IKEA Introduction

Founded in 1943, by Ingvar Kamprad, IKEA is now reputed to be the largest furniture retailer in the world, with outlets in 32 countries and plans to develop further. IKEA offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. This is the single idea at the heart of everything IKEA does, including the way it develops and purchases products and the way they are sold in IKEA stores around the world. IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was founded in 1943. Today it is the world's largest furniture retailer, recognised for its Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including home furniture and accessories. This wide range is available in all IKEA stores and customers can order much of the range online through IKEA's website. There are 18 stores in the UK to date, the first of which opened in Warrington in 1987. In July 2009 IKEA opened a store in Dublin too - its first in Ireland. IKEA stores include restaurants and cafés serving typical Swedish food. They also have small food shops selling Swedish groceries, everything from the famous meatballs to jam. Stores are located worldwide. In August 2008 the IKEA group had 253 stores in 24 countries, with a further 32 stores owned and run by franchisees. It welcomed a total of 565 million visitors to the stores during the year and a further 450 million visits were made to the IKEA website. IKEA sales reached 21.2 billion Euros in 2008 showing an increase of 7%. The biggest sales countries are Germany, USA, France, UK and Sweden. In 2008 IKEA opened 21 new stores in 11 countries and expects to open around 20 more in 2009 as part of its strategy for growth.

Low prices are one of the cornerstones of the IKEA concept and help to make customers want to buy from IKEA. This low price strategy is coupled with a wide range of well designed, functional products. IKEA's products cater for every lifestyle and life stage of its customers, who come from all age groups and types of households. This is vital in times when the retail sector is depressed, as it increases IKEA's potential market.

Since it was founded IKEA has always had concern for people and the environment. The IKEA vision 'to create a better everyday life for the many people' puts this concern at the heart of the business. IKEA has responded to the public¶s rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions. IKEA's concern for people and the environment encourages it to make better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment.
IKEA IN UNITED ARAB EMIRATES The world¶s largest home furniture and furnishings store. Their operations in Dubai commenced in 1991, with their first showroom located in Zabeel Road. In the year 1995 they moved to the Deira City Centre and closed in November 2005. This was to pave the way on the same month to the opening of the new four times bigger IKEA store at Dubai Festival City. In March 2001, IKEA opened a new store in Marina Mall, Abu Dhabi. Marina Mall overlooks the Abu Dhabi Marina, and is one of the most prestigious shopping malls in Abu Dhabi. The owner of IKEA in United Arab Emirates are Al-Futtaim Trading (Private) Limited (Al-Futtaim).

IKEA Concept The IKEA vision is "To create a better everyday life for th e many people." The business idea is "To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them." The market positioning statement is "Your partner in better liv ing. We do our part, you do yours. Together we save money."
The IKEA Stores IKEA stores sell the IKEA product range in room settings and self -service areas and inspire customers with ideas, hints and tips for smart new home furnishing solutions. To keep prices low, the stores buy and transport products in bulk. They¶re also located in less expensive areas of their market area. IKEA customers help to keep prices low by picking their furniture up at their store¶s warehouse, transporting it home and assembling it themselves. There are 202 IKEA stores in 32 countries. Of these, 180 stores belong to the IKEA Group. The remaining 22 stores are owned and run by franchisees outside the IKEA Group. By August 2005 IKEA will have opened further stores: 2 in Belgium, 1 in Czech Republic, 3 in France, 3 in Germany, 2 in Italy, 1 in Netherlands, 2 in Spain, 1 in Sweden, 1 in United Kingdom and 3 in USA.

The IKEA marketing mix

The IKEA marketing mix consists of different areas of focus:

in 17 languages. IKEA have proven to the pu blic that they can. PR and other types of communication are complements to the IKEA range. sustainable sources. These centres supply goods to IKEA stores. seek help or complain. I have gathered that they are devoted on: Looking after their customers by doing things right th e first time. Distribution . All other marketing communication is used to amplify the product range. and they ensure that the route from supplier to customer is as direct.IKEA has 27 distribution centres in 16 countries. ensuring that they find it easy to shop. which are very durable. understanding what customers want and what they expect of IKEA. and do look after their . 110 million catalogues were circulated last year the IKEA advertising. the store is the primary medium for presenting and communicating the range. IKEA has also made a public commitment to be socially responsible through the following objectives: y To only use materials from appropriate. I have come to the conclusion that they are very excited on meeting a high standard of quality and to produce long lasting products.y y y y y The IKEA product range is the starting point. y A keen understanding of the company¶s cost base must be maintained and good results achieved with careful investment. y Profit should be used to build and expand. I can also see that enthusiastic to keep with trends in fashion and to make sure they're at the cutting edge of design and technology. y To reduce waste and emission levels in all production for IKEA. Judging from IKEA's aims and objectives. Efficient distribution plays a key role in the work of creating the low price the IKEA catalogue is the main marketing tool with around 70% of the annual marketing budget being spent on this alone. y To treat all employees including subcontractors and suppliers with respect and social concern . The store and catalogue are used to spearhead the penetration of the target market. cost-effective and environmentally friendly as possible. durability and be functional. It is produced in 38 different editions. regularly monitoring and seeking customer feedback on the businesses performance.the use of child labour is not accept able to IKEA. y Products should combine good quality. y Simple solutions should be found to product and company problems. y To use the minimum of raw materials and energy. it's low price and the IKEA concept. The aims of the organization include: y To keep costs low and assist customers.

