Operation Management

Case Study: IKEA

Leader in low price furniture manufacturing
 IKEA’s key success
What are IKEA’s competitive priorities ?
• Good quality at low price.
• Cheap but not Cheapo.
• 30% to 50% low than competitor’s price
• Price reduction of 20% in last 4 years
• Corporate mantra:”Low price with meaning”.
• Designs, builds and distributes what world wants to
buy.
Production Design Process
Production
Planning Phase
Ramp-Up

Concept Testing &

Development Retirement

System Level
Design Details
Design
How it actually happens?
IKEA’s Pro new process of developing
new product

1.Product & Price

• Price matrix to identify holes in company’s
line up
• Price range: high, medium & low
• Basic styles: Sleek wood, modern, country and
young swede.
• Product range & development.
• Pricing strategy.
II. Finding Producers
•Buys from 1800 suppliers from 55 countries
•Nearby Location of IKEA.
•Same products across the world; order in high
volumes and avail at cheaper prices.
•Emphasizes more on control and standardization
of product mix.
III. Designing the product.
Ikea uses internal competition to find a design &
then select a design for production.
IKEA has a pool of a staff designers & 80
freelancers and refines promising designs on
what he wants to produce.
IV. Transport
Invention of flat boxes to transport furniture
easily.
Transport facilities gets cheaper as its centres
are located nearby ports, road & rail routes.
Global networks of distribution channels.
Distribution centres- 18 worldwide & 4 under
constructions which handles 70% of total
product line and rest 30% products travel
directly from supplier to store.
V. Selling the product
Huge furniture stores with few services & lot of
information to read about the product and more
furniture to see.
Integrated places for children make shopping for
families easier & restaurants selling typical
swedish food convince the customer to stay
longer.
Strengths of IKEA:
Standardized product strategy does not mean
complete cultural insensitivity. The company is
rather responding to globally emerging
consumer tastes and preferences.
IKEA's global strategy, suppliers are usually
located in low-cost nations, with close proximity
to raw-materials and reliable access to
distribution channels.
Globally integrate operations and centrally
design products
Contd..
Find an effective combination of low cost,
standardization, technology and quality.
Strategy is to sell furniture, or rather entire
interiors of homes, to a reasonable price by
exploiting economies of scale and high degree of
customer created value into the products.
IKEA is using its size when dealing with
subcontractors in two ways:
a)to put pressure on the subcontractors to become
more and more efficient.
Contd..
b) size to get good discounts from the suppliers.
This is done by placing itself as a large customer
to the supplier, to get some power in price
negotiations.
3.What are additional feature of the IKEA
concept(beyond their design process) that
contribute to creating exceptional value for
the customer?
• Distribution and logistics are the lifeblood of
IKEA and important pieces of the puzzle on
their road to low price
• Calculating the goods requirement and make
sure that deliveries are efficient
• They have obsession of making things flat.
• Many IKEA’s products are bulky therefore they
pioneered the concept of flat i.e they are
designed to ship disassembled, flat enough to be
slipped into cargo hatch or tied down on an auto
roof rack.
• Flat package is an excellent way of lowering
shipping cost by maximizing the use of space.
• They declare waste as deadly sin.
• They also have shifted their buying from Europe
to Far East reducing shipping time and cost.
• The company has created a global network of
distribution centers which are near major ports,
rail and truck routes.
• There are 18 IKEA distribution centers world
wide- which handle 70% of IKEA’s total
product line.
• 4 more of these distribution are under
contribution
• 30% of IKEA’s product travel directly from
supplier on store
4. Criteria for selecting a site for an IKEA
store.

Ease of transportation.
Number, size, and quality of competition.
Strong distribution channel.
Availability of access routes to the stores.
Criteria for selecting a site for an IKEA store.

Customer attraction power of the

particular store and shopping.
Population and population trends in the
trading area.
Market potential Analysis.
THANK YOU
Presented By:
Apoorv Tripathi(10061)
Nishit Doshi(10081)