IKEA'S Supply Chain Strategies and Practices

To create a better everyday tife for the many people'

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 Executive Summary

IKEA was established in 1943 in Sweden (Moon, 2004) and the

company is working in designing and se[[ing of furniture ready to be
assembled (Abouhenidi, 2014). Following to its success in [oca[
market, the company expanded its business to internationa[ market.
Nowadays, IKEA is a world leader in furniture retait business
(Jonsson, 2008)
The organisation has gtobat business operations in 48 countries
incorporating 389 IKEA stores. IKEA's production range include 9500
different products and the company was able to sett its products
worldwide and achieved a totat sates of EUR 34.2 Bittion in 2016
(1KEA,2016).

The company adopted muttiple Suppty Chain Management "SCM'

strategies that enabled to offer !KEA's customers with stytish and
high-quatity products at [ow-prices, in [ine with its ctear vision " to
create a better everyday [ife for the many people' (lKEA, 2016) and
the company is distinctive via strict commitment to its catalog of
products that witt be stocked for one year at a guaranteed price
(Ctara, 2014).

IKEA realized the fact that to become competitive and stand in a

strategic position in the market both loca[[y and globatly, it is

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essentiaI to improve the SCM to be more efficient and effective than
the market rivats and in the meantime, achieve competitiveness and
maximize profits (Chitdhouse & Towitt, 2003; Moberg et at., 2002).
This report demonstrates IKEA's suppty chain management, its
components and the key relationships across the entire suppty chain.
The report witt analyze the current suppty chain strategies and
practices adopted by IKEA and contributed to its success to achieve
competitive advantages over the market rivals.
ln the meantime, the report explains alternative strategies and
practices that can be implemented within IKEA's suppty chain that
enabte its growth and efficiency and recommend a set of strategies
to etevate Performance.

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 Tabte of Contents

IKEA's Gtobat Suppty Chain Management......... .......d

1.1

1.2

1.3

2 The Key Relationships of IKEA's Suppty Chain .....13

2.1 IKEA's Sustainabte Relationships With Customers...........14

2.2 IKEA's Sustainable Relationships With Supp[iers.............. 17

2.3 IKEA's Sustainable Partnerships .............18

3 IKEA's Current Suppty Chain Management Strategies and

Practices.............. .....20

3.1 Atigning Suppty Chain with IKEA Structure Strategy ......20

3.2 Strategy
IKEA's Low Price ..........2'l

3.3 Sourcing Strategy .........22

3.4 Lean Suppty Chain Strategy ......25
3.5 lnventory Management Strategy .............26

3.6 Logistics Strategy .........28

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 Alternative Strategies to lmprove IKEA's Suppty Chain...................30

4.1 Agite Suppty Chain Management.......... ...30

4.2 Outsourcing "Buy-or-Make" .....32
4.3 Retationship and lntegration.. ...34
4.4 Time-Based Strategy in Distribution Logistics..................35
4.5 Push-Based Strategy .................38

5 lmplementing Relevant Set of Suppty Chain Strategies to Elevate

Performance ...........40

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 IKEA's Gtobat Supply Chain Management

Cox (1999) and Hartand (1996) viewed the Suppty Chain Management
(SCM) as a process to manage the interconnected business network

for supply of goods and services to the end-customers, and that

severaI organisations realized the importance of the SCM as a key
for buitding sustainabte competitive edge for products and services in
the gtobal business (Jones, 1998). Abouhenidi (2014) deemed IKEA's
SCM as a process to run the entire organisation function in a chain
and the ftow of the goods is retiant on the SC that uses the raw
materiats, processes them and produce the goods for detivery since
the company is not only engages in distribution of a wide range of
unique furniture products, but also IKEA offers many other househotd
products that meet the customers needs. According to Clara (2014),
effective SCM is significant important for IKEA to improve the
organisationaI performance and remain competitive among the
market rivats (oayyum et E[., 2013; Chitdhouse & Towitt, 2003), as
IKEA's suppty chain is performing efficientty and the company is abte
to design differentiated products at low manufacturing costs, white
strictly obtiged with function, high quality, efficient distribution and
positive environmentaI impacts. Researchers and practitioners
argued that the practices of SCM have direct implications on the

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organization's overall performance and the effective SCM practices
lead to enhancement of market share and increase the R0l (Shin et
at., 2000; Prasad & Tata, 2000). ln addition, the efficient SCM practices
etevate the organisation's competitive position in the market (Carr &
Person, 1999; Stanety & Wisner, 2001) i.e. the partnership with the
strategic suppliers proved to be a key for maximizing benefits and
performance improvement Cl'an et E[., 1998; Stuart, 1997; Carr &
Person, 1999). Today, IKEA is the [argest gtobat furniture retailer, it
has its own SCM strategies aliened with its capabitities that
contribute to offering people a better-tiving and devetopment of a
more sustainabte world, via efficient utilization of resources utitizing
resource more efficiently and promoting more environmenta[-
friendty product design. The organisation's suppty chain functions are
operated attogether and support IKEA's unique vatue proposition
(Ctara, 2014). and the figure-l shows the components of IKEA's SC

that can be divided into three different sectors, that involves Primary
Sector for acquiring the needed raw materiats, Secondary Sector for
manufacturing and Tertiary Sector for the rest of SC tike distribution
and retaiter. IKEA aims to have a sustainabte SCM through organizing
operations within each of the three SC sectors to pose positive
imptications on the environment (Yu, 2014).

