Comprehensive Report: IKEA's Strategic Supply Chain Management

This report provides an in-depth analysis of IKEA's strategic supply chain management. It begins with an overview of IKEA's organizational structure and its supply chain system, highlighting its strong relationships with suppliers and the use of the IWAY code of conduct. The report then delves into IKEA's competitive strategies, including its approach to sourcing raw materials, reducing costs, and managing environmental impact. Furthermore, it examines the company's supply chain risk management practices, addressing potential challenges such as raw material shortages, production failures, and human errors. The analysis also extends to IKEA's global supply chain management, discussing the challenges and opportunities of operating in international markets. The report identifies key issues in IKEA's supply chain, such as inventory management and communication, and concludes with recommendations for improvement. Overall, the report emphasizes IKEA's commitment to sustainability, cost-effectiveness, and customer satisfaction within its supply chain.

Strategic Supply Chain Management

Executive Summary
Supply chain management is a process in which companies purchase raw material,
transform it into usable goods and then they deliver the products to end users. IKEA is
multinational manufacturing firm that provides furniture, kitchen appliances to customers
as per their requirements. Report is discussing about supply chain competitive strategy
of cited firm. It is making such strategies through which company can reduce its utility
cost and can enhance its profitability. Supply chain management of the organization is
being analysed in this assignment. It is described that IWAY code of conduct is
supporting IKEA and checkers ensure that suppliers meet request of end users.
Competitors are creating pressure of the corporation but it is trying to maintain balance
between quality and price. IKEA has strong relationship with the suppliers that support
the cited firm in getting quality raw material and offering quality products to customers.
Report is also discussing about issues that are faced by IKEA such as inventory
management, communication.

Table of Contents
INTRODUCTION..............................................................................................................1
MAIN BODY..................................................................................................................... 1
Description of organization and its supply chain system..............................................1
Supply chain competitive strategy................................................................................3
Supply chain risk management....................................................................................4
Global supply chain management................................................................................6
Analysis of supply chain of IKEA..................................................................................7
Issues in the supply chain and recommendations........................................................8
CONCLUSION ................................................................................................................ 8
REFERENCES...............................................................................................................10

