Business Report: Operation Management Analysis of IKEA

This report delves into the operational management of IKEA, a leading multinational furniture company. It examines the importance of operational management within IKEA, covering aspects like planning, organizing, and coordinating resources. The report analyzes IKEA's operational functions, including procurement, production, and supportive functions such as human resources and marketing. It evaluates IKEA's operational processes, considering inputs, conversion, monitoring, and outputs, along with the significance of the 'three Es' (Economy, Efficiency, and Effectiveness). Furthermore, the report explores the impact of the tension between cost minimization and quality maximization, and the significance of the five performance objectives: cost, quality, dependability, speed, and flexibility. The analysis extends to linear programming, critical path analysis, and network planning in the context of furniture production, and concludes with recommendations for improving operations, focusing on quality management techniques.

OPERATION
MANAGEMENT IN
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of operational management in IKEA.................................................................1
1.2 Operation function with reference to IKEA..........................................................................2
1.3 Evaluation of operation management in IKEA.....................................................................3
TASK 2............................................................................................................................................4
2.1 Importance of 'three Es' in IKEA..........................................................................................4
2.2 Impact of the tension between cost minimisation and quality maximisation in
organisations..............................................................................................................................4
2.3 Significance of the five performance objectives that underpin operations
management...............................................................................................................................5
TASK 3............................................................................................................................................5
3.1 Assistance of linear programming in production process.....................................................5
3.2 Evaluation of critical path and network planning.................................................................6
3.3 Need of Operational planning and Control in producing furniture.......................................6
TASK 4............................................................................................................................................7
4.1 Operational outcome of IKEA..............................................................................................7
4.2 Network plan and critical path..............................................................................................8
4.3 Application of quality management technique in order to improve operations in IKEA.....9
Conclusion.....................................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Operation management in an organisation focus on improving efficiency of a business.
They make plan and organise various resources in order to achieve objectives set by top level
management. IKEA is a company who make and sell furniture in various countries. They are
among table leader in this industry and they hold majority of share in this sector. Their vision is
to create better life for many people by providing them wide range of product at low cost so
people of different income group can buy them. Their mission is to retain the spot which they are
holding from long period of time (Ageron, Gunasekaran and Spalanzani, 2012). This report will
discuss about importance of operational management, it will also include five performance
objective. Critical path analyse and network planning will become part of this project.
TASK 1
1.1 Importance of operational management in IKEA.
IKEA is a multinational company, they have 1220 suppliers in almost 55 countries. When
an organisation operates at such a high level they have to give more attention at the time of
execution of plans. This type of management assist in planning, organising, coordinating and
controlling. Cited group has around 123000 co workers, they need training on basis, this
implementation of plans made under this system will help in improving workers performance. It
will also provide support in manufacturing process, if design of furniture get attractive than
potential customers can become permanent buyers in short period of time. Another importance of
this type of management is that IKEA can acquire raw material at right time which will stop the
delaying in production process (de MenezesWood and Gelade, 2010). It also provide great
assistance in smoothing the function of various departments. This will enhance their efficiency at
work place. They can get feedbacks from customers and make products according to their
demand.
After sale service is an integral part of operational management, in current scenario this
is one of the most important function done by many companies in different industries. Marketing
is essential department in any organisation because they are responsible to bring business for a
company. Operational management assist in connecting marketing wing with other sections like
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production, HR etc. View of employees working in marketing team will give appropriate
knowledge to manufacturing unit so they can make product according to the need of buyers. This
can play crucial role in increasing business of an organisation.
1.2 Operation function with reference to IKEA.
Operation function in IKEA focus on purchase of raw material and convert them into
finished good according to the need of customers (Diabat and Govindan, 2011). Production and
procurement of raw material can be considered as core function performed by cited company. In
order to achieve desired objective this organisation need to make strong connections between
these two departments. Manufacturing units need to provide correct detail regarding raw material
that they will be needing in upcoming so procurement wing can find best supplier who offer best
price for top quality of material. Quantity and quality are two main area where these departments
need to focus because these are the two main reason which create conflict between above
discussed two wings. Production unit is manufacturing furniture which can be assembled after it
reach home of customers.