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 0uhril:
Corrumerhry's
pmduct

i,6e<cnOanT C,usionl

Figure 1 - IKEA's Suppty Chain, (Adapted from Yu,2014)

l.l The Primary Sector

The primary sector is mainly responsible for producing and detivering

the raw materia[ need to devetop the products and since IKEA is not a

primary sector company, it maintains a close-relationships with the

primary sector supptiers to ensure the suppty of the raw materiats
and ensure sustainabitity (Ctara, 2014).lKEA procures materials from
over 1300 vendors and suppliers in 50 countries through using
number of trading offices that spread worldwide. IKEA's suppty chain
ptays a vital role in negotiating the materiats'prices, appties poticies,
processes and procedures to check the quatity of the supptied
materiats and in the meantime, anatyses the imptications on the

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environment, while keeping an eye on the social working-conditions
at the suppliers'facitities. IKEA is using the "e-Wheet" to assess the
imptication of its products on the environment, where the e-WheeI is
a tool with specific checkpoints for the raw materiats, manufacturing,
distribution, use and product end of tife as shown on figure-2. In

addition, IKEA is working on suppliers'devetopment to enhance their

capabitities and improve their understanding of the impacts of
supplied materials on the environment (Velez, 2011).

dr'*
do "q
Wheel I
c
tfl
f
d
Figure 2 - IKEA's e-WheeI Too[ (Velez, 2011)

IKEA is communicated successfutty with materiats' suppliers and

manufacturers and focuses on lean suppty to etiminate waste "non-

- t;;.,
Added Vatue" and enabte professional suppty through shortening the
distance between its customers and suppliers via acting as "0ne-
IKEA-Purchasing" in line with IKEA's core processes and functions
and stresses on people invotvement and buitding [ong-term
retationships with the strategic supptiers (lnter IKEA System, 2015).
Additiona[[y, IKEA appties the "IWAY" code of conduct, which complies
with the InternationaI Legistation, and helps IKEA's suppliers to
minimizethe implications of their business activities on the
environment and in the meantime, enables to buitd [ong-term
relationships with supptiers and grow the shared values. (lKEA, 2016).

1.2 The Secondary Sector

The secondary sector uses the supptied raw materials for
manufacturing of IKEA products and as the materials and products
are moving within IKEA's suppty chain, the added-values take ptace.
The company designs a wide range of products based on the market
demands and that the organisation commences vatue creation
through utitizing resources and the supplied materials. During
to improve the productivity
manufacturing, the organisation strive
with high environmentaI standards and low [eveI of energy
consumption and keep performing IWAY audit to ensure supptiers'

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commitment to its code of conduct, which contribute to buitding
sustainabte business that have positive implications on both peopte
and environment (Yu, 2014'). IKEA paid attention to efficient use of
resources in order to maximize the benefits and prepare a well-
designed and high quality product at low prices to meet the
customers' needs. ln the meantime, IKEA is obliged with maintaining
sustainable environment throughits partnership with WWF and
UNICEF to support promoting of sustainable use of the natural
resources and various green practice around the wortd such as
devetopment of forestry ptans in China (lKEA, 2015).

1.3 The Tertiary Sector

Businesses in the tertiary sector or service sector provides services
to customers that includes banking, transportation or retailing. ln this
sector, IKEA provides different services to futfitt the customers needs
such as the detivery services of IKEA products to save time for the
customers and providing vans for lease that can be used by
customers who use public transportation to reach IKEA stores (Lu,
2014).lKEA paid attention to services as a way to enhance customers'
satisfaction and get better understanding of people's [ife-styles and
home aspiration, the company conducted home visits, surveys, and

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focus groups, besides an annual market capital tracking study about
f KEA's products, the se[[ing prices and the service leve[ (Klein, 2011).

Within the tertiary sector, the company plays an important rote in

innovation of retailing and logistics such as design and compact
packing to enabte delivery of more products with every carrying-toad,
minimizing the emissions and shipping costs, using different
transport methods like sea-freight and raitway and recycle materiats
from its waste products (Lu, 2014).

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2 The Key Relationships of IKEA's Supply Chain

According to Lu (2014), SC relationship is retated to the inter-firm

retations across the entire SC and that the key re[ations within the
suppty chain is mainty focusing on the 0EM and its first-tier
customers and first-tier suppliers as shown on figure-3. Therefore
the SC retationships can be deemed as "Arm's Length" if the parties
exchanged business volume and prices, and on the other side, the SC
retationships can be regarded as "close-partnerships" if the SC
parties exchanged their vision, objectives, planning, processes and
financiat information.