This has obviously proven to be a well thought through idea.existing customers well. This ends up causing a rift for international companies like IKE A because this approach might not be what the local managers are used to doing. Strong corporate culture is too much for subsidiaries . and most of the time work was not one of the choices. ³Our management needs to be much more professional in managing human resources. We need to bring new people into the organization. the Germans would take informal sugg estions as actual reality and overdue simple tasks. . By looking at the Ikea website you can tell that IKEA are interest ed in maintaining a good relationship between themselves and the customers.´ Another young manager said. Examples: Americans would purchase flower vases in the retail outlets mistaking them for drinking glasses. The Swedes culture is an informal management style with pragmatic problem solving and consensus based decision-making as part of IKEA¶s everyday practice. Problems with IKEA: IKEA was successful with a different model of the value chain. This would all stem back to the Swedish approach to the work environment. Management and Human resource issues were prevalent also in the United States. In France. The competition was also adapting to IKEA¶s supply strategy and making furniture better for lower prices. the people were used to formal rules and strong hierarchy. Transnational strategy faults were clearly seen in the United States.´ External factors changed because baby boomers had become middle aged and their desires changed. Americans slept in king size beds and the IKEA beds were five inches narrower. also while trying to accommodate for new customers. They wanted to pursue career advancement rather than a five -week trip to the Bahamas. but they had many problems associated with multinational companies. and reward individual accountability for results. Examples: One American manager is quoted in saying. This put direct pressure on IKEA¶s sourcing advantages. this approach to management was seen as ridiculous because the Germans were very disciplined and precise. but many managers in the United States did not want this. Shopping at IKEA is very different to shopping at some of their competitors' stores in the way that IKEA choose to stand back and wait for the customer to come to them with any problems or what they would like to purchase. ³A lot of people have left IKEA because they can¶t move up fast enough here. IKEA was very good at picking the right suppliers and the sales outlets were positioned well in areas that were low cost. so the informality of the Swedes made the French managers feel like they could do whatever they wanted. but the research and development was only done in Sweden. enrichment and long vacations. IKEA would hire managers who value job security. as it appears to be working well. One result was fewer new homes were being built. For example. Examples: In Germany.

. while the Germans were used to a professional bureaucracy. which gave their competition the time needed to began to mock their distribution processes and product development.000 items causing long production runs. This led to problems with subordinates understanding their roles. and a lot of the new managers were not versed well on IKEA culture. With high uncertainty avoidance the firms tend to have management systems and processes that make organizations and employees dependable and predictable. Firms within high power distance countries have a strong conc ern with hierarchy. and stick with Europe and more development in Asia. The Swedish managers used an organizational standard of adhocracy. but they were too Swedish for their own good. When the company became a large multinational they started to experience poor human resource development. but that includes changing the role of subsidiaries. and not appreciated in Germany and the United States. The larger IKEA became the more this type of management became a problem. and develop possible strategic alliances and joint ventures to increase market reach and brand recognition.000 to 14. and the Americans a mix of all three. and lack of production efficiency. The Problem: IKEA was successful with implementing their long -term strategy of cost leadership and product differentiation. This caused the subordinates to begin to act according to their own management pr actices and it opened a rift with policies from the home company. The founder Ingvar Kamprad has the right ideas about IKEA losing its way and a need to get to the basics. Recommendation: Make the company management flatter by giving subsidiaries more freedom to respond to local needs. The product range grew from 10. Make the company management flatter by giving subsidiaries more freedom to respond to local needs. The informal method of management and lack of risk assessment was not accepted in France. Rationale for the Recommendation: The recommendation for a flatter management style with more freedo m to subsidiaries is a necessity. and lack of communication with subsidiaries.Too large of a multinational was another problem facing IKEA. and develop possible strategic alliances and joint ventures to increase market reach and brand recognition. Do not pursue the United States market because it is too difficult to compete in. the French used to a full bureaucracy. Alternatives: Gut the current centralized management strategy that is Swedish centralized. Reorganize the management through a more international matrix type structure.

