Supply Chain Management of IKEA: Sourcing Arrangements and Business Requirements

This report discusses the supply chain management of IKEA, including its overview, supply chain activities, and key sourcing arrangements. It also covers the supply chain of two products, home furniture and home appliances, and their alignment with business needs. The report concludes with the challenges faced by IKEA in managing its complex supply chain.

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Contents
Introduction......................................................................................................................................2
Overview of IKEA.......................................................................................................................2
Supply chain management of the company.....................................................................................3
Supply Chain of IKEA products......................................................................................................4
Home Furniture............................................................................................................................5
Home appliances..........................................................................................................................6
Business requirements.....................................................................................................................7
Key sourcing arrangements of Supply chain...................................................................................8
Domestic sourcing.......................................................................................................................9
International sourcing..................................................................................................................9
Global sourcing............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
The report is prepared on supply chain management and its relative activities with the purpose to
throw light on theories, concept and tools of supply chain management. The company whose
supply chain activities are discussed is IKEA. Ikea is one of the well-known companies that deal
in the home furniture and auxiliaries. The details related to supply chain of two products or
brands of the IKEA Company with 3 business requirements of the customers/markets of
company and its alignment with business needs are discussed in the report. Along with this, it
also includes key sourcing arrangements that are present in supply chain management with its
implication.
Overview of IKEA
The company is a well-known Swedish-founded multinational group that designs and sells
ready-to-assemble furniture, kitchen, appliances, and the accessories. It is operated by Interogo
Foundation that is based in Liechtenstein and came into existence in the year 1989. The aim of
the company is to secure continuous improvement, development and expansion of the business
(Ikea, 2018). The supply chain is one of the important components of business as company
follow development and supply of the range of furniture. The effective supply chain has
contributed to make the company to establish business in 355 stores in 29 IKEA group countries
(Ikea, 2018).

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Supply chain management of the company
The supply chain management refers to exchange and transfer of goods and services that include
storage and management of the flow of goods and services. In simple words, it can be said that it
is movement of raw materials to work-in-progress and to the finished goods. This means that it is
transfer of goods from point of origin to point of consumption by the end-users of the company
(Christopher, 2016).
The below given image reflects the supply chain management system of IKEA company for its
most of the products. The supply chain of IKEA starts with the suppliers and ends at retail.
(Source: Jonsson, Rudberg and Holmberg, 2013)
IKEA implement some strategy for the effective supply chain management. The strategies
include cost saving in furniture design and sustainable relationship with suppliers of company.

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The intention of the company is to practice effective relationship as this is the way through
which they can acquire the products at low prices. Along with this, the company strategy is to
combine retail and warehouses processes. This is the effective way through which they can
manage warehouse facility. There are 3 major supply chain management activities of the IKEA.
These activities are discussed below: -
 Sourcing: - IKEA Company believes in sourcing the products effectively for which the
company confirms that suppliers are meeting standard as per the Forest Stewardship
Council (Ikea, 2018). In addition, the company focus on the efficiency and lowering
logistics cost along with this the company an aim is to association warehouse with retail
process.
 Organizing the procurement: - Company implement the division purchasing system in
which they make purchase of products based on different divisions. This activity might
lead to the disputes because company source products from diverse suppliers across
different areas.
 Logistics/Distribution: - This is practice through which Ikea Company makes product
easily accessible which helps in achieving objective.
Supply Chain of IKEA products
The company deals primarily in furniture and home appliances. The supply chain of two
products of Ikea is discussed which shows the requirement of customers/markets of these brands
towards the supply chain management.

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Home Furniture
The main product of the company is home furniture and its supply chain is explained with the
help of image given below.
(Source: Business logistics, 2018)
This image shows the sourcing of products from sub-suppliers for raw material and
manufacturing of products at Ikea. The circulation of products is done with assistance of high
flow and low flow distribution center. The products can be bought by the customers from the
Ikea stores.

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Home appliances
The company deliver home appliances to their customers in which there are different types of
products are included which the company offer to its customers. The supply chain of most of
products of company is similar. The below given image reflects the major activities that are
essential for the company as it includes suppliers, central planning, distribution services and
retail of the products.