Retailen Consumer
Supplier

Figure 3 - Suppty Chain Modet (Lu, 2011)

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 2.1 IKEA's Sustainable Relationships With Customers
As suggested by Tan et a[., (1998), sustainable relationships with

customers has shown to etevate the organisation's performance and

according to Lu (2014), the fundamentaI reason of SC's existence is
serving the end-customer, which ultimately define the organisation's
competitive advantages between the market-rivals. The close-
relationships of SC are influenced by the leveI of sharing success,
long-term expectation, muttipte point of contact, joint coordination of
activities, information transparency trust and joint problem-sotving
(Stack et. a1. 2010). IKEA adopted a strategy to expand its customer
network gtobatty and extracting customers' insight via ongoing-
communication, observations and market research which was found
beneficia[ for !KEA's product design and a source provides valuable
knowtedge about the production volume and the needed materials.
This enabtes IKEA to coordinate better with its supptiers by providing
them information and ultimately decreases procurement cost
associated with purchasing and transportation of raw materials.
Reinartz (2010) suggested that the [ong-term customer loyalty cannot
be buitt with customer bonus or rewards but it shoutd be viewed as a

f unction to provide the customer with true value and often

incorporates etements such as [eve[ of customer involvement in
product category and visibitity or product's value expressive nature.

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ln the meantime, IKEA is not just se[[ing its products to end-customer
but atso it targets business customers "Retai[-To-Business" and
develop strong customers' retations. With adoption of Retai[-To-
Business approach, IKEA [aunched a business ctub in a number of
countries tike Japan and Germany and provided the ctub members
with a number of benef its such as payment scheme, ontine
communication and bonus points (Ritey 2013) and according to
lnterbrand statistics (2014), IKEA was ranked as the second most
vatuable retait-brand in Europe as shown on figure-4.
20

!8

15

t4

6
o
ll t,
4ro
E
E
E8
h

il=,; r'67 1s4 r'42 1.2a 1,27

2
i fl 3 - 1.P rrs

"s t' +'rd .", *F C d uo/ d

0

d o.C."C *n d{"n.r,

Figure 4 - Retait-Brand with the highest brand-vatue in Europe

(lnterbrand, 2015)

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IKEA developed sustainabte relationships with its customers and
made them aware of the organizations'commitments to sustainabitity
through its involvement with many other companies [ike WWF and
UNICEF and that IKEA is regarded a responsible organisation trusted

by both suppliers and customers alike. As a way to maintain steady

retationships with the customers, the organisation offered its
customers with extra services that are not offered by other market-
rivats and they IKEA has about 9.500 different products that are
manufactured and transported to its 280 IKEA stores wortdwide
(lKEA, 2016).lKEA in-store promotes greater consumers' interest and
facilitates their purchasing behaviors, even the product disptay is
sold in room-[ike settings that enables customer to imagine how to
put and arrange the pieces altogether (Mittat, 2013). The customers
visit the stores for inspiration and to get valuable advices from
!KEA's coworkers on shopping experience, or they may spend time
with their famities and eat in the restaurant and exptore new
products (lKEA, 2016). Additiona[[y, implementation of IKEA's "Share-
Space" website ensured online presence for its existing customers
and buitding sustainable customer relationships (Benner, 2011).

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2.2 IKEA's Sustainable Relationships With Suppliers
IKEA has gtobat business operations and that in each country, in
which IKEA is operating, the organisation has a trading company
working to match the suppliers' capabitities and capacity to IKEA of
Sweden's needs and terms, and in the meantime, the trading
company communicates the requirements of IKEA to the suppliers
and working towards buitding [ong-term relationships (Ctaesson &
Wennersten, 2007). As a way to support its gtobat business
operations, IKEA undertook a leadership rote in creation of
sustainable supptiers' relations, where the organisation educated
vendors and suppliers to understand how, why and the importance of
sustainable production, which enabled IKEA to differentiate itsetf
from the market competitors. ln addition, the key part of IKEA's
success is related to the effective communications and relationships
with the supptiers and manufacturers that enabled IKEA to obtain
high quatity materiats at good prices on what it purchases. ln the
meantime, since IKEA is a very high volume gtobat business retailer,
the organisation procures products from more than 1,800 sources in
50 countries and uses 42 commerciaI service offices worldwide to
enable managing the suppliers' relationships. Additiona[ty, IKEA
fosters competition among its suppliers in order to attain high-quatity
materiats with good prices and the organisation stresses on buitding

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log-term relations with the supptiers via conctusion of [ong-term
agreements and thus obtain further reduction on the product prices.
IKEA implemented its code of conduct catled IKEA Way of Purchasing
Home Furnishing Products 'IWAY" which invotves the standards,
rules and guidelines to enable suppliers and manufacturers to avoid
the negative imptications of their activities on environment within
which they operate. IKEA has strong procurement power as a result
of its partnership retationships with the manufacturers and suppliers,
which constitutes barriers for its market competitors (lKEA, 2016).

However, the IWAY code of conduct underlines IKEA'S commitment to

maintain the low-prices, however white IKEA attempts to enable its
customers to enjoy [ow-prices, it should not occur at the expenses of
IKEA's business principtes (Clara,2014). IKEA buitt a great suppliers'
retationships, where their greatest strengths are ties in the effective
communications and the retations fostered over the time working
with supptiers, which enabted IKEA to obtain high quatity materials at
best prices (Rushto et at., 2010).

