IKEA Goes Online: Implications for Its Manufacturing
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Professors Kasra Ferdows (McDonough School of Business, Georgetown University) and Jan Olhager
(Lund University) wrote this case for class discussion. The case is based on field research and
cooperation of IKEA managers, particularly Mr. Per Berggren and Mr. Anders Lindberg of IKEA
Industry AB, is gratefully acknowledged.
This case is intended to be used as a basis for class discussion rather than to illustrate either
effective or ineffective handling of a management situation. Certain facts and figures have been
disguised to protect proprietary information. IKEA Group is not responsible for the contents of this
case.
Copyright © 2020 Kasra Ferdows (Georgetown University) and Jan Olhager (Lund University)
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IKEA Goes Online: Implications for Its Manufacturing
In 2017, IKEA introduced a sophisticated app that deployed augmented reality (AR) and
allowed customers to use their phones to visualize products in a virtual room, walk around
them, see them from different angles, and order them. This app was particularly useful for
the new type of retail stores that IKEA had been experimenting with. A typical IKEA store
was located outside a city and had 30,000 square meters of average floor and warehouse
space. The new stores were in city centers and much smaller. For example, one such store
that opened in Manhattan in April 2019 had 1,600 square meters of floor space and
displayed only around 1,000 products (compared with the 9,500 in a typical store). The AR
app would enable customers to access the full range of IKEA products and simulate the
experience of seeing the product on display. For example, by pointing their phone at a chair,
they could see other textures or colors and visualize it in the context of a room or alongside
other products in the same category. They could also place orders on the spot, although
they could not leave a store with most of what they had purchased. These small stores
carried little inventories, and purchases often had to be delivered to customers’ homes
later.
These trends signaled that IKEA was departing from its long-held strategy, which prized
brick-and-mortar stores. Online sales had grown rapidly in recent years—45% between 2017
and 2018 and 43% between 2018 and 2019—and accounted for 7% of total sales by August
2019. IKEA promoted online sales aggressively in almost all its global markets. For example,
on August 22, 2019, it announced that it was investing ¥10 billion ($1.41 billion) in the
lucrative China market mainly toward expanding its e-commerce offerings and building
additional sales channels on the vibrant digital platforms in the country.
Delivering the online orders—placed inside or outside stores—quickly, accurately, and
efficiently created new challenges for IKEA’s already complex supply chain. With €41.3
billion in sales (in FY 2019, September 1 to August 31), IKEA had a massive system for
procuring, producing, stocking, and delivering around 25,000 different products and for
replenishing—often daily—the stocks in its 433 stores (12 of which were opened in FY 2019)
in 50 countries. It had over 1000 suppliers in 52 countries (IKEA was the sole customer for
almost 40 of them), 41 trading centers in 41 countries, 27 distribution centers (DCs) in 17
countries, and 11 customer DCs (CDCs) in 9 countries. IKEA used the services of numerous
third-party logistics and shipping companies worldwide for moving products locally and
regionally (across continents). However, this massive system was designed essentially for a
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On May 27, 2019, IKEA, the world’s largest furniture company, announced that it would
launch a new application (app) to allow customers to shop remotely. It would be offered
first in France and the Netherlands and then rolled out quickly in Germany, the US, China,
and other big markets by the end of 2019. This app would allow customers to visualize how
their homes could be furnished with IKEA products by inputting room dimensions and
specifying other variables, such as their life stages, tastes, choose products and place orders.
“It is a completely new experience,” explained Barbara Martin Coppola, chief digital officer
at IKEA.
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brick-and-mortar structure. The challenge facing IKEA was how to make this system suitable
also for the company’s growing online sales.
