Case Study IKEA Purchasing

This presentation discusses IKEA's unique purchasing practices, including its code of conduct and efforts to promote environmental and human standards. It explores interesting elements of IKEA's purchasing, such as long-term agreements and bulk buying, as well as areas of concern, such as global sourcing and inventory management. The presentation concludes with lessons learned from IKEA's case study, including the importance of image consistency and practicality in customer relationships.

CASE STUDY IKEA
PURCHASING

TABLE OF CONTENT
 INTRODUCTION
 Speciality of well – developed IKEA's purchasing
 IWAY – code of conduct
 IKEA's efforts in promoting IWAY
 Target of IKEA towards IWAY and Reason of Development being interesting
 Interesting elements of IKEA's purchasing and its reason
 Reason of IKEA's purchasing being Interesting
 Matter of concern in IKEA's purchasing
 Learning from IKEA’s case
 CONCLUSION
 REFERENCES

INTRODUCTION
 IKEA was founded in 1943 and now it is being recognized as the largest
furniture retailer in the world since 2008.
 It is a conglomerate company whose business includes designing and
selling ready – to – assemble furniture, home accessories, kitchen
appliances and many other goods and services.
 This presentation involves discussion regarding what have been
especially developed by IKEA in carrying out its purchases.
 The discussion pertaining to what is especially interesting IKEA will be
done along with mentioning the reason of it being interesting.
 Also, discussion will be done regarding the area of concern or wonder in
IKEA's purchasing along with the statement of learning from the case
study of IKEA.

SPECIALITY OF WELL – DEVELOPED
IKEA'S PURCHASING
 IWAY – code of conduct
 As per the environmental and forestry standards created under the IWAY, suppliers are required to agree to the
following terms:
 Initiate action towards reducing the emissions and waste to the ground, air and water.
 Tackling chemicals in a safest possible way.
 Safe disposal of hazardous materials
 Contribution towards the recycling and reusing of the products.
 Utilization of wood of known areas or if it possible, then it must be sourced from the area certified as
responsibly managed.

IKEA'S EFFORTS IN PROMOTING IWAY
 In order to spread awareness and assisting suppliers in meeting these IWAY standards, IKEA has
created a network of Trading Service Offices. These Offices are meant for supporting, training and
monitoring suppliers in order to ensure compliance.
 Along with the monitoring and training initiatives, IKEA used to conduct surveys and audits on regular
basis of its suppliers. To help companies in meeting its strict standards, IKEA has also created a four –
level staircase model where its requirements are set on different levels on which its suppliers can work
over the time.
 Accordingly, the goals of company can be fulfilled in a desired manner. The four levels in the model
indicates different level of minimum requirements to be met by the suppliers, where level 1 is all about
start – up conditions, level 2 has various minimum requirements, level 3 is the use of 4wood
standard to ensure easy transition and level 4 involves the use of wood from the forests that are
certified and responsibly managed.

TARGET OF IKEA TOWARDS IWAY AND REASON OF
DEVELOPMENT BEING INTERESTING
 IKEA has set its goal to achieve 100% meeting of level 1 requirements by its suppliers by 2009.
 And, 30% meeting of highest requirements at level 4.
Reason of Development being interesting
 The IWAY is meant for ensuring better supplier relationships. The code of conduct developed by IKEA
acts as a reference point of how their relationship with the suppliers should look. It allows for promoting
positive effect on environment along with securing meaningful and decent employment for the workers
along the businesses of suppliers who are working with IKEA.

INTERESTING ELEMENTS OF IKEA'S
PURCHASING AND ITS REASON
 It has a strategy of buying all its raw materials and hardware in bulk and accordingly, such a strategic
attempt allows it in supplying at lower prices to its customers.
 The most interesting element in IKEA's purchasing is its long term agreements which it has signed with its
suppliers. In this way, IKEA has ensured that they will be able to buy its raw materials for a long period of
time along with making necessary investments.
 Another interesting element that can be seen in IKEA's purchasing is its strategy of offering low cost
products through the combination of two major factor that is, buying in large volumes and flat
packaging allowing for greater efficiency in operations.
 Global sourcing refers to the practice of sourcing raw materials and hardware from the global market to
enhance efficiency in production of furnishing products like what IKEA does. The highest sourcing at
global level done by IKEA is from China.

