Supply chain management is one of the most important parts of any manufacturing business operation that requires a group of specific products as a resource of the output products. The quality of the output products and the profitability depend on the supply chain management. In Business operation and manufacturing process this input resources are called inbound logistics where the parent organisation implement many strategic tool to make the process more time and cost efficient without compromising the quality of the product (Cohen and Roussel 2013). In this era of modernisation, Information Technology and other technological interventions have made the strategic supply chain management more complex as well as advanced. Therefore, in order to develop an effective supply chain management strategy an organisation should study the available technological advancement and other associated facilities to ensure the quality and profitability of their existing and further level inbound and outbound logistics management. The further content will discuss about the background information of the chosen company and the structure and purpose of the paper.
IKEA was founded in Sweden in 1943 by a 17 years old boy name Ingvar Kamprad as a furniture company that manufactures wooden residential furniture. Now IKEA is a multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories (IKEA 2018). IKEA has proudly become the world’s largest furniture retailer since 2008operating their business in America, Australia, Europe, China, Middle East and other part of the world. At the very beginning of 2000, the company spread across Middle East including the countries like Saudi Arabia, Kuwait, UAE, Qatar, Jordon and Turkey. This successful business operation let them develop and operate 4 stores in Saudi Arabia from 1983, 2 stores in Kuwait from 1984, 1 super store in Qatar from 2013, 1 in Jordon from 2014 and 6 stores in Turkey from 2005. In UAE, IKEA has 3 stores from 1991 at Abu Dhabi, Yas Island and Dubai respectively (IKEA 2018). As per the report of November 2017, IKEA owns and operates 415 stores in 49 countries. In 2016, IKEA sold goods worth of 42.4 USD worldwide, which was increased by 7.6 percent from 2015. Apart from that, IKEA website contains about 12,000 products that is the brief representation of the entire collection of the IKEA (IKEA Foundation 2018). Within September 2015 to August 2016, the official website of IKEA perceived 2.1 billion online visitors form entire globe. The company is the largest user of wood in retail sector and responsible for approximately 1% wood consumption of total world commercial-product (Sandybayev 2017).
The purpose of this paper is to understand and discuss the importance of strategic supply chain management considering the advance technological intervention within the manufacturing and other associated business operation. The topic has been discussed by analysing the strategic logistics operation of the multinational furniture manufacturing and sales company IKEA. The relationship between supply chain management and core business objectives has been discussed. The intervention of information technology to optimise the logistic operations has been discussed along with its influence on the organisation and vender relationships. The roles of logistics and procurement in supply chain management have been also examined to develop the recommendations for the company IKEA as well as other business organisations.
The term supply chain can be defined as the management of the flow of products as well as services of an organization from the starting point to the end point. Like any other organization, the whole process of supply chain management in IKEA starts from the supplier stores to the manufacturing factories to the wholesalers to the retailers and finally to the consumers through various distributors. Being a furniture manufacturing organization, supply chain can be considered as the integral part of IKEA’s business and is a highly essential factor the success of the company and consumer satisfaction (Green et al. 2012). Two of the major benefits of the supply chain management are as follows:
In this era of high competition, it is highly important for the management of IKEA to satisfy the consumers by their services in order to gain competitive advantages. Effective supply chain management enables the company to supply the products to the consumer within the stipulated time or even before that and thus gains loyalty of the consumers (Wisner, Tan and Leong 2014). Moreover, by implementing an effective supply chain, IKEA can also reduce the cost of delivery and thus improve profitability by selecting the right approaches, systems as well as partners involved in the supply chain.
Reduction in supply chain costs result in drastic enhancement in the profit. Considering the fact that furniture of cost 30 billion dollars are purchased by consumers globally, reduction in supply chain cost will result in savings of approximately 13 million dollars by the company (Green et al. 2012). Moreover effective supply chain management reduces the costs of the company decreasing the usage of large fixed assets. For instance, with effective redesigning of network IKEA can prevent building unnecessary warehouses and thus will be able to save a commendable amount of money.