Production of Wood Furniture
IKEA produced a third of its wood furniture in its own plants under a subsidiary called IKEA
Industry AB. The rest were procured from long-term suppliers, most of which produced only
for IKEA. When the company started in 1943, IKEA used external suppliers for all its wood
furniture—first Swedish, later Danish, and from 1961, Polish suppliers. In 1991, IKEA formed
a separate manufacturing company as a subsidiary under the name Swedwood to
manufacture some of its wood furniture. There were several reasons. First, some of the
Polish factories were changing ownership (undergoing privatization) and IKEA wanted to
have a secure source of its wood furniture. It also wanted to have the option of producing
its wood furniture in-house in case no suitable suppliers could be found. Second, IKEA
wished to maintain updated knowledge about production processes to not only help its R&D
and product design but also exploit its scale to innovate and develop new concepts and
invest in new wood manufacturing technologies. Third, it wanted to have updated
information about production cost, which was useful in its price discussions with suppliers in
the wood industry. Swedwood continued to grow, and its name was changed to IKEA
Industry in September 2013. In 2019, about a third of IKEA’s wood furniture was made by
IKEA Industry factories.
With 20,000 employees in 43 production units in ten countries, IKEA Industry was the
world’s largest manufacturer of wood furniture (See Exhibit 1 for worldwide locations). Per
Berggren, head of industrial strategies at IKEA Industry, and his team were primarily
responsible for setting the manufacturing strategy for this production network (See Exhibit 2
for organizational chart). He summarized the challenge facing IKEA Industry as follows: “We
must be prepared for competition with the likes of Amazon and Alibaba in our markets.
These companies are rewriting the rules of customer engagement. Customers are starting to
expect delivery in days, if not hours. Our approach at IKEA has been essentially to rely on
inventories held in our supply chain (factories, DCs, CDCs, and stores). However, relying on
carrying additional inventory does not seem to be a forward-looking strategy. We must
increase our production’s agility and shorten our lead times.”
Doing these required answering a few strategic questions. First, how much of the agility
required to respond quickly to customer demands should be provided by factories instead
of distribution, order management systems, retail stores, and other parts of the supply
chain? Second, for the requirement from production, how much should be provided by
IKEA’s own factories versus third-party factories? Third, for the part to be provided by IKEA’s
own factories, should it improve the agility in each of its factories or just some of its
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Around 35% of IKEA’s sales were wood furniture, which consisted of a large variety of
wardrobes, kitchen cabinets, bookshelves, chairs, tables, closets, beds, desks, and other
items. These products were grouped into “families” with Scandinavian-sounding names,
such as Bestå, Briggja, Fjällbo, and Hemnes. Their distinctive, clean, and elegant designs,
which allowed assembly by customers at home, were an integral part of IKEA’s image.
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factories—i.e., the network (or subnetworks) of factories? Finally, had the rapid advances in
new technologies often bundled under the Industry 4.0 label changed the “sweet spot”
between these options?
IKEA Industry’s Global Production Network
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Flatline employed 9400 people in 21 factories in 9 countries. It made many popular lines of
IKEA wood furniture, such as Pax, Kallax, Lack, Lisabo, Busunge, Metod, and Platsa. Plants
were grouped into subnetworks based on the type of products they made or their
ownership. For example, five IKEA Industry plants and seven third-party plants made foilwrapped products (See Exhibit 4). The packaged products produced by these factories were
ready to be assembled at customers’ homes.
Solid Wood employed 8000 people in 17 factories in 4 countries. This division operated the
entire value chain—from forestry and sawmills to fabrication, painting, partial or full
assembly (if needed), and packaging. Many of IKEA’s iconic solid wood furniture lines, such
as Hemnes, Ivar, Hurdal, Havsta, Utåker, and Poäng, were made in these factories.
The fourth division, Purchase, had 70 employees in 10 countries. It was responsible for
purchasing wood, boards, chemicals, foils, and other materials used by the factories in the
three other divisions.
Factories
Improving the agility of factories making the boards and Flatline and Solid Wood furniture
required different approaches.