2.3 IKEA's Sustainable Partnerships

IKEA worked on the direction to build sustainable partnerships as it
formed a partnership with UNICEF to work on a community program

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in North lndia to prevent child-[abor via addressing the root-causes
and raising awareness. !n addition, IKEA formed a partnership with
the Wortd Witdtife Fund "WWF'for promoting the sustainabte use of
the naturaI resources. The organisation worked with other
companies to support the sustainable partnerships such as WWF,
which led to several training programs in China, Russia, Romania and
Butgaria on Responsible Forest Management. Besides, IKEA worked
with the Forest Stewardship Council UFSC" to achieve its targets and
transform the industry (lKEA, 2015). IKEA worked on buitding
collaborations and partnerships with other companies, suppliers,
NG0s and UN organisations to work towards becoming peopte and
planet positive and contributing to change in society in order to
influence the poticy devetopment and key stakeholders that support
the positive change in the society, contribute to the economic,
environmenta[ and socia[ development and strive on buitding [ong-
term partnerships with the locaI communities where the business
operates (lKEA, 2014).

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3 IKEA's Current Global Supply Chain Management Strategies and
Practices

IKEA succeeded to achieve competitive advantages over the market

rivals thanks to the adoption of retevant supply chain strategies and
the company is reliant much on these advantages to support its
gtobat expansion and devetopment of domestic market.

3.1 Aligning Supply Chain with IKEA Structure Strategy

According to Antley (2013), it is significant important to tink the suppty
chain with the company structure otherwise, the entire
organisationaI system witt be disturbed. !n the meantime, the
organisation's strategies are its assets that can be utilized to produce
maximum outcomes such as IKEA the targest suppty chain
management worldwide (IKEA, 2016). IKEA owned a ftat-structure
within which the company gave preference to its employees and
there are senior managers for att organisation f unctions in att
[ocations that support the in-flow and out-ftow of the materiats and
thus enable running the suppty chain smoothly. IKEA atigned the
suppty chain with its structure in order to achieve sustainable
competitive advantage (Antley, 2013).

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3.2 IKEA's Low Price Strategy
The [ow-price strategy is an important cornerstone of IKEA concept
as it is coupted with IKEA's wide product range with innovative
designs and functionalities and that when the furniture retail sector
is depressed, IKEA wi[[ gain potentiaI opportunities in the market.
IKEA succeeded to provide its customers with high-vatue products
with respect to creative designs, functionatity, high-quatity and low
prices that enhanced its capabitities to stake-out a unique strategic
position since IKEA is performing suppty chain practices different
from its competitors (Mittat, 2013). IKEA focuses on generating design
creativity by internat competition among a huge network of
freelancer and staff designers. Freetance designing provides a great
degree of ftexibitity and a valuable source of creativity. The network
of freetance designers and the team work of people from a wide
range of professionaI and personaI backgrounds provides some of
the most significant design creativity which IKEA demonstrates in its
furniture. IKEA's designers provide innovative designs and multipte
functionalities to the user. They also focus on using materiaI as
efficiently as possibte without comprising on sturdiness and quatity
of the product. IKEA is targeting customers who have preference for
value at low-price and witting to carry out a pit of work and the
company has the capabitities to suppty high-quatity products at [ow-

Page 2l
prices by making trade-offs such as using setf-services models at its
stores' disptays instead of retiance on sates work-force and it
designs low-cost modular's that can be easity assembled instead of
reliance on third-party manufactures, besides IKEA provide ftat-
packed products that enable to lower the costs associated with
shipping, storing and assembting (Mittat, 2013).

3.3 Sourcing Strategy

Trent and Monczka (2005) studied the processes [eading to sourcing
and proposed a model of S-stages classified into two groups that
incorporates gtobat sourcing strategy integrated with gtobal locations
and globaI sourcing strategies integrated with gtobat [ocations and
functionaI groups,

Internatioral Purrhasittg Global Soulcing

Ler,el I Level 2 Level3 Level 4 Lerrel 5

Dorrrestic Iuteoratioml International Global Sourcing Global Sourcing

Rrclrasing Only Purchasitg Ouly Purchasing as Strategies Shategies
asNeeded Part ofSourcing Integgated Across Integrated Acmss
Strategy Worldrvide Woddrvide
Locatioos Locations aud
Functional Groups

Figure 5 - The Five-Stages Sourcing Modet (Trent & Monczka, 2005)

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According to this model, the company needs extensive coordination
of the requirements and implement strategies among its gtobat
business units (Irent & Monczka, 2005). Bozarth (2013) suggested
that the supptiers are deemed the backbone of the organisation's
business operations and any company must coordinate outside prior
to starting any business and also coordinate inside the company's
functions such as human capital, logistics, marketing, procurement,
[ogistics and production in order to buitd a chain within a[[ functions
and link these functions with each other. IKEA is facing issues to
meet demand on the international [eve[ and that IKEA is reliant much
on the relevant policies to that enabte meeting the demand on both
domestic and internationa[. Additiona[ty, IKEA faced some issues
retated to supplier setection, because the supptiers did not supply
IKEA with the goods efficientty and there is [ack of co[[aboration and
coordination,which are needed among alt the partners to enabte
deating easily with att functions and improve IKEA's productivity
(Abouhenidi, 2014). Therefore, the company implemented the "IWAY"
and conducts IWAY audit to monitor suppliers' performance and
carried out site-visits to its supptiers and manufacturers to ensure
their adherence to IWAY standards and suppty the materiats and
provide services at an internationa[ [evet, which enabled to develop

