Challenges and Strategies in IKEA's Global Supply Chain Management

This report provides a comprehensive analysis of IKEA's global supply chain management, focusing on the challenges and risks associated with its operations. It begins with an overview of IKEA's supply chain network, highlighting its structure and key components, including supplier relationships, manufacturing processes, and distribution channels. The report then delves into specific areas of concern, such as country of origin risk, human resource risk, demand risk, and operational risks, along with associated mitigating strategies. These strategies include conducting thorough market research, building strong supplier relationships, and implementing effective monitoring and control mechanisms. Furthermore, the report explores the utilization of new technologies, particularly the internet, to enhance supply chain resilience. It discusses how technologies like the internet can improve procurement, facilitate global supply, and enable direct transactions, ultimately contributing to a more efficient and robust supply chain. The report concludes by emphasizing the importance of proactive risk management and technological innovation for IKEA's continued success in the global market.

CHALLENGES ASSOCIATED WITH
GLOBAL SUPPLY CHAIN MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Management of global supply chain...........................................................................................1
Areas of concern of supply chain risk and associated mitigating strategy.................................4
The utilisation of new technologies which can create more resilient supply chain within the
IKEA...........................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Supply chain activities are the essential part of business unit. Effective management of
supply chain support the firm in maximizing customer value and gaining competitive advantage.
In the globalization era it becomes very difficult for the entities to sustain in the market for
longer duration. It is because they have keep their manufacturing cost low so that they can
generate profit in other location (Petersen and Lemke, 2015). Apart from this they need to
concentrate on sourcing of raw material and quality of products. Supply chain management helps
the corporation in reducing inventory cost and helps in improving process integration.
Current assignment is based on IKEA which is the leading manufacturing firm. Mission
of the firm is to attract new consumers and provide them high quality products to the global
consumers. Current study will discuss global supply chain management of IKEA Furthermore, it
will explain risk associated with supply chain and mitigating strategies. In addition, report will
discuss utilization of new technologies in creating more resilient supply chain.
TASK
Management of global supply chain
In the manufacturing industry supply chain management plays significant role. This
sector invests huge amount in order to manage their supply chain well. It helps the organizations
in getting raw material on time with quality (Wiese, Zielke and Toporowski, 2015). IKEA
operates its business globally, it is engaged in selling of furniture, home accessories and other
kitchen appliances. Company has more than 340 stores in more than 28 countries. IKEA is the
leading brand which pay more attention on providing quality products and services to its
consumers. Company analyses needs of consumers and accordingly offer them products so that it
can be valuable for them. Its all physical outlets are capable to generate high profit (Wong and
et.al, 2015).
One of the main agenda of IKEA is to effective utilization of resources and reducing cost.
so that it an offer quality furniture products to clients at affordable rates. Supply chain network
of IKEA is very strong which has supported the firm in providing satisfactory products to
consumers and making them loyal towards the brand (Hajmohammad and Vachon,2016). Supply
chain management of IKEA is described as below:
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Illustration 1: Supply chain management of IKEA
Source: (IKEA supply chain- how does IKEA manage its inventory, 2017)
Primary sector
IKEA main agenda is to develop strong relationship with its suppliers., it has supported
the entity in increasing supply chain network. These suppliers provide the company quality raw
material at the desired price. Company concentrates on the standard of manufacturing industry
and purchase raw material which are environment friendly. Company has more than 1300
suppliers across the world (Ivanov, Tsipoulanidis and Schönberger, 2017). But it concentrates on
the fact that it buy material from the outsourcing supplier which offer them goods at lower
prices. That is why it has many suppliers in more than 50 countries. Main suppliers of IKEA are
Baosham Iron & Steel, Timber & Timber, Steel stone co. Ltd etc.
Secondary Sector
Employees are the assets of the organization, company treats its workers well so that
skilled employees stay in the workplace for longer duration. IKEA takes support of value chain
analyse in order to make its supply chain management more effective. IKEA is taking support of
hollow legs in its furniture manufacturing products. It supports the firm in minimizing
unnecessary uses of resources (Kurniawan and et.al, 2017). Apart from the employees use
honeycomb-paper filling materials which are supplied by low cost suppliers. It supports in
enhancing quality of the products. Apart from this supply chain management of the firm also
applies IWAY code of practices that helps in manufacturing quality goods for the consumers.
Employees pay attention on supply chain system so that entity can accomplish its objective.
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The tertiary sector
IKEA offers wide range of products and services to its consumers. It has more than 3500
products at its physical outlets. These goods are able to satisfy needs of different consumers.
Company workers on the principle that “You do half, we do half” In the year 2016 IKEA has
held turnover of 250 billion in UK (Ivanov, Tsipoulanidis and Schönberger, 2017). In the year
2006 IKEA has taken initiative to recycle its waste products. This has supported the firm in
generating profit and effective utilization of resources.