. There must be a team of consultants who are made up of many different cultures to assess the situation. this study should conclude the appropriate specific moves needed to adjust the Swedish model to work in this new era of globalization. They need to do a study of the different cultural roles of the subsidiaries. good relationships with their suppliers. and great company values. These positives need to be worked in with the cultural specific. and the new flatter structure of worldwide management. but they will aid your subsidiaries in developing more of a feel for the local markets and competition. IKEA became extremely successful without changing the model of their business plan over many years. the possibility of strategic alliances. After a year. IKEA has the right value chain model. a strong customer base. If this is implemented correctly IKEA will become the world¶s leading supplier of build it-yourself furniture in the near future. and alliance driven world to keep IKEA ahead.The way to address these cultural problems is to change the o rganizational structure and become flatter with the use of joint ventures and alliances. They will not only help increase your market potential. Implementation: These ideas are drastic changes to a company that was begun on the premise of Swedish culture and business ideals.

However. Weaknesses. it develops its product plans to increase its use of waste or recycled materials. This will combine social. For example. finance. A business can create opportunities and counter threats by making the most of its strengths and addressing its weaknesses. one of IKEA's key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition. the economic situation. These may include the environment. Opportunities and Threats involved in a project or business venture. y One particular table. This is a strategic planning tool. . uses knotty birch wood. IKEA uses SWOT analysis to help it reach its objectives. such as the internet. They may refer to aspects of marketing. It has launched a new sustainability plan to take the company through to 2015. SWOT is the first stage of planning and looks at the Strengths. the NORDEN table. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. This means that they are outside the control of the business. environmental and economic issues. IKEA has made the knots part of its design feature. Strengths and weaknesses are internal aspects. manufacturing or organisation. This means that they are within the control of the business. social changes or technological advances. It helps the business to focus on key issues. Opportunities and threats are external factors.SWOT analysis IKEA's goals of sustainability and environmental design are central to its business strategy.

. IKEA's strengths include: y y y y a strong global brand which attracts key consumer groups. KPIs help IKEA to assess the progress of its vision and longterm goals by setting targets and monitoring progress towards these. design and price.y OGLA chairs are made using wood waste from saw mills and LACK tables use a 'sandwich' of stiff card between wood sheets to reduce the amount of solid wood needed. It promises the same quality and range worldwide its vision ± 'to create a better everyday life for many people' a strong concept ± based on offering a wide range of well designed. An example of one of IKEA's KPIs is the percentage of suppliers that are currently IWAY approved. IKEA's 'Cost Consciousness' means that low prices are taken into account when each product is designed from the outset. The IWAY is the IKEA Way of Purchasing Home Furnishing Products. Strengths Strengths could include a company's specialist marketing expertise or its location. functional products at low prices a 'democratic design' ± reaching an ideal balance between function. This guideline defines the social and environmental requirements IKEA expects of its suppliers. These strengths contribute to IKEA being able to attract and retain its customers. They are any aspect of the business that adds value to its product or service. One way IKEA measures its strengths is the use of Key Performance Indicators (KPI). quality.

This slashes handling costs. Volume commitments ± IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. IKEA believes that its environmentally focused business conduct will result in good returns even in a price sensitive market. Opportunities A business uses its strengths to take advantage of the opportunities that arise. As the company states: . y y y y Economies of scale ± for instance. reduces road miles and lowers the carbon footprint. The chair has changed through the years to reduce the amount of raw materials needed. IKEA's OGLA chair has been in its range since 1980. bulk buying at cheaper unit costs. This also benefits the suppliers because they enjoy the greater security of having guaranteed orders. Sourcing materials close to the supply chain to reduce transport costs. Delivering products directly from the supplier to IKEA stores. Using new technologies ± for example. 'Smarter' use of raw materials ± IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009.IKEA has strengths right through its production processes: y y y Increasing use of renewable materials ± IKEA improved its overall use from 71% in 2007 to 75% in 2009. By committing to buying large volumes over a number of years IKEA can negotiate lower prices.

Sustainable use of resources. wastewater treatment and programmes to reduce its use of water. UNICEF and Save the Chi ldren. use more renewable energy. co-workers. Reducing carbon footprint. This involves building trust through good communication with consumers. Being sustainable is a central part of IKEA's image. 4. 3. IKEA aims to reduce energy use. key opinion formers and the press. cut its use of air transport and redu ce packaging. each of which it supports in various ways: 1. 2. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products. Developing social responsibility. aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products. IKEA has a number of areas of focus to its work with sustainability. Weaknesses and threats . 5. Trends in the current financial climate may result in consumers trading down from more expensive stores demand for reduced water usage and lower carbon footprints.'There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. Solutions for a sustainable life at home ± IKEA gives online tips and ideas for this. Being open with all its stakeholders. IKEA aims for zero waste to landfill. IKEA's policy includes support for charities such as the World Wildlife Fund. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015.' Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: y y y a growing demand for greener products a growing demand for low priced products.

