Professor
OPER/084
IKEA’s Cost Efficient Supply Chain
“Assembled furniture is expensive to transport and store because you end up paying for a lot of air. By flat packing unassembled furniture and getting customers to pick their own products in store, Ikea dramatically reduced its transportation and warehousing costs and passed the savings to their customers”1 Carter McNabb, Partner, GRA2, November 2008.
INTRODUCTION
On January 01, 2009, Modern Material Handling announced that IKEA Group3 (IKEA), world‟s largest furniture retailer4, had won the Modern‟s Productivity Achievement Award5 for the Warehousing/Distribution segment for the year 2008-09. Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective. Its most differentiating factor was its flat packaging system which had significantly improved its operational efficacy. IKEA was ranked 35th in the list of the top 100 brands by Business Week6 for the year 2008-09. The company‟s brand value was estimated to be US$ 10.9 billion in 2008. For the financial year 2008, IKEA registered sales of US$ 28.8 billion. According to industry experts, IKEA‟s supply chain management was the key factor for the success of the company. The company considered factors like carriers used for transportation and pallets used in warehouses to base its decisions like furniture design and packaging. As a result, IKEA was managing its costs better than its competitors and was able to offer products at 30% lower costs. IKEA maintained a long-term relationship with its suppliers and assisted them in improving their processes so that it would help in cutting costs further. The company did not offer free
IKEA’s Cost Efficient Supply Chain
“Assembled furniture is expensive to transport and store because you end up paying for a lot of air. By flat packing unassembled furniture and getting customers to pick their own products in store, Ikea dramatically reduced its transportation and warehousing costs and passed the savings to their customers”1 Carter McNabb, Partner, GRA2, November 2008.
INTRODUCTION
On January 01, 2009, Modern Material Handling announced that IKEA Group3 (IKEA), world‟s largest furniture retailer4, had won the Modern‟s Productivity Achievement Award5 for the Warehousing/Distribution segment for the year 2008-09. Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective. Its most differentiating factor was its flat packaging system which had significantly improved its operational efficacy. IKEA was ranked 35th in the list of the top 100 brands by Business Week6 for the year 2008-09. The company‟s brand value was estimated to be US$ 10.9 billion in 2008. For the financial year 2008, IKEA registered sales of US$ 28.8 billion. According to industry experts, IKEA‟s supply chain management was the key factor for the success of the company. The company considered factors like carriers used for transportation and pallets used in warehouses to base its decisions like furniture design and packaging. As a result, IKEA was managing its costs better than its competitors and was able to offer products at 30% lower costs. IKEA maintained a long-term relationship with its suppliers and assisted them in improving their processes so that it would help in cutting costs further. The company did not offer free
References: and Suggested Readings: 1. An Effective Procurement Lesson from IKEA, Supply Chain Europe, May 2004. 2. Robert Malone, Logistics by IKEA, www.forbes.com, September 29, 2005. 3. Splatty, IKEA Logistics, www.3plwire.com, September 30, 2005. 4. IKEA How the Swedish Retailer Became a Global Cult Brand, Business Week, November 14, 2005. 5. Optimizing Outdoor Logistics, www.logisticsit.com, May 03, 2006. 6. Bob Terbilcock, IKEA Thinks Global Acts Local, Modern Materials Handling, February 01, 2008. 7. Bob Terbilcock, IKEA’s New Style: Automation, Modern Materials Handling, February 2008. 8. Jasmine Smith, Achieving Supply Chain Efficiency, Inside Retailing, November 17, 2008. 9. IKEA Looks to Local Sourcing, www.procurementleaders.com, March 26, 2009. 10. Gerri Hunt, IKEA: Euro Success www.kidtodayonline.com, June 01, 2009. Story Makes Big Impact in US, 11. Jenny G, The Story of IKEA Furniture, http://hubpages.com. 12. Building Piece by Piece: IKEA Becomes an Industry Leader, www.evarcarmichael.com. 13. www.ikeafans.com. 14. www.ikea.com. 15. www.mmh.com. 16. www.ikea-group.ikea.com. 17. www.plan.se. 18. www.viastore.ru. Book 1. Jason Jennings, Less is More: How Great Companies Improve Productivity without Layoffs, Portfolio Trade, December 30, 2003. 14