Analysis of Operation Management at IKEA: A Business Report

This report analyzes the operation management of IKEA, a multinational furniture retailer, focusing on various aspects to understand its importance in the business. The report delves into the operational functions of IKEA, examining its manufacturing processes, from raw material procurement to the final product. It evaluates IKEA's existing operation management through a process model, considering inputs, conversion, monitoring, and outputs. The analysis includes the application of the 'Three Es' (economic, efficiency, and effectiveness) and the impact of the tension between cost minimization and quality maximization. Furthermore, it explores the significance of linear programming and critical path analysis in IKEA's manufacturing procedures, along with the requirements for operational planning and control. The report also covers the preparation of operational outcomes, the resultant critical path network plan, and the implementation of quality management processes to enhance operations, concluding with recommendations for improvement.

Operation Management in
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of Operation Management for an organisation.............................................1
1.2 Analysis of the operation functions of IKEA...................................................................2
1.3 Evaluation of the existing operation management through process model......................4
TASK 2 ...........................................................................................................................................5
2.1 ‘Three Es’ to an organisation and its contribution..........................................................5
2.2 Impact of the tension between cost minimisation and quality maximisation in IKEA....6
2.3 Importance of the five performance objectives................................................................6
TASK 3............................................................................................................................................7
3.1Importance of linear programming to current manufacturing procedure of IKEA........7
3.2 Analysis of critical path process and planning................................................................8
3.3 Requirement for operational planning and control in a production procedure of IKEA..8
TASK 4............................................................................................................................................9
4.1 Preparation of operational outcomes for IKEA................................................................9
4.2 Resultant critical path showing network plan..................................................................9
4.3 Implementation of the quality management process to boost operations in the given
company...............................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Operation management can be the process of managing and deals with designing and
controlling the affairs of manufacturing and redesigning business operations in the production of
products and services. It makes sure that the raw materials are converted into final goods. It is
the role of operation management department to make sure that all the activities which are
carried out in this period are effective enough to yield better results (Alexander, 2013). They
continuously control and supervise the processing functions of a company and make sure that
they deliver quality goods and services. This report will be dealing with different aspects of
operation management which will help us in knowing the importance of it. For this we will be
considering IKEA, a multinational company who sells and designs assembled furniture. It has
been the world's largest furniture retailer. It believes in selling quality furniture at low prices and
give their customers option of buying their products through both online & offline mode.
TASK 1
1.1 Importance of Operation Management for an organisation.
Operation management is the part of any company and is concerned with the
transformation of the input goods into desired final product. Taking in the simple language it can
be said that it is all about effective and efficient management. Its role differ according to the
company's purpose and objectives (Becker, Kugeler and Rosemann 2013). For example; in IKEA
which is a manufacturing setting of furniture has different operation management work than any
other sector. Functions and objective of IKEA are as follows:-
 Designing efficient processes to manufacture the goods;
 Timely acquisition of the raw product;
 Making sure that workers are properly trained
 Better maintenance of machinery.
Operation management at IKEA has different functions and put emphasis on insuring that
customer service locations are equipped as needed and are safe for the employees and the
consumer. All the operations are observed clearly and are revised again so that they can caught
any loophole.
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In earlier days operation management only focused on the manufacturing process and in
today's era companies cannot ignore its another function. It is as important as the manufacturing
process. But more importance should be given to the production system because if it will be not
managed properly then IKEA will face crisis. For example; when all the operation are managed
properly HR department will easily able to make right predictions in the matter of staff (Dumas
and et. al., 2013). They can better understand and predict the number of staff which is to be
recruited, will able to do accurate analysis and train them according to the functions of the IKEA.
The turnover will remain low and jobs will be easier to fill.
For accounting department of IKEA, if operations are managed properly it will be easier
for them to predict costs and pay materials & supply bills. Finance department will not find it
tough to raise money, if there will be smooth function of the manufacturing process. This will
lead to high productivity and elimination of the non essential costs. Marketing division will also
see a boost if they will receive products of IKEA on time. In the legal department all its working
depends upon operation management (Heizer, 2016). If the furniture of IKEA is made properly
then it will not lead to liability claims. All the departments needs to managed properly so that it
can yield better results. With the proper management there will be efficiency in the work.
Operation management is considered as the backbone of IKEA which is liable for
providing goods and services. If all the operations of it are managed properly then other
departments of it will able to perform well.
1.2 Analysis of the operation functions of IKEA.
IKEA is a well known company in Europe and so they have to maintain the flow of their
operations. They have to make sure that all the activities carried out in the company are smoothly
done. Operation function of the IKEA is related to its manufacturing process in which they
produce quality furniture. This task of converting raw material into a finished goods starts from
purchasing a raw material. For furniture,wood is a necessary element and its quality totally
depend upon the kind of wood used by the company. Their subsidiary company Swedwood
handles this department and purchases wood (Hill and Hill, 2012). Different kinds of woods are
used by them ranging from oak and beech. IKEA believes in continuous expansion of their
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business and are trying to force new types operation management, so that they can fulfil the
demands of customers.