Like other industrial organizations, business providers and manufactures, supply chains plays a crucial role in leading large and complex system delivery in the furniture manufacturing industry. Supply chain in IKEA mainly consists of flow of production and processes through each of the three following industrial sectors. The primary sector involves development of raw materials. The company develops its own product in Sweden and delivering high quality product at a low price is the chief motto of the company. In order to maintain the quality, IKEA manufactures raw materials from more than 1300 suppliers from 50 countries and here the supply chain plays key role in reducing the cost of importation (Rushton, Croucher and Baker 2014).
Apart from manufacturing function, there prevails a link between supply chain management and HRM practices. Like several other furniture manufacturing organizations, IKEA can introduce HRM practices in its supply chain function. Considering the fact that supply chain can be defined as a set of organizations that work together to deliver a finished product to the consumers, managing the individual involved in it can enhance the effectiveness of the supply chain management. In spite of the fact that IKEA generally involves managing its supply chain strategically, according to researchers successful supply chain management rests on the performance of the people in the supply chain (Beske, Land and Seuring 2014).
Supply chain management of IKEA is highly connected to the other part of the business operation including Human Resource, Consumer demand, Marketing, Finance, Accounting and others. Therefore, in order achieve an integrated supply chain management IKEA needs to consider the major drivers like consumer satisfaction, resource availability, inventory management and other sequential operations (Cohen and Roussel 2013). The utilisation of technology quality enhancement, altering the product life cycle and legal policies are the other key drivers for achieving the integrated supply chain management strategy. In following section, these key drivers have been described with details:
Achieving high level of customer satisfaction: To improve the logistics system access to with scheduling, IKEA has set KPI for consumer relation and sales department to fulfil the demand of the customers. Establishing hot services counters and help desk is another factor, where any consumer or potential buyers can approach and request for service speed up.
Utilization of technology: IKEA strive to use the latest developed technology across the world, to enhance different systems integrations and processes developments. The development in technology utilization is a leading factor in manufacturing the furniture (IKEA Foundation2018). Technology is influencing the future progress of furniture industry and supply chain while a multinational company like IKEA is in need for technical team to operate advance machines and electronic communication.
Quality enhancement and globalization: The quality of the products influences the prosperity of the manufacturer while increasing the market reputation and consumer loyalty. IKEA always tries to retain their existing consumer loyalty while capturing new consumer segment that requires the assurance of quality improvement.
Political and Legal Factors: Changes in lows and regulation of the selected supplier region can hinder the supply chain management operation of IKEA. It will lead to ultimate failure of the manufacturing and other associated operation of the company. In order to overcome these situations, IKEA should always keep them updated about the national and international trading laws and regulations while aligning their supply chain and logistics management operation with these external alterations (Christopher 2016).
Supplier relationship is one of the major parts of any manufacturing business that regulates the overall profitability, quality and efficiency of the business operation. Proper selection suppliers influence the quality of the resources as well as the output products where the efficiency and integrity are also considered. Another part of the supply chain management is the time, cost value model that allows an organisation to regulate their inbound logistics operation aiming to be most optimised and efficient (Green et al. 2012). The relationship with suppliers or vendor companies also implies the shared information, shared business value, ethics as well as the overall market share. In this part of the business, negotiation plays a strong role that builds the base of the supplier relationship of any business. Collaboration, shared information, operational integrity and value sharing are the major tools of the supplier relationship strategies.
