Supply chain management is systematic and the key coordination management for the supply of fundamental merchandise and items to the end-users or customers. Or on the other hand, we can say that the practice of delivering goods or items to the customers or clients and the association's endeavours are clearly reflected, this is called supply chain management. The primary goal of the SCM is to make total assets, assemble the focused framework, synchronize the supply of products, measure execution on a worldwide scale, and exploit logistics, and so forth over the globe.
Today most worldwide organizations are hunting down production centres where work and raw material costs are cheap and SCM is extremely valuable for associations to contend in the worldwide market and system economy. Different associations require distinctive exercises in which strategic management is required with the end goal that sourcing from distinct places of raw materials and after that from distinct places these completed products are gone through various series of the distribution network in which retailers, merchants, and end clients are included (Werner, 2000).
From this point of view, the article will at first talk about the IKEA supply chain by concentrating on the motivation behind its business. It will require considering and order fulfilment of its Supply Chain Management and competitive strategy, client satisfaction, environmental examining, and supply chain processes.
The supply chain of IKEA is a worldwide dispersion with expanding sales and purchases in every significant region of the world. This article plots the idea of the worldwide supply chain planning of IKEA, and in the idea described the part of the planning association, information quality, and programming support. Its foundations incorporate mutually coordinated planning forms, a centrally based planning association, concentrating on information quality, advanced programming support amid implementation, and utilizing organized change management.
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Overview of the company or organization
A globally reputed home furnishing retailer, IKEA is internationally famed. Since its foundation in 1943, the Company has been able to sustain its success run to date. Ingvar Kamprad founded the Company in 1943 and it initially offered several items including stationery items, jewellery, etc. They added the furniture section in their product line in 1947 and in the year 1955 they introduced designer pieces. IKEA is known to be a lifestyle furniture producing company that is much known for selling disassembled furniture. It should be noted that "70% of IKEA's annual marketing budget is consumed by their catalogue" (Roy, 2015). Becoming the world's largest furniture retailer, IKEA has been recognized for its Scandinavian style. Ready to be assembled by the consumers, the majority of IKEA's products include flat-pack furniture. Such an arrangement helps the Company to bring about reduction in its cost of packaging. Having both a strong online and offline presence, the Company is gaining repute in almost every continent and region of the world. A company driven by values, IKEA used to operates with a passion, where you can enjoy life at home and every one of its products embody an idea for making the home a better place.
As of August 2016, the Company had 389 stores in 48 counties. The company’s vision is to “Create a better everyday life for the many people”. The SCM process of IKEA is devoted to the process of offering a variety of nicely designed, furnishing products of a functional home in a cost-effective manner so that the general people can afford to buy the products. The Company’s turnover is about EUR 33.8 billion and products range to about 9,500. It is constituted of co-worker s that amount to 172,000 (IKEA, 2017). It has recorded store visits of 884 million and web visits of more than 1.2 billion (IKEA, 2017). In almost 32 languages the catalogue of 213 million has been published. The Company's vision is to usher betterment in the life of its consumers and the objective of the Company is to manufacture and deliver affordable products. It is to appease the primary objective of the Company that the supply chain of the Company serves as its backbone.
The flat-pack technology, the presence of numerous global suppliers and the focus on low price with meaning production – all should be considered as the strength of IKEA. The Company's unique store environment and the blending and amalgamation of traditional and modern designs in production also should be considered as the strength of the Company. But it must be noted that to complement a robust SCM system the Company needs to indulge in more explicit research in terms of expanding into new markets like what it did while entering the United States. (IKEA, 2018).
All IKEA retail outlets have client food outlets, which offer regional dishes. Various retail outlets additionally have a food outlet, the Swedish Outlets for Food, which offers Swedish cooking like a meatball, herring, fresh bread, and jams. Around 90 items have been incorporated into this classification, which is sold under the IKEA food mark. In numerous IKEA retail outlets, there is additionally the region for the play area, for youngsters aged four to 10 years old. (IKEA, 2018)
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The supply chain of IKEA is worldwide with buyers in more than 32 foreign franchises in sixteen countries and 250 stores in 24 countries. Supply to these stores are handled with the help of 31 distribution centres or directly supplied with more than 1,350 suppliers in 50 countries. As a result of the supply chain of IKEA, there is a world-wide dispersion with both buying and selling in all major cities and towns of the world. The development of IKEA has been tremendous and sales are still increasing. Currently, IKEA is planning to open 10-20 new stores every year with the aim of doubling in the next five years. Increase in sales speed, many warehouses and shops, and some business areas, its classification varies by 30% every year, planning a supply chain is a major test. To reduce the cost of supply chain and avoid abandoned inventory or stock out, a high level of strict control and visibility is required. (Cooper, Lambert, & Pagh, 1997)
Current Supply Chain of IKEA
In spite of the fact that the IKEA is very much different now from what it was in 1976, its unique working style has steadily balanced over the past few years.