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sustainabte business activities. A key component of IKEA's low-cost
strategy is to own sma[[ proportion of production means and IKEA's
products are sold through its stores and outlets and a [ack of few
products are sourced from its suppliers' network gtobatty.
In the meantime, The company improved the experience of the people
and with support of IKEA's supply chain management, the company
resolved the issues via co[[aboration with the supptiers and
coordination among atl partners and become able to deat easity with
att functions and improve productivity (Jonsson,2012).
The company embraced sustainabitity within its SC strategies since
many of its products are recycled and the packaging manufactured
f rom polystyrene with recyctabte using sustainable f iber-based
materiat. IKEA embraced sustainabitity in its strategy, where most of
its products are recycted, even the packaging is made of potystyrene
with recyctable and more sustainable fiber-based materiats (lKEA,

2016) and invested in green-energy (Marketing Teacher, 2015) aiming

to achieve sourcing wood, paper and cardboard materials f rom

sustainable sources (lKEA, 2016).

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3.4 Lean Suppty Chain Strategy
Lean SC achieves suppty of high quatity products with optimal
synchronization to customers' demand white etiminating the waste
(Stack et. a[. 2010) and according to West (2008), the tean concept is

to etiminate the whole waste and develop effective operation (West,

2008) and there are 7-types of waste within the operation as shown
in figure-2 (Pinterest, 2011).

Motion Waiting Defects

.n
O til
.-L.
f
lF) I
Overproduction Transportation OverProcessing

\
al In
'ar-,ot +
Figure 6 - The 7-Wastes of Lean SCM (Pinterest,2017)

!KEA adopted lean SCM to support its gtobat business operations

(Dahtvig, 2012) and lean manufacturing enabled IKEA to achieve
positive outcomes such as sharing information via effective
communication, reduce operation accidents, enhance quality,

Page 25
continuous improvement, reduce operation down-time and
enhancement of employees' morale and customers' satisfaction
(Hobbs, 2011).IKEA designed its suppty chain network to enhance the

overall efficiency for example, IKEA is [ocating the suppty of products

ctose to its production and the production ctose to sales and
strategicatty plans the [ocations its distribution units which enabtes
to save the transportation costs (lkea.com).

3.5 lnventory Management Strategy

IKEA has a wide customers' network who are impressed with the
company's offerings not just the high-quatity products at low price,
but also with IKEA's unique inventory management and that its suppty
chain cannot be affordable by market rivals. Each IKEA store has a

range of 9500 products and the company is always being able to keep
the products avaitabte on stock and commit to the price for a year
(Clara, 2014).
Further, IKEA combined retai[ and the warehouse processes as in

every IKEA store, there is a warehouse on its premises and on the

main showroom, the ctients can browse the available products and
obtain the needed items from the floor-patlet [ocation with racking
and that the products can be procured and taken home.

Page 26
The company imptemented cost-per-touch inventory technique to
enable customers to select the products and retrieve the packages
by themsetves with low-cost associated since IKEA saves costs due
to less hand touches the products. !n the meantime, the company
much on in-store logistics management for re-ordering items via
emptoyment of personneI to handle the inventory records at stores
and monitor the deliverables "Minimum-Maximum Settings", which
contribute to eff icient low within stores, meeting customers'
f

demands, saving costs, enhancing customer satisfaction and loyatty

white achieving high sales (Clara, 2014).
This strategy also ensures that IKEA has ready inventory to meet
customers' demands, lowering the cost of lost sales. Additiona[[y, the
company's store operations is reinforced by high-ftow facilities and
low-flow warehouses, where in the high-ftow warehouses 'the
company is reliant on automatic storage and retrievaI systems to
drive-down the cost per touch and the items are stocked in a [ow-
flow facilities that are not in high demand and operations depend on

manual processes as staff wi[[ not be shifting and moving inventory

around too much.
These techniques enabtes IKEA to be a successfuI gtobat furniture
retailer with low-cost for operations and high demand for products

Page 27
and thus stay in a very competitive position from its peers within the
industry (Clara, 2014).

3.6 Logistics Strategy

IKEA succeeded to devetop a globat distribution network to ensure
the detivery of its products to the stores a[[ over the world on timety
manner, The company has suppliers located in 50 different low-cost
nations close to the raw-materials and distribution channets enabling
to obtain industria[-knowtedge, eff icient information f low and
operations.
IKEA's supplies provide standardized products needed for the
internationaI market and that the organisation is able to respond to
the gtobaI emerging customers' preferences (Mitta[, 2013).
IKEA uses multiple transportation means that promotes profitabitity
since the products are offered to IKEA's customers at low-prices.
Nowadays, the company has 9500 products manufactured by 1074
different suppliers and transported to its stores that spread around
the wortd and the objective of IKEA's Logistics strategy is to shorten
the route of the products between the manufacturer and the stores.
IKEA owned 389 retait-stores in 48 countries and the company had
22 Pick-up and Order Points in 11 countries, besides 41 Shopping

Page 28
Centers in 15 countries and 38 Distribution [ocations in 18 countries,
which contributed to achievement of EUR0 34.2 Bittion totaI sates by
end of 2015 (lKEA, 2016).
The company continues building modern and convenient logistics and
having more distribution centers to cope with its gtobaI expansion,
enabtes better distribution of products at low cost and doubte its
sates. IKEA's implemented [ogistics strategy enabled to set-up the
products avaitable for customers whenever needed and at the
convenient time since the company depends in its logistics on gtobal
distribution network, large volume, flat-packages and cost savings
(Jonsson et a[. 2009).

