MM 150

DISTRIBUTION MANAGEMENT
BSBA MM 2A FINAL REQUIREMENT

IKEA

1. Company Profile

Mission
Offer a wide range of well-designed, functional furnishing products at prices so low that as
many people as possible, will be able to afford them.

Vision
To create a better everyday life for the many people.

Objectives
To offer a wide range of home furnishing items of good design and function, excellent quality,
and durability, at prices so low that the majority of people can afford to buy them.

2. Brand Profile

a. Product – Brand Features, Attributes, Benefits

The product list at IKEA never ends. The dynamic business environment of IKEA
allows the company to come up with unique ways of offerings. The product line of IKEA
includes the following items in its product portfolio: furniture (outdoor, indoor, storage), baby
& children’s products, bathroom and kitchen appliances, technological products, tools &
hardware and safety products, home decor, textiles & rugs, cooking decoration and lighting
products. There are 10,000 products in its product range while around 2000 new products are
launched every year. IKEA ensures that it produces furniture and accessories that are
well-designed, functional and affordable.

b. Price – Existing Market Price

The prices at IKEA compared to competitors are more affordable considering the
quality of its products. Customers can buy IKEA products as low as P 50.00 in the Philippines.
It is important to note that prices and availability of some products may vary. For instance, a
side table can cost P 490.00 only. Other products such as kitchen set can cost around P 100.00
to P 20,000.00.

c. Promotion – Current Marketing/Promotion strategies

The marketing strategy of IKEA is so effective because it is unique, original, and, above
all, maintains a clear value proposition. Each idea is carefully curated to support the brand's
identity and provide the best possible customer experience. According to Shastri (2022), the
company uses various channels to market its products;

1. The company uses a steady and easily recognizable theme that covers its product
names and its color scheme.

2. Mixed-and-matched products are available to match each customer’s peculiar

style and needs.

3. Products offer mass-market affordability and reusable durability.

4. Sponsored content with creative partners expands the brand’s appeal to new
demographics.

5. All the items are outlined in a way that’s made to inspire the customer’s vision.

6. IKEA is participatory, and people are encouraged to take the ideas and run with
them.

7. The company leverages the latest technology to provide cutting-edge

experiences consistent with its quintessence.

IKEA utilizes both offline and online methods to market its brand. Social media is used
as a platform to promote the brand itself and its products while catalog is used for improving
sales and brand promotion. Further added, IKEA hosts public campaigns to increase brand
popularity and to gain more publicity.

3. Distribution Strategy
a.
b. Current Distribution Channel
Illustration of current distribution channel

Distribution channels place a vital role in every business as it will determine how well a
company reaches the end-users. A good distribution channel will ensure customers obtain
accurate products in time and therefore maximize satisfaction. IKEA distribution channel
members include suppliers, manufacturers, wholesalers, retailers, and consumers. IKEA is the
world’s largest retailer, with more than 1600 suppliers to manufacture products and have
efficient delivery of these products to 186 stores all over the world. IKEA uses selective
distribution as its distribution channel. IKEA sells its product through selective intermediaries.
They posit that they can better target customers in a specific geographical area through selected
or limited distributors or outlets in order to reach their end-users. Trucks, boats, and trains are
all needed to move products around. Coordinating these different means of transport to make
the movement of goods as quick and efficient as possible.

Advantages and disadvantages of current distribution channel

The advantage of the IKEA selective distribution channel means a far lower price point
when it comes to distributing their products. it creates the most cost-effective way to supply
their distributors/retail outlets as they will only supply fewer retailers. It furthermore creates
business certainty as it chooses only to contract with the most profitable distributors or outlets.
It is also easier to manage than other distribution channels. On the other hand, IKEA’s
distribution channel disadvantage is that it can decrease market penetration. Since products are
sold via selection distribution, they may not be available everywhere, thus IKEA may not be
able to achieve increased market penetration.

