Assignment

INFORMATION MANAGEMENT SYSTEM

OF IKEA

Submitted by: Sarfraz Ahmed (215118045)

Submitted to:
Dr. P Sridevi
Assistant Professor
Department of Management Studies
National Institute of Technology, Trichy
 INFORMATION MANAGEMET SYSTEM OF IKEA

Introduction & History of IKEA

A privately held international retailers of home products, being the largest retailers of
the world they provide home products from furniture, fabric, glass, kitchen and
bathroom accessories at an affordable price. Their vision being Anybody can make a
good-quality product for a high price, or a poor-quality product for a low price. But to
make good products at low prices, one needs to develop methods that are both cost-
effective and innovative. This has been IKEA’s focus. Maximizing the use of raw
materials and production adaptation to meet people’s needs and preferences have
meant that their costs are low. The IKEA way of doing things is to pass these cost
savings on to customers.

This idea came into being in 1943 by Ingvar Kamprad in Sweden who laid basis of IKEA
and then afterwards it was owned by Kamprad Family. Data of august 2009 shows
currently it has 301 stores (outlets) in 37 countries (scattered in Europe, North America,
Asia and Australia), with more than 135,000 employees.

All products are in flat packed form to be assembled by consumer himself (saving
space and time from in store assembling, easy handling and transportation and
reducing packaging cost.

Special Design of IKEA Outlets

IKEA outlets are often on “one way lay out pattern” to encourage customers to see the
store in its entirety. A self service way is introduced as customers collect shopping cart,
proceed to open-shelf warehouse (for smaller items) then proceed to furniture
warehouse where they could collect previously noted showroom product (but in a flat
pack form). Furniture warehouse is usually located adjacent to main store. Ultimately
proceeding to cashier for due payments.

Retail Business Model of IKEA

All trading of IKEA is through its outlets as well as internet, called as Clicks and Mortar
or Bricks & Clicks or Bricks, Clicks & Flips (Catalogues).

The usability of both of the ways for sales proved advantageous for the IKEA and for
consumers as well:

 Developers Perspective Profitability of IKEA

 Management Perspective Increased / better productivity
 User Perspective Accuracy/ satisfaction/ cost effective
  To fulfil the above described criteria products have be efficient, effective as well as
user friendly.
 Flaws of this system include Security problems, staff retraining or new technical staff,
more employees losing jobs and redundancies.

Establishment of e-business is still advantageous for IKEA as counter mediation made

payment available to them before goods are delivered, goods are supplied in time
further reducing inventory cost, space for storage, direct delivery to customer’s home
further reduces their cost.

Structure of IKEA:

OPERATIONAL

Level

Information Management system of IKEA

Main structure of IKEA family comprises of “INGKA Holding” which is the main (parent)
company for all the IKEA group companies. This INGKA foundation consists of 5
member executive committee naming “Kampard”, his wife and 3 attorneys (The
Economist, 2006). IKEA Group company supervisory board comprises of Goran
Grosskopf, the chairman and Ingvar Kampard being senior advisor and many others
representing their own territories. This group of companies is basically concerned with
carrying out all the necessary functions to bring the right product to markets. These
companies include IKEA Sweden, Swedwood (Industrial IKEA production company),
purchasing, distribution, human resource services, internet technology and
communications departments (all working together).

All scattered branches of IKEA (Franchisees) are connected to a common system

networking “inter IKEA system” at national as well as at international level (monitoring
all the sales, stocks, cash, inventory, demand and supply balances). The basic unit of
information is provided by managers at local stores (shift / branch/ area/ territory
managers), all collaborating to disseminate information from local up to international
level. This propagation of information is carried out through internet using wide area
networks (ultimately spreading information from end user to main supplier).

So Human computer interaction results in:

 Cost reduction less staff needed,

 Resource Land saving Tangible
 Deployment Business
 Improved More messages
 Productivity transmission
 New ideas/products
 Organizational new forms of integration
  Enhancement improved business
 Work Intangible
 Enhancement Business
 Human Resource Structure of IKEA:

Human Resource is one of the strongest departments of IKEA as it gives emphasis on

IKEA’s vision.

Data Security Control/ Biometric Control:

Employees are supplied with specialized computerized made IKEA identity cards which
they swipe on a card reader, having a data of time in, working hours and time out. For
enhanced security each card contains picture of employee (which can be checked by
shift manager on duty).

Supply Chain Management of IKEA:

Supply chain management spans all movement and storage of raw materials, work in
process, inventory, finished goods, and their transportation from the point of origin to
the point of consumption.

Structure of IKEA is designed to optimize the efficacy of its designed products and
supply process. For the purpose of ease it can be divided into 4 parts, each operating
as a type of internal market. Sweden is the head quarter where all the basic furniture
is designed.

“Swedwood” the oldest supplier from Sweden for IKEA providing raw material mainly
wood from its own forests but with time increasing demands of raw material forced
IKEA to look for other suppliers. Currently there are more than 57 suppliers of raw
material in furniture industry only, more interestingly these suppliers are not centered
rather scattered worldwide but they all are connected with ECIS (IKEA’ s own system)
which allows them to have look at inventory level, forecasting and transparency of
supply chain , ultimately helping them to anticipate orders. Here another important
IKEA perspective can be appreciated that it further neglects/reduces its switching costs
at minimum as it always try to negotiate with previous suppliers rather than searching
for newer ones.

Retail division largely keeps all the responsibilities of controlling stores (franchises)
world wide. For this purpose they have integrated complex communicating system
(with the help of IT) which is maintained at every step .

