1.0.
Introduction
The focus of this report is on the supply chain management practices of a single
organisation IKEA. IKEA is a multinational conglomerate who is a leader in a DIY (doit-yourself) and ready-to assemble furniture and kitchen appliance industry. Founded
in 1943, in Sweden it has expanded to over 52 countries around the world. This report
intends to assess the efficacy of planning and engagement within IKEA. SCM is a
process where a unified planning, alignment and management of all the business
operations and activities within the supply chain takes place. This is mainly initiated to
provide high-class consumer value at low cost and to keep the other stakeholders
within the supply chain contended at the same time. This report intends to assess the
key strengths and limitations within the IKEA supply chain to arrive at relevant
recommendations for the organisation.
2.0.
IKEA Scenario Evaluation
In a supply chain, the products and services flow from the suppliers who are at the top
of the supply chain to the consumers who are at the bottom-level in a supply chain. A
number of facilities, companies, supply points, and service providers help in
connecting these two participants at various stages within the supply chain (). The
success of the IKEA supply chain is its ability to reduce supply chain risks by using
customer centric co-creation. IKEA (2020) evidence on the value chain within IKEA
has shown that it is important to work together with customers and engage customer
at every stage of the design process. There are lot of benefits as well as risks when it
comes to tiered work and when these pros and cons of such tiered supply chain which
are centralised are not thought through conscientiously, it can lead to bigger risks ().
IKEA has a detailed centralised supply chain strategy. IKEA was working with a proven
sustainable supply chain operation which are in line with different stakeholder groups.
Another benefit within the IKEA supply chain is its overall management and integration
of manufacturing (). Though they have different stakeholders who are able to provide
the supplier support, IKEA continues to maintain manufacturing integration
capabilities.
Despite these positives, there continue to remain key challenges.
Large stores and warehouse style structures: The statistics are clear and the
revenue for every store that Ikea usually produces is increasing as every year passes
by. In order to increase the revenue, it seems that Ikea needs to work on expanding
its current number of stores. However, this is only part of their strategy (). The visits of
people to physical stores has dropped drastically this year to values similar to 2017
which is close to 837 million visits. Ikea cannot continue to believe that their customers
would spend more than their allotted time to buy the things they need by walking
through rows of things they would not need (). A challenge with the existing supply
chain within IKEA is that there is focus on the DIY store-centric model which rests on
large experience centres and significant time spent by the customer in these stores.
In many cases this cannot be achieved.
Though, IKEA has in the past few years
opened up more compact experimental stores in the heart of popular cities such as
London and New York that majorly only portray Ikea products under different uses and
applications and to match the online touchpoints these are limited. They need to focus
on this model across different countries including emerging economies like INDIA and
UK. This is a key challenge that exists within IKEA.
Lack of Integrated Digital Supply chain: They need to serve for a higher digitallyoriented buying experience and with more than 2.5 billion online visitors, Ikea can
presume that most of their store visitors love to visit their websites for a virtual
experience too. The current digital operations at IKEA face important challenges. The
store visit also needs to give them a feeling of the online experience too with similar
capacities to understand customised information and easy ways to gain access to the
total set of abilities. In particular, digital model has failed in the context of the recent
pandemic. There were surges in sales for IKEA home office furnishings and they were
struggling to maintain an online business model. In particular, the services offered
post- purchase and the delivery schedules and protocols should aid in unleashing the
new market that will in turn boost the revenue of this compact but more costlier store
estate. There is a need for IKEA to transform its value chain to adapt to the digital
model.
Lack of Supply Chain Resilience: Ikea has definitely executed a commendable job
of introducing innovative and advanced products to the market such as solar powered
lamps and shelves and dog beds with even colour-changing light bulbs that have
turned the global market around. Therefore, there has been product diversity. There
is however, lack of resilience. Supply chain resilience is the ability of the supply chain
to be prepared for unexpected risk events and ensure ability to overcome potential
risks (). However, evidence has shown that IKEA has been unable to match demand
needs and unable to manage overall risks. For example, as Collinson (2020) identified,
IKEA has been unable to finish remodelling of different services offered. This has led
customers frustrated with lack of awareness of underlying opportunities to succeed.
Recommendations
Improve Store Format and Create Integrated Value Chains through Supply Chain
Flexibility: Customers still love to enjoy physically touching and examining the objects
or things they want to but before they invest their money in furnishing their house.
IKEA needs to focus more on the store concepts to help them approach a larger
audience such as people who have no cars, people who live in far-off places and who
live at home and some even working from home always (). This can be achieved by
improving access to smaller stores and experience centres which could be
autonomous. However, their physical and online stores also need to exist together and
serve as a dual experience to consumers that will match the frequency of recent
consumers who want to furnish their homes. There can be small retail stores where
the customer is able to experience the product and make an order through the store
computers/tablets. These products can either be picked up or delivered to their house.