Board factories were similar to factories in process industries. The board factory in
Hultsfred, Sweden, was a good example. This was a large facility close to the IKEA
headquarters. The factory plowed through about 7,000 loose cubic yards of pine sawdust in
a typical day. Sawdust and spruce trees were thrown into massive wood chippers, and then
fed through a giant dryer, where the moisture of the wood was reduced from around 50%
to less than 10% through heating at 450 degrees Celsius. The resulting particles were mixed
with a glue-like mixture containing synthetic urea and then poured in precise layers on a
conveyor line. The mixture was then fed through a series of rollers and pressed to the
proper thickness before going through a cooling station. In the last stage, the boards were
cut to a standard size of six meters, stacked and wrapped on pallets, and transported to the
factory’s finished goods warehouse. Almost none of these steps required any human
intervention.
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IKEA Industry had four divisions: Boards, Flatline, Solid Wood, and Purchase (See Exhibit 3).
Boards produced high-density fiber boards, particle boards, and lightweight boards by
turning tree trunks into small wood particles and gluing them together with resin. These
boards were used by Flatline factories belonging to IKEA, IKEA suppliers and other third
parties. Boards employed about 1000 people in 5 factories located in 5 countries.
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The pieces were then moved to an assembly line consisting of a dozen robots that placed
the appropriate parts and other components (legs, screws, wrenches, instruction manuals,
etc.) in a carton box. Boxes in the last station were ready to be shipped to warehouses,
stores, or final customers (if needed). About 80% of Flatline products (by volume) were
produced in more than one factory, and factories often continued to produce the same mix
of products for many years.
Solid Wood factories consisted of sawmills, component production, and furniture
assembly—in some cases on a single site. In Russia, IKEA even had its own logging activities.
Solid Wood furniture plants were generally smaller than Flatline factories.
For all factories, increasing agility meant faster and more reliable response to sudden and
disruptive changes in the market, technology, competition, and other factors (such as global
trade and geopolitics). However, the notion of agility for Board factories was somewhat
different from that for Flatline and Solid Wood factories. Board factories produced
essentially standardized products for Flatline factories. By contrast, Flatline and Solid Wood
factories produced many finished products for the consumer market, hence facing the
additional challenges of changing consumer tastes, behaviors, and expectations.
Manufacturing System of the Future
Adopting many of the new technologies that were often bundled under the umbrella of
Industry 4.0 promised to increase the agility of production. IKEA had been experimenting
and adopting some of these technologies for some years. For example, it had experimented
with machine learning for sorting defective solid wood panels, predictive maintenance in its
wood particle board factories, and AR for training and transfer of know-how among its
factories. These were mostly local projects scattered in different factories around the world.
In 2017, Per Berggren and his team started a project called Manufacturing System of the
Future (MSF), which, as the name implied, aimed to create a systematic and company-wide
approach for developing the requisite manufacturing capabilities for the foreseeable future
(See Exhibit 6).
MSF adopted several Industry 4.0 technologies for IKEA Industry. It consisted of five
modules: 1) product lifecycle management (PLM), which improved the flow of product
information across the supply chain; 2) manufacturing operations
management/manufacturing execution system (MOM/MES), which enhanced operation
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Flatline factories were similar to typical assembly lines. Hultsfred also had a Flatline factory
next to the aforementioned Boards facility. It was highly automated and produced mostly
high-volume products. Robots unwrapped pallets of neatly packed six-meter boards (coming
from the adjacent board factory) and placed each board on one of three conveyors to make
different pieces of the same product (See Exhibit 5). On each line, the boards were cut to
desired dimensions by automatic saws and then wrapped in foil, a special type of paper that
comes in a few colors. Foil was glued on all board surfaces that were visible in the final
product and cut precisely and neatly by laser cutters. In the next stations on the conveyor,
the boards were drilled, milled, and subjected to finishing touches.
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monitoring and control inside factories; 3) planning, which improved the coordination of
plant operations with performance expectations; 4) data capture and visualization, which
used new hardware to enhance the use of data for problem solving; and 5) flexible
automation, which consisted of a portfolio of connected automation in the areas of machine
tending, material handling and storage, robotics, and automated guided vehicles.