c. Warehouse Management
i. Describe current warehouse process and management

There are 3 distribution centers which belong to IKEA and those distribution centers are
connected by rail lines in Sweden. Therefore we can purpose that those 3 distribution centers
are responsible for the whole country or other neighboring areas and transport by rail mainly. 3
distribution centers are good to manager, perhaps one of them is charging for South and others
are responsible for North or central, therefore IKEA can transport products rapidly so that
customers can get their products very quickly. Besides, the shorter delivery time can give
guarantees to its clients that the products will be safer. If IKEA built a warehouse in every city,
the cost would increase and it is hard to control all of the warehouses at the same time, there is
no doubt that the supply chain will be complicated. What’s worse, the terrible, complex route
planning may cause time delays and decrease efficiency which makes customers upset or
complains to the company. As the lead time plays a significant role in today’s distribution
logistics, more and more centralized warehouses are occurring gradually. It is obvious that one
or a few central warehouses can increase the speed because it can transport products faster and
more flexibly than competitors. Therefore IKEA only constructed 3 warehouses in Sweden
instead of 10 or even more. If some emergency happens during the delivery period the nearby
warehouse is able to provide assistance probably.

Additionally, the capacity of “DC008” is approximately 8 million square meters, it is

quite huge so that it can store thousands of goods inside it. Especially, five eighth of it is for
fully automated storage, it means most areas rely on machines. That high technology does not
only improve efficiency but also refine working performance in such a big warehouse. Usually,
the integration of human skill and mechanical property can make the process faster and more
flexible. Generally, a systematic management approach or some high technology machines are
always used in IKEA‟s warehouse, such as containers and stackers. Customers may be glad to
accept those kinds of products because they are reliable and dependable. It is possible that more
warehouses will go large with large capacity and space.

The turnover of back-up goods must be finished in one week at least, this is an
excellent example that explains how effective the distribution logistics is when WMS integrates
with TMS, and it totally reduces overall costs and shortens lead times. Thus, a standardized
planning and control structure is more suitable for such a simple and effective warehouse.
Probably some distribution warehouses are claimed to operate specific products or services if it
is necessary, thus the tailor made WMS is appropriate for such kinds of warehouses. However,
a few parts of IKEA distribution require human resources to manage it. Of course some
unexpected situation could happen during the logistics process, such as the goods being delayed
or missing, in case of those situations the human skills and working experiences are essential. It
is better to have a specific planning and control structure in a complex warehouse.

IKEA‟s WMS is very stable and comprehensive. So the standardized warehouse model
is suitable for most IKEA distribution warehouses. IKEA distribution warehouse is able to
provide reliable and flexible products rapidly for customers under the assistance of appropriate
WMS. However, IKEA cannot cover everything perfectly as you wish, according to personal
experience: you have to wait for a few days or longer if you require IKEA to transport the
products to your house, it means that IKEA cannot transport the products to customers
immediately. And generally, IKEA always uses big trucks to transport. If IKEA arranged the
truck immediately when they received the transportation requirement from the customer, the
efficiency must be low and the truck can leave a bad impact on the environment. Thus, IKEA
or third party companies can prepare a number of smaller vehicles and use those vehicles to
fulfill the customer demand at once as a suggestion. IKEA can gain more competitive
advantages based on its effective WMS, for instance, IKEA can provide more products rapidly
and IKEA can be faster than its competitors. Besides, IKEA also pays attention to its customer
demand and try to satisfy it as much as possible. It is reasonable for us to believe that IKEA
will be much stronger in the future through such flexible and dependable product service
performance.

d. Transportation Management

IKEA is dedicated to becoming climate positive by 2030 by lowering greenhouse gas

emissions more than the IKEA value chain emits while growing the company. They have
decided to transport their products in an ecologically sustainable manner with this goal in mind.
 i. Current Mode of Transport

Electric Van or Truck

Electric delivery trucks have lower maintenance and operational expenses than typical
diesel-powered delivery trucks. A report published by the North American Council for Freight
Efficiency last year found that a medium-duty urban delivery van that has a stable route of
between 50 to 100 miles per day could be one of the earliest commercial vehicles to
economically go electric. This is because charging can be done predictably and there is a sweet
spot of kilometers traveled (enough miles to save money on fuel but not too far to exceed the
battery range). (Fehrenbacher, 2019)

Electric Vans are the best option on the market today for reducing transportation carbon
emissions, Hultberg said. "What's accessible right now is good enough to get started," she
remarked. (Fehrenbacher, 2019)

Ship

Shippers and carriers are still searching for solutions to the interruptions and delays in
container transportation. Ikea is the latest big box retailer to announce that it has chosen to take
matters into its own hands in an attempt to lessen some of the interruptions and global
shortages that the firm has been facing. (Kapetas, 2021)