IKEA produces publications in print and online (for example 'People and the Environment') and carries out major TV and radio campaigns to enable the business to communicate with different target audiences. The need for low cost products. IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. This could make it ha rd to control standards and quality.Weaknesses IKEA has to acknowledge its weaknesses in order to improve and manage them. IKEA's weaknesses may include: y y y The size and scale of its global business. This could represent a weak link in IKEA's supply chain. affecting consumer views of IKEA's products. By generating new ideas. it can plan to counteract them. This needs to be balanced against producing good quality. This can play a key role in helping it to set objectives and develop new strategies. IKEA can use a particular strength to defend against threats in the market. Threats If a company is aware of possible external threats. Threats to IKEA may stem from: . IKEA also needs to differentiate itself and its products from competitors. The scale of the business makes this a difficult task. IKEA believes there is no compromise between being able to offer good quality products and low prices. Some countries where IKEA products are made do not implement the legislation to control working conditions. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements.

Social trends: IKEA is building online help to guide customers to a more sustainable life. Economic factors: IKEA's low prices create appeal amongst its customers in tough financial times. for example. IKEA addresses these issues in many ways. This puts up high barriers to entry for smaller companies entering the market. better use of technology or employing specialized managers. IKEA's pricing strategy targets consumers with limited financial resources. Communication plays an important role here. It supports customers with tips and ideas on its website to reduce their impact on the environment.y y y social trends ± such as the slowdown in first time buyers entering the housing market. It manages weaknesses and threats to create a positive outcome. IKEA needs to reinforce its unique qualities to compete with these economic factors ± the recession slows down consumer spending and disposable income reduces. Here it can focus on home improvement in the slowing housing market. This will also save them money. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This lowers average costs in the long run through. Market forces: IKEA is large enough to enjoy economies of scale. . This is a core market segment for IKEA products market forces ± more competitors entering the low price household and furnishings markets. Staff are trained on sustainability. It is vital to keep prices as low as possible when the retail sector is depressed. Its products will also appeal to those with higher budgets through good quality and design. both on what IKEA is doing and how they can take responsibility to become sustainable for themselves. The company must ensure that it is always recognised as having the lowest prices on the market in the future.

Technical / Operations VALUE CHAIN ANALYSIS OF IKEA IKEA has quickly evolved from a local Swedish home furnishing manufacturer into the largest home furnishing company in the world. They have executed their strategy by building a worldwide sourcing network of high quality global manufacturers to support their growth. Human resource and administration 4. The headquarters provides carefully select ed suppliers with technical assistance. This long-term supplier relationship does not only produce superior products. this value-chain modification differentiates Ikea from its competition. the firm must be able to find suppliers that can deliver high quality items at low cost per unit. In order to furnish the customer with good quality products at a low cost. In addition. Finance and accounts 2. Marketing and Sales 3. leased equipment and the necessary skills needed to produce high quality items. IKEA Modified Value Chain Ikea's role in the value chain is to mobilize suppliers and customer to help them further add value to the system. but also add internal value to the suppliers . and what they a re expected to add to the final process.Following are the main departments in IKEA organization 1. partly by convincing their customer to perform the transport and assembly processes of the furniture manufacturing value chain. Customers are clearly informed in the catalogs of what the firm's business systems provides. .

supply chain planning is a real challenge. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning an d placing replenishment requests. Furthermore. the many stores and warehouses. IKEA¶s supply chain consequently has a global spread with both sales and purchasing in all major regions of the world. IKEAs growth has been tremendous and sales are still growing. This has led to a fragmented supply chain planning with local optimization and a lot of manual intervention with plans throughout the supply chain. the entire supply chain is heavily dependent on forecasts. due to frequent shortage situations .IKEA¶s supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the coming five year. and the fact that some business areas change up to 30% of its assortment every year. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs. 91 The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders.350 suppliers in more than 50 countries. Considering the pace of growth in sales. The stores are supplied through 31 distribution centres. or directly from the 1. Consequently.

. some markets have suffered from stock outs during long periods. In terms of capacity planning. Hence. software support and project and change management in the concept and its implementation. Then IKEA¶s planning concept is described followed by a discussion about the roles of the planning organization. whereas other markets have ended up with obsolete inventories. Forecasting ha s been done on a regional level with approximately 120 users striving for different goals and using different methods. Hence. To overcome the difficult situation. centralized planning functions and supply chain planning software is outlined. no synchronization of order and stock data. leading to a set of imbalanced supply plans with a low and unstable total throughput with long replenishment times for the supply chain as a whole. Its cornerstones are mutually integrated planning processes. all different parts of the supply chain (stores. First of all. which even further have enhanced the bullwhip effects in the IKEA supply chain.some regions have purpose ly overestimated demand to ensure delivery.) tried to optimize its own part of the supply chain. regions. the supply chain had a functional orientation with limited transparency. a centralized planning organization. which in turn has led to imbalance in terms of demand coverage. A new global planning concept was developed and is currently being implemented. data quality. focus on data quality and use of advanced software support. hard to change mindsets among users. there was a lack of trust between different parts of the supply chain. the lack of proper follow-up tools to monitor forecast deviations. the basics of supply chain planning processes. lea ding to a reactive behaviour with fluctuating goods availability (sometimes stock out situation and sometimes over stock). data quality. software support and project and change management in the concept and its implementation. IKEA initiated a prog ram (cluster of projects) aiming to taking better control of its supply chain. Other problems related to the supply chain performance was difficulties to get enough attention of data maintenance. The above mentioned situation led to a number of problems with direct impact on performance in a number of ways. 92 The article is structured as follows. The purpose of this article is to outline IKEA¶s global supply chain planning concept and describe the roles of the planning organization. Part of the explanation to this is that IKEA has lacked a common and structured tactical planning of demand and replenishment. IKEA has also used extensive manual work in its planning processes and the planning was based on fragmented and unreliable planning information. and enhance performance in terms of delivery service and costs. First. to name but a few. warehouses. etc.