IKEA has strong supply chain management system. Before making any decision related
to supply of raw material cited firm look at the sourcing country. It always concentrates on tariff
and tax structure of particular nation. It supports in making correct decision related to whether to
purchase material from the country or not. It also looks at transportation cost, EOQ data, quality,
political risk of particular country (Hajmohammad and Vachon,2016). On the bases of these
aspects company decide the low cost sourcing country from where it can purchase the raw
material. Cited firm directly and indirectly monitor performance of the suppliers. On the bases of
these aspects company takes its purchasing decision. With the help of these aspects, IKEA
ensure that it buys raw material from the low-cost sourcing country. So it has become essential
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Illustration 2: E-Wheel system of IKEA
Source: (How IKEA makes its supply chain
sustainable?, 2014)

for the global organization that to manage their supply chain well in order to meet with the
demand of customers (Wong and et.al, 2015).
Areas of concern of supply chain risk and associated mitigating strategy
As demand of manufacturing goods are increasing day by day. Supply chain risk
management is the concept which helps in dealing with these risk and minimizing their negative
impact on the business (Wiese, Zielke and Toporowski, 2015). Several risks which are associated
with supply chain management of IKEA are as following:
Country of origin: It is considered as most common threat in the supply chain management of
IKEA. Companies are required to chose correct buyer's location. If any country is facing more
threats related to security, political changes then it may cause delay in the delivery of goods and
services. By this way entity may get failed to meet with the consumer's demand on time
(Hajmohammad and Vachon,2016). Human resource risk: It is considered as major risk in the supply chain management. If
employees do not contribute well in manufacturing of quality goods then company will
not be able to meet with the demand of consumers. IKEA needs to ensure that people
perform their duties well and complete their allotted work timely (Petersen and Lemke,
2015). Increasing human errors can cause difficult in the supply chain management of
cited firm to great extent. Demand risk: It is major risk that can cause damage to the entity. If demand gets
increased and entity does not have sufficient products then it will affect its sales. On other
hand if demand gets decreased and company has huge products. \Then it will increase
production cost of the firm and it may have to face huge loss (Hajmohammad and
Vachon,2016).
 Costing and operational risk: Increasing human errors enhance burden of the
organization and it fails to meet with its goal. Procedure errors, testing errors increase
financial burden on the IKEA due to which it fails to manufacture furniture products on
time. Increasing energy prices, insurance prices increase expenditures of the organization
due to which its overall profitability gets decreased (Kurniawan and et.al, 2017).
IKEA needs to concentrate on the operational process of the entity. Human errors are
increasing so to manage this risk company has to monitor its production and operational
activities. Implementation of dell solution life cycle is the great solution this can help in
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mitigating risk related to human resource. IKEA should regularly test the equipments. This can
help in minimizing errors of supply chain management. IKEA should maintain records of
inventory and customer demand. This will help in taking right decision of production unit. This
will help in making equilibrium between demand and supply (Hajmohammad and Vachon,2016).
Illustration 3: Supply chain risk
Source: (IKEA supply chain- how does IKEA manage its inventory, 2017)
For managing risk of country origin, IKEA should conduct marketing research before
choosing the suppliers. Individual should get information about country's condition, political
situation, security issues. This can help in taking correct decision to related to suppliers.
Company should also build strong relationship with the suppliers. By this way they will be able
to provide quality goods at affordable prices (Kurniawan and et.al, 2017). It will help the
company in manufacturing quality furniture products at minimum production cost.
Effective monitoring and controlling is another mitigating strategy through which IKEA
can overcome its risk. Wastage can be minimized if managers monitor the process closely and
regularly (Hajmohammad and Vachon,2016). This can help in minimizing unnecessary
expenditures and improving supply chain management of the organization.
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The utilisation of new technologies which can create more resilient supply chain within the
IKEA
The supply chain management refers to effective and efficient flow of good and services
such as the raw material, in process goods and the finished or final products from the point of
origin to the point of consumption(Christopher,2016). The Supply chain management of the
IKEA focus on using various techniques and tools in the best possible way in order to develop
and maintain a smooth flow of material or products as well as services from their organisation to
the customers. The supply management of an organisation can perform this function by using
various new technologies developing in today's world such as the Internet. The internet is the
most effective element that can help to develop and maintain an impressive supply management.
Presently, people are very much attracted and addicted to the internet across the world because
each and every individual is now aware of the importance of the Internet. Internet helps to
transfer important data or information to any corner of the world in seconds, due to this the
various operations within an organisation can be performed in a short period. The Internet can
help an organisation to improve the supply chain of an organisation in various ways which are
mentioned below -
 Procurement – The Internet helps in reducing the purchase cost by providing the supply
chain partners quick access to data and information regarding pricing, sources,
availability and technical data. The various members of the supply chain management
should focus on making the relevant data and information available on the internet or the
information should be available online. The supply management of the IKEA should also
ensure the information is accessible only by the account holders or the supply chain
partners. The information available on internet helps in providing the best sources for the
purchase which results in attaining efficient procurement(Monczka and et.al,2015).
 Supply – Every organisation desire to have a global presence and try to sell their
products or services in different markets around the world. Due to a small budget many
of the organisation can not establish retail stores in every country, state or market like the
bigger organisation. In order to fulfil the desire of global market presence these
organisations can use the internet for selling the products and services across the world.