The company confirmed to NBC News that it had begun transporting items via hired
ships. The business also stated that it is acquiring containers to ensure that crates to transfer
items to its locations are available. (Kapetas, 2021)

Train

IKEA also uses a rail to transport their products made from China to Estonia. The
railway is three times quicker and more cost-effective than shipping Chinese-made goods to
European markets via sea. Estonia is set to become a China rail hub due to its proximity to
China and membership in the EU, making it an attractive transshipment destination for Chinese
products entering European markets. (Devonshire, 2017)

ii. Kinds of unit loads used in Transportation Management

Cardboard Pallets

According to various sources, IKEA has switched from traditional wood shipping
pallets to lighter and less expensive corrugated cardboard pallets. The greatest news is that the
environmentally responsible transition will not compromise practicality, as both corrugated
cardboard pallets and hardwood pallets can hold weights of up to 1,650 pounds. (Pierce, 2020)

IKEA uses 10 million pallets to help move goods to its 287 shops in 26 countries across
the world, so switching to something more recyclable makes environmental sense. It also
makes economic sense, as the transition will save transportation expenses by around 10%,
according to the Business Week study. (Pierce, 2020)

4. Distribution Plan
a. Create own distribution objectives
- To ensure that things move from point of production to the point of consumption
smoothly
- To reduce the cost of products by making the distribution process more efficient
- To properly store, handle, secure, and deliver them to customers in great condition
- To satisfy customers through efficient distribution
- To make the goods available and distribute them to consumers in various locations

b. Recommended distribution channels

Ikea Company will produce and distribute products to retailers and distributors to reach the
target customer and business segment respectively around the world. Through the use of
catalogs, social media sites and websites of the company, and by reputation given by the word
of mouth of the customers, the company will be able to reach its target. Not to mention the sales
and profits that will bring back but also the feeling of delightment and satisfaction of the
customer

c. Recommended process of distribution

i. Order Process

Order Placement - Order information is typically provided to an order management system

when a company receives a customer order. If the organization has many fulfillment centers or
warehouse locations, the OMS will automatically choose the best warehouse site based on the
delivery address and item availability.

Inventory - The warehouse then performs batch picking, which involves order pickers
collecting products for multiple orders. Selection can be made by hand using picking slips and
spreadsheets or by machine with barcodes and scanners.

Sort - The selected objects are split into groups based on their final destination. For example,
when batch picking tactics are utilized, each item must be sorted into its proper order before
being bagged and shipped.

Pack - Weighing the parcels and marking them with the recipients' addresses and any relevant
delivery instructions are also part of the packing procedure. It's critical to prioritize dimensions
and weights that can be readily handled and are cost-effective, whether things are placed in
custom packaging or standard corrugated shipping boxes.

Ship - Orders can be sent straight to the customer, or they can be pooled with orders heading to
nearby locations to save cost and reduce the number of shipments.

ii. Warehouse Management

Arrival of Pallets

Products may have been delivered to a warehouse using many modes of transportation. For
simplicity, let us assume that the products arrive at a warehouse in batches, products are
sealed and packaged in units of different sizes, and transported by trucks.

Checking of Barcode

After the sealed pallets are unloaded from the trucks, They are queued up at the entrance gate
waiting to be registered and processed by the scanning of the barcode on them. The barcode
itself has all the information regarding the section, the row, and the shelf they are going to be
located.

Loading with Forklift

Right after the pallets are unloaded, processed, registered, and validated by barcode
scanning, they are ready to be transferred to their final position on the shelves. A forklift
will be used to transport the products to the predefined location on the shelves. The
shelves are grouped into three main sections:

• The stock section is where the extra products are kept in case of the need for
replenishment in the marketing hall, where only one sample is kept.

• Order section is filled according to the customer’s ordering. In this section, the
products will be stored and kept for a maximum of one week, waiting for the customer to
pick them up.

