Supply Chain Management

Sudhir K.C Wittenborg University Phase-II

Presented To: M.A. Rauf

Contents
1. Introduction 2. Research Questions a. Supply Chain Of IKEA b. Logistics c. Third Party Logistics d. Planning and Forecasting e. Warehousing f. Procurement g. Efficient or Responsiveness h. Function of Ikeas supply chain that creates benefit i. Bottleneck or Deficiencies in Supply Chain 3. Conclusion/Recommendation

Introduction: IKEAs supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centers, or directly from the suppliers in more than 50 countries. Supply chain planning is a real challenge for IKEA. The supply chain should be controlled in every way possible to keep the costs down and increase in the stock Most of the IKEA supply chain is mainly make-to-stock (MTS) and only a few products are customized and made to customers orders. It is said that IKEAs entire supply chain heavily dependent on forecasts.
C u s t o m e r

External Suppliers Raw Material Product design Internal Suppliers Distribution Centre Stores

Due to its excellent supply chain management, IKEA is managing it cost better than their competitors and they were able to offer products at about 30% lower cost than their competitors. IKEA also maintained a long-term relation with their suppliers and helped them in improving their process so that they can cut their cost in future. IKEA were not providing deliveries and encouraging customers to assemble their products by their own which helped them to cut down the transportation costs and benefited to the customers for low priced goods.

Logistics: IKEA use hub and spoke distribution system (using best source of rail and road sources), which is a centralized logistics system that is designed to lower the costs IKEA and send them directly to the destination. These distribution centers acts as logistics centers for transporting the goods to different individual stores and to sites with complex products, which are more build to their customer orders. Which are delivered to customers homes by independent truckers. Ikea brings their products from all over the world as close as possible to their distribution centers from which they can save lot of transportation costs. Outbound Logistic: IKEA use different medium of transportation from trucks, boats and trains to move their product around. They coordinate these different means to make the movement of goods as quick and efficient as possible and ensure the goods arrive at the right stores to the customers at the right time, which must also arrive in good shape. Inbound Logistic: Logistics at IKEA also include a different way of packaging in flat pack boxes which helps to protect goods from damage as well as more units can be shipped at a time even though IKEA have a strict guidelines for loading. Photographs of damage incidents are also taken, including video camera at IKEA suppliers factory monitoring the loading of containers. If any goods are damaged while transporting or handling, they put it in their store after necessary repair, if it is completely damaged, products are broken down and recycled. IKEAs approach to packaging makes buying process very simple to the consumers. Smaller package allows them to transport the purchased product in their vehicle as well as it allows IKEA to maximize rack space in their warehouse Third Party Logistics :Ikea also uses third party logistics for their global distribution.

Planning And Forecasting: IKEAs supply chain is global with sales worldwide. The stores, which are divided into three geographical areas, are supplied through 31 distributions centers, which in turn are supplied by some 1,350 suppliers in more than 50 countries. Kea uses a complex planning and forecasting process as its entire supply chain in dependent on planning and forecasting. Their global planning process is done by Ikea at Sweden where they focus on sales planning, need planning and demand planning, transportation and warehouse planning and supply capacity planning Sales Planning -This is measured in terms of total sales volume in terms of monetary sales while sales plan is updated 3 times per year. Need Planning In the need planning process, stores provide a forecast for each article for the coming three weeks. The forecast are based on current stock levels and safety stocks required at the stores. The goods that are in transit are also taken into account in this process. Demand Planning-Demand planning review the forecast on regional level each week and compare it with the actual sales. In demand planning, the demand planner looks for a reason and adjusts the sales figures. Supply capacity planning-Ikea often provides a certain volume to a supplier, which is to make him willing to invest in plants and machinery to produce desired product. The supply capacity planning includes shifting volumes between different suppliers

In terms of Logistics, they aim constantly to increase goods to be transported by rail.