Warehouse is self-service.Racking in their distribution centres is extraordinarily high, which makes it simple for luggage to be restocked effectively by reducing the baggage with forklift and bed jacks. The items are arranged in large corridors, and each object has a unique area and item number, making it simple for the client to search out as soon as possible.
Production Flow of IKEA
To facilitate the delivery and decrease cost and ecological waste, Ikea has a series of various strategies utilized as a part of the creation cycle; a significant number of their prosperity is subtly in which they can ascertain that for any generation and capacity To lessen the superfluous cost, what number of items will be required to take care of the demand. Investigate the three regions of generation stream of Ikea:
Most of the products of IKEA are designed in Sweden with an idea on the concentration of all its furniture: And also providing the products at the lowest price to the clients and customers. In this segment, Ikea guarantees that every one of their items meets regulatory and customers need for work, power distribution, quality and effect on the earth. When everything gets set up with the IKEA group, at that point they can work with the correct suppliers to reduce generation and distribution costs.
In this stage, IKEA design is transforming into genuine physical articles. Makers utilize IKEA design and they are probably going to transform into items utilizing little assets, and through this, we mean as little cardboard, wood, and metal as could be allowed.
In spite of the fact that the Primary and Secondary parts have possessed the capacity to reduce waste however much as could reasonably be expected, the majority of the reserve funds delivered by Ikea have appeared in the last stages, including their retail locations.
Ikea's supply chain is majorly based on making just a couple of items for client orders and this known as make-to-stock (MTS). Similarly, the whole supply chain is intensely dependent on the forecasts. Regarding planning and placing restoration of a stock, there was a strong power and local freedom of the regions and stores generally. It has planned a disintegrated supply chain with general customization and there are some interventions manually with the plans during the supply chain.
Apart from this, because of the circumstances of shortage, few areas have deliberately sought highly anticipated demand to make sure of delivery, which in turn has prompted an imbalance if there is a case of coverage of demand. Therefore, few markets have experienced losses from stock-out during the long run, while different markets have finished with obsolete stock. At the regional level, around 120 clients are attempting diverse goals and are utilizing different strategies. It is a statement that IKEA does not have a typical and organized strategic plan for replenishment and demand.
According to a book on IKEA by previous CEO A. Dahlvig, the writer writes on the advancement of the IKEA’s SCM throughout the last few decades. In the 1950s, IKEA began outsourcing items from Poland. A conscious choice to run a generally small class of items helped the organization to keep up its supply chain management capabilities. As per the indication by Dahlvig, the organization's extension was because of its capacity to control and arrange the whole supply chain for the appropriation of IKEA's raw materials, assembling and dissemination through its retail locations through the retail outlets; IKEA is the owner of this vertically incorporated supply chain. (Mack, 2018).
In the 1990s, another purchasing technique mainly moved manufacturing activities to raise low-wage nations in Asia, in which quantity of providers, making the inner rivalry between the purchasing groups in various nations. Furthermore, in 1991 makers needed to procure Swedwood to have production lines in Europe. Dahlvig is very open about the description of his syllabus and division related to the IKEA supply chain, which is built around this century's turn. To conquer this, the supply chain from IKEA was transformed from a functional-oriented to a process-oriented association. This was the greatest change ever, Dahlvig composes, and he considers a wise choice to set aside the opportunity to do it accurately.
With a specific end goal to overcome difficult situations, IKEA began a program (a group of projects) to better control its supply chain and increase execution in the delivery service and cost. The idea of another global plan was created and it is currently being implemented. Its foundations focus on each other with integrated planning processes, a unified planning association, information quality and utilizing advanced programming support. The target of this article is to lay out the idea of the worldwide supply chain arranging idea of IKEA and describe the part of managing with the association, information quality, programming support and change in the idea of the projects and its execution.
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IKEA has built up the IWAY code practice to guarantee that its provider is steady with its sustainability goals, which upholds the minimum standard on nature, security, social and working conditions. Followings are expected by providers as per IWAY code of conduct:
- Follow national and universal laws
- Does not utilize child labour
- Not utilizing timber and gum from restricted woods
- Reduce their emissions and wastes
- Contribution to recycling
- Follow health and security prerequisites
- Environmental care
- Take care of your staff
Basic Planning Process
Despite the fact that IKEA has a strong SCM system; to ensure better performance, in the long run, some flaws in the system should be addressed. To make certain changes in the SCM system, the proposals should be given to give suggestions to the company and the justification should be provided. IKEA has some weaknesses in the SCM system, and it is suggested that the company should address those weaknesses and their administration should be well developed. The size and level of business that is spreading globally may be a problem in terms of control standards and quality. In the context of the company's SCM system it has been found that in some countries where IKEA products are manufactured, they do not provide opportunities for application of law to control work environment.
After discussing and analyzing supply chain of IKEA, now we will discuss the ways to improve Supply Chain for IKEA:
As indicated by the Council of SCM Professionals, US Business Logistics costs more than $ 1 trillion every year. This is seven per cent of the United States GDP, which is bigger than the total national output of Mexico. The U.S. The economy and budgetary soundness of your business rely on the system of supply chain running easily. A standout amongst other approaches to enhance your supply chain methodology is using ERP (Enterprise Resource Planning) programming. Underneath, ERP programming can expand your business productivity and proficiency while decreasing waste and waste in different ways (Chandra & Kumar, 2000).