• The marketing hall contains two floors. The first floor mostly includes kitchen
appliances, home and bathroom utensils, and smaller decoration items. The second
floor generally contains bulky and heavy items like furniture, beds, an oven and
refrigerator, and other significantly large objects.
Transportation within the sections

Once the packages are settled into their corresponding sections, there will be three different
paths between the sections. The intersection transportation scheme is to transport products
between the sections quickly. For shorter paths, the transportation is done manually
Whereas, for a longer path, transportation usually requires forklifts and drivers. Two types
of vehicles are used for the transportation of pallets:

• Forklifts are driven and are used for heavy pallets, which are usually placed on the upper
shelves.

• Transpallets are manually operated and are used for lighter and smaller pallets, which
are placed on the lower shelves so that a customer could pick them up and carry them away.

Filling the shelves

The decision to unseal a product from its package falls under this procedure. The products that
are already reserved for (bought by) customers, will not be unsealed. The products in the
stock section: the products that are stored on the lower shelves will be unsealed, for the
customers’ viewing; The products that are placed on higher shelves need not be unsealed.

iii. Transportation Management

a. Mode of Transport (choose and explain)

IKEA, one of the world’s largest retailers of home furnishing products has multiple operations
across different parts of the world. The scope of the operation requires a standardized form of
logistical operations in order to effectively and efficiently manage the movement of the
products from the IKEA warehouses down to the distributors, retailers, and customers. An
important component of the logistical operations of the company is its transportation system
which uses cargo transport inland and through water which generally comprises the totality of
IKEA’s transportation management. With careful considerations and acknowledgement of the
different factors such as the Cost-trade off and Distribution Model a better and improve modes
of transportation are then recommended:

Waterways- water transportation enables the movement of larger volumes of products at a

much slower rate. Although the time it takes to complete a voyage is long, the cost incurred
through it is much more affordable than other modes of transportation like Airways.
Transporting products through sea is a practical solution to move huge amounts of IKEA
products to different parts of the globe. The use of Bulk Service which provides contractual
services for individual voyages will be of great use for the company.

Road- the presence of different IKEA warehouses and stores in different parts of the world is
the main reason why transportation by roads is essential. The road provides the widest point
served in all of the modes of transportation available. By maximizing this mode of transport,
IKEA can move its finished product from its warehouses down to local retail stores or IKEA
owned stores. It is the second most frequently used mode of transport and IKEA can also
transport huge volumes of products by using a fleet of trucks that will facilitate the movement
of the said goods.

b. Transportation process (explain)

Waterways- finished products from IKEA manufacturing facilities will be moved to the
storage facilities via Warehouses. Once batch orders or inventory replenishment is requested in
its global facilities/international stores the finished products will be moved from the
warehouses and will be loaded to transport trucks. Required documents will then be prepared
such as the Bill of Lading In order to facilitate the transport of the goods thru sea. The transport
vehicles will then carry the products to the nearest port ready to be loaded on shipping
containers of specific sizes. Once the containers are loaded to the bulk carriers it will then be
transported. Once it reaches the designated port and passes all the customs requirements,
transport vehicles will then move the containers and deliver it to IKEA warehouses for
inventory replenishment.

By Road- when orders are made, stocks are picked on the warehouses and will be consolidated
prior to transport. Once all the orders are arranged it will then be loaded to the transport
vehicles/delivery vehicles of IKEA. Once the transport vehicles are loaded it will then transport
the products to its designated point of delivery as well as to local IKEA owned retail outlets for
inventory replenishment. The use of roads is only applicable to local delivery and local
inventory replenishment.

c. Time table and scheduling

 Transporting schedule Purpose

1. Daily Delivery of ordered products from local

stores to the customers doorsteps.

2. Weekly For the purpose of replenishing stocks at

local warehouses in order to maintain
inventory levels.

3. Quarterly Shipments of IKEA products from its global

manufacturing facilities will be done
quarterly due to the fact that the mode of
transport used in this is Ocean Freight. This
is done in order to replenish stocks of IKEA
stores that do not have their own
manufacturing facilities.

d. Budget Requirement

Warehouse
Manpower 55%
Equipment and machines 35%
Maintenance 10%

Manpower has the highest budget percentage, consisting of 55% of the budget since they are
doing most of the work in the warehouse. The budget allocated to them will be used to pay their
salaries and other needs. Meanwhile, machines and equipment have 35% of the budget, which
will be used to buy machines and equipment used by people working in the warehouse. The
remaining 10% will be used in machine maintenance. This is to ensure that the machines are
working properly and not causing injury.