“Istra” the marketing decision maker set up a competitive tender to decide the
production. More interestingly most products are manufactured in developing
countries to keep down the costs. It is the responsibility of the “distribution centers”
for the distribution (transportation) of raw material/ goods and designs to
manufacturers (which again are not centered, giving huge emphases on
communication and continuous support).

IKEA ‘s highly trained technical staff keep concentrating on design improvements as

advised by management to make products that are functional, simple, well made,
affordable, easy to get assembled and durable. A specialized integrated project team
(IPT) ensures that all these demands are met at all levels.

All the above described divisions though working independently but still are
connected and being monitored by “Business Support Centers” which keep
introducing newer technologies and logistics. Similarly IKEA transport manager make
arrangements for all transportation s at a global level (in collaboration with support
centers for product/ material tracing).

IKEA’s policy is to shorten lead time. Attempts are being made at supplier,
manufacturer especially at transportation level, where bypassing most of the retail
stores is being tried. For this purpose products are transported directly from the main
distribution center to consumer’s house (at consumer’s cost) saving his time and saving
IKEA money at the same time. For this purpose IKEA maintains 41 trading service
offices, scattered in 30 countries with 1350 suppliers.

Having discussed various steps of supply chain it can be said that it is the collaboration
between suppliers, intermediaries, third party service providers and customers through
various transport sources (Strategic Supply chain). On the basis of demands
management takes decisions regarding purchasing and production, inventory
decisions, transportation strategy and routes, at the same time keeping an eye on
accounts (Tactical Supply chain) . Ultimately production and distribution planning,
demand planning and forecasting, all inbound and outbound movements, order
promising on day to day basis (Operational Supply chain).

Radiofrequency Identification (RFID)

Newer technology which enables remote and automated gathering, then sending
information between RFID tags (attached with the products ) and readers (which could
be handled units or fixed units as both are in operation in IKEA). RFID tag consists of
an integrated circuit, having specific data which could range from a unique identity
number up to a thousand bites data. When these tags are shown to readers all
necessary information get flashed at the device (reader) which is connected with not
only in store local area network but also with a higher level management (at
international level) as communication satellites are in operation as well. So information
propagating starts as soon as a product is shown to reader without any delay.

Advantages of RFID System for IKEA

1. Data transmission, storage and analysis become much easy now than before.
 2. Information between tags and readers is rapid, does not even require direct
contact.
3. Inventory and stock level could easily be accessed.
4. On the basis of previous sales accurate forecasts for a particular product could
be made.

Disadvantages of RFID System for IKEA

1. Newer technology needed trained staff

2. Data had to put over tags and readers with accuracy
3. Required some investment.

Client Server Architecture

A customer can place an order online or through a computer system placed at IKEA
franchise. For this kind of order placement customer places an order, pays cash
through his debit card (in UK cash payments are handled through PayPal which is
considered as the safest way of e-shopping. After making a transaction he is given a
“specific order number” he shows to the main reception staff and gets his desired
product straight away.

“Just In Time” (JIT) Policy OF IKEA:

For the purpose of further reducing cost IKEA uses just in time policy as all the furniture
is not stocked at the store level, so when a product is ordered it is directly shipped
from the warehouse to customer’s home at a cost of additional transportation charge
(bypassing intermediaries and reducing costs to both consumer and IKEA itself).

Pre requisite for JIT

1. All departments (suppliers, designers, manufacturers, transportation) have to

work in close association to shorten the time frame, cut the cost while no
compromise at the quality.
2. Requires handsome inventory.
3. IT plays the most crucial part for JIT to function at its best.

Pull Based Model for IKEA

Customer Relation Management

Customer relation management can be discussed under 3 headings:

 Customer Relation Management

  Sales Marketing Customer
 Service

Development of Internet Technology (IT)

IKEA main center can be assessed through internet as all necessary guidance, sales,
discounts, special offers and details of specified products can be assessed while sitting
at home, or on work without any time delay. Development of IT therefore provides a
major source of not only promotional perspective but sales and customers service as
well. Help desk is available not only at IKEA stores but online as well.

Limitations of IT

a. Internet technology is labor intensive for both data input as well as accessibility.
b. Well experienced staff is needed to gather all the necessary information from
all the relevant departments (starting from a local level to national to global
level).
c. A separate IT department is mandatory for its time to time approach and
functioning efficiently.
d. Internet viruses/ hackers are a continuous threat for an active IT department.
e. Many organizations may not want to supply information regarding their quality
costs as they may have to face increased competitive force.
f. Human errors, environmental hazards and computer system failures still remain
unintentional threats.
g. An educated/ well aware audience is needed to avail the internet advantages.

On field Systems

On field/Ground Staff:

A well trained ground staff is available at store round the clock providing a high level
of customer support. Friendly staff of IKEA feels pride helping their customers. It’s a
part of their routine practice to promote and assist their customer’s interest and guide
them towards purchasing their goods.

Play Area for Kids:

IKEA has introduced a separate play area for children (aging 3 to 10 years of age). This
facility is provided free of charge. As play area is a separate unit in the IKEA franchise
so parents are provided with hand held pagers in order to get back to their children if
they need some help during shopping. This unique feature is available only at IKEA
stores which makes its customers more interested in visiting and shopping from IKEA.
Conclusion

Utilizing the right tools to systematize and automate your workflows can have a huge
impact on the productivity and profitability of your business. IKEA is simply proof that
today’s digital technologies enable businesses to centrally manage a complex web of
working parts less expensively, more quickly, and with less manual labour than ever
before.