Assignment on Supply Chain Sustainability

Running head: SUPPLY CHAIN SUSTAINABILITY
3a. Written Report
[Supply Chain Sustainability, IKEA Australia]
Name of the student:
Name of the university:
Author note:

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Executive summary
The report aims to discuss the supply chain of IKEA particularly in the context of its distribution
structure. It was being found that IKEA’s supply chain faces many unresolved complexities such
as strategical mapping of its distribution facility. It has one big distribution facility located at
Marsden Park, Australia. However, it needs more such facilities in areas close to populous
marketplaces comprising of high numbers for wealthy people. The supply chain faces many risks
such as ineffective relationship management with the suppliers. As found in the study, IKEA is
doing many things such as zero waste policy in regards to its sustainability notion. Prevention
was recommended as the key to facilitating its zero-waste at large scale. IKEA needs to source
sustainable materials from suppliers. Also, customers can contribute by taking some preventative
measures to waste such as effective disposing of unused items.

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Contents
A brief overview of the organization and its supply chain within the selected context
(Distribution Structure)....................................................................................................................3
A high-level map of the supply chain in the chosen context (Distribution Structure)....................3
Critical analysis and evaluation of the following three areas within the supply chain of the
organization (Distribution Structure):..............................................................................................5
1. Supply Chain Complexity........................................................................................................5
2. Supply Chain Risk Management.............................................................................................8
3. Supply Chain Sustainability..................................................................................................10
Three well-justified recommendations and a discussion on how each recommendation could be
Applied..........................................................................................................................................11
The future of the organization's supply chain................................................................................13
References......................................................................................................................................15

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A brief overview of the organization and its supply chain within the selected
context (Distribution Structure)
IKEA is a European multinational that designs as well as sell ready-to-assemble
furniture, home accessories, kitchen appliances and others. Founded in 1943 IKEA steadily and
successfully expanded to worldwide locations. Australia is one of its worldwide business
locations where IKEA enjoys a good presence. FDC has completed the first purpose-built
distribution center for IKEA at Sydney Business Park Precinct (FDC, 2020). This new
distribution facility is expected to serve IKEA’s rising business needs to respond to the mega
supply chain trends. The report is aimed to conduct a critical assessment of the supply chain of
IKEA in the context of its distribution structure.
A high-level map of the supply chain in the chosen context (Distribution
Structure)

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Fig 1: The Supply Chain
(Source: Laurin & Fantazy, 2017)
The above is a map showing the supply chain of IKEA. This planning concept was
developed and designed to take on problems such as higher costs and average delivery
efficiency. The supply chain in the figure indicates an integrated global planning process that
applies to IKEA’s operations worldwide. The central planning function takes place in Sweden.
IKEA of Sweden supervises its worldwide operations and constantly involved in developing
long-term purchasing, marketing and logistics strategies. IKEA Sweden supervises actions such
as items being carried, suppliers, purchasing, distribution, store stocking and so forth. The global
planning process with a study of sales and demand planning. Such studies are used in developing
frameworks and generating future demand data for its worldwide locations. The demand data is
after which utilized the global materials planning process. This influences the supplier capacity
as well as the load planning processes. Additionally, the planning of the distribution supply chain

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is also affected. The distribution supply chain comprises of transport, warehouses and store
planning.
Critical analysis and evaluation of the following three areas within the supply
chain of the organization (Distribution Structure):
Few megatrends like population increase, population concentration in different regions
and wealth distribution are understood to have the impacts on IKEA's supply chain (Khan & Yu,
2019). These influence the location of its supply chain facilities, energy costs and transportation.
Moreover, IKEA has begun to think of operating on multi-channel levels for its e-commerce
operation. This move should mark a focus shift for IKEA from traditionally being a brick-and-
mortar retailer to an active e-commerce retailer of the future. This section will assess the
complexity level involved in the development of a sustainable supply chain of IKEA. The supply
chain, which was simpler and was supplier-driven is to become market-driven. Studies suggest
that IKEA is trying to respond to the rising market needs as understood from its recent
considerations for supply chain sustainability (Khan & Yu, 2019). With such a diversified focus,
it is expected that there will be many management problems for IKEA. Besides, there can be
many risks faced by the company while pursuing a flexible and sustainable supply chain. This
section will also cover those risks. Moreover, how IKEA is impacted by the notion of
sustainability while being into a large-scale supply chain refurbishment in Australia will also be
discussed.
1. Supply Chain Complexity

