Critical Analysis on IKEA Supply Chain Management
Task: Write a reflective journal on computer architecture assignment analysing the theoretical concepts captured from the weekly material.
Supply chain management (SCM) refers to the process of handling the entire process of flow of goods and services commencing right from raw materials till delivering the finished product to the customers. Contextualising this, the study would shade light on SCM practice of chosen organisation, IKEA. This organization has a global presence in 29 countries, the supply chain management practices of the organisation involve, “maintaining sustainability with the suppliers, combining retail and warehouse process, tactics of cost-per-touch inventory and usage of high-flow and low-flow warehouse facilities”. The logistics management process of IKEA relies on unique concerning reordering of products while handling the logistics personnel (IKEA.com, 2020). Continuing on the same line, the study would explain related aspects to SCM of IKEA.
“Strategic alliances with major trading partners with explaining how and its purpose”
IKEA group coordinates and collaborates with trade unions, NGOs and companies which are inclined towards developing or reinforcing the impact of positive working towards social and environmental aspects. IKEA collectively forms a social outlook by conducting strategic alliances with partners like UNICEF, Save the Children, UNDP and WWF. The purpose of these partnerships is to enable IKEA to focus on improving the rights of children and is responsible towards the environment, being responsible towards eliminating CO2 emissions as well (IKEA.com, 2020). With the help of the partners, the respective organisation is able to develop long-term objectives with the help of innovative solutions through which the government can be influenced in terms of bringing in substantial changes in the lives of the children which ultimately would also contribute towards the enhanced condition of the country. There are other companies and trade unions as well with which IKEA develops strategic alliances which substantially would contribute towards the betterment of the environment.
There are certain advantages of these strategic alliances which include “getting proficient consultancy with modern engineering, high competitor power, pulling monetary value while recession period, promotions, ability to maintain a positive CRM and encouraging growth in population would help in managing demand for furniture” (Vico, 2020). IKEA focusing on selling strategy supports the organisation to focus on “geographical aspects, demographic aspects, social status and related other aspects”. On the other hand, there are certain issues associated with the strategic alliance which involve “confidential information, contribution from each party, minimizes internal confusion and partnership commissions”. Thus, it is necessary for the organisation to focus on enhancing its capabilities further so that it becomes easier to address the prevalent issues. Moreover, stakeholders' contribution is highly important in terms of CSR, customers and focusing on rivals. Thus, based upon the strategic alliances under laid are the set of actions adopted by IKEA:
- Supporting refugee entrepreneurs with loan
- Donating frequent flier miles
- Making own compost
- Buying local and seasonal food
- Avoiding plastics
- Being respectful to the environment
- Eliminating phantom loads
- Investing in solar and others
“Strategies applied to procurement and outsourcing”
Procurement and outsourcing strategies of IKEA helps in optimising their value chain starting from raw materials to provide finished products to its customers. Back in 1995, IKEA made an organisational shift in “purchasing and sourcing methodology” where they desired to expand on their productions and become competitive across the globe (Sandybayev, 2017). The organisation then adopted a new strategy which was all about switching perspective from individual focus to sourcing a package of products. Among different strategies, IWAY (IKEA’s Supplier Code of Conduct) has been lawfully acted to showcase their responsibilities towards consumers and the environment. Code of Conduct has been made significant for supplier governance and corporate social responsibility. Having a mutually agreed “language for better communication, developing a clear vision, considering supplier-related risks and complying to supplier compliance and other standards and building shared value” fall under effective strategies for the procurement and outsourcing (Jiang et al., 2018).
Moreover, lower prices, lower costs, higher sales and hire purchase volumes altogether form the overall business strategy of the organisation. Initially, the company was a discount retailer, after the implementation of flywheel affected the organisation and started to touch new heights of success, this respective strategy was acquired from Amazon and Lidl. Design focus on cost manufacturing and long-term association with the suppliers has added to the efficiency of the organisation in developing new products by justifying the efforts of the suppliers. After the adoption of these strategies for procurement and outsourcing, the organisation has put a wide focus on buying power of the products by stating an objective of reduced purchase price, working with high-volume suppliers and getting engaged for process-oriented organisation. The entire business model of IKEA is coherent and has the ability to weave the related activities altogether along with highlighting the significance of planning and coordination towards supporting flexibility within the company (Giunta, 2016). The procurement policy of the stated company is effective for managing and handling unique situations and understanding the significance of adaptability by adhering to their own vision and mission.