After an exploration phase in 2017 and a development phase in 2018, a pilot project was
scheduled to be implemented at one of the IKEA factories in Poland. The project seemed to
be progressing well and is expected to be live by February 2020, with all automation
solutions to be fully operational by early 2021. This system would allow the factory to
expand the range of products that it could produce, improve its ability to produce small
batches efficiently, and increase its total output per year. The investment for this pilot
project amounted to about €10 million (one-third for the digital backbone and two-thirds
for automation). Despite being a pilot project, it promises a payback of approximately three
years based on projected savings. IKEA Industry planned to start deploying MSF in its other
factories in 2020 and, eventually, in some of the factories belonging to its long-term
suppliers (in four to five years).
Orders and Deliveries
For IKEA, turning the demands from its customers in 50 countries to orders for its suppliers
and own factories in different corners of the world was a complex process. The company
had recently changed its demand and supply planning processes from a decentralized
system, where the stores had considerable power and autonomy to plan and place orders,
to a centralized one, where a central group reconciled long-term and top-down demand
plans with short-term and bottom-up tactical updates. The top-down process had a fiveyear rolling horizon that was updated three times per year, whereas the bottom-up process
had a rolling 84-week horizon that was updated every week based on in-store and online
sales volumes (specified in Stock Keeping Units). The results were used to determine the
broad replenishment plans in the DCs and stores and in orders to suppliers and IKEA’s own
factories.
The DCs and CDCs were located in several regions worldwide, including 17 in Europe, 9 in
North America, 5 in Asia, and 1 in Australia. These DCs were large facilities. For example, the
ones in North America were between 30,000 and 150,000 square meters, with some able to
house up to 800,000 pallets. On average, they carried about 3–4 weeks of inventory. A few
of these DCs were owned and operated by third parties, primarily for historical reasons.
They were added when IKEA was growing rapidly and urgently needed additional
distribution capacity.
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Once fully implemented, MSF promised to improve the agility of IKEA’s factories and the
supply chain in three ways: 1) by increasing the factories’ capability to produce small
batches efficiently and quickly respond to changes in production schedules; 2) by capturing
and providing timely and reliable data for planning, maintenance, quality management, and
other tasks; and 3) by providing enhanced visibility in the supply chain through sharing
timely, reliable, and detailed data.
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As mentioned, the typical stores were large establishments also, measuring 30,000 square
meters on average and ranging between 10,000 and 60,000 square meters. They carried
about two to four weeks of inventories of the products they carried, although they usually
had less inventories of bulky high-sales items, such as wardrobe frames, to conserve
warehouse space. Stores could place orders to DCs or factories daily (if needed) and
received their items within a week. Managing inbound and outbound logistics and store
inventories was a major function of a typical store. In general, about 20%–25% of store
employees dealt with logistics and stocking. IKEA was also using vendor-managed
replenishment (VMR) systems for some products in some locations. When the inventory of
an item at a store fell below a certain level, the supplier or DC would generate an order to
replenish the item. In-service availability, which measured the availability of items that a
store planned to have available, was very high (around 98%–99%).
Transportation between the factories and DCs, CDCs, or stores was normally accomplished
by trucks and container ships that were managed by third-party logistics companies. Transit
could take from a few days (one to two days by truck to nearby DCs or stores) to five to six
weeks or sometimes longer (by sea).
Improving Responsiveness of Flatline Factories
A simplified representation of the supply chain for IKEA wood furniture is shown in Exhibit 7,
with a specific focus on the Flatline wood furniture. The central team for demand and
supply planning allocated about one-third of the aggregate volume (in euros) to IKEA’s own
ten factories and the rest to third-party factories based on their available capacities, special
capabilities, geography, and the total cost of production and delivery from the factories.
IKEA Industry’s Flatline factories carried about 4–5 weeks of finished goods inventory. They
received orders every night from stores, DCs, and CDCs and delivered them usually in 5–7
days. Approximately 75%–80% of the time, Flatline products were shipped from the
factories directly to stores, except for the bulky and high-volume products, which accounted
for an even higher percentage. For example, almost 98% of Pax cabinets (a bulky highvolume wardrobe frame) were shipped directly to stores. Fulfilling orders for certain lowvolume products exceeded 5–7 days. For example, shipping the kitchen cabinet fronts made
by the IKEA Industry factory in Hungary took 3–4 weeks. Kitchen fronts consisted of many
low-volume SKUs, and the stocks were kept at DCs. If needed, the stores could obtain them
from DCs in a few days.
