Analyzing IKEA’s Supply Chain Management Techniques

IKEA’s Supply Chain Management Techniques

Question:

Provide a comprehensive supply chain management analysis, evaluation and recommendation for the IKEA Corporation.
 

The current assignment revolves around the supply chain management process of IKEA.  The case study indicates that IKEA can be considered as of one of the biggest furnishing product manufacturers with the gross sales over 20 billion (Barney 2012). The organization has an increasing reputation, and they are known all over the world.  Especially, IKEA has the dominance in European, North American, Australian and increasing in Asian market due to its popularity. The organization offers a wide range of products including the functional home furnishing products at a low price; thus, the people from all ranges of income could afford to buy the products. Thus, to achieve this particular aim and objective, the organization implements a set of marketing strategies with the purpose of becoming efficient as possible and providing the customers with desired quality and satisfying customer’s needs for the cost charged.

The current assignment discusses the key supply chain techniques that IKEA selects to implement effectively for achieving the organizational goals. The report includes a critical analysis on supply chain management process considering the current operation of IKEA. Likewise, the discussed processes have further been evaluated with proper justification. Lastly, a set of recommendations has been provided for the IKEA Corporation. 

Analyzing IKEA’s supply chain management techniques

This particular section revolves around the steps involved in the supply chain. As mentioned by Green et al. (2012), key the levels of the supply chain are “sustainability” as well as “long-term relationship” with each supply chain member. This should be incorporated in all phases of the supply chain. In this context, Sarkis (2012) added that some significant phases of supply chain management may comprise the “significant distribution,” “internal quality and control” and “regulations for the production”. The key mission of the organization is to offer functional, “well-designed” and “low price” as well as “sustainable furniture”. It is studied in the case study that the suppliers of IKEA are around 1220 that are operating in over 55 countries. The huge of some suppliers helps the organization to become flexible in adapting to the external forces (Walker and Jones 2012.). For example, it can be added that if some of the suppliers are failed to meet the code of conducts of the company, it could easily switch to another supplier leaving all issues behind in the network.

Thus, the cost of opportunity could be saved along with time and labor involving a substitution of supply partners (Prajogo and Olhager 2012.). It is identified that IKEA preferably selects the suppliers by judging their capability of production and price, which should be low and the ability to gain high profitability. Another significant factor considered by the organization in the supply chain is the decision-making process (Jonsson, Rudberg and Holmberg 2013.). There are multiple types of regulations that need to be followed by the suppliers while getting into the supply chain network of IKEA. In addition, the Trading Service Officers assure the control of each supplier as well as the Officer guides them to achieve higher goals. This further helps to build an effective relationship with the partner.

Supplier Selection Process

Furthermore, while delving into the case of manufacturers, it is observed that IKEA achieves their economies of scale by depending on the huge production. This further proposes for the low cost due to the large quantities of developed products. As mentioned by (Jonson., Rudberg and Holmberg (2013), just-in-time approach provides the opportunity to minimize the cost considering all prices associated with the logistics. Another significant part of the supply chain is the distribution, which is significantly controlled by IKEA due to the ability of the global network to distribute the products in the right place at the right time. IKEA gains the competitive advantage to save cost for transportation by taking the opportunity of the large volume that is transported in the flat package.  

Based on the analysis to the supply chain management, it can be observed that IKEA effectively manages the relationships among the different supply chain members. However, maintaining such a relationship is a challenging task for the organization due to the global leading position of IKEA in the home furnishing industry. Maintaining and controlling supply chain relationship suggests the development of sophisticated relationships with different ties by considering both weak and strong factors associated with the process (Jacobs and Chase 2013). IKEA Corporation, being a global organization operating in different regions of the world, has thousands of suppliers and distributors worldwide. Hence, the company is required to adopt a simple supply chain model, which has the capability to capture the complexity of the global supply chain environment affecting each relationship. In this case, the company should need to consider the statement made by Hakansson and Johansson (1995) suggesting that the evolution of the relationship is evident over the time, and the process of communication is highly influenced by the content, nature, and strength of such change (Waters and Rinsler 2014).

Considering the preliminary understanding, the evolution process will be done by the basic application of the ARA model to develop suitable understanding about the nature and characteristics of the different networked relationships among the various actors, as dictated by Hakansson and Johansson (1995). In the case of the resources of IKEA, these are mainly observed in the raw materials to carry out the business involving wood, paper, plastic, and hardware like bolts and nails. Based on the analysis of the supply chain, it can be observed that IKEA has the significant level of control to the negotiation power of the identified raw materials. However, the company does not reveal detailed information about the particular process (Jonsson, Rudberg, and Holmberg 2013). On the other hand, the exchange of knowledge is one of the most significant parts of the resources, as the process is the foundation of the further commitment in the identified relationship.

