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IKEA-Case Study Supply Chain Management

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Ikea can be stated as the world’s largest furnishing product vendor (Kotler et. al., 2009) with sales of over 20 billion Euros in 2009 (Kelly, 2010). The company is known all over the world, especially Europe, North America and more frequently in Asia and Australia and is popular for offering “ a wide range of well designed, functional home furnishing products at prices so low as many people as possible will be able to afford them” (Kelly, 2010, p.1). In order to be able to fulfil this aim and promise, IKEA had to and also did implement certain strategies with the aim to be as efficient as possible and provide their customers with the expected quality and mutually satisfy their needs for the reasonable price. In the following it is to discuss the main supply chain strategies IKEA chose in order to work effectively with their respective members and achieve their business goals. Furthermore it is to enlighten the major advantages and value adding factors IKEA gains from their strategies and good relationships and networks with their supply chain members, as well as the assumable measures for improvement IKEA could develop in the future.

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This report focuses on IKEA’s management and communication surrounding sustainability in general and chemical risks specifically. IKEA’s work is analysed in relation to theoretical concepts around responsibility, supply chain, and governance . The report focuses on IKEA’s visions and organizational structures, its policy instruments to deal with chemical risks, supplier-relations and communication and learning. The study is based on previous scholarly literature, analyses of relevant documents, a field visit at a few of IKEA’s suppliers in southern India, as well as interviews with staff working at IKEA in Sweden. The report focuses on IKEA’s systems and processes for dealing with chemical risks, and not on the implementation of such measures in quantitative terms.

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Sustainable supply chain management: a case study at IKEA

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Date of Publication: Nov 21, 2017

Author: Francine Laurin & Kamel Fantazy

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  • September 2014 (Revised November 2017)
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Sustainability at IKEA Group

  • Format: Print
  • | Language: English
  • | Pages: 21

About The Authors

ikea case study supply chain management

V. Kasturi Rangan

ikea case study supply chain management

Michael W. Toffel

Related work.

  • August 2015
  • Faculty Research

Sustainability at IKEA Group: Video Supplement

  • September 2015
  • Sustainability at IKEA Group: Video Supplement  By: V. Kasturi Rangan and Michael W. Toffel
  • Sustainability at IKEA Group  By: Michael W. Toffel
  • Sustainability at IKEA Group  By: V. Kasturi Rangan, Michael W. Toffel, Vincent Dessain and Jerome Lenhardt

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Inside IKEA’s Digital Transformation

  • Thomas Stackpole

ikea case study supply chain management

A Q&A with Barbara Martin Coppola, IKEA Retail’s chief digital officer.

How does going digital change a legacy retail brand? According to Barbara Martin Coppola, CDO at IKEA Retail, it’s a challenge of remaining fundamentally the same company while doing almost everything differently. In this Q&A, Martin Coppola talks about how working in tech for 20 years prepared her for this challenge, why giving customers control over their data is good business, and how to stay focused on the core mission when you’re changing everything else.

What does it mean for one of the world’s most recognizable retail brands to go digital? For almost 80 years, IKEA has been in the very analogue business of selling its distinct brand of home goods to people. Three years ago, IKEA Retail (Ingka Group) hired Barbara Martin Coppola — a veteran of Google, Samsung, and Texas Instruments — to guide the company through a digital transformation and help it enter the next era of its history. HBR spoke with Martin Coppola about the particular challenge of transformation at a legacy company, how to sustain your culture when you’re changing almost everything, and how her 20 years in the tech industry prepared her for this task.

ikea case study supply chain management

  • Thomas Stackpole is a senior editor at Harvard Business Review.

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An IKEA warehouse with shelving numbered with large signs and a person driving a forklift.

Using AI for smarter demand forecasting

IKEA has developed an advanced tool that can significantly improve the accuracy of its demand forecasting. The tool uses artificial intelligence, and existing and new data to offer highly accurate forecast insights. The tool is currently rolled out in Norway. We talked to Peter Grimvall to find out more about the new tool and how it helps IKEA plan its demand and supply better.

