Case Study: Analyzing IKEA's Supply Chain and Inventory Management

This case study examines IKEA's inventory management strategies, focusing on planning, controlling, and balancing. It analyzes IKEA's warehouse operations, inventory replenishment processes, and the use of models like Economic Order Quantity and Safety Stock. The case study addresses a scenario involving a 20% inventory reduction and recommends solutions for complex resource management, including proper planning, systematic approaches, and technology utilization. It also explores the effectiveness of the beer game as a training technique to improve supply chain integration and discusses the efficacy of IKEA's WMS. The analysis highlights the importance of teamwork, communication, and the bullwhip effect in supply chain management, offering insights into optimizing IKEA's operations and addressing challenges in inventory control and resource allocation. The assignment concludes by evaluating the strengths and weaknesses of IKEA's WMS and suggesting improvements to enhance its efficiency.

QUESTIONS AND ANSWERS 1
QUESTIONS AND ANSWERS
By [Name]
Course
Professor’s Name
Institution
Location of Institution
Date

QUESTIONS AND ANSWERS 2
Case Study Answers
1. Elaborate on IKEA’s inventory management policy with reference to three pillars of
inventory management plan.
IKEA inventory Management policy is inclined on the three pillars, which are planning,
controlling and balancing.The components made the company become the most successful
furniture corporate globally. On planning IKEA possess six warehouses in North America which
provide several functions. They include high-flow warehouses, low-flow facilities which use
mounted vehicles for pick-ups. And warehouses for direct- to –consumer interaction. Within four
of its distribution centres, there are storage facilities and retrieval systems. IKEA also possesses
standardized Consafe Logistics.
Additionally, IKEA's products are manufactured from recycled products. Therefore they are
focused on using few materials in making furniture, without assuming durability and quality
(IKEA inventory report). IKEA has also initiated the pillar of balancing, the company has an
inventory replenishment management process established by IKEA, which is the minimum or
maximum setting used to control the orders made by customers. This criterion helps IKEA in
meeting the demands of customers as well as managing the ordering of too many or too few
products, since the inventory of IKEA is stocked at night after opening hours. For instance,
IKEA has a proprietary inventory system which holds the data that assist in forecasting sales for
the next couple of days — and arranging for specified number of goods to meet the demands of
consumers.

QUESTIONS AND ANSWERS 3
Control- under this pillar IKEA has applied the tactic of cost-per touch which minimizes the
amounts of contacts on an object. They also have warehouse logistics managers who are in
charge of handling and ordering supplies at IKEA stores. Their primary duties are to record and
monitor deliveries and to ensure efficiency in the flow of goods within IKEA stores, which helps
in sustaining high sales and improving customers loyalty.
One of the models used by IKEA is the economic order quantity, which is a control model that
determines the size of orders, therefore assisting in reducing the cost of ordering and expenses of
carrying. All the other costs are kept constant. The model is applied because an order is only
placed after a fixed timeline
EOQ Model
Secondly, IKEA has used safety stock model by possessing several warehouses and having the
low-flow facilities and high flow warehouses, which keep the additional stock to avoid stock-
outs. Because they help in decreasing losses caused by stock-outs. This has helped IKEA meet
the consumer demands: for example, the maximum and minimum setting proprietary system
used by IKEA.

QUESTIONS AND ANSWERS 4
2. Your manager asks to reduce the inventory for a certain component in IKEA by 20%
The inventory reduction plan is always depicted as a great route to reducing costs and becoming
more responsible and increasing profitability. When the inventory costs is cut by 25 per cent the
areas below within IKEA will be interested in the availability of the inventory and consequently
affected in diverse ways when the reduction is effected: sales and marketing, after sales, finance
and manufacturing, warehousing logistics and customer service. The inventory sector I will
reduce in IKEA is the obsolete inventory or excess stock because IKEA possesses surplus goods
causing unnecessary carrying costs by doing this demand forecasting will be optimized, and
excess funds realized from the reduced stock could be used on the standardization of WMS so
that it becomes more efficient. This will intern help in allocating more funds for data security
improvement instead of using the manual data tracking systems IKEA is using.
3. As resource management is becoming extremely complex, what solutions would you
recommend easing this conundrum?
Planning to plan: planning is essential thing for efficiency and smooth running in the resource
management. Time is money; therefore, it's an excellent plan for effectivity in resource
management for any company. Resource management has become intricate, and the only
solution is proper planning if proper planning is done at the primary stages of business the
business management system would move smoothly because thru planning a company would be
able to gauge the amount and types of resources required by the company for its customers. For
instance, IKEA possessed strategic plans on how to satisfy their consumers demand using

