MGT 314 ASSIGNMENT

OPERATIONAL CHALLENGES THAT IKEA FACES

SUBMITTED TO-

RAIHAN SHARIF (RSH3)

DEPARTMENT OF MANAGEMENT

SUBMITTED BY-

ISHTIYAQ REZA

ID: 1611402030

SECTION: 13
 OPERATIONAL CHALLENGES OF IKEA

When a company is established, it starts facing operational issues or challenges to go along with
the progress it has made. No businesses can avoid such issues & they certainly feel that it’s tough
to manage. So, businesses need to find the solutions to overcome these sort of growing pain
unless these can render a business less profitable.

I have identified the operational challenges that IKEA (a Furniture manufacturing Company)
faces & the appropriate solutions to the arousal issues.

IKEA started as a small town Swedish Furniture Company & now it has over 250 store in 30
countries. IKEA is now an international giant. However, there is no way to escape from
operational challenges. Because, bigger the company tougher the challenges. Operational
challenges of IKEA & their solutions are the followings:-

Loopholes in the Process: The top problem of IKEA is its inventory storage. IKEA has to
maintain stores located in 30 different countries. As the warehousing costs are on a take-off
mode, it’s proving impossible for IKEA to store thousands of products for each different store.
This doesn’t only mean the rise of the storage costs, but also the wastage of the products.
Because, once the newbies (new Products) arrive being innovated, the old products need to be
replaced. This shortages the lifecycle of the products & increases the wastages. Presently IKEA
ships the surplus goods to other stores where it might have a high demand. However, this does
not only add to the risks of unsold but also intensifies the cost of shipping. Since it manufactures
flat line furniture, the place taken up is not a lot but the store has prolonged into all departments
of housing and office furniture, therefore has to bear a high cost of storage.

Solution: A decent alternative existing to the organization is to display goods in the store and
ship the goods later to the customers through mail. This would help in minimizing storage costs,
cost of keeping inventory management and save on any kind of wastages. The business can also
focus on re-using the unsold furniture into other products. Since the business possesses its own
production company, it can re-use the unsold pieces of furniture and make other pioneering
products.

Quality Management: IKEA’s business strategy of low prices has generated a lot of trouble
for the organization. By lowering prices, the quality of products offered lowered and even though
the business has been booming to uphold its quality it has sometimes been unable to meet
international standards. Customer care does not get proper attention and the workers do not have
enough resources. They are incapable to research well on the market because of being very cost
sensitive and have therefore missed out on their target customers in their marketing plan.

As IKEA is an international brand, it does not only have to consider international policies but in
order to do well in the host country, the organization also needs to pay special care to the
customs and traditions of the host country. It has been failing to do so correctly resulting in
profits declining below expectations in certain regions and countries like the United States

Solution: IKEA can take many steps to progress quality. The organization can adopt TQM in
its operations in order to safeguard quality. It needs to invest money on its processes. The
organization needs to adopt a six sigma approach to management and tactically upturn the
quality of products and service provided. This should increase collectively in all the stores.

Supply Chain Management: IKEA struggled with its SCM. It sometimes had over
supplied products and sometimes there was a break in products which moderated demand.

Solution: Since it’s not an internet based supplier, it needs to save a good amount of product as
reserves. It needs to balance between oversupply and under supply to reduce wastages. IKEA has
tried to take benefit of the technological improvements to sort out its SCM.

IKEA Store Layout: IKEA store layout is in the form of a puzzle. The customers need to
walk through different custom rooms built to give them an idea of the products they might like.
The stores are therefore multi-layered with added space given for storage. It wastes a lot of its
store space. It confuses the clients who find it tough to return to the product they liked before. It
annoys customers who are looking for a specific product and have to go through the whole store
for it and it wastes a lot of time which customers do not prefer.

Solution: Therefore IKEA can select a grid layout or a spine layout to clear confusion. Having
different layout on each store can also be useful and avoid any wastage of space. Since the
organization has 20000 products, they need to be displayed in an arranged format with supreme
importance given to layout so that they appear attractive for the customers to buy. The lighting
also should be set up in a way that enhances the qualities of the products. The advantages of
having a store layout are that it helps the customers consolidate their wants.

Interesting Facts About IKEA’s Operation: IKEA is being transparent about their
operational processes to their workers. IKEA’s products are the cheapest among its competitors.
They make affordable products to attract their customers. IKEA gives good incentives to their
workers so that they work attentively & run operation smoothly.

IKEA has a great future ahead. It needs to take an aggressive role in this market because its sales
are now stagnant and costs are on a rise. It has a lot of potential and a goodwill that precedes
every country it decides to open a store in, however marketing is also an important feature IKEA
needs to look into. They need to focus on the solution of the above mentioned challenges.