Operation management system for IKEA
Furniture of IKEA is known for their designs,so we can analyse its designing process. They
always try to come out with a new design because the first impression sets the mindset of the
person who wants to buy a furniture item. In the input land labour and capital is involved which
needs to be properly managed. They all have to be adjusted and a coordination has to be made so
that the conversion process can be done properly (Houy, Fettke and Loos, 2010). If they think
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Illustration 1: Roy N.R, 2005

that something is missing, IKEA management can add that. After the final product is made they
should compare whether the desired output matches the actual output.
Production and strategy takes longer time, so it could be analysed that the manufacturing
process is a lengthy procedure. The production structure of the company is traditional and
alternation is needed in its inventory strategy. They are gradually increasing the production
because the demand is more in the market. Although there is support of the current supply chain
but as the competition and demands are increasing they requires some flexible and dynamic
operation management tool. If they want to boost their productivity and increase their profit
shares they have to adopt TQM, six sigma and lean methods. The operation function of the IKEA
is categorised into manufacturing and innovating design for the furniture. Every production
system has an objective. With the help of the operation management IKEA can achieve the
supply and demand of the customers. They have to put more focus on the input from the other
areas of the company. They can analyse three functional areas like operating, input and
processing output. Its supply chain can be both external and internal. The external part of the
supply chain would be supplier who provide them the raw materials and equipments. Internal
consists of the organisation.
1.3 Evaluation of the existing operation management through process model.
For this they can evaluate four stages i.e., input, conversion, monitor and output.
 Input: In this stage, wood and other equipments which are required for making a
furniture are collected. Although wood is the main element there are other things like
plastic, steel and metal pins are used for shaping their designs. Land, labour and capital
are necessary things in the production process (Jeston and Nelis, 2014). IKEA might
sometimes have extra inventory like wood and some time lower inventory which may
create trouble for the IKEA in different period.
 Conversion: In the conversion process labours are used, although for this skilled labour
are required but when the demands are high they need to recruit more workers. They
work on the designs so that they can convert a simple log into beautiful furniture
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(Krajewski, Ritzman and Malhotra, 2013). IKEA focus on the demands of the clients and
try to bring a finished goods which attracts the customers.
 Monitor: After the conversion process, management team looks at those goods which are
out of the manufacturing plant. In this process the main aim of IKEA is check the quality
of the furniture and decide whether it is same as the client ordered or not. A review is
done to know different stages of the production system.
 Output: In the last stage of the production IKEA sends all its made products to its stores.
All the furniture is made according to the need of the clients and the problem they can
face in this is of logistics. There might be complaints of the wrong products delivered.
TASK 2
2.1 ‘Three Es’ to an organisation and its contribution.
The three Es are the economic, efficiency and effective. All three has great significance
in the operation management.
Economic: It briefs about the financial condition of the IKEA and depicts that whether
they have sufficient funds to manage the operations. Through this they can know whether their
production system is costly or not. Although the operation management of IKEA has low cost
but when the demands gets increase it rises up. Increase in the cost of production is due to the
drastic increase in the waste control.
Efficiency: As given in the scenario IKEA uses traditional method for production as it
focuses on the assemble line production system. It is a blender because they are not able to
produce high level of production as it lacks the control of the waste and finance. Although it
believes in selling the products at low cost so to increase the profit they uses not that much good
wood. Assembly line production function is normally used by the firms whose turnover is big.
IKEA faces manufacture stuck with the large number of demand and large product which are
defective.
Effective: They are looking at the alternative options for current production function
because the demands are increasing. Assemble line production is better when the demand is not
that much high, so they get enough time to manufacture them. They should make their minds for
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renewing their operation management (Myers, 2013). Existing form operation include much
more waste and products are not of quality standards.
2.2 Impact of the tension between cost minimisation and quality maximisation in IKEA.
In the era of globalization where there is tough competition in almost every sector quality
maximisation and cost minimisation are the two tool by which IKEA can gain competitive
advantage. Cost minimisation is all about reducing the cost of expenditure and it has lots of cost
benefits. IKEA can reduce their processing cost or they can cut prevention cost which include all
the cost which are used for making a product (Slack, 2015). Operation management can reduce
it by analysing the quality standards. Different costs like the buying cost and maintaining
machinery can be evaluated. They should have a group of expert who continuously indulged in
the process of reviewing the costs.
There are tensions between two situation like when maximizing the quality of the
products will have increase in cost of manpower, materials and overheads. IKEA feels that
reducing the quality will effect their business, so it can be evaluated that such situation arises for
a short span of time. In future they will be focusing on increasing the quality and lower cost
associated with it, the reason behind this is that IKEA has lots of consumer to handle and all the
expenditure can be covered with the profit. To earn more profit companies don't focus on the
quality which hampers their image and further they faces losses because low quality will hardly
attract more customers. So the solution would be to decrease the cost of production and use
efficiency in the work through which they can recover the losses. It is hard to sell the quality
good at low prices so fir that they have to reduce the production cost
2.3 Importance of the five performance objectives.
There are five factors on which IKEA can measure their performance. Following are
some of them:-
 Cost: If IKEA have to maintain their policy of low price of furniture they should reduce
the production cost. They focus on generating more profits and try to give a tough
competition to their competitor.
