Global/local Sourcing and Challenges in the Context of IKEA

This presentation discusses the procurement strategy of IKEA and its comparison with world’s leading names in respect to practicing business sustainability. It also highlights the areas of further improvements, barriers, enablers, critical success factors, and possible impacts on performance.

Global/local Sourcing and
Challenges in the Context of
IKEA

Introduction
 IKEA became the world’s leading furniture retailer in 2003
 The company was founded in Sweden in 1943
 It is headquartered in the Netherlands
 IKEA offers ready-to-assemble goods to furbish the kitchen and rooms with furniture,
appliances and others
 IKEA claims to be in sustainable practice
 IKEA designed IWAY, a supplier code of conduct to provide guidelines to suppliers on
how to contribute to business sustainability
(Ikea.com 2019)

Methodology
 Secondary resources are being used in this study
 The roadmap being followed in this study included the procurement
strategy of IKEA
 It follows comparing IKEA with world’s leading names in respect to
practicing business sustainability

Organisation Procurement Strategy
 IKEA drives internal communication, so that, there is uniformity in practice
across its different business existence in the world
 IWAY is a supplier code of conduct as brought about by IKEA
 As found in the study, IKEA believes that IWAY will help IKEA solve all barriers
to business sustainability
 IKEA restructured its strategy to practice a more product oriented strategy
 With product-based strategy IKEA believes to have a good control of its
supplier relationship management
(Ikea.com 2019)

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 The global supply chain network of IKEA has three distinct pillars
 These are cost-effective practice across its entire distribution
network, effective collaboration with suppliers seeking the growth,
and following a simple and professional style of purchasing
(Ikea.com 2019)

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Cost-effective practice across its entire distribution network:
 IKEA claims to have effective relationship with its suppliers
 The business process areas under its cost-effective strategy includes selecting
sustainable materials, cost-effective designing of the product, achieving
efficient manufacturing through cost cost-effective and quality-oriented
operations, logistics and the purchasing process
(Ikea.com 2019)

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Effective collaboration with suppliers seeking
the growth:
 IKEA claims to be into effective practice in terms
of controlling its supplier-relationship
management
 IKEA claims its suppliers know exactly what IKEA
expects from them
Following a simple and professional style of
purchasing:
 IKEA says it has a professional and simple style
of purchasing to support its sustainability goals
 IKEA has developed a platform called business
intelligence with which it encourages its
suppliers to be on the same page through a
common framework for identifying,
communicating and mitigating risks
 IKEA also into several sustainable initiatives
such as leather and cotton projects
(Kolk 2016)

Comparison with best practices
 IKEA claims to have implemented various programs as parts of its
sustainable business practice
 This includes but not limited to doing many activities to promote the
rights of global wide children for good lives
 Some of these activities are promoting children rights, condemning child
labour and support communities where it operate
(Lueg and Radlach 2016)

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 IKEA should find a great example of sustainability in Dell
 Dell has once been recognised the greenest company in the United States
 Dell is doing its hard to minimise its greenhouse impact
 In the process, it joined hands with the “Carbon Disclosure Project Supply
Chain Leadership”
(Upward and Jones 2016)

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 Walmart is the other example of a major retailer to have strived for
practicing sustainability
 Walmart might have failed with its sustainability vision
 But, it produced some lessons to be learnt
 Walmart example indicated volatility in the currency exchange a
major threat in practicing sustainability across its entire value chain
(Aras and Crowther 2016)

Areas of further improvements
Areas of further improvements could be many for IKEA. However, to name just a view following
are the areas of improvements:
 Reducing the waste
Circular economy can be helpful for IKEA in terms of reducing its contribution to waste.
 Volatility in the currency
Volatility in the currency behavior as being understood can be a threat to IKEA’s sustainability
goals. This can be fought with forward contract, which helps to avoid uncertainties surrounded
to currency volatility.
(Voegtlin and Scherer 2017)

The barriers
 Barriers to circular economy include coupling of taxation with its
business model, a probable lack of consumer demand and resistance to
change
 Barriers to forward contract include difficulty in estimating the size of
the market and non-standard nature of the contracts
(Evans et al. 2017)

Enablers
 Enablers to circular economy are long-term business perspectives,
competitiveness, employee attitude, innovative ecosystems,
collaboration with partners and spillover impacts of the international
corporations on the local supply
 Enablers to forward contract include currency behavior
(Amui et al. 2017)

Critical success factors (CSFs)
 For circular economy, these are using better terminology, a better
understanding of materials and engaging the entire value chain
 For forward contract, these are significant participation from banks and
financial corporations in regards to avoiding cascading series of defaults
and setting settlement data for future transactions
(Aras and Crowther 2016)

Possible impacts on performance
 The circular economy will help IKEA to reduce its wastes
 IKEA will be able to practice cost-effective approach
 A forward contract should be helpful in avoiding uncertainties that
surround to currency exchange behavior

Conclusion
 IKEA is a globally renowned retailer in providing solutions for furniture and
other home-based items
 IKEA is doing right with its sustainability goals as evidenced in its strategy for
supplier-relationship management, and encouraging shared practices
 However, examples of other major companies such as Walmart show that
offering sustainable products at low-cost could be very challenging
 IKEA with its sustainability goals might face barriers in the form of its waste
contribution and possible volatility in the currency behavior
 IKEA should look for strategies to counter these barriers
 Circular economy and forward contract could be the strategies IKEA should
look to provided if IKEA is able to overcome the barriers of these pieces of
strategy

References
 Amui, L.B.L., Jabbour, C.J.C., de Sousa Jabbour, A.B.L. and Kannan, D., 2017. Sustainability as a dynamic organizational capability: a
systematic review and a future agenda toward a sustainable transition. Journal of Cleaner Production, 142, pp.308-322.
 Aras, G. and Crowther, D., 2016. The durable corporation: Strategies for sustainable development. Routledge.
 Aras, G. and Crowther, D., 2016. The durable corporation: Strategies for sustainable development. Routledge.
 Evans, S., Vladimirova, D., Holgado, M., Van Fossen, K., Yang, M., Silva, E.A. and Barlow, C.Y., 2017. Business model innovation for
sustainability: Towards a unified perspective for the creation of sustainable business models. Business Strategy and the
Environment, 26(5), pp.597-608.
 Ikea.com (2019). [online] Ikea.com. Available at:
https://www.ikea.com/ms/hu_HU/pdf/sustainability_report/IKEA_Sustainability_Report_FY18.pdf [Accessed 16 Sep. 2019].
 Ikea.com (2019). IKEA.com - International homepage. [online] IKEA. Available at: https://www.ikea.com/ [Accessed 16 Sep. 2019].
 Kolk, A., 2016. The social responsibility of international business: From ethics and the environment to CSR and sustainable
development. Journal of World Business, 51(1), pp.23-34.
 Lueg, R. and Radlach, R., 2016. Managing sustainable development with management control systems: A literature review. European
Management Journal, 34(2), pp.158-171.
 Upward, A. and Jones, P., 2016. An ontology for strongly sustainable business models: Defining an enterprise framework compatible with
natural and social science. Organization & Environment, 29(1), pp.97-123.
 Voegtlin, C. and Scherer, A.G., 2017. Responsible innovation and the innovation of responsibility: Governing sustainable development in a
globalized world. Journal of Business Ethics, 143(2), pp.227-243.