Sustainability at Ikea
IKEA’s history and development
1 3
2
IKEA was found in Sweden in
1943 by Ingvar Kamprad
who grew up
in Elmtaryd, Agunnaryd. It
sold small items initially,
then affordable and quality
furniture to mass-market
consumers through mail-
order catalogue. In 1953, it
introduced the unassembled
flat packaging to help
minimize transportation
costs and prices and transfer
assembly costs to customers.
After the introduction, most
of the IKEA furniture was
designed and sold in that
unique method.
By 1974, IKEA had grown
from 1 showroom to more
than a dozen stores in
Europe. It continued to grow
while entered Russia in 2000
and had built a network of
14 stores there. From 2005,
the company started to
enter Asia, beginning from
Japan, and designed new
products that suit local
tastes. By 2013, there were
already 16 stores in China
which generated a total
sales of €740 million while
the Group also expanded
their markets to India at the
same period.
Currently, IKEA owns and
operates 303 stores and
franchised 42 stores from
Inter IKEA Systems B.V. It
has become the world
leader of its main market
of home furnishing and
faced no comparable
global competitor. The
company has also been
emphasizing sustainability
through implementing the
“People & Planet
Positive” sustainability
strategy from 2012.
 What is sustainability?

Sustainability is the ability to continue a defined behaviours indefinitely and satisfy people needs without
compromising the lives of future generation, including the following 3 aspects:

Environmental –
01 Ability to maintain rates of renewable resources harvest,
pollution creation and non-renewable resource depletion that
can be continued indefinitely.

Economic –
Ability to support a defined level of economic production
indefinitely.
02

Social -
03 Ability of a social system, such as a country, to function at a
defined level of social well being indefinitely.
What is “People & Planet Positive”?
More sustainable life at home for consumer -
for example, to engage and involve people and
communities around IKEA stores, suppliers and
co-workers through impactful, relevant and
unique communication, etc.
Resource and energy independence for company -
for example, strive for resource independence by
using resources within the limits of the planet and
by encouraging all waste to be turned into
resources;
develop company business through investing in
renewable energy sources, energy efficiency, store
expansion and refurbishment, low carbon
transportation and range development, etc.
Better life for people and communities
touched by IKEA –
for example,
continuously identify and develop setups
for home based workers to improve
working conditions, protect labour rights
and prevent child labour;
maintain 100% IWAY** approval of all
suppliers of home furnishing and other
key products and services
Reasons of IKEA launching sustainability project

Sustainability is a driver To continue growing and being the world leader of
of growth and is a home furnishing market, IKEA strives to minimize
fundamental part of negative impacts on the environment by
decision making. considering the long global value chain such as
sourcing of wood supply and forestry protection.
Besides, caring sustainability is good
for the reputation of IKEA because
consumers would feel that the
company is carrying out corporate
social responsibility and hence
increase sales volume indirectly.

01 02 03
SUPPLY CHAIN IKEA

FOREST BY PRODUCTS SENT TO FURNITURE

BOARD MILLS AND MANUFACTURING
PREPARED TO UNITS
MATERIALS

02 04
01 03 05

WOOD RAW MATERIAL FACTORIES

TO PRIMARY
PROCESSOR
How does IKEA’s sustainability strategy align with its business model?
Their strategy is growth which they achieve through the below parameters:

Own more forests

By owning more forests in Russia,
IKEA can have ability to trace Recycled wood
wood from forest to customers It also cooperates with more
and is able to secure more FSC- reliable suppliers so as to ensure
certified wood with high quality in product quality.
01 the future. The bonds between
customers and IKEA becomes 03
closer while the reputation of the
brand could be maintained.

Use more FSC-certified

To drive down the cost of raw
02 Use particleboard
The use of particleboard drives
04
material, IKEA uses recycled wood down the cost of production as it
instead of virgin particle board. is less costly than the solid wood.
Moreover, IKEA group uses FSC- By doing so, IKEA is able to offer
certified wood which tries to take wood products that are value for
into account of different money.
stakeholders.
How does IKEA’s sustainability strategy align with its business model?