Page 29
4 Alternative Strategies to lmprove IKEA's Globat Suppty Chain

4.1 Agile Suppty Chain Management

According to Stack et. at. (2010), the SCM is facing a criticaI issue as
there is a sma[[ disturbance at the SC downstream due to
understandabte demand by different links within the SCM to manage
the production and inventory [evels, which leads to large disturbance
and votatitity when it works its way upstream and such effect is
catted "butlwhip effect" and the concept of Agite SCM indicates how
the SCM can cope with these disruptions such as defects, quatity
issues, lack of information and [ate delivery.

Hi "Lean" works best in high

volume, low variety and
predictable environments.
o
l.-
(o
"Agility'is needed in
less predictable
environments where
Lo the demand for variety
is high.
Lo Hi
Volurne

Figure 7 - Volume and Variety 0bservation (Lu, 2014)

Page 30
Agite SCM is flexibte to cope with changes either the nature of
customers' demands or the SC operations capabitities within the
chain. 0n the other hand, lean was implemented from a forecasting-
based mass production, while the market differentiator is retiabitity
and cost, however the international market is variety dominated and
the differentiator is the speed and response, therefore [ean cannot be
deemed as a cure-a[[ approach (Lu, 2014).
ln the renewed competitive arena, "the [onger the suppty chain, the
more complexity and increased risk of "bullwhip effect", IKEA needs
to be more agite to be abte to respond quickty and efficientty to
increasingly customers' demands that are [ess predictabte and the
demand for variety is high. Agite SCM implies a virtuaI integration via
shared-goats across the SC and f texible dynamic relationships
between the divisional units and different sectors of the SC and such
virtuaI integration supports the overatt SC. Further, it needs a high
teveI of internaI integration among the operationaI processes and
thus any change in market trends witt trigger a chain response
through other operations within the SC. ln terms of performance
measures and operational improvement, agite SC is setting-up a high
level of market sensitivity to sense the sudden changes in market
behaviors and thus capturing the emerging trends and listen to

Page 3 I
customers. Finatly, the involved members of agite SC witt be best
connected other and a dynamic network-based is
with each
preferred as it enables to leverage the partners' capabitities and
focus on core competences (Harrison et at., 2001).
Agile Sr]DI irnplies a r.irtual integration r.ia Agile SCM will provide a hfuh lavel of
shmd-goals across tlu Sll ard flexible lntsmal lntegradon among tlle operadonal
dyranir r elationsldps between tIE divisiorEl ViftUal procsssss and thus any change ln market
mits md diffelelt sertors of the SC. The tren.ls will trigger a chain resporce through
I
vttul integmtion supports the overall SC / otheropentioro ilitldnthe Chain.

I
/ -^ .. * -. ..
I

Pro€6i

--&@
l&nmcm

Agile SCM embles setting-up a high level of
lmket semitiYity b sffie tlp sudden
chmges in mket behrion md thu
captuing the ernetging E€nds ild listen to
cutomE
The hrwlved members of agile SC will be
best corurected witlr each otlet ud a
dFmic neh{olk-based is prefenEd il it
----
Network enablps to levqage tlE piltreN'capahilities
Based ard focus on core cornpetences

Figure 8 - Agite Suppty Chain Framework

(adapted from Harrison et a[., 2001)

4.2 0utsourcing "Buy-or-Make"

Outsourcing can viewed as "buy-or-make" strategic decision as the
company may contract some of its in-house operations such as
marketing, production components and manufacturing to external
manufacturers or suppliers and such strategy wit[ enable to achieve
higher quatity and cost saving (Lu, 2014). According to Slack et a[.

Page32
(2010), there is no single business can make everything needed to
produce its products and outsourcing some of the SC activities witt
create the most value for the customers. 0utsourcing witt enable
achieving potential advantages such as differentiated competitive-
edge, synchronization of SC capacity, further development of the
organisation's core competences, reduce verticaI integration and
thus increased SC ftexibitity and agile, improved SC responsiveness,
a[teviate "bu[[whip Effect", cost minimization and consequentty
enhancement of the R0l and R0E (1u,2014). IKEA is foltowing
Porter's competitive advantage strategy to achieve cost advantage
through focusing on quality improvement and functional products at
low-prices and that outsourcing of SC activities to foreign partners
wi[[ enable minimizing the operations' costs and boosting the profit
margins. However this strategy might be threaten by two factors, the
first is economic where the suppliers under the regutations are
influenced to provide better working-environment for their workers
and that it witt become hard for IKEA to get best prices from its
suppliers, the second factory is IKEA's focus on its implemented
business model to pass-on the cost saving to IKEA's customers as
most of IKEA's products are made of plywood and particte-boards
with veneer finishing, which enabtes IKEA to provide quality products
at low-prices, however the veneers are tend to peel-off which

Page 33
require to seek more atternatives and IKEA's dominance in the
market may be threatened (Pang, 2014).

