introduction

IKEA was founded in Sweden in the year 1943 and has since then provided low priced home
furnishings and auxiliaries of remarkable design and performance. The corporate’s vision is to
fashion a better life for a majority of individuals every day. It aims to provide a broad scope of
perfectly designed, high-performance affordable home furnishing commodities. Through the
utilization of inexpensive materials in a unique manner, minimizing production, retail costs and
distribution, their customers get to benefit from lower costs. The supply chain at IKEA has a
worldwide spread that has growing purchasing and sales in all the major regions of the globe.
Complexity in the supply chain is brought about by the fact that its stores are widely spread across
a majority of countries (Jonsoon, et al., 2013). Their furniture is made by approximately 1220
suppliers located in about 55 countries. These stores are provided by about 31 main distribution
facilities located in 16 countries or supplied directly by suppliers (Dudovskiy, 2012). This paper
is concerned with analysing and evaluating the supply chain management at IKEA and also giving
recommendations for its improvement.

Analysis and Evaluation

The IKEA supply chain includes a flow of production. It comprises of raw materials,
manufacturing, distribution, retailer and consumer. These are classified under three broad
categories of primary, secondary and tertiary sector. The development of the raw materials occurs
in the primary sector where, IKEA designs its commodities in Sweden (Dudovskiy, 2015). During
the designing, IKEA verifies that the products do meet the requirements for function, quality, and
efficient distribution. The main factor that IKEA considers during the production of home
furnishing is low prices. As they source their raw materials, they bargain the prices with their
providers, verify the condition and value of the materials, check on the working and social
conditions of the supplier and also identify the environmental impacts brought about by the
materials. The e- wheel is a tool that IKEA uses to determine the environmental impact during the
four stages namely resource extraction, production, use, and recycling. About 50% of IKEA’s
products come from wood (Tare, 2013). To reduce the use of materials, IKEA develops a majority
of design solutions that includes the use of recycled plastic, material clippings among others.
Commodities such as water cans have a unique design that enables them to be stacked increasing
the number that can be transported thus saving on fuel costs as lorry journeys are reduced. IWAY
is a code of conduct held by IKEA. It is the IKEA Way of buying home furnishing products. It
basically comprises of guidelines and rules that assist manufacturers in the reduction of the
negative impact to the environment.

A critical factor in the success of IKEA is communication. Communication between IKEA and its
materials manufacturers and suppliers. Manufacturing takes place in the secondary sector where
the value-added process occurs (Dudovskiy, 2015). To achieve this, IKEA designs its commodities
in a manner that the least quantity of resources makes up the best products. Examples include the
use of hollow legs in their furniture and also the use of filling material made from honeycomb
paper for the table tops interior in the place of solid wood. IKEA retail shops also add value to the
manufactured goods in the tertiary sector through the provision of a way of shopping that differs
from the usual high street practice. In this way, the needs of consumers are met in several ways. A
choice is presented to consumers where each IKEA store is huge enough to hold over 9500
products (Mittal , 2013). IKEA also provides home delivery and catalogues. It goes a long way in
saving the time for customers.

Demand has also increased for IKEA products leading it to incorporate design to suit many
customers. It has improved the safety and ergonomic aspects of its designs by using steel in its
products. This has also reduced the weight of the commodities and also environmental impact.
IKEA is so environmental conscious due to the fact that it consumes a lot of wood and may threaten
the life of forests. The company does not accept illegally obtained wood. It supports about 13
projects that are ran by the World Wildlife Federation, WWF, to enhance sourcing wood from
certified forests. IKEA pushes a hard bargain with its suppliers (Tare, 2013). It demands high
quality for low prices but offers a long term business relationship. It also advises the suppliers on
the ways to find the cheapest and best raw materials, the equipment to buy and how to establish
and expand factories.

When it comes to logistics, in (SRM) storage and retrieval machines, IKEA depended on a new
partner using innovative switching technology known as LTW. Initially, it installed three SRMs
(Mangan, et al., 2008). Due to the dynamic development at IKEA, in two years, seven more SRMs
developed. LTW has operated with IKEA and installed over 200 retrieval and storage machines in
11 countries. Consafe Logistics partnered with IKEA in the year 1997 and have ever since set up
a majority of the new distribution centres opened up globally by IKEA. IKEA with Consafe
Logistics help has also established the Astro warehouse management system. The system is being
used in 15 of their distribution centres. IKEA chose to partner with them due to their reputation
and expertise in high-quality integration, combining automated and manual warehouse
management. SINO logistics, on the other hand, offers IKEA a total solution in the logistic
industry. Clearing and forwarding, insurance arrangement, warehousing, transportation and
offering logistic advice that assists IKEA in the efficient movement of trade and better
management of the supply chain.