QUESTIONS AND ANSWERS 5
maximum and minimum settings and cost-per touch strategy together with the six warehouses to
minimize stock outs.
Taking systematic approaches: this is the only way to make resource management easy. This is
achievable by the use of bench-marking performance, formation of strategic action, baseline
setting, setting targets and tasks. For example, IKEA had the in-store logistics personnel's who
were in charge of handling inventory management within the store. This made management very
easy and effective.
Use of technology where appropriate: technological use go hand in hand in easing and speeding
up processes effectively. It means that any project features which can be completed using
technology should be automated as it will reduce the risks of re-occurences of mistakes.
Technology ensures a cogent allocation of resources. The balance of resources management and
technology is a core part of business growth. For instance, IKEA had pick-up cars automated
with pc to enhance their efficiency in the delivery of goods.
Companies are advised to use resource management software as it is an essential tool in
enhancing business operations. The time wax resource software allows managers to share their
resource plans with the workers thru the mobile apps or company's calendars (Prachi Juneja and
MSG 2019).
Understanding the resources in short supply and focusing on them entirely: for instance IKEA
Company employed the 80/20 rule, where 80 per cent of resource limits comes from the 20 per
cent of the assets. Therefore thru the strategy, a company can focus on such problems and plan
for their convenience to evade stock-outs and interruptions (Appleseed Partners 2016).

QUESTIONS AND ANSWERS 6
4. Would you suggest a Beer Game as a training technique to ensure greater integration in
the extended supply chain? Provide justifications for your answer.
Yes, I would suggest a beer game as a training technique to ensure greater integration within the
extended chain of supply. The beer game is one of the vehicles used to demonstrate the
significance of effective stock chain planning as well as cooperation across the supply chain. The
game shows the disadvantages of poor communication, bullwhip effect and lack of visibility.
Also, it helps participants in solving cases of supply chain problems. For instance, research by
Kevin Perimeters of the Aberdeen group had focused on a supply chain consumer market
collaboration, and it was realized it enhances high market pressure. One of the supply chain
collaboration in consumer market respondent said, "it is a no- brainier that teamwork will reduce
material or the costs of distribution and working jointly with partners and suppliers to act
proactively and quicker in dealing with the changes in packaging disclosure leading to a boom in
structural cost"( Chopra, and Meindl, 2015, p. 8).
The beer game demonstrates that teamwork trust and value, collaboration at all levels can make
vast differences, and the bullwhip effect can't be overlooked. The bullwhip is essential due to the
extremity in positional change of supply up the chain of supply, caused by minimal change in the
downward demand in the stock chain. The portfolio will shift from backorder to excess surplus.
This results from the communication nature commands above the chain with the intrinsic
transportation delays of shifting products downward in the chain. Therefore bullwhip influence
can be removed thru coordinating the supply chain (Chopra, and Meindl, 2015, p.10).
Outgoing Orders = Incoming Orders + Target Inventory - Inventory + Backorder

QUESTIONS AND ANSWERS 7
https:www.transentis.com/wp content/uploads/2015/01/ beer game feedback –loop. 3png
The initial phase improves game results by ignoring backorders when deciding on the orders.
When we avoid the whiplash effects, the ordering policy will lead to huge impacts on the
bullwhip because every player in the supply chain uses same strategies to order as they try to
ensure the target inventory level is attained and the order line is achieved. Because the customer
executes bigger orders, the seller has to place bigger orders too. Consequently, the wholesaler
also places a larger order (Chopra, S. and Meindl, 2015, p.5). From the graph, the effects are
vivid.

QUESTIONS AND ANSWERS 8
https:www.transentis.com/wp content/uploads/2015/01/ beer game feedback –loop. 3png
Due to the peak of orders, the sum of supply chain cost as well explodes and be beyond the cost
target.
5. Elaborate on the efficacy of WMS in IKEA.
IKEA's WMS is not fully efficient. Because they standardized the Consafe logistics, yet AS/RS
suppliers are not standardized. Because IKEA uses LTW and via store in North America and
other supplies in Asia and Europe. The AS/RS Islands of automation has been very efficient for
IKEA because they perform their upgrades twice annually. The WMS area is still lacking
standardization even though its forethoughts are praised. This is because there are several
materials handling corporates and several diverse types of material handling equipment.
Therefore, it's essential that IKEA should place standards for the WMS interfacing.

QUESTIONS AND ANSWERS 9
References
2016 State of Resource Management and Capacity Planning Benchmark Study, conducted by
Appleseed Partners www.plainviews.com
https:www.transentis.com/wp content/uploads/2015/01/ beer game feedback –loop. 3png
IKEA inventory report
Chopra, S. and Meindl, P., 2015. Supply chain management. Strategy, planning & operation. In
Das summa summarum des management (pp. 265-275). Gabler.
Prachi Juneja and MSG 2019. https://www.managementstudyguide.com/inventory-management-
systems.htm