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IKEA has traditionally been a brick-and-mortar retailer having also a significant presence
in the e-commerce sector. The company has successfully been serving the people of Australia
with its wide range of ready-to-assemble furniture as well as other homewares. The point of
contact for a customer purchase usually being the below-mentioned options:
 IKEA stores
 IKEA Place App
 Safer Home App
However, these options limit IKEA’s ability to reach a wider customer base considering a
change in the region-wide population concentration as well as population growth. Besides, the
average income of the people residing in a particular region also affects the supply chain
operations. Areas where the population is high and more of these people fall into higher income
bracket, they will certainly create more demand. Conversely, regions with low numbers for
wealthy people will relatively create low demand (Hugos, 2018).
The market dimensions in Australia, as well as the buying behavior of the people, are
changing rapidly. These create the necessity to respond to it competitively. Evident changes can
be observed along how a product is sold nowadays. A product that used to be sold in stores is
now sold over multiple channels. Consumers can make the purchase either offline or online.
Brick-and-mortar stores have traditionally been the most preferred option to make the purchase
offline. On the other hand, e-commerce sites, mobile devices and the company's official websites
have been the other options to shop online. The mobile revolution, in particular, will intensify the
competition further (Marriott & Williams, 2018).

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All these changes such as those mentioned in the above paragraph are enough indication
for a change to someone who is been internationally successful; however, it lacked significantly
a presence over diversified platforms. IKEA is one of those multinational companies to have
shown no significant sign of progress with the trending purchase behavior of consumers. It
perhaps could be a reason behind IKEA’s strategy to focus more on its distribution structure.
IKEA has developed a new multifunction distribution structure at Marsden Park. This
distribution center will have a fully automated storage and retrieval system. The purpose is to
lower the cost and serve its online customers at a faster pace (FDC, 2020). With this IKEA
intends to drive its delivery options as well as launch a few small-format pick-up stores (FDC,
2020). However, shifting from a supplier-driven strategy to a market-driven strategy can be
difficult to manage for many reasons. These are:
 Strategic considerations should change rapidly
IKEA should not be the same in its approach to strategy making as used to be earlier. Their line
of actions will increase from just one to more. The focus needs to be there on its brick-and-
mortar operations. Simultaneously, IKEA should also be focused on reading market trends for e-
commerce operations as well as executing the planned actions. There has to be a balance
between offline and online retailing, so that, customer value has stored both ways. The purpose
should be to emerge and be the most reachable brand in either of the shopping platforms.
 Generating traffic for the target market
IKEA cannot just rely on one channel to drive and boost up traffic to its online store. Instead, it
should effectively leverage the variety of options to increase traffic. Some of the popular ways to
do it are SEO, email, PPC, display ads, social, shopping engines, mobile and so forth (Enam,

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Sakhawat & Al Bashir, 2019). To execute all these options, IKEA must have a sufficient number
of people and relevant technology to support the process. Although, these are manageable tasks;
however, they still are very challenging and at times can create quality issues.
 Inventory deployment
Companies that deploy inventories fulfilling the needs of the target market will be at the
maximum benefit. Inventory deployment is not just about having a large number of distribution
centers spread across a region. It is also about locating these distribution centers strategically to
meet the demand of a specific market. Also, the logistics operations should be managed in such a
way that it caters to the needs of the business as well as the customer. The business needs can be
reducing the cost involved and its negative environmental impact. The customer would always
be expecting a faster delivery no matter which company they have bought the product from
(Mangiaracina et al., 2019). It is good that IKEA has developed a large multipurpose distribution
center at Marsden Park. It is good as well that there will be an automated storage system (FDC,
2020). However, IKEA would need more such distribution centers in other Australian cities as
well to serve different markets and facilitate faster home deliveries.
The complexities are not just limited to the above mentioned, rather it will continue
growing as IKEA scales and expands with its online sales.
2. Supply Chain Risk Management
IKEA is expanding its retail outreach by growing its presence in multichannel online
sales platforms. It is increasingly focused on reaching more buyers which is why IKEA acquired
Cebas Pty Ltd. to bring all its Australian stores under one franchise structure. Also, a new