CONT.
 Therefore, all the interesting elements that has been mentioned above are acting as a hallmark of
IKEA's purchasing that is;
 a global distribution network,
 flat packages,
 low costs products,
 Purchase of raw material in large volumes.

CONT.

REASON OF IKEA'S PURCHASING BEING INTERESTING
 The biggest reason behind IKEA's purchasing being
interesting is that with the help of bulk buying, flat
packaging and global sourcing; IKEA is able to keep
its cost of production lower and accordingly, the
price of their products are lower in the market with
the help of which the company is able to attract more
of the customers in the market. Also, both price and
quality consistency has been maintained by the
company due to its interesting purchasing practices.
The graph here indicating IKEA’s performance through
different modes.

MATTER OF CONCERN IN IKEA'S
PURCHASING
There are various matters that acts as a matter of concern related to IKEA's purchasing, such as the
following:
 Global sourcing concept implemented in IKEA is just restricted to China and Europe majorly
which is not an acceptable strategy as there are risks of rising price in such countries which may
render the company in producing costly products and accordingly, it may lose its customers who
are willing to buy its low price products.
 Considering the purchase as low cost and selling it at lower price may sometimes indicates that the
product is of poor quality. IKEA's products are hallmarked as low cost products which is a sign of
poor quality products for many customers.
 Due to the strict code of conduct based on environmental and human aspects and necessities for the
companies who are doing business with IKEA may result in losing profitable deals and
opportunities in the market. It is so because it may not be possible for all the companies to meet the
minimum requirements of its code of conduct.

CONT.
 IKEA has the policy of entering into long term contracts with its suppliers which seems like
there will be stability in procurement of raw materials and hardware over the long period of
time, but on the contrary this policy does not work well always and sometimes leads to failure
for the company due to failure to meet changing requirements of the customers and market as a
whole.
 IKEA’s practice of purchasing raw materials and hardware in large quantities is becoming a
matter of concern for the company. With the bulk buying comes the requirement to store goods
safely and appropriately, and accordingly leads to incurring higher costs in storing these goods.
 To overcome the issues related to demand forecasting to match it with its large volume
purchases, IKEA needs to invest in or obtain a technology through which it can be able to
accurately predict the future market environment on the basis of past results generated.
Therefore, bulk buying accompanied by appropriate future forecasting leads to minimization of
wastages and losses for the company.

LEARNING FROM IKEA’S CASE
IKEA being a world leader in furniture market has offered many lessons to be other organisations in the
same or different industry as well. Some of these learnings are as follows:
 Image consistency is the highly contributing factor in the success of IKEA. Their signature style is
popular across all the nations it has its operations. Therefore, carrying uniqueness is necessary to all the
way by disregarding how small or big the region is.
 IKEA ensures practicality in its conduct and take care of its customer’s emotions and feelings.
Accordingly, one visit its store immediately become a part of its relationships and this what the sign of
loyalty.
 Long term contracts are good but it must accompanied by other terms such as possible changes with
the changing market needs, so that continuity of operations and market existence both can be ensured
simultaneously.
 Large volume if purchased according to the accurate forecast and prediction always seems to be
profitable in terms of reducing costs and offering lower price products in the market.

CONCLUSION
 From this presentation it has been concluded that IKEA has a great
future ahead.
 It needs to work upon its various policies like inventory management,
purchasing practices and diversified global sourcing.
 It unique code of conduct regarding environmental concern has left
long lasting impression on the society it operates and accordingly
regarded as a secret behind its huge success.

REFERENCES
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