The organisation uses online marketing to promote their goods and services beyond their
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physical presence, The suppliers can search the customer all around the world by using
the internet and once he gets the potential buyer he can sell the products and make a
supply chain through the various vendors or supply partners(Wisner and
TanLeong,2014). Therefore, internet is useful tool in supplying the products or services
in the global market. The IKEA has effectively managed to create a effective supply of
products by using the online tools.
 Direct transactions – The internet helps in avoiding or reducing the intermediaries,
using online marketing the customers can buy the products directly from the suppliers.
The suppliers provide the products and services as well as the relevant information
related to those products online which can be accessed by the people. The customers
directly select the products online and ask for the supply of those goods or services. The
internet basically helps the supplier or the organisation to offer their services and
products directly to the customers. The online business help to provide the real time data
and information in-spite of providing the filtered data by the re-sellers. The payment can
also be made directly between the customers and the suppliers. The IKEA offers products
and services on their websites from which the customers can order their chosen products
and can make payments by debit cards online without any intermediaries(Waters and
Rinsler,2014).
 Collaboration – The organisation or suppliers can collaborate with each in order
develop and maintain an effective supply chain. It helps in building a long term
relationship to enable the smooth flow of goods and services within the market. It helps
the suppliers to reduce the cost of production as well as effective selling and buying of
the products. The collaboration among the suppliers online can help the customers to
create a multi-channels and variety of products for the customers. With the help of this
element the suppliers can reduce their cost of production and procurement while maintain
a long term relationship. The IKEA has a number of supply partners which assist them to
supply the products to the customers in a most effective and efficient way, since years the
brand has maintained a healthy relationship with all those supply partners to reduce the
cost and procurement(Fernie and Sparks,2014).
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The technologies such as the Internet, can be adapted by the supply chain management in order
to develop and maintain effective supply or flow of the products and services within the business
environment, The suppliers can adapt the internet in order to develop an effective supply chain of
the products and services. The small organisation having a low budget can sell their products
globally with the help of online trading which can help to save time and cost reduction in the
supply of the goods. The online trading is the fastest business tool in the market currently which
is growing rapidly. There are many other technologies such as visual or 3D branding, The
Internet of things also helps IKEA in other ways such as -
 Pervasive visibility – This an ability to monitor and track the product shipment in real
time through highly connected communication devices. The technologies can enable the
tracking of the parcel supplied, temperature, location etc.
 Proactive Replenishment – The another use of the Internet of things is to develop an
ability to identify the need to order or restock the products automatically. The IKEA has
an online website which keeps on updating the requirement and order of the products as
and when needed(Ross,2013).
Therefore, The IKEA has adapted the latest technologies in order develop an effective supply
chain to sell their products and services in the market with efficiency and spread the market
segment.
CONCLUSION
From the above report it can be concluded that supply chain management is the essential
part of business unit. Companies need to ensure that they build strong relationship with suppliers
and develop their supply chain networks. It can help the firms in buying raw material from the
right provider. Effective monitoring and controlling is the best tool through which supply chain
risk can be minimized and entity can become able to accomplish its objectives.
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REFERENCES
Books and Journals
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new
challenges in the retail supply chain. Kogan page publishers.
Hajmohammad, S. and Vachon, S., 2016. Mitigation, avoidance, or acceptance? Managing
supplier sustainability risk. Journal of Supply Chain Management. 52(2). pp.48-65.
Ivanov, D., Tsipoulanidis, A. and Schönberger, J., 2017. Operations and Supply Chain Strategy.
In Global Supply Chain and Operations Management(pp. 69-96). Springer International
Publishing.
Kurniawan, R. and et.al., 2017. The effects of vulnerability mitigation strategies on supply chain
effectiveness: risk culture as moderator. Supply Chain Management: An International
Journal. 22(1). pp.1-15.
Monczka and et.al 2015. Purchasing and supply chain management. Cengage Learning.
Petersen, H. L. and Lemke, F., 2015. Mitigating reputational risks in supply chains. Supply
Chain Management: An International Journal. 20(5). pp.495-510.
Ross, D.F., 2013. Competing through supply chain management: creating market-winning
strategies through supply chain partnerships. Springer Science & Business Media.
Waters D, Rinsler S. Global logistics: New directions in supply chain management. Kogan Page
Publishers; 2014 Sep 3.
Wiese, A., Zielke, S. and Toporowski, W., 2015. Sustainability in retailing–research streams and
emerging trends. International Journal of Retail & Distribution Management. 43(4/5).
Wisner, J.D., Tan, K.C. and Leong, G.K., 2014. Principles of supply chain management: A
balanced approach. Cengage Learning.
Wong, C. W. and et.al., 2015. Environmental management: the supply chain perspective.
Springer International Publishing.
Online
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How IKEA makes its supply chain sustainable?, 2014. [Online] Available through:
<http://cmuscm.blogspot.in/2014/01/how-ikea-makes-its-supply-chain.html>. [Accessed
on 28th June 2017].
IKEA supply chain- how does IKEA manage its inventory, 2017. [Online] Available through:
<https://www.tradegecko.com/blog/ikeas-inventory-management-strategy-ikea>.
[Accessed on 28th June 2017].
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