1. Auto Purchase
The level of consistency checking at the inventory level takes a considerable amount of time. New ERP framework with Supply Chain Management (SCM) already come with this Automatic Purchasing factor. This implies that ERP programming can be customized to automatically order with merchants when the stock levels fall below the settled level. A critical part of any supply chain technique can hold the optical levels predefined. Automated Buying will influence representatives to allow to concentrate on another essential job.
Standardization of process is very important for the success of the strategy of any supply chain system. There will be an increase in proficiency while sparing time and cash when there is standardization in ERP System. Another advantage is that the hardware will be shared with the representatives of a standardized framework, which will expand the accuracy, energize teamwork and reduce correspondence.
3. Get Insights Data
The decision for your supply chain system relies upon the correct and timely information and data. Real-time reports will be accessible every time, important experiences will be given in the supply chain health of your assembling business. ERP programming enables both clients and management to have the capacity to utilize stock, buying, and creation information immediately with the end goal of basic leadership.
4. Real-Time Inventory Management
Traditional stock management includes continuous and overutilization of spreadsheets and hand checklists. Moreover, the ERP gives a list of software stock that gives real-time visibility of correct stock levels. Furthermore, scalability is restricted in conventional stock management programming, while present-day ERP programming has the unlimited adaptability that will coordinate your business' development and unique needs.
5. Monitor Vendor Performance
Effectively running supply chain framework relies upon remarkable merchant execution. Hence, there is a need to monitor the performance of the merchant and be rated through the strong measurements accessible through the ERP framework. With a couple of clicks of a mouse, the management can survey the planning of the merchant cycle and mistake rate. This information is significant during the vender's re-negotiations.
6. Raising cost mindfulness
There are numerous uncontrolled components and factors with supply chain management. Therefore, unique managers with supply chains are unaware of each other's costs. Exactly when there is intermediate financial information and when the association spends money. This will support cost-related correspondence and procedures to fortify expenses and to sort out the procedures.
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Critical success factors, risks, and cost drivers
There are some important success factors which have made IKEA one of the veterans in the related industry. The general strategy cost of IKEA is leadership and it is its key success contributor. There are several aspects that make the cost driver of Ikea, for example, its input costs. Factors such as sourcing components from widely spread suppliers located in different countries are key to its success. In addition, as well as reducing cost list, improvements in its manufacturing techniques should also be considered as a cost driver for IKEA.
The company is also facing some risk factors. For example, in Japan, the company had many risks and challenges. The company failed to customize products according to the Japanese system, and its stores in Japan were too small to display. Also, in countries like Japan, "Knowledge for Market Research / Marketing Strategy was Unavailable" Another risk driver is that sometimes it has been observed that in some countries, IKEA has little marketing optimization and therefore In such countries, customers find difficult to relate to IKEA concepts. (Rothwell, 2013)
Impacts on the Operations Management of the Organization
It is noteworthy that the integration of the SCM process at IKEA has enhanced the operation flow of the Company. It has also enriched the purchasing and supply chain management process of IKEA. IKEA has succeeded in integrating key business processes like materials handling, product development, distribution, transport, customer service and reverse logistics, and this has also impacted positively on the operations management of the Company.
The organization's supply chain is a standout amongst the most vital business aspects, which is to manage the organization. Supply chain management (SCM) is an essential part of any business association's operational procedure. A business supply chain framework that is utilized to acquire items or services for end consumers. In respect of production, SCM applies to the whole procedure required for the supply of raw materials for delivery of the conclusive item. In the substantial scale associations where operations are likewise huge scale, there might be a need to contract with different organizations, for example, a transportation organization that represents considerable authority in the quick conveyance of items to far off customers. It has been discovered that IKEA has accomplished magnificence in its SCM procedure. The organization has possessed the capacity to get information from different useful territories to give data about its item and keep up the voice list level with the goal that practical.
Chandra, C., & Kumar, S. (2000). Supply chain management in theory and practice: a passing fad or a fundamental change? Industrial Management & Data Systems, 100-114.
Cooper, M. C., Lambert, D. M., & Pagh, J. D. (1997). Supply chain management: more than a new name for logistics. The international journal of logistics management, 1-14.
IKEA. (2018, 01 08). About IKEA - IKEA. Retrieved from IKEA: http://www.ikea.com/ms/en_ID/this-is-ikea/about-the-IKEA-group/index.html
Mack, S. (2018, 01 08). Explain the Term "Supply Chain" and Its Importance to Cost Management. Retrieved from Chron: http://smallbusiness.chron.com/explain-term-supply-chain-its-importance-cost-management-69721.html
Rothwell, T. (2013, 03 04). IKEA Critical Success Factors. Retrieved from Prezi: https://prezi.com/0kdopqrbnao1/ikea-critical-success-factors/
Werner, H. (2000). Supply chain management. Wiesbaden: Gabler.
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