The planning structure often used in manufacturing companies contains four planning processes. there are also relationships between different functional and organizational planning processes. the materials planning may integrate several warehouses. For example. companies typically look for ways to control these imbalances. 2. However. the problem of different time perspectives and the level of detail required are dealt with by planning material flows and production successively in a hierarchical structure of planning processes. these decisions are often distributed among a multiple number of independent decision -makers along the supply chain which leads to incongruence and imbalances on a global perspective (Pibernik and Sucky.g. 93 2007). Figure 1 illustrates the relationships between the four basic planning processes. Several of the planning processes consequently have mutual relationships. .1 Supply chain planning processes Planning is conducted on different time horizons and levels of detail. while short -term planning demands a high precision and level of detail. 2004).2.2 Centralizing planning functions Global supply chains are often discussed and analysed based on two major aspects. sales and operations planning. the sales and operations planning and master planning processes may involve several production and distribution sites. for example by the use of distribut ion requirements planning. For long -term planning. the forecasting process may integrate individual forecasts from several markets and products. It has been established that vertically focused networks striving for low cost production typically should establish a centralised planning organisation (Rudberg. a somewhat lower precision and detail levels may be acceptable. and execution and control of material flows. From a supply chain perspective. the configuration and the coordination of the network. In practical terms. mast er planning. Sales & operations planning Master planning Materials planning Execution & control Forecasting Order fulfillment Strategic/ Demand management Long-term Tactical/ Mid term Operational/ Short term Figure 1: Relationships between basic planning processes. Forecasts and customer orders are important input information to the planning processes. through coordination and/or centralization of planning responsibility. materials planning. FRAME OF REFERENCES 2. e. Hence.

3 Software support When it comes to coordinating a vertically focused but dispersed supply chain. 2007). hence increasing . stock and load levels. productions and distribution facilities spread around the globe. and therefore relatively high degree of centralisation of the manufacturing management. ‡ Establish integrated supply chain planning processes since it addresses activities throughout the supply chain. which is necessary to support decision-making in global supply chains. and capacity information. Supply chains coo rdinated on a central basis will lead to better results in terms of. companies typically develop common policies regarding manufacturing structure. distribution. and the possibility to run multiple scenarios and ³what -if´-analyses before a central plan is established. 2004. Combined 94 with point-of-sales (POS). Consequently. Under such configurations a centrally coordinated planning organisation facilitates cost efficient material m ovements. Pibernick and Sucky. The performance of a supply chain as a whole is to a large extent determined by the way the different planning processes are coordinated and synchronized (Pibernik and Sucky. APS can excel supply chain planning in the following ways. compared to supply chains with decentralised management (Rudberg. To facilitate the smooth coordination based on centralizing the pl anning functions. 2004). theory suggests that a vertically focused network requires a relatively high level of coordination. e. The corpor ate staff must play a much more active role in making the vertically focused organisation work and theory furthermore suggests that centralised management offers better cost-effectiveness due to better coordination. and avoidance of duplication of activities (Rudberg. stock level. Advanced planning systems (APS) have been put forward as tools adopted to aid the complex web of decisions that have to be made in a global network. APS is designed to deal with multiple sites and also to include various supply chain decisions in one central planning engine.This is due to the fact that vertically focused organisations operating on a global scale normally have sales. 2005). Hence. overall costs. possibilities of higher utilisation. stock replenishment. and so forth.. ‡ Present results in an easy-to-understand environment through visualisation of KPIs. 2007).g. current work load. 2. information and communication technologies can be of great help. but also in terms of common (standardized) working methods (Rudberg and West. ‡ Handle vast amounts of data at reasonable run times. replenishment and order handling. in-transit. 2008). production and sourcing decisions can be balanced in a centralized function in order to avoid bullwhip effects and also to strive for the optimal use of resources throughout the supply chain (Stadtler & Kilger. Such common working methods also facilitate the introduction of standardis ed software support.