Figure 1: Illustration of overall business strategy of IKEA
(Source: Giunta, 2016)
“Challenges and risks do they face internationally and how does IKEA attempt to overcome these challenges”
The main problem faced by IKEA is its prices which were considerably low in North America and Europe which is considered to be high in China as per an average. Prices of the furniture at the local stores were low, this is because they had access to cheap labours and raw materials because of their design. Focusing on China, the company faced several problems which involved low-price strategy which resulted in confusion for the Chinese consumers. Thus, it is important to comply with the local laws and form a joint venture. This strategy might be effective for IKEA to enter the Chinese market. It is observed that apartments in China are quite small and thuas, customers desire to have functional yet modular solutions for this (Schneider and Bermudez, 2018). This made the organisation to focus on different aspects which would be used for making modifications in the furniture to meet the needs of the local consumers.
Continuing on this IKEA also had similar problems while entering into the US market, the company initially made efforts to form a replica of this existing business model and its products within the American market but the company had to focus on customising their products on the basis of the requirements and preferences of the customers. American customers as compared to Chinese customers desire for bigger beds, bigger closet and furniture with extra space with lavish looks. The challenges faced in China are far more severe as compared to the risk faced in the US. Along with this, local stores were not so profitable. Apart from this, IKEA also faces problems with high prices which acted as severe barriers in China who purchased products from IKEA, this was because the global branding of IKEA promises low prices which were not followed in China and the products were also not much aspiration as compared to Asian markets (Wadvalla, 2016). Thus, this confusion made IKEA to target middle-class people and the ones with relatively higher income as these people would be educated and highly engaged towards having a western outlook regarding furniture they would be purchasing for their home.
“How IKEA incorporates social and environmental objectives in their supply chains? Critically assess their approach to sustainability in the Supply Chain”
The IKEA Group is highly integrated towards being a sustainable leader by incorporating objectives which would increase its commitment and be fair towards sustainable supply chain planning. The organisation has made investments for renewable energies. IKEA uses IWAY through which environmental and social requirements would be fulfilled. The company has invested almost $1.1 billion for a sustainable supply chain and has also been focused towards “recycling technologies, renewable energy and biomaterials”. This is not only effective for the planet but it is also effective for the business. The sustainability aspect of IKEA also contributes towards its reputational benefits. The company is inclined towards “reforestation programs, sustainable packaging and sustainable sourcing” (Larsson, 2016). IKEA mainly uses cotton and wood as their raw materials and this has made the company to highly invest in companies like Global Forest Watch. Additionally, IKEA does not use raw material like wood from tropical forests as it is pivotal for the environment. Thus, through this, it can be stated that IKEA has an integrated approach towards sustainability. IKEA is planning to move entirely to 100% recyclable and renewable products for achieving their goals. The company is also based on the community dynamics of 3 E’s of sustainability which would be effective for building a healthy community with long-term goals of success. Apart from this, IKEA is also hitting a new benchmark for renewable furniture by 2030. However the company has already started to make its stores environmentally-friendly. Recycle, reuse, repair and resold, all together would be contributing towards reducing the usage of plastics and making IKEA a more sustainable organisation (Ikea.com, 2020)
“Technologies employed by IKEA to develop a more efficient supply chain”
- Augmented reality
IKEA follows AR which “superimposes a computer-generated image” to form a view for the users of the real world. This technology was launched by the company in 2017, with the help of AR; the company has been able to develop a composite view and has also been able to understand the consumer’s perspectives as well. This is helpful for the customers who look at the catalogue and image the products and its looks when they bring it home (Nguyen et al., 2018).