Transportation
3PL 30%
Own vehicles 30%
 Manpower 30%
Maintenance 10%

Third party logistics, IKEA’s vehicles, and their manpower have the same budget requirement
since these three are essential in transporting their products from the manufacturer to IKEA’s
stores worldwide. The remaining 10%, same with distribution, will be allocated for the
maintenance of their vehicles to ensure a smooth logistics process and the safety of their
employees.

5. Summary and Conclusion of Recommendations

IKEA has a brilliant and strategic marketing mix. The company offers well-designed,
functional and affordable 10,000 various products in its product portfolio ranging from
furniture (outdoor, indoor, storage) to tools & hardware and safety products. In addition, 2000
new products are launched every year. Affordability is a competitive advantage of IKEA as it
offers high quality products at low cost that its competitor. Meanwhile, its promotion is unique,
original, and, above all, maintains a clear value proposition. The company uses various
channels to market its products through both offline and online methods.

IKEA is the world’s largest retailer, with more than 1600 suppliers to manufacture
products and have an efficient delivery of these products to 286 stores all over the world. The
company uses selective distribution as its distribution channel. The advantage of the IKEA
selective distribution channel means a far lower price point when it comes to distributing their
products. Furthermore, it creates the most cost-effective way to supply its distribution/retail
outlets as they will only supply fewer retailers. Since products are sold via selective
distribution, they may not be available everywhere; thus, IKEA may not be able to achieve
increased market penetration. Therefore, below are the summary of our recommendations to
ensure that IKEA can serve more people around the world;

Distribution channels

IKEA is a well-known Swedish company that is today's largest home goods retailer in the
world. IKEA mainly focuses on offering a wide range of good-quality, well-designed, and
functional products that are not only affordable in comparison to other competitors but also
have an attractive and creative blueprint. However, without having a proper and on-time
distribution through the store, the reputation might deteriorate and, consequently, customer
dissatisfaction might increase. The logistical and warehouse processes are the heart of the store
as they are responsible for handling, off-loading, and arranging the goods. In order to ensure
uninterrupted sales, the IKEA store's goods movement must be as efficient as possible.

Order process

IKEA is an international company with retail stores in most countries, and they are
also present online. The recommended order process of IKEA will begin from the placement of
the buyer’s orders which will be transmitted to their respective warehouse locations according
to their destination. The next step would be the inventory picking, sorting, packing, and
shipping of orders. The order process enables the company to provide an exemplary
synchronous service to their customers to meet their satisfaction.

Warehouse management

Ikea is a furniture company that quickly expanded globally to become the world's
largest furniture retailer. Ikea is well-known for its modernist designs combined with low prices
and simple assembly. It is especially popular among the younger generation because it is both
affordable and fashionable. Products are distributed in warehouse-style retail space and
distribution centers, which forces customers to look at all of their products before leaving the
store. It is a clever distribution system that looks for warehouses nearest to the order delivery
address in order to identify the correct stock levels that can be sent in the shortest period of
time. Furthermore, because IKEA does not ship from its own stores, stock availability varies
across stores and its online sites.

Transportation management

(Mode of Transport) IKEA will use both Waterways and Road as transportation mode
in delivering its product offering domestically and internationally. Waterways provide the
benefit of a cost efficient transportation with maximized load of cargoes. The only downside
for this mode of transport is the length of time it would take in order to complete the overall
movement of goods from the IKEA manufacturing facilities down to its warehouses. On the
other hand, the Road provides a more convenient approach to transporting product in a
domestic context as the road system is present to most parts of a certain area and can reach
multiple points of deliveries in a short span of time. A proper system of transportation
processes between these two modes is also developed in order to ensure that all the IKEA
products transported are in good condition. Furthermore; the scheduling of transport is
classified into three modes which are: Daily, Weekly, and Quarterly with the goal of delivering
products in the doorsteps of customers as well as to replenish inventories of IKEA products.

As IKEA continues to envision a better everyday life for many people, a distribution
system that is efficient and effective must be further improved. The new distribution plan
recommends new distribution channels, a faster order process, efficient system for warehouse
management, and better and improved modes of transportation. Above all, a new and improved
distribution strategy will ensure that customers of IKEA obtain accurate products in time;
therefore, maximize satisfaction.
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