INTRODUCTION
Supply chain management is an effective tool that control and manage supply
chain activities of organization in order to maximize customer value and gain
competitive advantage. Present report is based on IKEA which is a multinational
manufacturing firm that produces furniture for making home a better place (Gosling and
et.al, 2016). Current assignment will investigate supply chain system of IKEA. Supply
chain competitive strategies, risk management and global supply chain management of
the entity will be described in this study. Furthermore, report will identify critical issues
faced by the cited firm and solutions for improving supply chain of the organization will
be discussed in this assignment (How IKEA makes its supply chain sustainable?, 2014).
MAIN BODY
Description of organization and its supply chain system
IKEA is multinational manufacturing firm that designs and sell its furniture, home
accessories, and kitchen appliances products to customers. It has more than 340 stores
in 28 countries and all its physical outlets are generating profit (Nilsson and Svensson,
2016). Its main objective is to create better life for the population and offer them
satisfactory products and services. Cited firm identify needs of consumers and provide
them services accordingly. IKEA main principle is to grow well by utilizing own
resources effectively. Whenever customer go to any store then they look upon the
range of products and services that offer by the entity (How IKEA makes its supply
chain sustainable?, 2014). That need of people fulfil by the cited firm significantly that is
why consumers of the corporation are very satisfied. It is fact that 70% of annual
marketing budget of IKEA is consumed by its catalogue (Fuchs and Otto, 2015). That is
why it has become the world's largest home furnishing retailer. It has not only impressed
its consumers by providing affordable quality furniture products but also it is admired by
its competitors as well for its unique supply chain and inventory management
techniques (Errasti, Rudberg and Corti, 2015).
Supply chain system of IKEA consists of several components:
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Illustration 1: Supply chain of IKEA
Source: (How IKEA makes its supply chain sustainable?, 2014)
§
Primary sector
It involves development of raw material. IKEA has developed strong relationship
with its suppliers and has strong chain of suppliers. They provide the cited firm quality
raw material at affordable prices. Furthermore, cited firm always purchase environment
friendly material that is why it has become successful in setting standard in the
manufacturing industry (Hajmohammad and Vachon, 2016). At the stage of designing
IKEA check the quality of its raw material, efficiency and impact on the surroundings. It
has more than 1300 suppliers in more than 50 countries.
Before purchasing the raw material it evaluates environmental impact of this
product, for that cited firm takes support of “e-wheel” system. With the help of this
method cited firm analyse four stages that are existed within product life cycle (Bhushan
and et.al, 2017). More than 50% products of IKEA are made up with wood and fibres
which come from sustainable sources. These are such goods which can be recycle and
renew easily. It utilizes raw material effectively and some part has been made out of
recycled plastic. For example water cans and other such type of products of IKEA are
designed to be stacked. That helps cited firm in reducing its fuel cost because it can be
easily transported. Baosham Iron & Steel, Steel stone co. Ltd, Timber & Timber
products are its main suppliers (Fletcher and et.al, 2016).
Secondary sector
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IKEA has skilled people in the manufacturing team, they create quality products
from raw material. It takes support of value chain in its supply chain system. Designing
of products is done by cited firm effectively so that it can utilize its resources effectively
(How IKEA makes its supply chain sustainable? 2014). For example IKEA it uses hollow
legs in furniture in order to save on resources (Crane and Matten, 2016). It also uses
honeycomb-paper filling material that assist in enhancing the quality of its furniture
products. IWAY code of practices of IKEA aids in identifying the requirement of IKEA. In
this, manufactures follow national, international laws, follow recycling technique, take
care of employees so that it can manage its supply chain system significantly
(Kurniawan and et.al, 2017).
The tertiary sector
In this sector, retail stores of IKEA enhance value of manufactured goods.
Outlets of IKEA are very big and they have more than 9500 products in the retail shops
that is why they are able to meet need of each customers effectively. The main concept
of IKEA stores is that “you do half, we do half….together we will save money” (Li,
Toppinen and Lantta, 2016). That supports in attracting more consumers towards the
brand. Customers of the entity chose the products by own by using trolleys and cited
firm provides them catalogue so that they can get better knowledge about its range of
goods. It also offers them facility of home deliver that enhance satisfaction level of
clients. It is fact that retailing turnover of IKEA is more than 250 billion in the year of
2016 in UK (Wong and et.al, 2015).
In the year 2006 cited firm has recycled waste products that has enhanced profit
of the entity. It offers quality products to its consumers as per their requirements that is
why it has large number of loyal consumers (How IKEA makes its supply chain
sustainable? 2014).
Supply chain competitive strategy
Supply chain system of IKEA supports in gaining competitive advantage to the
entity. IKEA is the company that workers effectively with large suppliers in variety of
challenging situation. Cited firm is using amazing strategies in its system, professionals
of IKEA are reaching to Chinese suppliers in order to get high return on their
investment. It has helped in reducing carbon footprints of IKEA in its supply chain and
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also with the help of this strategy cited firm has reduced utility cost to great extent
(Wiese, Zielke and Toporowski, 2015).
Illustration 2: Supply chain competitive strategy
Source : (How IKEA makes its supply chain sustainable?, 2014)
Natural resource's depletion is one of the great challenge for the IKEA business
model but cited firm is sourcing for its wood products. For that company has recruited
forestry specialists that helped the entity in reducing the negative impact on
environment. That has supported the organization in gaining competitive advantage and
sustaining in the market for longer duration (Ivanov, Tsipoulanidis and Schönberger,
2017). It also trains it’s all stakeholders, suppliers so that issue related to wastage,
energy and water can be minimized. These strategies IKEA has helped the entity in
building its brand image and creating positive image in the mind of consumers.
Supply chain risk management
Supply chain risk management is the essential part of business that define the
strategies that support entity in managing their risk effectively (How IKEA makes its
supply chain sustainable?, 2014). There are several risks that are involved in the supply
chain management: shortage of raw material, Production plan failure, Strikes at logistic
hubs, non-compliance with social and environmental standards etc (Petersen and
Lemke, 2015).
Objective of supply chain risk management is to identify risk, analysis them and
to manage them in effective manner so that these issue do not harm the organization to
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great extent and cited firm can run its operations smoothly. IKEA is the brand that
operates in many countries (De Marchi, Di Maria and Ponte, 2013). It is necessary for
the cited firm that to manage its risk effectively. Otherwise, entity can face huge loss
that can harm its brand image as well.
Illustration 3: risk involved in supply chain
Source : (IKEA supply chain- how does IKEA manage its inventory, 2017)
For managing the risk of shortage of raw material IKEA build sustainable
relationship with its suppliers. By this way company reduces issue related to shortage of
raw material. Strong relationship with suppliers support entity in getting quality material
at affordable prices. By this way cited firm is able to offer final goods at lower rates to
the entity (How IKEA makes its supply chain sustainable?, 2014).
IKEA follows code of conduct that is known as IWAY (Way of purchasing home
furnishing products). It purchases raw material by considering the environmental impact
of these inventories. It always concentrates on maintaining the standards thus it follows
all norms and legislation so that it can set its standards and can offer quality products to
its consumers (De Marchi, Di Maria and Ponte, 2013).
Risk of human errors is very common in the supply chain system of every
manufacturing firm. For managing this risk cited firm use time to recover technique
(How IKEA makes its supply chain sustainable?, 2014). In this tool IKEA ensures why
this issues are coming in the operations and it re qualifying the employees of cited firm
so that they can develop better understanding about manufacturing and can produce
quality end products. Higher authorities of IKEA ensure that all people fulfil their job
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effectively and contribute well in achieving goal of organization. They monitor the
performance and activities of each employees and guide them well (Wiese, Zielke and
Toporowski, 2015). That supports in managing risk of human errors significantly. Perfect
record integrity reduces exposure of risk in the organization.
Regular testing of equipment, better understanding about tools and equipment
can reduce risk of the supply chain system in the IKEA. Apart from this cited firm keep
record of its inventory and manage the records effectively so that risk can be minimized.
It is the way through which cited firm can manage supply chain risk (Petersen and
Lemke, 2015).
Global supply chain management
IKEA is operating in the international market and its many of suppliers belong
from outside countries. In the global supply chain system entity has to deal with mass
nations and their population. IKEA is much more capable to operate its business
globally. It has huge potential to perform better and to earn high profit through global
supply chain system (Wong and et.al, 2015).
IKEA has to face many issues in its international operations, one of the major
problem faced by cited firm is economic condition. Market volatility, modest recovery
cycles affect its manufacturing and distribution to great extent. By this way over cost of
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Illustration 4: Risk management
Source: (Kurniawan and et.al, 2017)