How Ikea different from Walmart?

• Wallmart is not heavily into product design Business model - Growth
Ikea is present into all Plan, Source, Make, Deliver and return stages
of supply chain.
• Wallmart's supply chain is more robust and complex than Ikea • Double the sales by 2020
• Ikea doesn't deal with as many suppliers as Wallmart deals
• Both are trying to do vertical integration both forward and • Expansion is the strategy
backward to have greater control over supply chain and ensure
200 new stores they are
quality
opening in emerging markets
where there is less penetration
• Designing new products to suit
Sustainability and business model correlation local states
• 1.1.6 billion people depend on wood/forests for livelihood.
• By 2030, 150 percent of planet earth's resources
• More sustainable life at home, resources and energy independence,
a better life for people and the communities touched by IKEA
• In 2016, the replaced all bulbs by LED and saved billions
These goals are critical to gain support and building trust
Is Ikea transformational or not?

On a scale of 10, we give IKEA 8

based on transformational approach

transferring the benefits to

transformational: focus on long term
,being sustainability, consumption
growing, availability of resources is
good; have their own standards of
sourcing wood, transformational.
customers, energy and resource
dependence, saved 40 million euros in
energy spending; areas from where
they source wood, livelihood, have
standards of sourcing so that people
living in those areas do not suffer.
70% energy consumption is from
renewable resources by 2050- very
aimbitious; entering into developing
countries to expand into newer
markets
Is Wood procurement a sensible place to put efforts?

1.6 billion people are dependent on forest for

their livelihood

Managing natural forests is inevitable today

Deforestation – should be stopped

Option 1: Owning more forests

Advantage Disadvantage
• Secure access to • Pile up sunk cost and
more FSC certified fixed cost
01 wood in future
02
• Distraction from
• Reduce reliance on forestry planning
China’s costly wood • Unpridictable ROI in
• Take the helm of the Owning forests
source of wood and • Long time lag
even the whole between investment
supply chain, thus and coming to
stabilizing the quality fruition
prices and availability
of wood
Option 2: Driving higher procurement targets and standards

Advantage Disadvantage
• Improve forests • Limited supply of FSC
governance certified wood
01 02
• Responsible forest • Long time taken for
management area to be FSC -
• Transparent trade certified
• Improved production
efficiency
Option 3: Using more particleboard

Advantage Disadvantage
• Use wood more • Require significant up
efficiently front investment
01 02
• Transport more • Time needed to re-
efficiently, filled up invent new product
truck upto 30% more line
• Cost efficiency – 20% • Consumers perceived
cheaper than product solid wood to be
made of solid wood worth more than
• More attractive to particleboard
customers
Option 4: Using more recycled wood

Advantage Disadvantage
• Cheaper than virgin • Heavy investment
particle board in needed
01 countries like France
02
• Uncertain availability
and Germany, due to of used wood as no
ample supply of incentive for
recycled wood collecting wood for
recycling
Evaluation of option?

01 To sum up the above, it is believed that Option 1 - Owning more forests and Option 3 -
using more particleboard could help address wood supply chain sustainability for IKEA.
These two options complement each others well.

For option 1 - owning more forests, it can yield numerous benefits. For example, it is able
02 to secure access to more FSC-certified wood in the future. It allowed the company to
diversify procurements away from China’s costly wood market for the logging of birch and
pine. Moreover, it allowed IKEA group to closely monitor every step of the supply of wood
from Russia to China. It also has high efficiency of wood usage and is able to meet the
growth of the huge market demand.

Yet, the cons are that it has a very high costs and the risk is high as IKEA is accountable for
03 the forests management. Hence, Option 3 could be adopted to cut down the cost of
production. It is 20% cheaper than using the solid wood. Moreover, it is lighter to transport
as well as more efficient as the yield from log to lumber is a lot higher for particleboard.