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distribution center was introduced to facilitate multipurpose activities and drive efficient product
deliveries. All these initiatives will be fruitful to IKEA provided it overcomes a few risks
those listed below:
 Political risks
Promoting local competition by the Australian government can be a political consideration for
IKEA. If this becomes a country situation higher tariffs could be imposed upon international
organizations. This will affect IKEA's competitiveness in Australia.
 Market risks
IKEA offers standardized products to its customers worldwide. With just a few exceptions offers
to remain the same. This strategy has worked so far in favor of the company; however, there is
always a risk of losing business to local retailers who work on a made-to-order basis. People
might not find the standardized products of IKEA as suitable for their needs. Instead, they could
show more interest in local retailers, which understands their needs more than any international
company can. However, IKEA does well in terms of keeping the prices low and ensuring same-
day delivery service. With a new distribution structure at Marsden Park, the capability to deliver
goods in shorter times could grow even further (Mangiaracina et al., 2019).
In the service category, IKEA offers a home delivery option to its customers. IKEA
delivers goods in one day time, which can be considered good service. However, such efficiency
is only for marketplace those situated close to its distribution center. While reaching distant areas
would mean depending more on expensive transport modes such as airline cargo services
(Mangiaracina et al., 2019). The utilization of transport means for delivering goods is a
necessity; however, that should not come at the cost of the environment. Instead, having more

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distribution centers in the country could be more cost saving for IKEA provided if these centers
are strategically mapped. Low selling items should be stocked at the centrally located
distribution center whereas high selling ones to be located close to marketplaces.
 Relationship with local suppliers
Relationship with local suppliers is essential to meet the volatile market demand. Studies show
that IKEA does not possess an understanding to develop good relationships with the supplier.
There is a need to pay attention to this area of the business as they will be requiring their
suppliers to be behind supplying goods to its offline and online customers.
3. Supply Chain Sustainability
Studies indicate a growing interest in consumers to use sustainable products. The harms
of low-cost unsustainable goods are widely known to the public. They understand that fast-foods
will affect their health adversely. It can lead to many health issues like obesity. Similarly, they
also know that goods delivered to their doorstep must have produced environmental harm in
forms of greenhouse gas emissions, etc. News related to these and many other related things is
now very common to daily newspapers, website blogs and even news channels (Bansal &
DesJardine, 2014). In short, nothing related to adverse environmental and social harms of
consuming a good is hidden to the contemporary customer. In addition to the change in
consumers' purchase behavior, modern businesses are also vulnerable to strict environmental acts
and laws violating which they will be highly criticized in the different media channels. Serious
monetary penalties may also be imposed upon businesses to have done the violation (Bansal &
DesJardine, 2014). IKEA has taken a few initiatives to avoid any such criticism and become a

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sustainable business. Below is a mention of the sustainable initiatives of IKEA (Cosmo & Yang,
2017):
 Sustainable sourcing – IKEA ensures that raw materials are locally produced in
Queensland. When to source from other parts of the world it ensures that the process is
executed fairly and with less environmental harm. Fair sourcing has now been IKEA’s
essential act. However, environmental reports generated on a year-to-year basis will only
show whether IKEA has been effective with its fair sourcing policy.
 Offering high nutritional foods – IKEA claims to have an increased focus on the
development of nutritious foods. This initiative is in response to the healthy and balanced
diet needs of the consumer. About this initiative, IKEA now gives more emphasis on
utilizing locally grown food. This should be considered an appreciable move from the
retail giant.
 Zero food waste – IKEA is growing with its tendency to reduce the food waste and to
bring down the level below the 0% mark. It is due to the fact IKEA is investing heavily in
different efforts such as food recycling efforts (Sydney Environment Institute, 2020).
However, according to the UN, food waste is still a major issue. Food disposed to
landfills produce methane gas in huge amount. A significant amount of food is wasted
across the food chain (Goodnet, 2020). Facts suggest that IKEA’s intent to reach to zero
food waste could be a difficult job for them. They will have to find ways to attain this
ultimate goal.