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Different kind of raw material was needed in order to make this king of product. Strong
connection between two core functional unit made this task possible because purchasing
department started search of this kind of material when production team communicate them
about this idea (Gawer, 2011). Beside these two operational functions, there are some supportive
function which help in smoothing the work done in organisation. Human resource team hire
skilled workers who can work according to the need of organisation. Marketing team give views
to production and procurement wing so they can make goods according to the need of customers.
Packaging – In this era customers get attracted towards good packaging. It also save
product for wear and tear at the time of transportation.
Product designing – Product should be designed in way which is like by all customers. It
should provide right amount of comfort to the buyers.
Job designing – Every employee is allotted some tasks according to their talent so they
can contribute towards organisational goals.
Supply chain – In this point, an organisation try to find the location where they can get
maximum number of customers.
Supply chain management – All the activities relating to transferring of goods are
synchronised in order so all departments of cited company can proceed on same path.
Maintenance of warehouse – Warehouse need modification in regular interval of time in
order to maintain the quality of stock.
1.3 Evaluation of operation management in IKEA.
Process is more important than result which is the main reason that cited company give
lot of attention to procedure they are following.
Input: Main input in production process of furniture business is wood and other material like
adhesive, iron etc. In recent time stainless steel and plastic are new substance which help in
giving attractive finishing to a product. Their are general resources which are necessary in
manufacturing process like land, capital, labour etc. Sometime IKEA keep extra inventory in
their production house which sometime increase cost of the complete process.
Conversion – Raw material can not be converted into goods without involvement of labour
(GoldSeuring and Beske, 2010). Workers should be highly trained so they can produce more
goods in less time. Business of cited company is increasing on continuous basis so they need to
recruit more people in organisation in order to maintain balance between demand and supply. In
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process of conversion they need to take important decision regarding designing of furniture. Art
makes first impression in the mind of customers, employees need to use innovative ideas so they
can attract potential buyers.
Monitor – After the step of conversion, cited firm need to check goods that are ready for
customers. Workers need to verify whether the furniture is according to the demand of buyers,
quality and design should be monitored so clients can get product at right time. Monitoring team
must compare allotted time to manufacture good and actual time that has occurred in production
process.
Output – In this process IKEA deliver the furniture to the stores who gave order so they can sell
it further. Logistics is the main hurdle in this part of the process. Sometime it is very difficult to
take a product from one place to another. Client may not also receive wrong order.
IKEA operates on Just in time model where they do not keep huge amount of stock in
warehouse. They takes order on weekly basis and deliver them with in a week. They do no store
their raw material and other components in their warehouse for a long period of time. They also
do not keep finished goods in warehouse because it involves extra cost. They have a cleaqr
policy that they will not occur any carrying cost because it do not add any value in the final
product.
TASK 2
2.1 Importance of 'three Es' in IKEA
Economy, Efficiency and Effectiveness are 'three Es' which can influence the way
operate their business.
Economic – This side of operation management reveal about the fund that are present in cited
organisation. It also reveal about the process of production which may get cheaper or get costlier
in current and upcoming time (Hart and Dowell, 2011). When goods are produced in bulk their
overall cost go down but the act of keeping high quality need monetary resources because skilled
labour is needed to perform this task. Waste of raw material has increased cost of production in
IKEA.
Efficiency – In some factories, they are still using traditional way of manufacturing which is not
very efficient and creating various trouble in business operation. This is the main reason that they
are wasting more resources compare to other companies. But in some production house they are
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using automation, this process is assisting them in enhancing their overall production and quality
of their product is also improving. Cases of defective good is also going down, time taken in this
manufacturing procedure is also decreasing.