One of the major strategy that IKEA uses to maintain their supply relationships worldwide is Push Back Strategy (PBS). The PBS is also very effective for choosing partner and targeting consumers wile gauging their existing and potential demand. IKEA values the expectations of their suppliers in order to sustain the healthy relationship with their supplier that makes them the world’s largest consumers of wood for commercial purposes. To maintain relationship with suppliers IKEA uses both online and offline communication tool, which is also a part of their strategic choice for making the operation, cost and time efficient. IKEA had more than 50 trading offices in 35 countries to keep their vendor relationship strong; amongst them China, Poland, Sweden, Italy and Germany are the major sources (Sandybayev 2017).
|
Supplier country |
Percentage of supply |
|
China |
18% |
|
Poland |
12% |
|
Sweden |
8% |
|
Italy |
7% |
|
Germany |
6% |
Table 1: Top five supplier countries of IKEA
Source: (Sandybayev 2017)
The rationale of the supplier relationship of IKEA lies in the core business idea which is producing low price products in a socially responsible and environment friendly way. At the same time, the supplier relationship of IKEA also highly comply the national and international business regulations as well as their own codes of conduct.
The Information technology plays several major roles in the organizational supply chain management and supplier relationship in several purposes. Communicating with potential and existing suppliers, interacting with the supplier market, keeping update bout the new possible supply chain management are the major purpose of utilizing the Information Technology as the major tool. Mailing, Cloud storing, online peer-to-peer connection, virtual networking are some of the examples of utilizing IT in supplier relationship making (Sheppard 2012). The major operations of IT in supplier relationship handling are connecting the stakeholders with suppliers, enhancing knowledge and awareness, Access Enterprise Resource Planning (ERP), Communication with professionals and maintaining business transparency aligned with the strategic objectives (Seuring 2013). Along with these, the intervention of artificial intelligence in file handling, big data, cloud computing are the other major tools to develop supply chain management and supplier relationship strategy.
The noticeable feature of the supplier relationship management of IKEA is the intervention of advanced online storage system. The cloud storage system allows IKEA to store large amount of market data, supplier demand documents in a virtual platform without warring about data loss and other physical technical fault. Apart from that, IKEA uses Artificial Intelligence to measure the efficiency of the suppliers using the Service Level Agreement of the contract and associated parameters. At the same time, using the advance data monitoring and feedback management allow the company to monitor the operation of suppliers in real-time environment (Youn et al. 2013). Apart from that, the intervention of efficient software the procurement operation can be controlled real-time with high time and cost efficiency. IKEA also uses the social media based monitoring system to keep updated information about the supplier market globally. In order to utilize this large amount of data IKEA also uses the Big Data technology where they can securely store large amount of data ensuring the fast-paced data fetching process.
An organisation can follow several policies and procedures to maintain healthy relationship with their suppliers. Communication plays a very important role in the relationship management that eliminates the possibilities of misinterpretation of organisational ethics and business values. Along with the communication motoring is another essential part of the relationship making process where the parent company constantly monitors the operation and service providing strategy of the vendor company or supplier that is also known as the vender management (Barney 2012). The vendor management is also a major part of inventory management that highly associated with the inbound resource management in manufacturing cycle.
IKEA maintains a consistent communication with their major and minor supplier irrespective of their geographical position around the globe. IKEA communicates multiple times before the due date of the delivery ensuring the quality and timeliness of the product delivery. At the same time IKEA values the position of the representatives of the vender companies by avoiding the rush order or shot time emergency delivery (Ikea.com. 2018). IKEA also makes them prepared to review and renegotiate the terms of the trade with the suppliers from time to time. Apart from that, IKEA prompt the suppliers immediately in case of any identification of damage product before storing them into inventory keeping the financial factors of transportation time and cost in mind.
Integration of different parts of the supply chain is chiefly essential for a multinational company that deals with the supplier for multiple purpose including, raw material, facility, technology, Human resource and others. At the same time, each and every supply chain has 3 major parts namely the inbound logistics, the inventory and the resourcing of manufacturing cycle. Therefore, integration of all these parts holds the wok process of the supply chain management practices as well as logistical flow. In integration era, the Electronic Data Interchange or EDI has become one of the most essential tools in logistics and supply chain management practice. Connecting the global market information with the core business operation is the major functionality of EDI system (Dekker et al. 2013). Apart from these, ERP or Enterprise Resource Planning allows the company to develop and control effective supply chain management system while comparing its attributes and cardinality to achieve the optimum setup for the particular supply market. SAP or System Application Products and Oracle are the two major examples of ERP supporting tools.