Peter is almost like a mathematics teacher. When presented with a big problem, he breaks it into small pieces, finds solutions for each bit, puts them together and voila, there is an answer. So, on a late Friday afternoon, when Peter was asked about why accurate forecasting matters to IKEA and how the new tool – Demand Sensing – will help it improve, he breaks the big technical maze into small bite-sized pieces. “Demand planning, which is a forecast on how much we are going to sell in the future, is a significant number for us”, says Peter.

Think of it like this – demand forecasting means estimating all the products that more than 450 IKEA stores and ecommerce across 54 markets will need at various times of a year. The fact is these numbers could be a couple of billions of products. And, if there is inaccurate forecasting, it could mean an inadequate number of products in IKEA stores, leading to longer waiting periods for customers or an overstock.

“Without a proper and accurate forecast, we can’t understand the demand… what needs to be supplied, to who, and when. If it’s too much, it increases our costs and hence prices to our customers, or too little, which means we won’t be able to provide the right offering to our customers. This can have a big impact on our business and the way we serve our customers”, says Peter.

An isle inside an IKEA warehouse with long rows of shelving and a forklift.

Peter Grimvall, Supply Chain Development Area Manager.

Demand Sensing – the new tool

The forecasting system that IKEA has used so far would make predictions based on statistical sales. These would include, for example, sales and demand patterns from last years.

On the other hand, Demand Sensing can make use of up to 200 data sources for each product to calculate forecasts and predict the future demand more smartly and effectively. The tool can use several influencing factors, such as shopping preferences during festivals, the influence of seasonal changes on purchase patterns, and weather forecast, among others.

“The Demand Sensing tool is a unique way of applying artificial intelligence for supply chain planning. This will be the largest deployment of AI in IKEA’s supply chain”, says Peter. It can even understand the increase in-store visits during a specific period of a month, such as when people get their salaries, and buying patterns during festive periods and holidays. “In the past, we’ve had around 92 per cent of the forecast being accepted, and 8 per cent was corrected. And now, with the Demand Sensing tool, we are at a level of close to 98 per cent accepted forecast, with only 2 per cent corrected,” says Peter.

An IKEA warehouse with shelving numbered with large signs, plus an orange forklift.

A smarter, omnichannel tool

With the existing forecasting tool, demand predictions would start at a global level and then be broken down to regional, country and store levels.

Demand Sensing, however, builds up knowledge from a local perspective, with the local customer at the centre of its forecast. Once the local store forecast is made, it can then go up to market, country, region, and global levels.

Let’s understand this with an example. In the IKEA store in Furuset (Oslo, Norway), let’s say there is a trend that one product is selling faster than expected. With the new tool, the forecast for that product will go up in Furuset, Oslo, but not in the rest of Norway. With the system that IKEA is currently using, the forecast would be raised for the whole country.

What this means is that Demand Sensing works smartly and across online and offline channels by capturing demand. So, if the sales increase in the online channel, the forecast will capture it right away.

“The new tool can forecast demand from a day-to-day basis to up to 4 months. With us trying out new store formats and new selling capabilities, and fast-changing customer behaviours, the tool is agile enough to capture the unique needs”, says Peter.

Pallets with large packages being transported along two long conveyor belts.

Smart forecasting – lower cost

An accurate forecast means that IKEA stores will get relevant articles at the appropriate time. This can ensure better availability of products for customers both within the stores and online, helping the brand delight its customers at all touchpoints.

The reduced need for manual overrides and fewer errors will also help to save money in the company’s supply chain and optimize its logistics better.

What are the benefits of accurate forecasting?

“What is the cost for poor planning? When we stop selling an article, we must lower the price to sell it out. This is a significant expense today. From the business point of view, if we can improve the accuracy, we will have less inventory of things we don’t need. This saves logistics costs that can be passed on to the customer. We will have fewer complaints from our suppliers that they have bought too much raw material for a specific product going out of the assortment.