In the process of developing the supply chain relationships, IKEA itself is observed to be the key player, whereas the roles played by the suppliers and manufacturers are also significant in this particular scenario. Here, Europe is the base of the suppliers while China represents the manufacturers. In the case of the internal activities of IKEA, these are developed with the intension of developing the cycle of transformation and transfer of resources. Various actors operate the process through the complex synchronization of multiple stakeholders.

Distribution Management

With the help of the overall information developed within the portion, it can be evaluated that the characteristics of the established relationships within the environment of IKEA can be critically characterised by the long-term relationships. Based on the analysis, it is observed to be eleven years per supplier at an average (Stadtler 2015). With the help of such long lasting relationships, the instability in the transaction cost can be eliminated or reduced in an effective manner. Apart from the stability in the relationship ensures more flexibility regarding adopting different adjustments by the organization and becoming more comprehensive within the particular market of operation. In conclusion, it is analysed that IKEA critically determines the benefit of developing the dynamic relationship with its suppliers to create mutual advantages for the both and allow the sharing of knowledge and expertise (Ta, Esper, and Hofer 2015). The result of such understanding enables the company to form the mutually trusted supply chain network with the inclusion of strong level of expertise.  

After having studied and examined the sophisticated supply chain management and a network of IKEA, it can be arguably determined that the overall system involves some small as well as major issues that can be rectified with the possible improvement. The improvement can be done by developing and implementing appropriate monitoring and maintenance. As referred in the evaluation section, it is determined that IKEA is highly successful in following and introducing its supply chain strategies promote the enhancing relationship with the suppliers, manufacturers, and distribution channels all over the world.

The company is observed to maintain a well-functioning system since it is known as the leading home furnishing retailer. By looking at the particular trend attempted to observe by the company, IKEA is continuously focusing on maintaining sustainability through implementing such factor to every stage of the supply chain operations (Zsidisin 2015). Maintaining such process is relatively difficult for the company due to the variance of actual performance with the expected strategic functions. However, such goal can be achieved fundamentally by the company through promoting its “go green” initiative and monitoring the eco-friendly efforts put forwarded by the operations in every area of supply chain.

Additionally, the company may also need to focus on improving its communication with the consumers around the world to ensure increasing transparency in the service offering process (Monden and Larsson 2014). Such progress will contribute to the enhancing relationship with the consumers of the company while the process can be achieved by revealing the detailed information about the sustainability efforts in the products offered by the company and assuring the effectiveness of the service at the same time. In conclusion, IKEA emphasises more on the developing relationship with its associates, while it is much more important for the company to keep a track on its internal goals and aims for becoming successful in the relevant market.  

Conclusion

In the concluding paragraph, it can be observed that the critical stages of supply chain management involving the specific organization are analysed and evaluated. By citing the “Supply Chain Metrics Model” developed by Lambert and Bennion (1982) and “ARA Model” produced by Hakansson and Johansson (1992), the ties and relationships within the complex global environment as part of the supply chain operations can be understood. With the development of the overall paper, the roles played by different actors and dynamic factors associated with the chosen organization can be acknowledged essentially. 

References

Jacobs, F.R. and Chase, R.B., 2013. Operations and supply chain management. McGraw-Hill Education.

Waters, D. and Rinsler, S., 2014. Global logistics: New directions in supply chain management. Kogan Page Publishers.

Jonsson, P., Rudberg, M. and Holmberg, S., 2013. Centralised supply chain planning at IKEA. Supply Chain Management: An International Journal,18(3), pp.337-350.

Stadtler, H., 2015. Supply chain management: An overview. In Supply Chain Management and Advanced Planning (pp. 3-28). Springer Berlin Heidelberg.

Ta, H., Esper, T., and Hofer, A.R., 2015. Businessâ€Âtoâ€ÂConsumer (B2C) Collaboration: Rethinking the Role of Consumers in Supply Chain Management. Journal of Business Logistics, 36(1), pp.133-134.

Zsidisin, G.A., Hartley, J.L., Bernardes, E.S. and Saunders, L.W., 2015. Examining supply market scanning and internal communication climate as facilitators of supply chain integration. Supply Chain Management: An International Journal, 20(5), pp.549-560.

Monden, Y. and Larsson, R.G., 2014. Robust supply-chain management for the disasters: Based on the product design architectures. Management of Enterprise Crises in Japan, Singapore: World Scientific Publishing Company, pp.125-148.