Effective – Their was a time when customers did not give much attention to the quality of goods
but in current scenario they focus on quality as well as design of furniture. Whole system can be
made effective by using innovation at different level.
2.2 Impact of the tension between cost minimisation and quality maximisation in
organisations.
In order to sell more goods marketing department want product of company to be of high
quality and attractive designing but at the same time production team has to keep low cost of
whole production process so they do not buy best quality of raw material or hire skilled labour
(Heizer, 2016). The reason behind this issue is that they get limited fund from finance wing. This
create tension among various teams and organisation face a situation of chaos. If cited company
want to improve quality than they have to invest more fund in manufacturing procedure, but
most of the players in this industry are focussing on reducing cost so they also have to minimise
the expenditure they are doing on production process. This tension create problem between
various department of organisation, they stop supporting each other which influence
synchronization among cited firm. In long run this will create big trouble in company because
different department will focus on their target instead of objective of organisation as a whole
(Holsapple, 2013).
In order to minimise cost and improve quality they may reduce their profit in upcoming
time. Policy of 'one step at a time' can be adopted to avoid this kind of tension.
2.3 Significance of the five performance objectives that underpin operations
management.
Five performance objectives are as follows:
Cost – Reduction in cost on continuous basis will assist cited organisation in getting some extra
edge over its competitors. If they can can manufacture good quality of goods at a low price than
their overall profit will enhance. If expenditure in manufacturing process go down than cost of
production of complete organisation will decrease which will save lot of funds of cited company
which they can invest in other areas.
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Quality – If a business want to retain top position in an industry than they have to sale best
quality of goods for a long period of time (Karlsson, 2016). If product of cited company is not up
to mark than buyers will go to new store and organisation may lose permanent customer.
Dependability – Keeping commitment is very important in any business, if cited group deliver
order to clients in the time they have promised than customer will never think about any other
furniture store. Now a days buyers are very choose so sales person need to understand their need
and than show them firm's available collection.
Speed – Design and quality can be copied by any company but if cited organisation provide
goods in short period of time than customers will prefer them at the time of purchasing any
furniture.
Flexibility – In current scenarios customers want product according to their need. They do not
like to buy a product which is available in the store, they like something changes in it. By using
innovation cited group is able to make any change according to the demand of client which is the
main reason that they have lot of permanent customers (Kindström, 2010).
TASK 3
3.1 Assistance of linear programming in production process.
In general view, if the process is lengthy than it will involve more cost. Cited company
should focus on find the shortest route in manufacturing process so expenditure in complete
production produce can be reduced in short period of time. Linear programming is a popular
method which is adopted by many organisations in order to minimise cost and increase profit
(Lavastre, Gunasekaran and Spalanzani, 2012). It provide great assistance in decision making
process which is the main reason that managers like to use it when they want their production
process to be more effective. Their are some steps in manufacturing procedure which take lot of
time, these linear programming will help in finding these steps so time taken in production of an
order can reduce by significant number. Some activities can not be done without completion of
other task, these activities should get finish on priority bases so production process can speed up.
Network planning play crucial role increasing sale of goods and reduce cost operation.
Following are benefits of linear planning:
 Results achieved from this system can be compared from previous performance which
can help in finding the shortcoming in current work.
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 It provide great assistance in determining efficiency of staff members because it is based
on quantitative terms.
 This type of programming is considered as one of the best method for resource allocation.
 Management get variety of option which helped them in process of correct decision
making.
3.2 Evaluation of critical path and network planning.
Total quality management is necessary in order to achieve organisational objectives
(Myers, 2013). Critical path method provide great assistance in execution of TQM. Main work of
this method is to find the time taken in the whole project, it also focus on resources that will be
needed in complete project. It this technique critical as well as non critical jobs are planned so
various problems and bottleneck can be prevented at the time of execution of plan. Network
planning work in order to minimise complexity of task. Before starting a production process a
layout of all the activities, that are going to happen in a project, is necessary. This will help an
organisation is moving on right track so they can complete particular task without any hindrance.