From a carbon dioxide emission perspective, the more efficient we can be in our supply chain, the more positive impact we will see. Because the last thing that we need is to ship products into places where customers may not need them.”

Pallets with packages in a large warehouse; some stand in yellow boxes painted on the floor.

What’s next for IKEA in terms of AI and innovation for supply chain management?

“We can do much more in terms of different prediction models so that we can forecast various supply chain events – how long should the lead time be, how much a new product will sell for example. Hence, predicting planning parameters with the use of AI will be one big area.

The other area is related to supply chain planning, which has two parts – planning and problem-solving. We always have some problems to solve, but we are not capturing the solutions today. So, what we’re trying to do right now is to develop a corporate memory that can register the problems we faced and how we solved them. With this corporate memory, we will bring in automation. We call it as digitalized decision making. So, that’s a big area that we are exploring right now.”

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Inside IKEA’s Supply Chain & Inventory Management

Post on Tuesday, August 21st, 2018 in Accounting

ikea case study supply chain management

Founded back in 1943 in Sweden, IKEA is now one of the world’s most well-regarded furniture and household appliance brands.

It is also the largest furniture retailer in the world. For 75 years, the company has been living up to its key goal, which consists in making “well-designed, functional home furnishings available to everyone,” as stated on its website .

But what we’re here to talk about is IKEA’s supply chain and inventory management. 

That’s the backbone of the company, and what allowed them to grow at scale and reach these loft numbers:

  • IKEA closes up the Top 40 of the World’s Most Valuable Brands , according to Forbes rating.
  • The company owns over 400 stores in more than 50 countries around the globe.
  • Nearly 200,000 employees work for IKEA Group worldwide.
  • In 2013, IKEA printed 212 million copies of its catalog, translated into 29 different languages.
  • As of 2016, the company sold $42.4 billion in goods.
  • Each year the company launches nearly 2,500 new products. As of 2017, IKEA had 9,500 products in their portfolio.
  • In 2017, IKEA website reached a total of 2.3 billion visitors globally whereas the physical stores reached 936 million visitors.

The furniture giant owes a lot of this success to its unique and innovative supply chain strategy. That’s the straw that stirs the drink for IKEA, the thing that gives IKEA its competitive advantage.

In this post, we are going to take a closer look at the key features of IKEA supply chain and see how they have led the company to success.

IKEA Supply Chain: How It Works

Before we dive into the gritty details, let’s give a brief overview of how the supply chain of IKEA works.

It goes roughly like this: 

  • The company identifies the production requirements of each item, and determines the necessary logistics and related costs.
  • IKEA representatives order the required raw materials from suppliers.
  • The company distributes the resources for manufacturing and starts the production process while adhering to its quality requirements.
  • The manufactured products are delivered to storage facilities and distributed to stores, and eventually, customers.
  • If the customers are not satisfied with the quality, they can return products according to the warranty that they get with the purchase.

That’s the broad overview, but next we’ll get into the finer details about what makes IKEA’s supply chain so effective.

ikea case study supply chain management

IKEA Supply Chain Features

These features allow the company to optimize its supply chain management processes.

