Background on Ikea

Supply chain is a continuous process of transforming raw materials into final products so that it would be consumed by final customers with the help of suppliers, machinery, machinery, supply chain strategies etc (Meindl, 2016). Primary objective of supply chain is to align the activities of operations with the goals and objectives of company so that mission and vision would be attain with pre-set deadline. In this report, Ikea is taken for considerations which is one of the largest furniture stores in the world and provides ready to assemble products like sofas, chairs, table, beds etc. Ikea business model and environment would be analysed with the help of supply chain models. Besides this, problem faced by company while running their business and how it could be improve in future will be explained by considering functional example of company and its operations.

The basic model of IKEA supply chain comprises of flow of production. It includes flow of materials from raw material resources to manufacturer and distribution of finished goods to retailers and final consumers. This flow of production is distributed into three wide category namely primary, secondary and tertiary section (Copacino, W.C., 2019). The primary section involves the making or manufacturing or assembling of the item. While in this section, IKEA make sure to fulfil all the requirements and quality standards to make the product and satisfy the need of final users. The main factor that IKEA consider while manufacturing its product is to keep it low at price but high at standards. At this stage the organisation do their bargain with the supplier, check its past social history and also verifies the environmental impact caused through the process. The e-wheel is the main tool which is used by the IKEA to measures its environmental impact. At the next stage that is secondary where the actual manufacturing takes place, communication plays a very important role between IKEA and its suppliers. At this stage value addition is also carry out through, IKEA designs which make the best products with least quantity of resources therefore less wastage (Monczka and et. al., 2015).

Example at IKEA: The Company uses legs that are hollow to utilise space and sometimes to fill the hollow legs they also use honeycomb paper which is environmental friendly and has other health benefits also. Value addition is also happen at the retail store where the shopping experience is provided to the walk in customers to select the best product through easy and very helpful store infrastructure and its interiors. IKEA also provides home delivery facility to its customers through order over online portal or through on call bookings.

The IKEA Concept

Because of innovation and adopting new techniques to save cost and minimise environmental impact IKEA has now started using raw materials like steel to improve safety and ergonomics of its products. It has also reduced weight and increased durability of most of the products. At the final stage, the tertiary stage where the organisation effectively and efficiently evaluates the demand and according to the analysis the production take place, IKEA does that to decrease wastage and to help environment (Coyle and et. al., 2016). This is also the vision of the organisation that there should be right amount and quality of products for every customer.

The SCOR model is used to evaluate and analyse the supply chain model used by the organisation. This model basically brings improvement in the supply chain and helps in taking difficult choices in the supply chain management (Stadtler, 2015). This process is basically made by keeping in mind the satisfaction of the consumer.

Plan – Identifying the demand of production through market analysis and past data and also determine the cost of production and logistics.

Source – After identifying the correct demand, the placing of order through the right supplier is next step.

Make – At this stage the making of items take place, where the resources are allocated at their best optimum uses, which brings out the required output with right quantity and quality (Wang and et. al., 2016).

Deliver – This stage is where the distribution of the finished goods to the shop outlet or the customer takes place. Sometimes the finished products are kept in storage units if there is more production.

Return – There is a return policy on every item purchase at IKEA through which customers can return their products if they are not satisfied. This is a great policy to gain the trust of the customers.

Enables – At this stage the complete process of SCOR is evaluated and the feedback results are studied and based on those results improvements have been applied to increase the profitability of the organisation.   

Another key point in the distribution channel of IKEA is its outsourcing, IKEA outsource about 90% of its products and only 10% is manufactured internally. This technique has brought many advantages to IKEA vision and mission statements. It help’s in maintaining the low-cost idea for products manufacturing which helps in maintaining customer satisfaction (Saenz and et. al., 2015). Outsourcing majorly helps managers and decision makers to focus on more important tasks like innovation and improving customer experience at IKEA.

Primary, Secondary, and Tertiary Sections of the Supply Chain

Based on the above chosen business scenario, it is recommended that IKEA should also engage in product differentiation. Which will allow the organisation to sell more products like international calling cards, different kinds of loans and insurances; this will ultimately increase the profitability of the organisation. This can help in increasing its product range in a more efficient and effective way (Dubey and et. al., 2017). It is also recommended that the organisation should increase its geographical region of business which will help in the expansion of the business. There must be a focus on innovation and development before going for further expansions and building reputation in new markets.

