BEO5307: Global/Local Sourcing Strategies and Challenges for IKEA

This report provides a comprehensive analysis of IKEA's global and local sourcing strategies, focusing on the challenges and opportunities within its supply chain. The study examines IKEA's procurement practices, including its IWAY supplier code of conduct, and its commitment to sustainability. The methodology involves the use of secondary resources to evaluate IKEA's approach to cost-effective practices, supplier collaboration, and purchasing styles. The report benchmarks IKEA against other leading companies like Dell and Walmart, highlighting areas for improvement such as waste reduction and currency volatility management. It explores the potential of circular economy and forward contracts as strategies to overcome these challenges. The critical success factors and potential impacts on performance are also discussed, concluding with recommendations for IKEA to enhance its sustainability goals and address barriers in its sourcing operations. The report references several academic sources to support its findings.

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)