  • IKEA manufacturing and shipment costs are quite low because its furniture and home accessories are made of recycled and sustainable materials. In such a way the company uses fewer materials and requires fewer resources to produce and ship new parts.
  • The most remarkable feature of IKEA furniture is that customers assemble it themselves. The furniture is sold in pieces, which are placed into convenient, flat packages. As a result, IKEA saves on transportation and fulfillment because the pieces take up less room in trucks. IKEA can ship more items at a lower cost. The DIY principle also allows the company to use the storage space more economically and thus save IKEA money on inventory management. Finally, many products are shipped directly from suppliers to the stores, a strategy that also significantly reduces warehousing and storage costs.
  • More than 1,800 suppliers in 50 countries sell raw materials to IKEA. The company uses 42 trading service offices around the world to manage relationships with suppliers. It signs long-term contracts with the most trusted suppliers and thus gets materials at the lowest possible prices. Besides, IKEA encourages its wholesale partners to be environmentally conscious by giving them rules and guidelines called the IKEA Way of Purchasing Home Furnishing Products (IWAY). Such an approach helps to improve quality standards and reduce prices. This is what makes the furniture more affordable for customers.
  • Unlike other stores, IKEA hires in-store logistics managers who are responsible for all inventory-related processes, such as monitoring deliveries, sorting and separating goods, and directing them to the correct locations. Each IKEA store has a showroom on the upper floor and a warehouse on the ground floor, with more than 9,500 products in stock. In the showroom, shoppers can see and feel the products. Each item has its own article number as well as an aisle and bin number. Customers can use these numbers to locate items in the warehouse. However, shoppers cannot access one-third of the warehouse because this zone is designated for bulky items, which cannot be collected without help from the staff.
  • Cost per touch means that the more times somebody touches the product during the shipment, the more costs the company carries, because it needs to pay the procurement and delivery staff. However, IKEA customers collect the most of the items themselves, so fewer “touches,” and fewer costs, are involved.
  • IKEA warehouses are divided into automated facilities for fast-selling items and manual facilities for slow-selling items. This allows the company to reduce handling costs for low-demand products and ensure the smooth flow of high demand products within the IKEA supply chain.
  • With the IKEA inventory tracking system, the staff can set up both the minimum number of products available before reordering, and maximum number of a specific product to order at one time. These settings help the company nail down the perfect reorder point , and prevent understocking and overstocking issues. It keeps logistics managers aware of what is sold, and how much inventory enters the store through direct shipping and from distribution centers. They use this information to forecast sales for the next couple of days and order products to meet the forecast demand. If the sales data does not match the expected number of items that should have been sold that day, the logistics manager does a manual stock take.
  • IKEA values its customers above all and strives to deliver the best service possible. Constant monitoring of customer satisfaction is an integral part of IKEA’s business strategy. They analyze the number of complaints, returned products, demand for certain products and customer suggestions. Company representatives even visit the homes of their customers to gain feedback and ideas on products that customers might be looking for. The collected ideas are then used as the starting point of a new design process. Finally, IKEA stores provide the visitors with additional facilities, such as play areas for kids as well as food courts and mini shops with traditional Swedish food. This encourages the customers to visit physical stores even in the era of ecommerce and online shopping.

ikea case study supply chain management

Now you know the secrets of IKEA’s supply chain strategy

We talked about a lot of the things that helped the furniture giant become what it is, including:

  • How sustainable manufacturing saves costs on raw materials.
  • How the do it yourself approach, cost per touch strategy, and direct shipping to stores save storage costs.
  • How long-term contracts with suppliers leave room for volume discounts.
  • How warehouse zoning ensures efficient inventory management.
  • How internal inventory management software controls the reorder point and optimal order quantity.

These strategies are definitely worth borrowing. If wisely used and adapted, they can lead a retailer to success. If you’re looking to streamline your supply chain, take a look at Dynamic Inventory’s inventory management system , and see how it can take your business to a new level of efficiency. 

Adam Shrum

Adam is the Assistant Director of Operations at Dynamic Inventory. He has experience working with retailers in various industries including sporting goods, automotive parts, outdoor equipment, and more. His background is in e-commerce internet marketing and he has helped design the requirements for many features in Dynamic Inventory based on his expertise managing and marketing products online.

Learn how Dynamic Inventory can streamline your business today!

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COMMENTS

  1. Sustainable supply chain management: a case study at IKEA

    IKEA has successfully integrated in-house sustainability practices -environmental, social, and. economic. Research on sustainability and SCM compared against IKEA s documents and practices to ...

  2. Behind the Scenes of IKEA's Supply Chain Strategy

    To further enhance supply chain sustainability, the company developed a proprietary tool called the "e-wheel," which helps assess the environmental impact of its products at five stages of the supply chain, each forming a key part of its strategy: Raw materials. Manufacturing. Distribution. Consumer use. End of life.