the organization can get increased. But IKEA is using supply chain effectively in the
global market that is why it is able to manage it s cost effectively (Errasti, Rudberg and
Corti, 2015).
There are several factors that impact on global supply chain system of the
organization: cost, customer duties or impact of GATT, export regulations, time, taxes,
offset trade etc.
Market forces, technological issues, cost forces, political factors impact on the
business operations of cited firm. Foreign competitors, advanced technologies can
increase its operational cost. But IKEA is able to manage its operates well in the
international market that is why is earning high profit in the global market (Gosling and
et.al, 2016). High labour cost is another issue for the IKEA because it has to pay
salaries to the employees as per the legislation of particular nation. Integration of
supplier infrastructure can impact negatively on the entity (Christopher, 2016).
Apart from this, changes in political condition and economic condition are another
issue that can be faced by IKEA in its global supply chain management (Nilsson and
Svensson, 2016). Fluctuation in exchange rates, regional trade agreements can affect
the supply chain system of corporation that affects its profitability as well. But IKEA is
able to run its business in the international market, it hires skilled people those who can
manufacture quality furnitures, It ensures quality of raw material, ensure to reduce
unnecessary cost that is why it is operating successfully in the global market (Errasti,
Rudberg and Corti, 2015).
Analysis of supply chain of IKEA
Supply chain system of IKEA is very strong, it has strong brand image that is why
cited firm is able to attract more customers towards the corporation. It promises to
provide quality food and services to consumers at global scale. That has helped the
organization in creating positive image in the mind of clients (Fletcher and et.al, 2016). It
has maintained good balance between quality, design and price. It purchases raw
material from good suppliers those who can offer it cheaper raw material but quality
products. That is why furniture goods of the entity are of quality. That is the reason why
entity become able to attract more people towards the brand.
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It is very difficult for the IKEA to make changes in its supply chain system with
the changes in legislation. But IWAY code of conduct is supporting the firm and
checkers ensure that suppliers meet its request (Crane and Matten, 2016). Competitors
are creating pressure of the corporation and it is necessary to maintain balance
between quality and price. IKEA has strong relationship with the suppliers thus they
offer them quality raw material that assist in sustaining in the market for longer duration
and controlling over the cost (How IKEA makes its supply chain sustainable?, 2014).
Issues in the supply chain and recommendations
IKEA has good supply chain management system, its strategies and working
patterns help the entity in increasing its profitability to great extent. But still there are
some issues which are faced by organization and which needs to be improved soon (De
Marchi, Di Maria and Ponte, 2013).
 IKEA operates in global market and sometimes it becomes very difficulty to make
communication with other culture suppliers. For that it is necessary for the cited
firm that to improve its communication process and to be more transparent for
consumers and other stakeholders as well (Petersen and Lemke, 2015). By
developing good relationship with them cited firm will be able to reduce issues of
culture difference and language barriers. It will develop better understandings
and will support the organization in sustaining in the market for longer duration.
 Furthermore, another issue that is faced by IKEA is related with inventory
management. It is the biggest issue that can harm overall profitability of the firm
(How IKEA makes its supply chain sustainable?, 2014). For reducing this
problem, cited firm has to keep record of its stock and has to conduct audit time
to time. So that it can identify its loop falls and can improve this on time.
Furthermore, wastage is another biggest issue in the supply chain management.
 For that management is required to monitor the activities regularly and should
element such activities in which wastage are too high. Due to high wastage cited
firm can not be able to offer low price products to its consumers. By minimizing
its cost or making effective control over its unnecessary expenses cited firm will
be able to improve its supply chain management significantly (De Marchi, Di
Maria and Ponte, 2013).
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 It should take feedback time to time with its customers in order to identify their
needs so that it can offer them products and services as per their requirements.
CONCLUSION
From the above it can be articulated that IKEA is working well and it is able to
make balance between quality and price effectively. Strong relationship with suppliers
helps the organization in providing quality goods to end users. IWAY and numerous
alliance support IKEA in producing more ecological products and meeting with the
expectation of service users. It has educated its suppliers with the importance of
sustainable production. This strategy has supported in differentiate itself from the other
competitors.
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