Case-

Sustainability at IKEA
SECTION-B, GROUP-6

By:

NISHAT ALAM CHOUDHARY

(19FPM004)

AYUSH BHATNAGAR (19PGP031)

CHANDER LEKHA (19PGP037)

DIVYAM BHADORIA (19PGP052)


1. How would you assess IKEA Group's People and
Planet Positive sustainability plan? Is the plan likely to
help the company transform its business? Are the plan's
targets too limited, appropriate, or too ambitious?
IKEA Group’s People and Planet Positive sustainability plan focuses on three
areas:
a more sustainable life at home for consumers,
resource and energy independence for the company, and
a better life for people and the communities touched by IKEA.
IKEA has already seen success in each of these areas. Through its 21 million-euro
investments in energy efficiency, it has been able to save roughly 40 million euros
in the given period. In addition to the cost savings generated through sustainable
sourcing, this indicates the plan’s effectiveness in long-term profitability and
commitment to the environment. IKEA has also been improving their relationship
with suppliers and workers, ultimately refining their working conditions, which
shows their corporate social responsibility. They have also been introducing new
subsets of furniture to adapt to the lifestyles of their consumers, which
demonstrations their commitment to their consumers.
Ultimately, IKEA Group’s People and Planet Positive Plan translates to a complete
transformation of the company’s value and supply chain, sustainable sourcing,
labor conditions improvements, efficiency improvements, profit maximization, etc.
This plan will absolutely help the company to transform the business and directly
links with the company’s desire to grow. The plan is very ambitious, but feasible
given the commitment the company has in achieving their goals. IKEA is
methodically planning each step through their “22-person corporate Sustainability
Group” that works to implement each phase of the People and Planet Positive
strategy. Additionally, combined with the leadership of the Chief Sustainability
Officer (a first for the company), the group has involved over “500 people at IKEA
Group that are directly accountable” for the implementation of the plan. This
proves the commitment that IKEA must achieving their goals and it will allow
them to be successful by 2020.
 While the IKEA Group’s People and Planet Positive sustainability plan may
seem ambitious and aggressive, they do appear to be taking positive steps to
achieving their goal.
Their 21-million-euro investment of LED lighting products have yielded a
cost savings of around 40 million euros” and the company was “a third of the way
of their 2020 goal by 2012.
2. How do you feel about the progress
IKEA Group has made implementing Additionally, they have developed renewable energy such as wind farms,
this plan?  biomass, and solar panels to assist with meeting their goals.
They have also been achieving a more sustainable supply chain through the
methods in which they source wood. As they are “one of the largest lumber
consumers” in their industry, this area presents a huge opportunity to seek
sustainable options.
They have developed a code of conduct that specifies minimum acceptable
standards where suppliers who do not meet these standards were phased out.
Their procurement of FSC-certified wood, recycled wood, and use of particle
board (which uses less wood) has steadily increased.
IKEA had committed to reach 50% of wood from more sustainable sources by
2017 and 100% by 2020” and reached 32.4% in 2013. Overall, IKEA is taking
very positive steps, particularly in materials and energy, and thus is making good
progress in the implementation of their plan.
3. How does IKEA's sustainability
strategy align with its business
model? What are the overlaps?
What are the conflicts?
The key concept of IKEA business model is providing high quality and wide
range of home furnishing products to people at a low cost. The aim of IKEA is to
help more people live a better life at home.
Firstly, IKEA keeps using the low cost strategy to meet its target to provide low
price products. Its furniture is mostly sold in unassembled flat packaging. More
unassembled furniture can be transported in each shipment when compared with
the assembled. So, the transportation costs are reduced. Moreover, customers
have to transport and assembled the furniture by themselves. Thus, IKEA can
lower both transportation costs and assembled costs by transferring them to the
customers. Moreover, due to the People & Planet Positive strategy launched in
2012, IKEA decided to be more sustainable in sourcing. Thus, more
particleboard will be used to replace solid wood. While this strategy is
maintaining the sustainability, the cost of furniture can be reduced at the same
time. The products made of particleboard are 20% cheaper than the one made of
solid wood. This shows the strategy is consistent with the business model.
Secondly, in order to maintain quality of products in a sustainable way, IKEA had developed IKEA Way on Purchasing Products,
Materials and Services (IWAY) and used Forest Stewardship Council (FSC) certified wood. IWAY is the minimum standard for
working condition and environmental protection that IKEA set for its suppliers. The suppliers of IKEA have to fulfill IWAY in
order to continue cooperating with IKEA. So, the illegally harvested wood is prohibited and the source of wood would be more
sustainable. Moreover, one of the FSC standards is maintaining the forest ecosystem. Using FSC certified wood can help protecting
the foresting when sourcing the wood. In long term, the wood availability is enhanced and the quality of wood can be maintained
and thus the quality of the wood product.

Thirdly, IKEA has used local customization to align with its aim. As the needs in different region may not be the same, IKEA
designed to customize its furniture to suit the needs in different regions. For example, it has designed furniture in smaller size to fit
the small living space in China. So, this can help more people live a better life at home.
4. Which option(s) should IKEA
Group pursue to address IKEA's
Wood Supply Chain sustainability?
Which has the highest leverage for
IKEA?   Firstly, IKEA can secure its wood availability and price by owing its forest. If
Among the four options, option 1 is the best option for IKEA to address its wood
supply chain sustainability. Option 1, which is to own the forests, is the option
that brings the largest benefit to IKEA.
There are several reasons for IKEA to choose option 1.
IKEA owns its forest, it can directly manage the forest, which means that IKEA
can secure the access to more FSC-certified wood. Most of the products are made
of wood, if IKEA can secure its supply of FSC-certified wood, IKEA can have
better management of it production plan, which can save some of the production
cost in certain extent.
Secondly, IKEA can improve the ability to trace the origins of wood by owing its
forest. IKEA can invite expert to manage its forest, then, IKEA can ensure the
quality of woods are at the standard level. Furthermore, this can increase the
customers’ satisfaction, retain the existing customers and let them to become the
long-term customers of IKEA, which is a important element to obtain customer
loyalty. Moreover, owing its forest can gain the confidence from the potential
consumer and attract them to become customers of IKEA.
Last but not least, option 1 has some benefits that cannot be obtain from other options. Compare with option 2, option 1 is a long-term
investment for IKEA while option 2 seems to be a short-term plan for IKEA only. Moreover, option 3 is to use more particleboard. This
option will diminish consumers’ willingness to purchase the product, which is a worse option than option 1, because option 1 is using
solid wood instead of particleboard. Furthermore, option 4 is to using more recycle wood. However, it is difficult to collect used wood
and it may incur large cost. Therefore, this option is also worse than option 1.

Comparing to other options, option 1 has the highest leverage for IKEA.
If IKEA has to own its forest, it must incur a huge amount of IKEA and the amount has a large difference with other options. On the
other hand, for the benefits, option 1 can bring lots of benefits to IKEA as mentioned in part (a). Option 1 highest efficiency of wood
usage and production capacity than other options. Because IKEA can manage the quality of woods and secure the supply of FSC-
certified wood by owing its forest. Although option 1 has the largest benefits, the risk of this option is also the highest. This is because
if there is any damage in the IKEA’s forest, e.g. fire, it may be a total loss for IKEA, this implies that the risk of option 1 is much
higher than others.
To conclude, option 1, which is to own its forest, incur the highest cost for IKEA. On one hand, this option generate the largest
benefits. On the other hand, this option has the highest risk. As a result, option 1 has the highest leverage for IKEA.