SAP or System Application and Products are group of operational software and hardware that enables the parent organization to control the supply chain management operation. SAP connects the parent organization to the vendor organization with the help of virtual server that allow both the parties to share real time data and information without spending high cost or time for it. SAP is the major part of the Supply Chain Execution or SCE in order to plan the effective network among the supplier and client companies (Rushton, Croucher and Baker 2014). On the other hand, Oracle provides a group of server oriented software that allows both client and suppliers to handle data under a particular Data Base Management System (DBMS) while sharing the required data through network with high level of data protection and data transaction security.
The Information Technology allows IKEA to operate their supply chain management with higher level of accuracy without spending additional resources for it. The attributes of Key Performance Indicators of IKEA are connected with the main database system that automatically insert, store, process, sort, read alter the data as per the administration requirement. It also enables the management of the business to store previous performance report and supply chain quality while comparing them with other potential suppliers in a real time data-handling platform (Sandybayev 2017).
When it comes to information management in supply chain management IT provides many possibilities to operate and customize the business operation. IKEA uses AI within their existing DBMS that allows them to short the data and information as per their priority considering the regulator of the supplier availability and resource handling. At the same time, IKEA also keep their supply chain operation balance with the market demand by conducting automatic demand analysis by monitoring the inbound network traffic of the official website as well as the social network promotional pages and forums (Wisner, Tan and Leong 2014). The intervention of advance Information Technology also allows IKEA to track the supply procedure and the condition of the resource in real-time tracking system utilizing the multithreaded processing systems like infrared product detection and GPS tracking.
Although the Information Technology increases the efficiencies of the supply chain management operation of the organization, some significant setbacks can be identified of this intervention. One of the major drawback of the implementation of IT based Electronic Data Interchange is that, the structure and framework of the operation is changing constantly that hinders the stability of the implementation of a particular Supply Chain Execution of any business operation. At the same time the complexity of the IT structure and implementation procedure is getting complicating after each technological invention that increases the efficiency of the business operation as well as increases the requirement of negotiation procedure with the IT vendor companies and operating workforce (Grabara, Kolcun and Kot 2014). Considering the modernized networking system of client-supplier servers the high traffic and space time complexity delay are causing some major business issues including late information update, extended procurement time and others.
The implementation of IT in supply chain management changes the financial planning of the company IKEA altering the cost for training and induction period in recruitment procure. Therefore, other associated business operations such as accounting, Human Resource, Manufacturing and others are also affected because of the ever-changing operation of IT systems. IKEA had to update the information processing system as per the version of the suppliers, otherwise it can cause serious discrepancies affecting the overall service quality and profitability of the company (Prajogo and Olhager 2012). Because of these consequences, IKEA prepared a real time training environment for their workforce involved in supply chain management and control in order to provided additional training about upcoming system development and operation. As a result, IKEA also faced the increased expenditure for the Human Resource operation after the implementation of WEB 2.0 in Traditional Supply Chain Network (Wang et al. 2012).
The term logistics can be defined as the process that involves planning, executing and managing the products and services from the time of origin to the time of consumption. Managing an effective supply chain comprises of efforts for product development and production, coordination of logistics, managing information flow among parties including product shipping, transporting and delivering and finally managing the disruptions that are evidenced using the time of selling products (Christopher 2016). Logistics is generally considered as the as the critical blue print of the supply chain. The role of logistic is to manage, coordinate as well as monitor resources that are required for moving products in a smooth, timely, reliable and cost effective manner.