4.3 Relationship and lntegration

SCM retationships can be viewed as a strategic dimension through
which diverse relations postures can be identified such as short-
term contract relations and [ong-term partnerships and it may take
different values. However, the traditionaI supplier-purchaser
relationship is timited to the Singte-Point-of -Contact and that
relationships tend to be adversariat, on the other hand, the close
partnership can be measured based on the contents of the exchange
and it includes many aspects of SCM such as reduce supply base,
form tiered SC network structure, buitd trust and good-witt intention
through using long-term contracts, taking advantages of volume
consotidations and moving towards quatity-driven procurement
instead of price-based procurement. !n the meantime, formation of
strategic a[[iances witt result in sharing market's risks, joint
cotlaboration, sharing resources, achieve economy of scale, cost
saving, customers' value-adding and reducing the impact on the
environment (Lu, 2014). The SC close retationship is an indispensibte
part of SC integration and such SC integration is an indispensibte part

Page 34
of business success since the [ega[ly participating organisations in

SC integration witt coltaborate seamlessly together and act as one

company to achieve the strategic objectives. The manufacturing was
isolated activity in the past and was [ocated close the end of SC

without involvement titt the product is designed and devetoped and

the planning is completed but this modet witl not suffice today where
the customers have demands and need responsiveness to their
inquires, therefore it is essentiaI for manufacturing integration into
the SC and the integration of the entire SC itsetf (Blanchard, 2007). ln
the SC integration, the performance of the SC is atways the
integrated performance of the SC members and thus the coordination
and collaboration between SC members are needed to improve the
performance as shown on figure (Croxton et a[. 2001). As IKEA has
concern for people and environment, and atways encourages optimal
use of raw materiats and energy, the company can rely heavily on
close relationships and strategic a[[iances and working on the
to buitd sustainable partnerships, which witt resutt in
direction
sharing market's risks, joint coltaboration, sharing resources,
achieve economy of scate, cost saving and customers'value-adding.
Buitding cotlaborations and partnerships with other companies,
suppliers, NGOs and UN organisations to work towards becoming
peopte and ptanet positive and contributing to change in society in

Page 35
order to influence the poticy development and key stakehotders that
support the positive change in the society, contribute to the
economic, environmentaI and sociaI development and strive on
buitding long-term partnerships with the local communities where
the business operates (lKEA, 2014). The integration of IKEA's entire
SCM wi[[ enable to stay on top of the demand and IKEA witt be better
positioned to predict the customers' demands and the business wi[[
become more adequately responding to demands changes and
consequentty, IKEA witt be able to maintain and increase sales
revenues and profit margins (Khurana ,2016).

4.4 Time-Based Strategy in Distribution Logistics

The [ogistics means integration of materials' management and
distribution and it plays a significant role for the company in the
internationaI environment (Rushton et at., 2010). According to Water
(2004), the most important trend in togistics incorporates
cotlaboration across the SC, shorten the materials lead-time and
direct detivery and the customer satisfaction witt be determined by
receiving the products on time. As IKEA has gtobat business
operations, it needs to change the distribution system based on time
and that adoption of time-based strategy in distribution [ogistics wi[[

Page 36
be hetpfuI for IKEA since it enables to lower the costs, enhance the
customers'services, improve efficiency and create values (George &
Thomas 1990).
Rafele (2004) proposed that the effectiveness of the organisation can
be impacted by the warehouse management through the receiving,
transportation and service performance. Many organisations have
locaI distribution center "traditionaI model" located geographicatty
close to materiat and customers and they are not witting to change
the traditionaI distribution structure in order to avoid any negative
impact on cost saving, materiats supply and customer service (Parikh
& Nietsen, 2009).
However, the sourcing from different suppliers of [ow-cost countries
is a criticaI factor that increases the SC complexity when the
centratized distribution is concerned and in the meantime, the
sourcing strategies can [ead the company to achieve SC competitive
advantage (Kumar & Samad, 2008).
Therefore the company must concentrate on new approaches to save
time and cost and improve service performance. According to Hou
and Liu (2011), IKEA's centralized distribution center should be

located in core-region with convenient means of transportation so

that the company can dispatch its products easity, faster and more
ftexibility and thus increase the performance of delivery.

Page 37
ln the meantime, IKEA's inventory can be managed and forecasted to
avoid out-of-stock and that the Centralized distribution center can
improve delivery performance.

4.5 Push-Based Strategy

IKEA faced some issues within its suppty chain which negatively
affected the relationships with its customers and partners as a result
of high-leveI of demand uncertainty which require the company to
manage its suppty chain on basis of realized demands. Adoption of
push-based strategy witl ensure IKEA's customer loyalty and
maintain steady relationships with IKEA's customers, as wett as
coltaboration with its partners and the other suppty chain members
within the company.
The push-based strategy witl enabte IKEA to anatyze the customers'
needs which contribute to planning to make the company's outlets
and products'designs in a way meeting the customers' needs. IKEA is
imptementing the supply chain strategy which is buitt to stock and
the customer-segment is online and the products'designs are based
on smat[ number of configurations designed for market with huge
production size.