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 Quality: Through this they can experience long term benefits. When they will deliver
quality furniture, it will attract more customers towards them. IKEA does not believes in
comprising with their quality standards because they know if they do so it will impact
their image and business.
 Dependability: This is an challenge for IKEA because customers are choosy about the
products they are purchasing. They have lots of option for a single item, so the company
should immediately respond to the requirements of the consumers (Trkman, 2010).
Through this IKEA can promote people to buy their furniture instead of their competitors.
 Speed: It is observed that those clients who are ordering from online store of IKEA is
receiving late delivering. This is stopping them to buy through online platform .They
should look into the matter because online market is more bigger than offline and is the
future of shopping.
 Flexibility: IKEA is one of the largest furniture company, so they are flexible enough to
handle the changing requirements of the customers. It has always relied on innovation
strategy and there is technological advancement in their operational management. There
might be change in the customer needs or any technological change should be noticed
and they should able to bring modification.
TASK 3
3.1Importance of linear programming to current manufacturing procedure of IKEA.
IKEA is try to execute total quality management with their operation management and
they have to make sure that they adopt shortest ways to manufacture the goods. Linear
programming is one of the method to increase productivity and involves operation research of
the company. Through this can reduce the cost of the production system and IKEA will use it to
increase their sales. Hike in the sales brings more profits and the revenue generation. IKEA will
try to implement the total quality management within their production supply chain field.
3.2 Analysis of critical path process and planning.
Critical path method assist them in execution of total quality management by accessing
the operations of their activities (Van Der Aalst, 2013). Other activities will be executed along
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with the goals. It brings a stability in the operation because it defines the sequences of the
activities which will be done. They decided which operation will be done first depending upon
the priorities.
Network planning gives IKEA an advantage of reducing the complexity of the
operations. Through implementation of the total quality management with the supply chain
system of IKEA will produce a network diagram which briefs about the time. This makes it easy
for them to decide the schedule of the programs. The sensitivity of the company's performance
can also be analysed from it. In the analysis process they check whether the work sheets are
maintained properly which they can do by calculating the cost and intangible things.
3.3 Requirement for operational planning and control in a production procedure of IKEA.
If IKEA wants to set new benchmarks in their business they need to plan their strategies
which could control their manufacturing process (Wheelen and Hunger, 2011). Operational
planning will include estimating the demands, assembling of the stock, cutting of the wood logs,
designing the shapes and use of adhesive materials, checking the quality, inventory and logistics.
 Forecasting demand: In this IKEA tries to estimate the demands of the specific furniture
and by keeping that in mind they order the wood. It has high benefit to the company
because through this they will not purchase unwanted wood.
 Assemble the Stock: They gather various things like wood, paints, steel and adhesive
which are required for making a furniture.
 Cutting the wood: In this the stocked wood are cut into logs and it does not have much
impact on the profits of the IKEA.
 Designing and using different materials: They try to innovate different things by their
designs and after that the process of polishing the structure takes place. It will give them
more benefits because people prefer furniture which looks good and impressive. They
can also reduce the cost in this stage (Wirtz, 2011).
 Quality Checking: As per the demands of the clients quality management team checks
their different areas like its weight, durability and strengths. It is expected to have high
chances of benefits.
 Inventory: All the finished goods are now ready for dispatch through batch processing.
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 Logistics: The stock furniture are send to the stores of IKEA and operation management
team could reduce the transportation cost here.
TASK 4
4.1 Preparation of operational outcomes for IKEA.
IKEA manufacturing unit is going to design a chair so for that they will prepare a layout
design for it. The first step involves designing of the layout and in which they will try to develop
image of patterns which they will be following. They will give shape to the rear leg and which
include cutting & shaping of the chair legs. A preparation of the remaining parts will take place
and in which they will try to look at the broad which is strong. Mortising will take place and for
that layout should be created cutting the mortises of the chair. Cutting of the loose tenons by use
of the line production and starts dry fittings. For the crest railing they will cut the joins and give
it a design. Now the chair reaches in the final stages where all the parts will be assembled and
glue will applied on that. In the final stage they may other seats and padding on the chairs. This
is an important which involves analysis of the operational outcomes. With this they can know
whether they are moving in right direction or not. Each task is device into various stages and for
that every department of IKEA is given their roles which they have to perform in order to gain
better results.
4.2 Resultant critical path showing network plan.
Network plan is breaking down a critical plan or a operations into its elements i.e.,
activities, events, durations and etc. It shows that all the activities are interrelated to each other
and are dependent on each other (Yang, Hong and Modi, 20110. IKEA can make network plan
by analysing the operations carried out in their manufacturing process. They can develop
diagram based on the activities in the network plan. This is the best way to set the sequence of
tasks or activities which has to be performed by the company. With this they can save the time
and can also increase efficiency. When all the things will be planned it will be easier for the
company to do work on time and fulfil all the demands of market.
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Critical Path method is basically a diagram prepared for scheduling different set of
projects activities. This is a review technique and will help IKEA in knowing the crucial tasks of
their operation process.
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