IKEA's Efficient Inventory Management

This assignment explores IKEA's successful approach to inventory management. It highlights the company's strategies for reducing costs through processes like minimum reordering and maximum product quantities per order. The emphasis is on IKEA's unique in-store logistics system, collaborations with suppliers and partners, and sustainable practices that contribute to customer satisfaction and loyalty.

Running head: LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Logistics and Supply Chain Management
Name of the Student:
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Table of Contents
Section 1..................................................................................................................................2
Answer 1:..............................................................................................................................2
Answer 2:..............................................................................................................................2
Answer 3:..............................................................................................................................2
Answer 4:..............................................................................................................................3
Section 2..................................................................................................................................3
Case Study 1:.......................................................................................................................3
Case Study 2:.......................................................................................................................5
References...............................................................................................................................7

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Section 1
Answer 1:
a) Proper forecasting is essential for any organization, as it ensures in having enough
supply in hand, in order to satisfy the demands. Business analysts utilize the systems
of logistics and supply chain management as well as some other tools, in order to
forecast the demands in advance. For example; Amazon uses forecasting techniques
to increase the satisfaction of the consumers, reduce the inventory stock outs,
schedule the production effectively, lower the safety requirements of stocks, reduce
obsolescence costs of products, manage the shipping better, improve price and
promote management (Chircu, Resnick and Saraswat 2015).
b) The three major forecast types used within supply chain’s context are; demand
forecasting to investigate the demands of the buyers, supply forecasting to know
about the current suppliers and producers and lastly, the price forecast, which is the
compilation of demand’s and supply’s information (Christopher 2016).
c) Forecasting abilities of any business varies from organization to organization. In
order to improve the forecasting abilities, one needs to understand the size of the
demands and the uncertainty drivers. The demand planning and strategy needs to be
kept simple. The organizations should always have backup plans and change their
strategies when needed (Garrido Azevedo and Carvalho 2012).
Answer 2:
a) A 3PL or third party logistics refers to the outsourced logistics services’ provider.
Logistic services involve the management of resources and their movement to the
areas, when required. The term itself comes from military. Third party service
includes transportation and warehouse storage, which is required to manage the
whole supply chain (Mangan and Lalwani 2016).
b) On evaluating 3PLs certain information is needed to meet the company
requirements. The location of the warehouse and their equipments must be checked.
Staff members play a bigger role in this. If the staff is not flexible and cannot
communicate properly, then the company may face issues. Moreover, information
technology systems must be checked for proper transportation management and
ensuring the security issues (Christopher 2016).
Answer 3:
a) Humanitarian logistics deals with the logistics’ branch which is specialized in
organizing deliveries and warehousing supplies, at the time of complex emergencies

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or natural disasters, at the affected areas or people surrounding it. They are mostly
used in the commercial supply chain purpose. Logistics play a major role in the relief
operations of disasters (Chircu, Resnick and Saraswat 2015).
b) The six major players in the humanitarian aid supply network are: Planning and
preparedness, assessment and resource mobilization, procurement and donations,
transport and execution, tracking and stock asset management and lastly, extended
delivery point and relief beneficiaries (Garrido Azevedo and Carvalho 2012).
Answer 4:
Five ways of using Information Technology to improve the efficiency and effectiveness of
supply chain and logistics are as follows:
1) Information Technology has helped in the superlative transportation and alignment of
the company’s supply chain management and its competitive strategies.
2) Information Technology has helped to leverage the efficiencies in the company’s
distribution procedures.
3) It has helped in the manufacturing processes and procedures by reducing the labor
intensive and manual work, which in turn reduces the costs.
4) It has contributed a lot in the warehouse management.
5) Information technology has marked its contribution in the ecommerce industry. It has
made online sellers easily sell their items to the customers, even at the furthest
corners (Monczka et al 2015).
Section 2
Case Study 1:
a) Four activities IKEA uses to ensure the supply chain is sustainable:
1) IKEA aims to produce items and materials which do not harm the environment.
The products are manufactured in the most responsible manner. The raw
materials are manufactured, distributed to the retailers and then to the
consumers. IKEA buys several products from over 1,300 suppliers, check the
materials’ quality and analyses the impact of the environment, which occurs
during the management of supply chain.
2) IKEA ensures that their supply chain management is sustainable by keeping an
eye on the working and social conditions of the suppliers. The organization uses
a specific tool named ‘e-Wheel’ in order to evaluate their products’ environmental
impact.