- Virtual reality
VR is used by IKEA for enhancing virtual experience of the customers in order to help them form a better experience through this journey. VR is also responsible for driving innovation within the SCM process as this helps in increasing sales configuration and up selling opportunities, providing customers with 3-D experience, enhanced design process, supplier management, manufacturing, distribution and related others (Vergassola, 2019).
Blockchain is effective for leveraging decentralised supply chain management by conducting different functions like smart contracts and authentication of candidates. This is also effective for managing multiple activities involved within SCM. For example, blockchain can be used for tracking the movement of the goods from one place to another; this would assist in developing retail records with unique specifications (Szerakowski, 2017).
It can be recommended that IKEA is required to regulate ust pricing strategy in order to perform well within the Chinese market. For this, they are required to reduce their production cost including overhead charges while manufacturing, this would help in reducing the overall price of the finished product. IKEA however, is required to focus on its product development where they would be required to provide well-designed, functional and lavish-finished products for home at an affordable cost. The company can also adopt other models along with price-leadership models within the Chinese market as well so that their performance in that market is enhanced (Gutzmer, 2016).
The study highlights the SCM process and related aspects of it in the context of IKEA. It was also discussed regarding the significance and contribution of the strategic alliance of the organisation along with the strategies which are implemented by IKEA for outsourcing and procurement. It has also been explained about different risks and challenges and relevant solutions for its mitigation. A sheer emphasis has been provided on the social and environmental responsibility of the company. Suitable recommendations and technologies like blockchain, AR and VR have been considered as well.
(2020) Ikea.com. Available at: https://www.ikea.com/ms/en_JO/about_ikea/pdf/ikea_ser_2006.pdf (Accessed: 20 September 2020).
Giunta, V., 2016. IKEA in China: A “Glocal” Marketing Strategy. In Market Entry in China (pp. 73-93).Springer, Cham.
Gutzmer, A., 2016. Audi, Siemens, Ikea, Haus der Kunst, Igreja Universal: Five Urban Strategies. In Urban Innovation Networks (pp. 61-114).Springer, Cham.
IKEA, T. (2020) Sustainability, Ikea.com. Available at: https://www.ikea.com/in/en/this-is-ikea/sustainable-everyday/ (Accessed: 20 September 2020).
IKEA.com - International homepage (2020). Available at: https://www.ikea.com/ (Accessed: 20 September 2020).
Jiang, Y., Jia, F. and Gong, Y., 2018. IKEA: global sourcing and the sustainable leather initiative. International Food and Agribusiness Management Review, pp.627-639.
Larsson, R.G., 2016. Ikea's Almost Fabless Global Supply Chain—A Rightsourcing Strategy for Profit, Planet, and People.In Lean Management of Global Supply Chain (pp. 65-82).
Nguyen, T., Cai, Y. and Evans, A., 2018. Organisational learning and consumer learning in foreign markets: A case study of IKEA in Japan.
Sandybayev, A., 2017. Strategic Supply Chain Management Implementation: Case Study of IKEA. Noble International Journal of Business and Management Research ISSN, 1.
Schneider, M.A. and Bermudez, V., 2018. Challenges of transforming a Business Model to a Sustainable Business Model-A case study based on IKEA and Tetra Pak.
Szerakowski, C., 2017. Transitioning IKEA Towards a Circular Economy: A Backcasting Approach (Master's thesis).
Vergassola, I., 2019. Prerequisites and outcomes of glocalization of marketing strategies by international retailers: the case study of IKEA and home depot in China.
Vico, E.P., 2020. When Average Joe met the Inexperienced Superstar—a case study of the consequences for a university of a partnership with IKEA. Higher Education, pp.1-19.
Wadvalla, I., 2016. Sustainable Community Development in the Supply Chains of Swedish Multinationals located in Developing Countries: A Case Study of the CSR Strategy at IKEA & Ericsson AB, using the HDI as a benchmark to measure progress.
Wangsirilert, C. and Simon, L., 2017. How large-scale companies and social enterprises improve the sustainability of their partnership?: The case study of IKEA and Doi Tung social enterprise in Thailand.