One of the mention worthy advantages gained by IKEA by implementing logistics in their supply chain management is the enhancement of efficiency and reduction in the cost of the company. With the help of an effective logistic system, IKEA is able to built efficient partnership with the suppliers, shipping services and warehouses and connecting the services with the help of automated system. Moreover, with the implementation of logistic in the supply chain management it has become easier for the company to reach the consumers within a much shorter period of time and enjoy reduced overhead delivery costs at the same time (Rushton, Croucher and Baker 2014). In IKEA, implementation of logistics in the supply chain management has also simplified the communication as well as services between multiple numbers of departments. This in turn has helped the company in creating a workflow blueprint that enable reduction in costs by enhancing transparency and visibility along with improving the overall understanding of the fundamental requirements of the company. Reduction of the warehouse costs, purchasing of materials on the basis of supply forecasts, consumer satisfaction resulting from reliable shipping as well as timely delivery thus can be considered as the major benefits of logistics in supply chain management enjoyed by the IKEA Company (Mangan, Lalwani and Lalwani 2016).
The procurement cycle can be described as a cyclical process that includes the key steps of procuring the goods and the services. A procurement cycle is an interactive tool that helps and guides in the procurement process and it acts as a relevant knowledge to go through the procurement journey. In the procurement process, the e-commerce systems include the e-sourcing and the e-procurement that is widely used by the organization in order to buy as well as sell products (Jonsson, Rudberg and Holmberg 2013). The e-procurement technology takes into account the automated data collection systems, inventory management systems, electronic data interchange, online transaction processing, internet marketing, supply chain management, electronic fund transfer, mobile commerce and IKEA implements all these technologies in its procurement processes. Stakeholder engagement is one of the vital section of the procurement process and IKEA undertakes the tactical, operational and strategic activity depending on the support of the key stakeholders (IKEA Foundation2018). The items like the environmental factors, economic and the social factors are considered in order to ensure the sustainable solution and also in the procurement of the services and the products. This process helps IKEA to reduce waste, save energy and save money as well. Corporate social responsibility is also one of the commitments of IKEA so that they can maintain a compliance with the law and the industry standards. IKEA also takes into the account the various risk that is associated with the procurement cycle and also implement strategies to manage the risks effectively. Continuous improvement process can be described as change for the better and it encompasses all the processes, services, products and people in IKEA. IKEA implements small improvements that are capable of bringing the big changes at the regular intervals and this requires the close monitoring and control. People and skills are the vital assets of IKEA and thus add value. IKEA also ensures that it has the right person with the right skills set in order to achieve the organizational objectives (Hultman et al. 2012).
The procurement cycle has the 13 major steps
These factors will play a major role in both the procurement and the logistical practices and the strategies are as follows:
Objectives: The major objective is to provide the quality of wood as the row material of the furniture in order to increase the competency as well as the brand value. Another objective is to centralised the existing supply chain management in way that can reduce the overall time and cost of supply chain management operation (Hazen and Byrd 2012).
Stakeholder: The major stakeholders are the board members of the IKEA who are directly involved in the planning and shaping the organisational business strategy. Apart from them, the workforce, existing suppliers, consumers are associated stakeholder of improving supply chain plan.
Change management: In order to initiate the centralised supply chain model IKEA needs to introduce the entire strategic concept and the benefits to all stakeholders while ensuring the agreement of them. Appropriate change management plan can help the changing force to reduce the resisting obstacle in the organisational operation and structure (Yu et al. 2016).
Motivation and Reword: IKEA can implement direct and indirect monitoring system with the interventions of scorecard and feedback collection in order to recognise the potential employees. Rewording these workers will make them motivate to serve the company with their best while making other workers competitive to achieve the recognition.
Implementation of strategy: As per the globalized business strategy, IKEA depends on the Horizontal integration strategy for supply chain management. Therefore, to implement the plan IKEA has to make the suppliers aware of the altered policies and procedures of trading operation (Sheppard 2012).