the organisation has to put a lot of effort into safeguarding that planning data is of high quality. some 450 million visitors are tracked entering the IKEA website. information is normally distinguished from data. IKEA¶s main marketing channel is its catalogue that is distributed world-wide in 191 million copies (in 56 different editions and 27 different languages) displaying some of IKEA¶s 9. IKEA has more than 522 million visitors per year in its stores all over the world. In terms of supply (purchasing).000 employees. 3. Jonsson and Gustavsson.500 selling articles. the company has reached annual sales of close to ¼20 billion (FY 2007) and has close to 120. In terms of planning. Hence. APS requires high data quality to work properly. and North America with 3%. Asia and Aust ralia together account only for 3% of total IKEA sales. reliable. Normally. 2008). the quality of input data (both master data and transaction data) is even more important than in other types of planning systems.350 suppliers in more than 50 countries. Information quality is a generic term and has several different dimensions. The majority of sales is in Europe (82%) with Germany as the top selling country (16%). up -to-date. followed by Asia with 28 % (China 22%).the understanding of the effects that the decisions will have on the supply chain performance.g. W ith its vision to ´create a better everyday life for the many people ´. which in turn are supplied by some 1. ‡ A higher degree of automation of planning. In addition to the visitors in the stores. The stores.1 The supply chain IKEA is one of the leading home furnishing companies in the world. are supplied through 31 distributions centres. where information is the content and meaning of the data. and in such cases provides the possibility to provide information of good quality to the decision-makers which thereby can make better informed decisions. which leaves more t ime for the decision-maker to analyse the supply chain and the actual decisionmaking instead of using the time to find a feasible plan. . IKEA¶s growth has been tremendous and sales are still growing. which are divided into three geographical areas. Europe stands for 69% (Poland being the largest purchasing area wi th 16% of total purchasing). 95 IKEA¶s supply chain is global with sales world wide. Since APS used in supply chains have to deal with multi -site environments and is based on a standardised planning proces s with a high degree of automation. whereas North America accounts for 15% of sales (USA 10%). IKEA¶S PLANNING PROCESSES 3. complete and straightforward to understand and use (e. distinctions are made between the extent to which information is valid.

Store planning 5b. The forecasts are thereafter input to the global need planning process (3). Operational/ short-term Strategic/ long-term Tactical/ mid-term Suppliers IKEA IKEA of Sweden Distribution services Retail 5c. i. are made. 5a-c). the sub-processes in IKEA¶s centralised global supply chain planning process are described into more detail. BA. The global planning process is owned by a central function at IKEA of Sweden (IoS). Forecasting (Demand planning) Figure 2: IKEA¶s global supply chain planning concept and planning processes.3 Sales planning The sales planning starts with the overall sales forecast made by the corporate .3. suppliers. Sales planning (GM. 3. store coordination. IKEA centralised all forecasting activities and need calculations to control stock levels and replenishment throughout the whole supply chain (see Figure 2). IoS is the centre of all planni ng activities in the new planning process. distribution.e. warehouse and store planning (5a -c).2 Overview of the planning concept As a first step in developing the new planning concept. transport. Supplier capacity planning Production planning 3. warehouse. and so forth. Note that this article does not cover the operational distribution supply chain. purchasing. Transport planning Replenishment orders 2. The new global planning process starts with the corporate sales planning (1) which sets the frames for the tactical demand planning activities (2) at the 12 business areas. where decisions concerning the 96 number of articles. and store planning. IoS) Market intelligence In-stock In-stock Execution In-transit Delivery schedule 5a. Need planning (DRP) 1. As such. In the following. Warehouse planning 4. which in turn drives the supplier capacity planning process (4) and the planning of the distribution supply chain (transport.

If there is a difference betwe en the forecast and the frame. cf.e. Demand Planners at IoS provide forecasts for each of the 12 business areas in terms of sales volumes taking into account the business areas¶ (BA) growth plans and ambitions for the future. GM) at IKEA. The responsibility for merging the two gross forecasts lies within IoS. normally country level) and on the distribution services region level 97 (several countries). These frames are thereafter compared to the forecasts provided at the tactical demand planning level. reconciled. each responsible for forecasting a certain part of the assortment. The operational forecast and the tactical forecast are combined to create a final forecast for each article on the selling unit level (i. Figure 3. and includes the remaining part of the curren t fiscal year plus five years into the future. whereas a tactical forecast (based on sales history) is used for weeks four to 84. At the other end of the sales planning process. 3. and compared with the sales frames on the retail forecast group level (i.e. The sales plan and the frames are reviewed three times per year. A Retail Forecast Group (RFG) consists of one to several stores located geographically close to each other. One alternative is to adjust the forecast in a specific country. The tactical forecast resides with IoS and is done on a rolling 84 weeks planning horizon on store level. and the forecasts have to be adapted to the frames also three times per year. store) for the coming three weeks. Thereafter the f orecasts on store levels are aggregated. The operational forecast is a manual forecast (for the most of the time ± replenishment needs in the stores) registered by the respective sales unit (i. involving business cycle and market intelligence issues. the forecast is proportionally adjusted in all countries.management (Group Management. It expresses the expected sales increase in percentages. a Retail Forecast Group normally corresponds to a country. In Europe. and further down into sales frames per product area. with new historical sales data loaded once a week (see Figure 3).4 Demand planning Some 32 Demand Planners are active in the tactical demand planning process. The Retail Forecast Groups . When any differences between the two forecasts are reconciled the forecast is broken down into sales frames per regions (a region is a group of countries).e. If this is not appropriate. The forecast is related to the strategic business plan. the Demand Planners should adjust the forecast accordingly. the store level). The corporate sales plan is updated three times per year. The forecast is made on an aggregate level in terms of total sales volu mes in monetary units for IKEA in total. where Demand Planners explode the corporate management sales plan into BA sales and compare the two forecasts.