Page 38
Additionatty, IKEA can cut the cost since the production is smooth and
stock the products for the mass distribution on multinationa[ [eveI
(Handfietd, 2013). The push-based strategy within IKEA's suppty chain

witt be hetpfut for the company since the lead-time f rom

manufacturing process to IKEA's locations to stock is high and the
[ead-time to customers' locations is short ( Abouhenidi, 2014).

Page 39
5 lmplementing Relevant Set of Supply Chain Strategies to Elevate
Performance

It is significant important for IKEA as a pioneer gtobaI retaiter to rety

on retevant suppty chain strategies that enable its growth and
eff iciency. However, when identifying the relevant supply chain

strategies, it is essentiaI to start with defining the "way to play" in

order to be able to create vatue for customers who procure the
products and thus achieving growth and performance efficiency.
Kauffetd et a[., (2011) suggested that the organisation's suppty chain
capabitities must be atigned with the organisation's strategy "way to
ptay" in order to achieve superior performance and steady market
position., where there are six business modets' strategies "generic
archetype" that incorporates Innovators, Premium Ptayer,
Customizer, Differentiated Green, Aggregator and Value Ptayer. IKEA
is deemed as a value player since it implements low-cost suppty
chain'strategy in order to pass saving to its customers and IKEA
cannot a[tow the low-cost to affect the product quatity and services.
IKEA as a gtobaI retaiter can support its way to play "Value ptayer"
via focusing on 3-5 of the SCM levers to maximize the outcomes
shown in figure-9 (Kauffetd et at., 2011).

Page 40
 Go-to-market model

Process effectiveness/execulion Product launch/

life-cycle management

AGII,E SUPPLY TJ}L\IN

Network policies

PUSH-BASED Process technology

STRATEGY choices

Make-vs.-buy
assessment
flsquirsdhr$4,
TI]\,IE-BAS ED STRA. TE C Y - to phy
Systemic
planning/replenishment
IN DISTRIBUTION --- Curenlcompany
capabiBle

'4 = Best ln class.

Figure 9 - IKEA's Capabitities and Archetype "Value Ptayer" (Kauffetd

et a[., 2011)

Agite SCM to enhance IKEA's responsiveness to customers'demands

for products or new services via setting-up a high [eve[ of market
sensitivity to detect sudden changes in market behaviors and thus
capturing the emerging trends and listen to customers (Harrison et
at., 2001).

0utsourcing witt enable IKEA to achieve potentiaI advantages like

differentiated competitive-edge, synchronization of SC capacity,
further devetopment of organisation's core competences, reduce

Page 4l
vertical-integration and thus increased SC f texibitity and agile,
improved SC responsiveness, a[[eviate "buttwhip Effect", cost
minimization and consequentty enhancement of the ROl and ROE (Lu,
2014).

Development of ctose-relationships and strategic a[[iances and

working on the direction to buitd sustainabte partnerships to ensure
suppty of materiats from susyainabte resources, wi[[ result in sharing
market's risks, joint coltaboration, sharing resources, achieve
economy of scale, cost saving, customers'value-adding and reducing
the impact on the environment (!KEA, 2014).

Integration of IKEA's entire SCM wi[[ enable to stay on top of the

demand and IKEA witt be better positioned to predict the customers'
demands and the business wi[[ become more adequately responding
to demands changes and consequentty, IKEA witt be able to maintain
and increase sales revenues and profit margins (Khurana, 2015).

Adoption of time-based strategy in distribution togistics witt be

helpful for IKEA since it enables to lower the costs, enhance the
customers'services, improve efficiency and create values (George &
Thomas 1990) and IKEA's centralized distribution center shoutd be
located in core-region with convenient means of transportation so

Page 42
that the company can dispatch its products easily, faster and more
ftexibitity and thus increase the performance of delivery (Hou & Liu,
2011).

The push-based strategy wi[[ enabte IKEA to analyze the customers'

needs which contribute to planning to make the company's outlets
and products'designs in a way meeting the customers' needs and the
company can cut the cost since the production is smooth and stock
the products for the mass distribution on muttinationa[ leveI
(Handfietd, 2013).

ln the meantime, to atign IKEA's capabitities with its archetype, IKEA

can use the SC capability profiter that works as a relevant tool to
diagnose and identify the essentiat suppty chain characteristics for
IKEA's strategy "ways to ptay" and proposes relevant SC [evers
needed to improve the coherence and overcome the chattenging
gaps.

Additionatty, IKEA should assess the ongoing-heatth of its suppty

chain and be alert for any circumstances that may cause the SC to
become out of synchronization with IKEA's strategic aspiration and
IKEA should identify and track the key drivers for the value and SC
performance.

Page 43
IKEA can devetop specific measuring metrics to evaluate the adopted
suppty chain levers at the peak-levels, i.e. IKEA as a value player can
be deemed successful in case the gross margin and the perception of
its brand-image were high, reflecting the lean manufacturing costs,
product design and quatity and enhanced customers' loyatty (Kauffetd
et a1., 2011), customer satisfaction, product avaitabitity in market,
cost-to-serve, design to market time (Lu, 2014).

Page 44
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