Current Frieght Distribution

Rail 20% Sea 20%

Forecast within 3 years

Sea 20%

Road 40%

Road 60%

Rail 40%

Warehousing: Ikea uses highly automated warehouse storage and retrieval system and conveyor belts, which is called (AS/RS). Using AS/RS, improved the warehouse operation for Ikea significantly. Most of Ikea distribution centers use conveyors, which helped to reduce traffic in form of heavy lift trucks in the warehouse. As they use hub and spoke distribution systems it allows minimum order quantities to be kept low. In some distribution centers, it is also possible for a carton rather than a pallet or a container. After the containers are received, the product are decided to be stored in the warehouse according to product specification and demand which are then loaded into on the pallets in the warehouse for the quality and quantity assurance and also to see if the suppliers are accurate. After the quality control process a pallet label, bar code are printed and applied on the pallet .The lift truck drivers than scans the barcode on the pallet to control that right pallet is being delivered and transferred to other storage as directed by warehouse management system

Ikea also follows the same design, technology and operations at all of its facilities so the processes were standardized across the chain employs at any facility can be moved from one to the another if required. In addition to this, they also have three standardized pallet size so that no matter where the products are manufactured it can be shipped to any of their facilities globally which saved them on costs and time. Standardization also helped Ikea to conduct trail projects at one of their distribution center and if it goes as they planned than they can apply them across the chain. Procurement: The most important country for Ikea in terms of purchasing is China at the moment with Poland in the second place. Although they are looking to do more on local sourcing, presently Ikea source 30% of its 9500 products from Asia.Ikea exchanges information to their suppliers through fax, emails and phone calls. Shipments are followed online via Electronic Data Interchange (EDI) for shipping instruction, transport booking and confirmations, which falls under external system for Ikea They also have maintained the ecommerce for ikea for their suppliers to reduce internal administrative workload to their suppliers and to Ikea as well through the informational technology suppliers can receive orders, forecast, invoices and other related documents. They also use extranet for designed for suppliers specific access where they can find information for transportations, articles and customs information.

Efficient or Responsiveness: Ikea is offering wide range of products in low prices as many people as possible will be able to afford it. All of Ikea does from procument, staffing, warehousing to transportation is more focused on cost efficient.

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If we see it in the Cost responsiveness spectrum, it is as follows

Responsiveness

Ikea

In the following graph we can see the positioning in the strategic fit spectrum, as a comparison we can see Albert Heijn.

Albert Heijn

Ikea

In this graph we can see it clearly that Ikea focuses more on efficient supply chain whereas Albert Heijn wants very high responsive supply

Function of Ikeasupply chain that creates benefit Relationship with Suppliers: Ikea supported their suppliers by helping them lease equipment, credit facilities and also supported some by purchasing some of their suppliers excess inventories. In return,Ikea benefited by getting goods at low cost and increased loyalty from its suppliers. With loyal suppliers Ikea plans its supply of goods and emphasis on shortening the lead time taken by their suppliers which acted as competitive advantage for them and made them possible to increase their manufacturing efficiency to bring down the lead time from weeks to days and also made them produce the goods when orders were placed Store Design: Ikea chose its store location on outer part of the town or city as their stores are large and required huge parking space. Their stores are designed in such a way that furnitures was displayed in the real room setup environment with details of each product. The design of their stores is also made in such a way that customers passes through all the products on display and most of Ikea stores have a section as in where Ikea sold returned goods that has minor damaged which has not been repaired in cheap prices. All Ikea stores have restaurants; play areas for childrens.

Bottleneck and Deficiencies in Supply Chain: Risk of multiple suppliers Risk of standardization

Conclusion: The success of Ikea is due to the low price furniture they provide including all the fundamentals around it in which their supply chain plays a major role for them to be able to supply there products in cheap prices to their customers. Ikeas success is not only because of the internal workforce but it is also dependable on their suppliers to whom they have managed to make loyal to them Recommendations: From the bottle defencies stated above we can make some recommendation to Ikea that Ikea should have less different little suppliers and also although it is cost efficient standardization for their product and warehouses may also be a problem for them in the long term strategy.

References: http://www.docstoc.com/docs/10233312/Integrating-IKEA-suppliers-withEDI-solutions http://www.allbusiness.com/company-activitiesmanagement/operations/10633872-1.html http://supplychainsrock.blogspot.com/2008/03/ikea-and-supply-chain-superhero.html http://www.3plwire.com/2005/09/30/ikea-logistics/ http://www.ibp.uw.edu.pl/download/2005-2006/ilog-f2005/IKEACase.pdf http://www.ikea.com/ms/en_US/jobs/business_types/stores_retail/logistics.h tml http://www.thefreelibrary.com/Worldwide+Furniture+Manufacturer,+IKEA, +Selects+Cardinal+Logistics...-a0104728571 Supply Chain Management,4th Edition ( Sunil Chopra ,Peter Meindl)

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