IKEA encourages the individual countries and stores to have local campaigns and activities.5 Need planning The need planning process follows traditional distribution requirements planning (DRP) principles (see Figure 4). 3. Activities on store level can be planned on shorter notice. The stores provide a forecast for each article for the coming three weeks (after the product lead -time). But country specific activity plans must be decided at least six months in advance. Thereafter the stores net requirements are aggregated into distribution centres (DCs) and also here netted against DC stock levels and goods in transit to replenish the DCs.are usually grouped and served by a fewer number of Distribution Services regions. and also netted against goods in transit. in Europe for example. In case that sales deviate considerably from forecasted figures. whereas weeks 4-84 are the responsibility of the Demand Planner. Each DC Group is thereafter aggregated and the calculated forecasted demand for the coming 84 weeks is established. there are six such regions. the Demand Planner looks for the reason and adjusts the sales figures or forecast model accordingly. Volumes are divided between suppliers based on a so-called Supplier Matrix that determines the split of volumes between different . The market input on the two upper levels concerns every country¶s activity plan (for example campaigns) and estimated price changes on product lev el. The forecasts are netted against current stock levels and safety stock requ irements at the stores. of which the coming 26-52 weeks are communicated to the suppliers (depending 98 on the quality of the plans). FC on region level FC on retail unit level FC on selling unit level Market input Market input Need calculation Statistical forecast Aggregate sales history Aggregate sales history Reconcile forecast Reconcile forecast Operational forecast Sales frames Tactical demand planning Figure 3: The tactical demand planning process. Demand Planners review the forecast on the regional level each week in order to identify those products for which the forecast deviates considerably from actual sales.

IKEA often commits to provide a certain volume to a supplier.6 Supplier capacity planning The need calculation is used to plan capacity requirements at the suppliers. This is to make the supplier willing to invest in plants and equipment to produce the desired products. The supplier capacity planning at IoS includes load leveling between weeks to always fulfill the committed volumes (which also includes shifting volumes between different suppliers). transport exceptions (late -in-transit). Furthermore.in-transits +/. and also to stay within the capacity limits (see Figure 4). This could be conducted by a load leveling function in the planning system or manually by the supply planners. One DC SKU could for example be sourced from two or three predetermined suppliers. The Need Planner is the person responsible for the need calculations. Store 1 Store 2 Store 3 Store 4 DC 1 DC 2 Sup 1 Sup 2 . 3. it has been possible to identify four main enablers for the implementation. etc. high. etc.).suppliers (see Figure 4). and supplier exceptions (capacity.stock . 99 4. Examples of exception messages that the Need Planner must resolve are stock exceptions (low. In the general agreements between IKEA and its suppliers.in-transits +/.stock . stock-out. and also takes care of the exceptions messages that might occur. data quality. planning organisation. . IKEA¶S PLANNING PROCESS ENABLERS In order to realize the new globa l supply chain planning concept.safety stock Store forecasts . the supplier communicates a capacity limit to IKEA up to which the supplier can guarantee delivery of volumes. commitment.).safety stock Article 1 DC Group Forecast DC Group 60% 40% Article 2 Article n Aggregated total IKEA need Cap Com Figure 4: The need calculation process (simplified example). software support and project and change management. which all are described below.