But the main area which is analysed and demands urgent recommendation is the increasing of frustrated customers due to overcrowding and long waiting lines at the time of checkout in the stores (Rajeev and et. al., 2017). The best solution for the above scenario is to apply ‘designing out the bottle-necks’, this technique includes below mentioned changes that must be applied to overcome the situation of overcrowding:

• Applying shortcuts for those customers who are in the stores just for a particular item and can easily move out after spending short time in the store, which will save both customer and store managers time.
• Separate exit bill counter for customers with bags and with trolleys.
• Allocating extra staff at key areas in the shopping stores.
• Making easy and resource full car parking areas, so that customers can easily flow out after their shopping.
• Building new storage units to keep logistics of regular items, so that they do not go out of stock during the day time.
• Providing more children play area, so that their parents can shop in peace.

The selection process of the suppliers is also very critical for maintaining the smooth flow of supply chain management. Because, if they don’t deliver effectively then the next process will lack behind due to the low collaboration and coordination in that supplier chain. That will be eradicated by coordinating in the traditional way like the organisation should coordinate outside the firm before taking any work for the organisation (Genovese and et. al., 2017). The traditional business functions include marketing, human resource, logistics, sales, production as required through the company. Because of lack of coordination, the company cannot achieve its target of attaining sustainable competitive edge.

The organisation must also plan for supply chain forecasting which generally includes planning for five years in advance. Through long term planning the company can focus on balancing the production level with the demand. There are basically two main features through which the organisation can forecast the supply chain and those are qualitative and another is quantitative (Fernie and Sparks, 2018).

In qualitative analysis of supply chain forecasting, it helps in evaluating the demands and needs of the customers through market study and experts speculations and based on that research the forecasting of supply chain takes place and it is a long term process which is applicable for high volume categories of products.

Whereas, in quantitative analysis is based study of past data and based on it the future forecasting of supply chain management is carried out.  It is also known as the component of time series. Through is technique the company has several components which will impact the demand in the market (Formentini and Taticchi, 2016).

Challenges Faced by IKEA and Recommendations for Improvement

There are some areas for improvement in the operations management of the organisation, IKEA understand that business is nothing but market and customers. There are some recommendations that IKEA managers should carry out in order to improve its supply chain and they are as below:

• Process design – Arranging the best store design to provide smooth flow of customers in the store.
• Product design – Designing products that are best satisfy the need of customer as well helps in fast and efficient packaging.
• Job design – Making sure every employee takes part in the process of overall success of the organisation.
• Supply chain management – Arranging for the best supply chain model and selecting the best suppliers for the raw materials.

Risk management plan is a project made by manager to predict the future, their company would face in the future and how it could be eliminated so that it won’t affect their profitability or productivity in a negative way (Wiengarten and et. al., 2016). There are two principles of risk management plan which is explained below,

Avoid: It states that it is essential for company to avoid the risk by any means so that company does not need to bring changes in their business operations. For instance, problem faced by Ikea customer is long waiting time while billing their order. So to avoid it, Ikea can bring new technology which will decrease customer waiting time thus reducing the risk of losing the customers (Meixell and Luoma, 2015). 

Reduce: In this, company try to reduce the risk they would be facing in the future by implementing strategies on a regular basis. Aim of it is to reduce the risk in the first place so that it won’t hamper Ikea performance in future (Reimann and Ketchen Jr, 2017).

Risk	Outcome	Impact of it	Contingency
High waiting time	Customer retention and loyalty towards Ikea would reduce	Company’s profitability and revenue would decrease due to low customer footfalls.	Ikea should give focus on E-commerce website and application so that customer can buy the product from their home only.
Increase in number of staff	It will reduce company’s profit margin and profitability due to dissemination of fund to employees	Ikea would not be able to invest their profitability in other region to decrease their institutional risk	Ikea must bring advanced technology like ERP or Robots in their working operations so that long term benefits would be gained by them (Bernhardt, 2017).

 

Conclusion

From the above mentioned report, it can be said that company cannot attain success and higher profitability without supply chain and its strategies as their main work is to reduce the cost price of the overall product which leads to higher profit margin. With the help of continuous evaluation of supply chain process, it becomes easier for company to identify the strengths and weakness of it so that it would be rectify in future. To attain this, risk assessment practice is essential as it assist them in identifying the risk and make strategies to mitigate it so that company would be able to sustain their market leader position in the competitive market. 

References

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Genovese, A., Acquaye, A.A., Figueroa, A. and Koh, S.L., 2017. Sustainable supply chain management and the transition towards a circular economy: Evidence and some applications. Omega, 66, pp.344-357.

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