  3. Sustainable supply chain management: a case study at IKEA

    IKEA has successfully integrated in-house sustainability practices - environmental, social, and economic. Research on sustainability and SCM compared against IKEA's documents and practices to include the management of a global supply chain. This case study represents document searches from IKEA public sources.

  4. Sustainable supply chain management: a case study at IKEA

    We analyse sustainability practices using data gathered from IKEA as a global case study. Our research findings reveal that sustainability practices can be successfully implemented across an organisation's entire supply chain, including second and third tier suppliers to gain positive environmental and social impacts while still promoting a ...

  5. IKEA-Case Study Supply Chain Management

    The paper is a case study for the different types of risks faced by IKEA as the company started its operations in China. How the risks were mitigated, avoided or accepted has been discussed. Download Free PDF. View PDF. Centralised supply chain planning at IKEA Supply Chain Management: An International Journal.

  6. Strategic Supply Chain Management Implementation: Case Study of IKEA

    The case study research is mainly concerned with implementation of supply chain strategy through discussion of IKEA’s strategic business purpose. Thus, the case intends to analyze supply chain management and competitive strategy applicable to IKEA. It has been observed how the worldwide leader in furniture retailing gapped through imperatives and innovations and still expanding by ...

  7. PDF Centralised supply chain planning at IKEA

    Purpose — The purpose of this paper is to analyse the prerequisites and effects of centralised supply chain planning at IKEA, and to explore how the planning process, planning system, and planning organization make up a centralised planning approach. Design/method/approach — The paper is based on a longitudinal case study of IKEA's ...

  8. PDF Strategic Supply Chain Management Implementation: Case Study of IKEA

    The case study research is mainly concerned with implementation of supply chain strategy through discussion of IKEA's strategic business purpose. Thus, the case intends to analyze supply chain ...

  9. Sustainable supply chain management: a case study at IKEA

    This one case pilot study explores the extent to which IKEA has successfully integrated sustainability practices into the management of the supply chain. We analyse sustainability practices using data gathered from IKEA as a global case study. Our research findings reveal that sustainability practices can be successfully implemented across an ...

  10. Creating a sustainable IKEA value chain with IWAY

    With IWAY we create impact in 4 main areas by: Promoting positive impacts on the environment. Securing decent and meaningful work for workers. Respecting children's rights. Improving the welfare of animals in the IKEA value chain. Watch: the IKEA way of working with suppliers for positive impact on people and planet.

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  12. How Does IKEA's Inventory Management Supply Chain Strategy Really Work?

    Maximum/Minimum Settings As Proprietary System. The in-store logistics managers use an inventory replenishment management process developed by IKEA called 'minimum/maximum settings' to respond to store-level inventory reorder points and reorder products. Minimum settings: The minimum amount of products available before reordering.

  13. Sustainability at IKEA Group

    Abstract. By 2014, IKEA Group was the largest home furnishing company, with EUR28.5 billion of sales, and planned to reach EUR50 billion by 2020, mainly from emerging markets. At the same time, IKEA Group had adopted in 2012 a new sustainability strategy that focused the company's efforts on its entire value chain from its raw materials ...

  14. Sustainable supply chain management: a case study at IKEA

    Sustainable supply chain management: a case study at IKEA. Francine Laurin, Kamel A. Fantazy. Published 2 October 2017. Environmental Science, Business. Transnational Corporations Review. Abstract While sustainability is central to research on supply chains, there has been relatively little research on diversity and impact on supply chain ...

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  18. Using AI for smarter demand forecasting

    "The Demand Sensing tool is a unique way of applying artificial intelligence for supply chain planning. This will be the largest deployment of AI in IKEA's supply chain", says Peter. It can even understand the increase in-store visits during a specific period of a month, such as when people get their salaries, and buying patterns during ...

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