supply plan accuracy. insufficient knowledge and involvement by line management and that the planning software are not the main applications for some organizations. Despite of the centralized planning organization there have been some problems implementing the new global planning concept and working methods. but also for making it cost efficient and practically p ossible to carry out the planning processes in a standardized way.1 Planning organization The organizational design and function is a key for IKEA to carry out its global planning concept in a standardized way world wide. balancing the global need and capacity per supplier/category/material. The responsibility includes the global sales forecast accuracy. The supply chain planning responsibility has been centralized to IoS.2 Data quality The importance of improved data quality was early identified as an important cornerstone in order to make the global planning concept successful. Furthermore. 4. The more long term planning issues. Several data quality problems have been eliminated but IKEA still has some issues to 100 deal with in order to further improve the planning and supply chain performances. such as checking and securing supplier capacity. the global need planning process. a work group was established with members across the supply chain deciding on . involvement in the sales planning process. product range changes and development of the sales forecast methodology. and so forth. The most severe ones are discussed in the following. Need Planners are responsible for service levels and stock levels in stores and DCs.4. partly because of insufficient e nd-user training and support. Insufficient maintenance of lead time data gave wrong input to need calculation and caused stock out problems in stores. Process improvement was difficult because of incompatible data capture and lead time measurements throughout the supply chain. There are about 32 Demand Planners and their role is to secure that the sales planning is translated into a sales forecast on article level with a global responsibility. involve the strategic purchasing and trading business support organizations. a new lead time concept that assigns clear responsibilities to different actors was implemented. world wide. As a response to these problems. actions on capacity exceptions. and two specialized planning positions (Demand Planner and Need Planner) were developed to take the responsibility of the main processes in the global planning concept. The establishment of the two centralized planner positions is important for creating necessary specialist competence in demand and need planning. The approximately 70 Need Planners focus on securing that the need planning continuously is matching the capacity planning with a global responsibility.

may decrease the trust in the plans and also result in extra manual work. wherefore the concept so far only has been implemented for parts of the supply chain (mainly for suppliers to DCs and partly for DCs to store). In summary. Also the master data quality was sometimes of insufficient quality. in combination with organizational changes. The software. which sometimes resulted in double-counting of stocks. the opposite has also occurred leaving the organization with . Although several projec ts have resulted in successful implementations. safety stock calculations. and it is difficult to change any of them. In summary. due to an incorrect updating process. Extra manual work may also lead to more manual intervention with plans. 4. and at the same time the average forecast accuracy increased from 60 % to 80 %. stock levels. the project is still in process. incorrect data figures resulting in poor planning accuracy. made it possible to reduce the number of forecasters from 120 to around 30. but also with a user friendly interface allowing for customized visualization. manual intervention with plans. Status updates of intransit data were not always available throughout the supply chain.working methods and lead time issues and a web -based application (based on a data warehouse solution) was created to visualize lead times and exceptions on missing lead time data. The JDA Fulfillment was implemented to support the 70 Need Planners in the need calculatio n and supplier capacity planning process. the supply plan accur acy is still quite low. Also. This resulted in incorrect need calculations and delayed ord er generation which may result in stock out risks. and that everyone doesn¶t follow the established working methods. for example. But to facilitat e the new planning concept APS software from JDA was implemented to support most of the planning process in Figure 2. aggregating and disaggregating forecasts. the demand and fulfillment software supported the forecasting and the need calculation with functionality to carry out frequent quantitative forecasting. and replenishment needs. It also support other roles in IKEA¶s planning organization with 101 accurate and up-to date information net requirements.3 Software support IKEA has an old and wild grown patchwork of systems and applications. distribution requirements planning. 4. The JDA Networks Demand module was implemented to support the forecasting processes. As it is now.4 Project and change management IKEA has over time struggled with achieving consistent result from its implementation efforts. which is counter productive to the main ideas with the common working methods concept. mainly because of low forecast accuracy of new products. report generation and exception based working methods. There were also some problems with in-transit and stock data synchronization.

The Change Process has not been sufficiently recognized and the affected cowork ers have from time to time been brought in to the change process too late. The experience thus far is that the receiving organizations truly appreciate the implementation approach and the result is very good. CONCLUDING REMARKS Implementation of the global planning concept has lead to several improvements in IKEA¶s supply chain. but the true belief is that making things right from the start saves money at the end. 5.some co-workers not fully adapted to new working methods and tools. such as reduced stock levels and improved service levels. This mi ght at first glance be perceived as an extra cost. and left on their own too early by the implementing projects. A Four-Step model has been defined clea rly recognizing the need to create awareness in the first step. 102 Old planning concept ‡ Functional orientation ‡ Limited transparency ‡ Reactive behaviour ‡ Extensive manual work ‡ Unreliable planning information ‡ Lack of trust ‡ Fluctuating goods availability ‡ Over stock New planning concept ‡ One integrated planning process providing reliable planning information ‡ A common ´working-together environment´ creating supply chain visibility ‡ Working methods and tools to detect and deal with problems at an early stage ‡ A coordinated and ´balanced´ Supply Chain . the change process has been taken seriously. making users try out the solution in the third step and finally adopt the changes in the fourth and last step. create interest in what is coming in the second step. Part of the recent change efforts. An approach like this requires that a staff of resources skilled in Communication and Learning are actively supporting the rollout resources. Figure 5 illustrates characteristics of and main differences between the old and new planning concepts.

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