For effective and efficient distribution, IKEA calculates the exact quantity of products required to
satisfy the demand. It ascertains that there is no wasted of resources for warehousing and
production. They possess a worldwide distribution centre, can deliver large volumes, use flat
packages and they offer low costs. This can be viewed as the hallmarks of their distribution as they
aim to ensure that the right commodities are available for customers at the store always. IKEA
reduces the cost of transport by having their products packed flat. It means that more packages can
be transported at a single trip. Flat packages mean that customers assemble the products
themselves. Distribution services act as the wholesaler for IKEA. They assist in securing regional
storage space for stores and also buying products from suppliers globally.

A good IT system in also a key principle in supply chain management (Supply ChainOpz, 2016).
For there to be perfect and efficient organization for the huge amounts of commodities that pass
through the distribution centres, all commodities are electronically collected and matched up to
the data saved in the IT system. It takes place, for example, in the IKEA BLG Retail Logistic
distribution centre located in Erfurt, Germany (Henry, 2014). IKEA also has other distribution
centres that include the BLG Retail Logistics at Doncaster, UK, the Tejon Ranch Commerce
Centre at Bakersfield, CA, USA, and the NREP Logistics at Jonkoping, Sweden. Customers who
are not satisfied with their purchase at IKEA can return the product through a collection centre
situated at every city with an IKEA store. The collection centre verifies the product and then
forwards it to the distribution centre that offered the commodity. For efficiency, the product is
forwarded to the firm in Sweden for recycling and redistribution. A study indicated that 70% of
products returned are recycled while 30% are disposed of.

Another key principle to supply chain management is outsourcing. IKEA outsources about 90%
of its products and 10% is produced internally (Jens, et al., 2012). This has brought about many
advantages that include IKEA’s low-cost structure and focus on the core business. Outsourcing
makes it possible for the managers at IKEA to direct their energies and resources towards the key
activities that are more likely to bring about value and competitive advantage (Hultman, et al.,
2012). IKEA targets to be the best and leading home furnishing corporation. To get there it does
not just mean developing marketing share and profitability. IKEA has taken a leading role in the
creation of a sustainable approach to working. It educates suppliers to comprehend the critical
essence of sustainable production. It has enabled IKEA to be trusted by consumers and suppliers,
thus differentiating themselves from their competitors. From above, it is evident that IKEA focuses
more on identifying suppliers who can offer materials at a lower price. It is also evident that it is
using the best technique for inventory management and has a strong supply chain management.
IKEA should change its policies so that they become more innovative in their products and also in
their strategies. The corporate matches no other and its size and success to date is commendable.
In its policy to lower costs, IKEA should improve on customer care through the training of
employees to make them better qualified and efficient to make sales. IKEA has immense potential
in both its existing countries and also other countries where it lacks stores. It should exploit these
countries before other companies do.

Recommendation and Conclusion

IKEA should also engage in product differentiation. An opportunity exists where IKEA can
significantly increase its revenues by practicing product differentiation. It is recommended that
IKEA should follow Argos’ and Tesco’s strategies to provide services and products that range
from international calling cards to several types of loans and insurances (Barua, 2011). The
potential does exist to increase on revenues accordingly where IKEA already possess a securely
established efficient and effective infrastructure and strategy. It can utilize this to increase its
product ranges in a more effective way. It has also been noted that various markets where IKEA
is currently operating are becoming saturated. International expansion would be a good idea. IKEA
will increase its revenues when it engages in market expansion strategies. There should also be
more focus on research and development before commencing any international business. For
example, so as to enter a country and make profits fast they should focus on customer research and
development. A good example is when IKEA began its operations in USA. It faced challenges of
what the Americans preferred. They followed what they did in the Scandinavian market that led
to a drop in sales. Later on, it introduced customized advertisements for the younger demographics
and increased in sales. Though facing some challenges, the corporate matches no other and its size
and success to date is commendable.