Monitoring and lessons: For ensuring the quality of implementation of supply chain management plan IKEA needs to develop and maintain effective monitoring system that will allow them to control the system while gather new lessons to make required changes.
Improvement of supply chain management can change the entire procedure of production and marketing operation of the company IKEA while enhancing the employee engagement procedure. The improved supply chain management ensured the quality of the suppliers as well as the efficiency of inventory management that can cause additional benefit in financial aspect. The enhanced information integrity among the vendor companies and the parent company enables the opportunity reduce the operational cost significantly without increasing the intervention of complex Information Technologies (Grabara, Kolcun and Kot 2014). The improved supply chain management will also allow IKEA to select appropriate supplier for a particular resource without investing additional time and money. It can also increase the overall product quality influencing the existing and potential consumers. Apart from that the upgraded supply chain management allows the workforce to execute their respective operation more efficiently while making the operations simpler for them (Yu et al. 2016).
When it comes to the profitability of the business, the workforce performance plays a crucial role considering the affectivity of the existing workflow structure. The employee motivation, rewarding and appraisals enable the workforce to give their best in the manufacturing and other business operation of IKEA. It will also add value to the supply chain process by improving the overall quality of the suppliers as well as the quality of their products that are purchased by the IKEA and their procurement team (Mangan, Lalwani and Lalwani 2016). As a result, the quality portfolio of IKEA as a furniture manufacturing company also increases.
Several barriers can cause unexpected resistance against the process of implementing supply chain improvement strategy. In the case of IKEA, the centralisation of their horizontal supply chain management will require some significant changes in the work process and supply chain operation internally as well as externally. At the same time, in order to sustain the integrated process with the client named IKEA the supplier company will also require to change their distribution system. Apart from this, the distribution management of the IKEA will also be affected as a part of total logistics management and operation. As an example purchasing good quality wood can be more difficult due to the inflation of international and national trading low that are independent from the considered attributes of the change management plan (Meixell and Luoma 2015).
IKEA is the largest multinational furniture manufacturing and merchandising organisation. As a result the company needs to abide by the all the national and international trading rules including importing and exporting legislation and legal influences. Changes in lows and regulation of the selected supplier region can hinder the supply chain management operation of IKEA. It will lead to ultimate failure of the manufacturing and other associated operation of the company (Boström et al. 2015). In order to overcome these situations, IKEA should always keep them updated about the national and international trading laws and regulations while aligning their supply chain and logistics management operation with these external alterations.
Conclusion and recommendation:
Conclusion
From the above discussion, it can be said that Supply chain management is one of the most important part of any manufacturing business operation that requires a group of specific products as a resource of the output products. The quality of the output products and the profitability depend on the supply chain management. Information Technology and other technological interventions have made the strategic supply chain management more complex as well as advanced. The entire process of supply chain management in IKEA starts from the supplier stores to the manufacturing factories to the wholesalers to the retailers and finally to the consumers through various distributors. Effective supply chain management enables the company to supply the products to the consumer within the stipulated time or even before that and thus gains loyalty of the consumers. From the above analysis, it is clear that the supply chain in IKEA mainly consists of flow of production and processes through each of the three following industrial sectors.
Supply chain management of IKEA is highly connected to the other part of the business operation including Human Resource, Consumer demand, Marketing, Finance, Accounting and others. Therefore, in order achieve an integrated supply chain management IKEA needs to consider the major drivers like consumer satisfaction, resource availability, inventory management and other sequential operations. IKEA uses Push Back Strategy to maintain their supply relationships worldwide. To maintain relationship with suppliers IKEA uses both online and offline communication tools. Apart from that, IKEA uses Artificial Intelligence to measure the efficiency of the suppliers using the Service Level Agreement of the contract and associated parameters. IKEA implements e-procurement technologies including automated data collection systems, inventory management systems, electronic data interchange, online transaction processing, internet marketing, supply chain management, electronic fund transfer, mobile commerce
In order to develop an effective supply chain management strategy:
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