This can be achieved through support in the form of flexible supply chains. Supply
chain flexibility is identified as a key strategy which can aid in managing and mitigating
overall risks and uncertainties within supply chains (Chiang et al., 2012). Flexibility
within the supply chain is required to reduce avoidable processes and underlying
behavioural risks (Kortmann et al., 2014). The improvement of flexibility is possible by
ensuring that there is supplier-buyer interaction an identifying way to reduce lead time
in inventory planning. One way to manage supply chain flexibility can be achieved
through standardisation of processes, codification and tactile outsourcing (Stevenson
and Spring, 2009).
Improve Product Portfolio based on Region Specific Evaluation: Evidence has shown
that based on regional needs consumer expectations from the furniture industry has
changed. Furthermore, evidence has also shown that IKEA faced major challenges in
China. This could be because of its standardised product portfolio. There is a need for
supply chains to address independent needs in different regions. Similarly, as ()
argue, the new generations are least expected to own, or purchase property and they
love to be exploring new places by being nomadic and even prefer to live in smaller
and compact homes. The target of IKEA in this case is to manufacture household
items and furnishings that would be suitable for such people. The baby boomers have
now become older and also require their restrictions to be designed properly. This
shall eventually put pressure on merchandising and predicting the marketing of right
products into the right locations and ensuring that they have a higher understanding
of the population around these small and experimental stores. There is a higher
probability to get the format and the assortment wrong primarily and having to very
rapidly change into the store protocol till they are appropriate. However, Ikea has learnt
all its lessons and taken its feedbacks very seriously with its newly launched stores in
China and India.
Improve Supply Chain Resilience: Supply chain resilience can be built by focusing on
different enablers. For example, there is a need for sharing of information and
collaborative creation of products. According to Richey and Autry (2009), there is a
need for supply chain partners to share information at different stage of the sourcing
process which can help in reducing risks. Similarly, Simatupang and Sridharan (2008)
also contend that there should be decision synchronisation and incentive alignment.
At IKEA there should be efforts made to increase supply chain integration at different
levels.
3.0.
Project Planning
Achieving Supply Chain Flexibility and Integration: In order to redesign the SCM
process for better results and achieve joint supply chain objectives, () contend that
there needs to be clear processes in place. These include redesign the roles and
activities taking place within the supply chain, modifying or bringing down the number
of participants within the supply chain by increasing engagement, conducting a rework
on the roles and responsibilities of supply chain partners (), speeding up the order
delivery process by bringing down the customer order lead times, cutting down on
waiting time by improving manufacturing efficiency; and carrying out information
exchange and decision support in a more effective manner (). These can be achieved
only if IKEA takes a clear supply chain audit process examining key areas of
improvement. It is suggested that IKEA undertake a multilevel audit of existing supply
chain processes including degree of information exchange. There is need for strategic
sourcing where production is assessed in line with available sourcing opportunities
and check for viability of contract manufacturing. It is suggested that this project is
carried out over a period of one year with different value chains being evaluated
independently. There are some risks which are associated with this project planning
process. These include, potential lack or loss of competitive advantage due to
information sharing risks, there is also potential security challenges linked with the use
of integrated information systems. Other risks include cost risk of conducting the
supplier audit and potential reputation risks which may be associated with contract
manufacturing activities.
Improve digitalisation of supply chain to manage portfolio variety needs: Although
production times can be worked out in order to reduce the lead times, the process of
shipping goods become a hindrance to this and lead to increased lead times in
omnichannel retail. Therefore, if the goal is to improve digitalisation and implement
integrated supply chains then it is important to accept the role of artificial intelligence.
This challenge of delays and management of multiple product portfolios will be solved with
more automation and robotic incorporation inside the store to render this method cost-effective
which then raises the query on how consumers and robots can work together in the warehouse
space if necessary. AI can help in managing omnichannel supply chain through prediction of
region specific needs. This project however can be achieved over a long-term project timeline
of five years. It is expected that there will be higher risks of costs, reputation and operations
due to the fact that the entire value chain may be changing. The following tables identify the
timeline and risks associated with this implementation process.
Risk Management
Description of Risk
Reputation risk
Financial risk
Information risk
Privacy risk
Operation risk
Risk
Level
Potential delays in product deliveries which can cause major problems High
Impact
Cost of implementing digitalisation as well as improving information
integration can lead to loss of profitability
High cost of operations may reduce available funding for other
treatment decisions
Integration of information systems across the supply chain can cause
privacy risks
Delay in operations due to automation efforts
High
High
High
Low
Timeline of Proposed change
Qtr 1
Supply chain flexibility and
integration
Conducting supply chain audit
focusing on information flow
Evaluating the challenges and
strengths of suppliers
Assessing key supplier
capabilities and options for
information integration
Evaluating if contract
manufacturing is possible
Implementing pilot testing
Digitalisation
Evaluate existing omnichannel
supply chain and identify
challenges
Identify AI solutions
Evaluate alternatives based on
region specific needs
Conduct customer level
evaluation
Implement the right strategy in
terms of pilot testing in one
location
2020
Qtr 2 Qtr 3
Qtr 4
Qtr 1
2021
Qtr 2 Qtr 3
Qtr 4
Qtr 1
2022
Qtr 2 Qtr 3
Qtr 4
4.0.
References