In September 2019, online sales continued to be fulfilled from the stocks held at stores, DCs,
and CDCs. IKEA’s Flatline factories did not seem to have been appreciably affected. On-time
delivery from factories, a measure called on-time delivery to sender (OTD sender), was
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Most of the CDCs were opened in recent years. They were designed for delivering items to
customers who ordered products online or purchased large items at typical IKEA stores or
the new city stores for home delivery. CDCs were generally smaller than DCs, although the
latest one, which was opened near New York City in March 2019, was 90,000 square meters.
This facility was operated by CEVA, a third-party logistics company.
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Spearheading this task for IKEA Industry fell on Per Berggren and his team. For the Flatline
furniture, one option was to essentially continue the current strategy and fulfill online
orders from the stores, DCs, and CDCs. This plan was likely to require increasing the
inventories in these facilities, although it was difficult to estimate the increment. A very
rough estimate, assuming that the current pattern of lead times and flows from Flatline
factories remained unchanged, was that inventories held in the supply chain might have to
increase by up to 5% annually in the next few years. If this happened, the facilities in the
supply chain would need to not only stock additional items but also invest in more picking,
packing, and shipping systems and, in some cases, expand their facilities to provide
additional space.
Another option was to focus on increasing the agility of Flatline factories substantially to
reduce the need to carry inventories in the supply chain. In theory, if these factories could
reduce the lead time for fulfilling orders, reduce production batch sizes, increase the mix of
products in their shipments, and conduct more frequent deliveries to DCs, CDCs, stores, and
even select customers, the inventories held in downstream facilities can be reduced while
still improving customer service. It was extremely difficult to validate, quantify, or assess the
impact of such actions. A very rough estimate, as a guide for planning, was that if Flatline
factories could reduce their lead times and minimum order sizes by half--i.e., produce and
ship smaller batches rapidly--the inventories in the DCs and stores could be reduced by at
least 20% without compromising service level.
Delving deeper into this option raised another question: should the strategy aim to increase
the agility of the network of Flatline factories instead of the agility of every Flatline factory?
In other words, should all Flatline factories have to cope with the volatility and uncertainty
of demand for Flatline products? Business Development Manager Anders Lindberg, a
member of Per Berggren’s team, had recently collected extensive data about the pattern of
delivered orders at different Flatline factories. A representative sample of these data is
shown in Exhibit 8. These are data for a sample of Flatline products in that were produced in
two IKEA Flatline factories in Europe for the world market. The team wondered if these data
suggested that the agility of the network of Flatline factories could be increased by
reconfiguring the allocation of products to different factories.
Per Berggren and his team were also mindful of the managerial challenges of implementing
a radical change in their current practices. The first issue was justifying the required
investment. If projects for improving agility could be justified by their direct savings in the
factories--such as the MSF project currently being implemented in Poland--justifying them
would be straightforward. However, if the benefits were elsewhere in the supply chain,
justifying them would be more complicated. For example, a project that aimed to build the
capability of a Flatline factory to produce to direct orders from customers (and perhaps
deliver them through a different channel) could result in additional production and logistics
costs but savings in the rest of the supply chain (through reducing the inventories in DCs,
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between 90% and 95%, which was considered to be satisfactory. However, given the
planned introduction of additional city stores that carried little or no inventory and the
anticipated explosive growth of online sales, it seemed prudent to reexamine the company’s
production and supply chain strategies.
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CDCs, and stores as well as decreasing administrative costs and improving customer
service). Given the enormous size of IKEA organization, it was a challenge to gathering
convincing evidence of these costs and benefits. Was it prudent for Per Berggren’s team to
pursue bold and somewhat risky projects that aimed to catapult IKEA Industry, like Amazon,
ahead of the current wave of the changing consumer preferences and expectations?