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3) Their products are made from natural resources and can be recycled. Water cans
are stacked, which reduces the transportation problems as it requires less
number of vehicles and therefore, lower the costs of fuel.
4) The organization designs many of their products with few resources to make the
best products.
IKEA influences all its elements of the supply chain to adopt the sustainable
practices. The organization has formed partnership with the UNICEF, in order to work
with the community program of Northern India. They aim at reducing child labor and
promoting awareness regarding this. Moreover, they organize training courses for
managing forest resources. They have developed forestry plans at China.
Consumers are even aware of the commitment of the organization’s supply chain
management, which has helped in building trust regarding the company’s policies
and procedures (Stadtler 2015).
b) IKEA’S sustainable sourcing and the supply practices have their remarkable effect on
the supply and sourcing practices upon the entire furniture industry. The
organization’s fifty percent of the products are produced from wood fibers or wood.
The source is a good renewable resource as it can be recycled. Moreover it is
obtained from several sources which are sustainable. The organization creates
certain solutions of designing in order to minimize their usage of materials. Some
products like tables are made from recycled plastics, rugs from material clippings and
water cans are designed in such a way that can be stacked. Less transportation is
required for this, which in turn reduces the costs of fuel. These ideas of IKEA, help in
being more sustainable, therefore, reducing the impact upon the environment.
IKEA’s success is mainly due to their communications with the manufacturers
and suppliers of the materials. While manufacturing, IKEA mentions to the producers
that the wastes generated from the products should be minimal. Waste materials are
recycled and reused, avoiding land pollution. They have a code of conduct for
purchasing home furnishing products. They check that their furniture products do not
have any harmful impact on their purchasers. For example; the products do not
cause allergies to the consumers. They encourage recycling and reusing of their
products. IKEA encourage its manufactures to use minimal resources for making
best products. For example, they save their resources by the usage of hollow legs for
the chairs and tables. Moreover, they use honey comb paper filling material for the
interior of the table tops, rather than solid wood (Khan, Christopher and Creazza
2012).

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Case Study 2:
a) IKEA designs and sells their furniture in pieces to allow the customers assemble
them. The furniture pieces are placed in efficient and convenient flat packages. This
cause less transportation costs as they take less space in the trucks, hence, a large
number of items can be shipped at one go. The unique procedure also takes less
space at the warehouses and reserve racks. The company saves fuel and the
stocking costs are passed to the customers. Moreover, every store has their
warehouse itself in the premises. At the showroom, customers can easily browse
their favorite items. They select their products and obtain it themselves from the
reserve racks. Hence, additional shipping costs are reduced. It promotes self service
and uses the consumers to improve the effectiveness as well as efficiency of the
supply chain management and logistics.
IKEA has a tactic named ‘cost per touch’, which actually means the fewer
number of touches cause less number of costs. The organization saves costs by
applying this tactic. They ensure efficient goods’ flow for maintaining higher sales and
enhancing the loyalty of the customers. They introduce processes like minimum
reordering and maximum amount of products at one go. The IKEA inventory
management introduces in store logistics to lower the sales of costs. Moreover, high
flow facilities and low flow warehouses support their store operations, which are more
hand operated. All these strategies help the company to lower its operating costs and
at the same time stay competitive. They continuously refresh their supply chain
management policies and procedures, in order to attain the competitive advantage in
the market (Jonsson, Rudberg and Holmberg 2013).
b) IKEA collaborates with the company’s suppliers and logistic partners in order to
ensure end customer satisfaction with the products. The organization’s vision is to
provide the customers with well designed and functional furnishings at low prices.
IKEA uses fewer resources for manufacturing its products, without even
compromising its durability and quality. The organization focuses on cutting down the
costs of transportation by using less fuel and reducing manpower to ship its products.
They have a sustainable relationship with their logistics partners as well as the
suppliers by making long term business contracts with them. They ensure that their
customers receive the best products at minimal costs. They stress on the self service
factor in order to minimize the items in the areas of bulk storage.
IKEA relies on unique and rare logistical management in case of reordered
products. The organization employs an adequate number of personnel for in store
logistics management in the stores. The duties are assigned to the logistic personnel,

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which involves monitoring, tracking, recording deliveries and carefully taking notices
of product deliveries. The in store managers of logistics uses the management of
inventory replenishment for responding to the reordered points and products. This
strategy helps the organization to meet the customer demands at less cost. Logistics
manager keeps a check on the sold items and those which are directly shipped from
the centers of distribution through the system data of warehouse management.
Overall, the organization ensures the goods’ flow in an efficient manner and
collaborating with the suppliers and logistics partners, it enhances customer
satisfaction and loyalty (Stadtler 2015).

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References
Chircu, A.M., Resnick, M. and Saraswat, S.P., 2015. Online Intermediaries and Supply
Chains. The International Encyclopedia of Digital Communication and Society.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Garrido Azevedo, S. and Carvalho, H., 2012. Contribution of information technology to better
management of supply chains. International Journal of Retail & Distribution
Management, 40(2), pp.128-156.
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.
Khan, O., Christopher, M. and Creazza, A., 2012. Aligning product design with the supply
chain: a case study. Supply Chain Management: An International Journal, 17(3), pp.323-
336.
Mangan, J. and Lalwani, C., 2016. Global logistics and supply chain management. John
Wiley & Sons.
Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and
supply chain management. Cengage Learning.
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management
and advanced planning (pp. 3-28). Springer Berlin Heidelberg.