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Three well-justified recommendations and a discussion on how each
recommendation could be Applied
Based on the findings of the study below are a few points of recommendations for IKEA
to help it manage the identified risks and reduce its business complexities:
1. Supply Chain Visibility
Supply chain visibility gives a clear view of the inventory and the availability of stock.
Moreover, it helps to develop an agile supply chain. An agile supply chain is indeed a necessity
for IKEA considering its reemergence as a retailer. IKEA is now more focused on short format
stores as well as its eCommerce business. Supply chain agility can be obtained by developing an
environment of Industry 4.0. Few companies have shown remarkable achievements in the field
of Industry 4.0 such as Samsung. Samsung with the help of the Internet of Things (IoT),
Artificial Intelligence (AI), Machine Learning (ML), Robotics and Drones, has developed a
visible and agile global supply network. With the help of Knox configuration, Samsung has
enabled its mobile devices to do many things those earlier had needed a standalone device like
scanners to operate (Rani et al., 2016). Going with the Industry 4.0 environment can be an
expensive project to lead; however, this should be a fruitful move for IKEA. IKEA can use
drones for faster deliveries. Robotics can also be used to facilitate faster and secure delivery of
orders. Robotics can also be used in the distribution center for packaging purposes. By
developing an environment of the Internet of Things, real-time updates on the stock can be
generated as well as shared with the supplier. IoT used this way will accelerate the movement of
goods from its supplier to IKEA's distribution facility and the market.
2. Strategic Mapping of Distribution Centers

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IKEA now has a new distribution facility at Marsden Park. However, it should have a few more
such facilities located strategically. The low selling items can be managed through a centrally
located distribution facility. However, the high selling items would require quick supplies.
Adequate inventory stock is not the appropriate solution to ensure quick supplies. Instead, its the
distribution efficiency, which will help IKEA deliver goods in quick times. The efficiency can
be increased in two ways such as by using the faster transport modes or by locating distribution
facility close to the marketplace that produces high demands. The points of consideration in
mapping the distribution centers could be the population concentration of the area as well as
wealth distribution among its residents.
3. Prevention
Prevention applies to the entire supply chain from suppliers to homes. Raw materials sourced
from suppliers should be of high quality to measure in terms of durability. When sold to the
customers, they should be given some manuals and verbal instructions on how to use it safely.
Direct online customer support through emails and calls should also be there. Regular updates in
the form of press releases can help widen customer knowledge of how to effectively dispose of
the unused items.
The future of the organization's supply chain
Assuming the effect of emerging mega-trends on IKEA's supply chain, the supply chain of the
future should be as mentioned below (Christopher, 2016):
 Multichannel supply chain – With an increase in the population the consumer base for
IKEA should grow. IKEA in the future will be serving the more millennial customer than

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ever. Hence, the world can witness IKEA effectively reaching its customers through e-
commerce, mobile devices as well as short-format stores. IKEA’s customer base will
grow as it will be catering to the needs of its diversified customer portfolio. However,
these things will happen only if IKEA has an agile supply chain to respond to thousands
of different needs in quicker times.
 Distribution facility located across its supply chain – The future of the supply chain
should also have many distribution facilities located strategically across its supply chain.
There will be many such facilities close to the high-demand market. Customer demand
generated in bulk will be taken care of efficiently. IKEA will become a more powerful
retailer by occupying a larger market presence. However, this will more depend on the
market demand as expansion will only happen if there are adequate business
opportunities.
 Sustainable business – The future of the supply chain will have minimal environmental
harm and will produce zero waste. The use of environment-friendly vehicles should
increase in a hunt to produce less damage to the environment. From suppliers and IKEA
to its customer will all contribute to the sustainable development of the supply chain.
IKEA will source sustainable materials from suppliers. There would be an increased
demand for sustainable goods. Customers will contribute to this sustainable notion by
disposing of the unused items to the allocated areas. However, these things will only
happen if different stakeholders of the supply chain are aware of their diverse social and
environmental responsibilities.

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