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Finally, even if the projects could be justified, a practical question remained. What would
need to change in the rest of IKEA’s vast organization to ensure that the new capabilities in
Flatline factories would be exploited effectively? Would that require making radical changes
in the way different parts of the IKEA’s supply, sales, and marketing were organized and
managed? Was the new system, developed for production and distribution of Flatline
furniture, showing the path forward for the transformation of the rest of IKEA?
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Largest production facilities are in Poland, Russia, Slovakia, Portugal and Sweden.
Exhibit 2. IKEA Industry Organization
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Exhibit 1. IKEA Industry’s Factory Locations
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Exhibit 4. Division Flatline Foil Wrapped Factories
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Exhibit 3. IKEA Industry Divisions
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Exhibit 6. Manufacturing System of the Future Concepts
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Exhibit 5. Manufacturing Process at the Hultsfred Flatline Factory
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Exhibit 7. Supply Chain for Flatline Wood Furniture
Wood Furniture
Board
Factories
Board
Factories
(Third parties)
Customer
Distribution Centers
11 in 9 countries
Distribution Centers
27 in 17 countries
Solid Wood Factories
Forestry
Sawmills
Components
Online
Customers
Customers
Flatline
Factories
(IKEA Industry)
Assembly
Stores
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433 in 50 countries
Suppliers
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1000+ in 52 countries
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Exhibit 8. Representative Demand for Flatline Products (FY 2019)
Product
No
Product Value
(€)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
32.69
18.73
12.99
35.13
30.72
19.90
21.90
33.44
50.92
14.00
23.27
31.71
21.67
23.57
18.46
52.78
30.97
37.72
40.96
22.99
13.04
32.65
18.03
19.00
30.05
11.93
17.87
23.08
25.50
39.76
54.61
33.20
Average Weekly
Volume Delivered
from Plant
17,170
10,802
5,835
5,332
4,388
3,674
2,933
1,731
1,242
1,221
1,105
1,090
1,029
885
843
737
702
677
562
517
404
377
357
329
294
262
257
230
227
227
203
158
Standard
Deviation of
Demand
5,917
3,200
2,154
1,806
1,288
1,632
1,137
688
482
570
572
825
469
637
722
368
494
404
369
317
372
377
180
360
213
241
225
214
212
135
111
141
Avg Production
Batch Size
13,000
9,000
5,000
5,400
3,000
5,500
3,500
3,500
3,000
2,400
3,500
2,000
2,600
3,500
1,000
2,000
2,800
5,000
1,700
1,600
1,000
3,000
3,000
1,000
600
2,400
1,000
500
1,400
1,400
600
1,600
Purchased for use on the TEK156 Operations Strategy, at Chalmers University of Technology.
Taught by Dan Paulin, from 16-Jan-2023 to 18-Jun-2023. Order ref F471039.
Usage permitted only within these parameters otherwise contact info@thecasecentre.org
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
The products shown belong to a typical Flatline product group. These products are produced only in two
factories in Europe for all world markets.
Continued Next Page
14
620-0008-1
Exhibit 8. Representative Demand for Flatline Products (FY 2019)-Continued
33
34
35
36
37
38
39
40
41
42
43
44
13.04
56.51
23.03
20.45
29.37
12.29
30.92
52.29
53.44
18.89
21.06
55.12
Average Weekly
Volume Delivered
from Plant
131
108
104
99
92
82
76
60
56
44
15
14
Standard
Deviation of
Demand
120
73
96
56
48
99
58
45
56
44
10
13
Avg Production
Batch Size
500
1,000
500
1,000
1,000
800
500
500
150
400
150
150
Purchased for use on the TEK156 Operations Strategy, at Chalmers University of Technology.
Taught by Dan Paulin, from 16-Jan-2023 to 18-Jun-2023. Order ref F471039.
Usage permitted only within these parameters otherwise contact info@thecasecentre.org
Product Value
(€)
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I
Product
No
15