April 19th, 2004
Group B1
Distribution:
The Secrets of Market Logistics
IKEA’s Sustainable Competitive Advantage
Section B- Group 1:
Are Hofstad
Edo Avraham
Kelly Pender
Mark Amritanand
Robert Weiming Li
Stefan Salzer
April 19th, 2004
Group B1
IKEA Timeline
Ingvar Kamprad from
Elmtaryd, Agunnaryd
Designs own
furniture
First
newspaper
advertisement
Selling
pens,
wallets,
jewelry,
nylon
stocking
s
The first
catalog
Stockholm
store opens;
Warehouse
concept born
Flat
packaging
Testing
1951
1945
1943
April 19th, 2004
2001
1997
IKEA Rail
opens
1965
1956
1955
IKEA.com
introduced
1958
Opens the first
IKEA store in
Älmhult, Sweden
Group B1
IKEA by Numbers
2003 Figures
Visitors to outlets a year
Range of articles
Employees
Purchase offices
Suppliers
No. of Factories
(SwedWood Group)
Distribution Centers
Outlets (“Warehouses”)
Catalogs
Web site visits
Number
Countries
310 million visitors
10,000 article
76,000
43
43
33
1,600
55
32
9
27
16
207
31
131 million, 45 editions in 23
Languages
75 million visits
SwedWood Group produces ca. 10% of IKEA’s purchases
Main task: focus on areas where IKEA has difficulty finding external
suppliers, at a good price and with guaranteed deliveries
April 19th, 2004
Group B1
What is Market Logistics?
Value Network / Market Logistics Ecosystem
Governmental & Tax Agencies
Raw Material
Classical Supply Chain
Group B1
Consumer
April 19th, 2004
Distributor
Manufacturer
Supplier
Machines
Raw Material
Research Institutions
Market Logistics Objective
The right product,
at the right place,
at the right time,
at the least cost
• Market logistics can account for up to 30%-40% of
product total costs
• Lowering Market Logistics costs directly impacts profitability
April 19th, 2004
Group B1
Market Logistics Planning
1. Factors to consider:
–
–
–
–
–
On-time Delivery scheduling
Careful Handling
Damaged goods replacement policy
Quick re-supply
Supplier’s willingness to meet emergency needs
2. Assess relative importance of customer’s
needs
3. Evaluate competitor’s service standards
4. Set service standard and design logistics
system vis-à-vis costs
April 19th, 2004
Group B1
Market Logistics Planning
A. Determine target market
B. Plan Demand Chain
Method: Design supply chain backwards
Considerations:
1.
2.
3.
Decide company’s value proposition to customers.
Decide best channel design & network strategy for
reaching customers (use of intermediaries)
Develop operational excellence in:
1.
2.
3.
4.
4.
Sales forecasting
Warehouse management
Transportation management
Materials management
Implement solution using best information systems,
equipment, policies, and procedures
April 19th, 2004
Group B1
Market Logistics Decisions
1. Order processing
Minimize order-to-payment cycle
2. Warehousing
Efficient supply to the stores
Could also include assembly, packaging, etc.
3. Inventory
Ensure customer service level
Minimize inventory-carrying costs
4. Transportation
Choose appropriate means of transportation
April 19th, 2004
Group B1
Market Logistics Cost Structure
Total Market Logistics system costs are:
Total freight cost
Total fixed warehouse cost
Total variable warehouse cost
Total cost of lost sales (due to avg. delivery delay)
Total market logistics system cost
April 19th, 2004
Group B1
Manufacturer to Distributor
IKEA designs its merchandise and outsources
manufacturing to its dedicated manufacturers
Concerns:
• Selection of manufacturer
• Inventory management
• Consider to self-manufacture goods
IKEA transports finished goods from
manufacturers to IKEA’s distribution
centers in flat-packaging
April 19th, 2004
Group B1
Inventory Management
Inventory management
• Order Management
Daily orders from outlets
• IT solution: ILS (Integrated Logistics
System)
• Demand forecast
April 19th, 2004
Group B1
From Distribution Center to Outlet
Delivery time to outlet is region-dependent
Transport to outlets (“Warehouse”) is done by:
• 60% truck
• 20% train
• 20% boat
• less than 1% by air
Franchise outlets (21 out of 207) are serviced from
Sweden’s distribution centers
After the introduction of IKEA Rail in 2001, IKEA aims
to increase rail transport to 40% by 2006
Source: Johan Sandberg, Logistics Manager, Norway
April 19th, 2004
Group B1
IKEA Shopping Experience
Location: City’s outskirts
Parking, Easy access (customers & goods)
Cheap rent, long operating hours
Requires special transportation
Design:
Maze-like
Stationary and Shop-&-Carry
Sales force
Amenities Child-Care, Exit Bistro
Swedish flavors
Product names in Swedish
Swedish food, Sweden Shop
April 19th, 2004
Group B1
The Do-It-Yourself Concept
•
•
•
•
Pickup by customer
Delivery home by customer
Assembly done by customer
Customization if possible is done by customer
April 19th, 2004
Group B1
Outlet Alternatives
Catalogs purchase (by fax or phone)
• Benefits:
– Huge penetration
– Better product exposure before outlet arrival
– Used as coffee table reading
• Disadvantages:
– Low Purchase-per-catalog ratio
– Expensive – custom annual catalog in 45 editions
– Postage costs
Web Site purchase
• Benefits:
– Low cost
– Longer delivery time (better for IKEA)
– Margins on delivery
• Disadvantages:
– Greater ratio of replacement due to customer error
April 19th, 2004
Group B1
Summary
IKEA’s Competitive Advantages
• Efficient Market Logistics System
• Emphasis on design & distribution, less on
manufacturing
• Various means of ordering & transport
• Low markup, high volumes
• Flat-packaging
• Self-assembly
April 19th, 2004
Group B1
And one more thing…
April 19th, 2004
Group B1
Market Logistics
Questions?...
April 19th, 2004
Group B1