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(Source: Jonsson, Rudberg and Holmberg, 2013)
This includes the strategies that company follow for effective management of supply chain.
These strategies include strategic, tactical and operations which support Ikea in managing supply
chain of the products.
Business requirements
The business requirements that the customers or markets keep with these products that are
offered by the company related to the supply chain management. In addition, the supply chain
management of the Ikea is able to get align with the business requirements or not is also
discussed in this section of report.
Long terms relationship with suppliers: - This is the fact that company make use of wood for
manufacturing furniture which is directly related to environment. Ikea customers and marketers

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need company to make use of wood or other material which can be recycled. This is possible
with effective long lasting relationship with suppliers. Ikea form the relationship with suppliers
of their choice and the company source the recycled plastic and textile clippings (Hugos, 2018).
Unique customer experience: - Customer wants to get the unique customer experience for
which company offers different discounts and coupons to their customers who visit store for
buying products in market. Ikea Company also wants to deliver unique customer experience
which can convert into the customer loyalty (Supply Chain, 2018). This shows that it can easily
align with business needs.
Quality of products: - Customer wants company to make use of products that are free from
substances that might lead to allergies. Ikea ensures that they are able to source quality products
this shows the link of the requirement with business needs (Mangan, Lalwani, and Lalwani,
2016).
Key sourcing arrangements of Supply chain
In the competitive world, this has been observed that partnerships models are too common in
supply chain management of the company. Ikea need to make arrangements for sourcing
products. Ikea Company can also perform sourcing of products with the help of collaboration
and outsourcing of products (Abouhenidi, 2015). This means that there is no single company
who is able to perform operations of supply chain without any collaboration and outsourcing of
products. The below given are three key ways of sourcing the products from suppliers.
Domestic sourcing

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The domestic sourcing is one of the strategies that are adopted by company in which they source
the products from domestic market. Ikea follow this strategy with the help of which they can
source most of products that are required for company. The company confirms that they are
continuing long-lasting relationship with domestic suppliers as this is the way through which
they can follow effective supply chain management.
International sourcing
Another arrangement is done by company with help of international sourcing of raw materials.
International sourcing includes purchasing of raw material for products from nearby areas but
outside the borders of nation. Ikea Company has the collaboration with the PAX supply chain.
This reflects that the company is performing partnership for effective supply chain management
(Hultman, et al 2009).
Global sourcing
Ikea follow the global sourcing strategy which is one of the effective strategy in which they can
source the raw material. This strategy is followed which is the way through which company can
fulfil their motive that is to upsurge presence of company in the global market. The global
sourcing is done because it involves the outsourcing.

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Conclusion
In the end, it can be concluded that the Supply chain management of company involve different
activities which are essential for effective supply chain. The supply chain management of Ikea
Company and its related activities are discussed which shows that most of the products of
company follow same supply chain. The supply chain management of the two main products that
are home furniture and home appliances are explained along with the needs of customer and
market towards business are discussed. Ikea also make use of different sourcing arrangements
strategy of product. Though, the company might face some issues as supply chain of company is
complex which is one of the major issues. Along with this, managing the purchasing is one of the
issues faced by company because it is hard to procure goods from different suppliers.

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References
Abouhenidi, H.M. (2015) The Supply Chain of the IKEA Company. International Journal of
Scientific & Engineering Research, 5(3), pp. 1170-1172.
Business Logistics (2018) Business logistics [Online]. Available from:
https://businesslogisticssite.wordpress.com/2017/10/20/inventory-management-ikeas-strategy/
[Accessed on 12th June 2018]
Christopher, M. (2016) Logistics & supply chain management. UK: Pearson.
Hugos, M. H. (2018) Essentials of supply chain management. New Jersey: John Wiley & Sons.
Hultman, J., Hertz, S., Johnsen, R. and Johnsen, T. (2009) Global Sourcing Development at
IKEA: a Case Study. [Online]. Available from:
https://www.impgroup.org/uploads/papers/7227.pdf [Accessed on 12th June 2018]
Ikea (2018) IKEA Range & Supply [Online]. Available from: http://inter.ikea.com/en/inter-ikea-
group/ikea-range-and-supply/ [Accessed on 12th June 2018]
Ikea (2018) Our Business in brief [Online]. Available from: http://www.inter.ikea.com/en/about-
us/business-in-brief/ [Accessed on 12th June 2018]
Ikea (2018) Our owner [Online]. Available from: http://www.inter.ikea.com/en/about-us/Our-
owner/ [Accessed on 12th June 2018]
Jonsson, P., Rudberg, M. and Holmberg, S. (2013) Centralised supply chain planning at
IKEA. Supply Chain Management: An International Journal, 18(3), pp.337-350.

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Mangan, J., Lalwani, C., and Lalwani, C. L. (2016) Global logistics and supply chain
management. New Jersey: John Wiley & Sons.
Supply Chain (2018) Some Assembly Required [Online]. Available from:
https://supplychainx.highjump.com/ikeas-unique-supply-chain-philosophy.html [Accessed on
12th June 2018]