It will also help in analysing current performance of cited organisation. This method will solve
various problems that IKEA is facing in production process (Pettit, Fiksel and Croxton, 2015). It
also support in planning and controlling objectives of business so best result can be achieved in
short period of time. Critical path analysis assist in scheduling various kind of activities with will
be done in a process. It is the longest path which can not get delayed know as total floats.
Advantages Disadvantage
 Managers play crucial role in this
process which reduces the changes of
project getting delayed.
 Two tasks can be done at same time so
organisation can save lot of time.

 It can not represent complex activities
on a network.
 It has high dependence on estimations,
if they go wrong than useless result will
come.
3.3 Need of Operational planning and Control in producing furniture.
Their are various areas where operational planning and control is needed. Forecasting
demand of products is essential to maintain proper balance between demand and supply process.
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Demand of a particular furniture is determined so products can be made accordingly. It is also
essential in assembling stock like wood, steel etc. Benefit from this analyse will not be high but
prediction of correct demand can assist in reduction of overall cost of operation. Following are
some benefits:
Increment in efficiency – This planning control will reduce labour and material cost
without making any impact on quality (Slack, 2015). If worker know what they have to do that
they will not confuse with task of other employees. This will minimise duplication of work.
Increase profitability – In order to maintain high quality in goods, cited company should
check them in regular interval of time. This will help them in increasing profit by a significant
amount. IKEA is trying to reduce their cost of production and increase their quality in same time.
Cost reduction – In recent trend, cost of production of all the players in this industry is
enhancing. Operational planning and controlling provide great assistance in maintaining current
expenditure.
Meet the demand – Appropriate operational planning will deliver help in generation of
more quantity which will support in maintaining proper balance between demand and supply
chain.
TASK 4
4.1 Operational outcome of IKEA
Production management is deals with coordinating and controlling various tasks where
are related to manufacturing activities. Following can be general objectives of operational
outcome of cited company:
Enhancement in profit – Earning more revenue is the target of most of the companies.
This is considered as the main reason for their existence (Tang and Musa, 2011). Above
techniques will speed up the process of production which will increase their supply. They can
produce more good in less time which will give some extra edge to them on their competitors.
Cost reduction – If these techniques are proper used than they have capability to reduce
the cost of production by a significant amount. Saved resources can be utilised in areas like
innovation so company can design attractive furniture which can attract new customers. All the
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resource which are given to manufacturing department should be utilised in a way that wastage
can be minimised .
Accomplishment of targets – IKEA has very aggressive target, if they want to achieve it
than they have to execute these techniques without committing any mistake (Trkman, 2010).
This will help them in achieving their goals without wasting most of the resources that are
available in the organisation. If targets are not achieved in set time than cited company can get
off track.
Better designing of product – If process of production get fast than company will get
more time to invest in innovate design. They can allot more resources and funds to the people
who are responsible of designing. When people will get attractive product at low they will not go
to any other store, this will make a positive impact on their sale.
Fast delivery of product – If production of an item take less time than it will be easy for
cited company to deliver it according to the promised time (Wheelen and Hunger, 2011). Their
are many players in this industry who are making same kind of product with similar quality and
design. But providing future in less time is not possible for competitors. This provide some extra
edge to IKEA over their rivals.
4.2 Network plan and critical path
It mainly include three steps:
First stage – All the work is breaked into various paths according to their similarities and
other factories. IKEA is going to start production of new furniture, they have to buy various kind
of raw material and gather them at one place.
Second stage – Time required in determined so manager can allot necessary time to all
production teams.
Third stage – In this step, managers have to take decisions relating to time and cost. They
have to decide a path which is either not to short or very lengthy.
Activity Task description Completion time
(weeks)
Precedent activity/s
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