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Company Profile

IKEA is the worlds most successful mass-market retailer, selling Scandinavian-style home furnishings and other house goods in 230 stores in 33 countries and hosting 410 million shoppers per year. An acronym for founder Ingvar Kamprad and his boyhood home of Elmtaryd, Agunnaryd, IKEA began operating in Sweden in 1943 and continues its original ethos based upon cost obsession fused with design culture. No design, no matter how inspired, finds its way into the catalogue if it cannot be made affordable. With an aim of lowering prices across its entire offering by an average of 2% to 3% each year, its signature feature is the flat packed product that customers assemble at home, thus reducing transportation costs. Yet, unlike some peers, IKEA has sustainability at heart and, through an internal mantra of low price but not at any price is a leading example of sustainable innovation and business growth.The company designs its own furniture, which is made by about 1,500 suppliers in more than 50 countries. It also sells online and by mail order with the print run for the 2006 catalogue hitting 160 million - more than the Bible, so IKEA claims. Finding the right manufacturer for the right product is a key component of the companys success. It once contracted with ski makers - experts in bent wood - to manufacture its Poang armchairs, and has tapped makers of supermarket carts to turn out durable sofas. Simplicity, a tenet of Scandinavian design, also helps keep costs down. For example, the 50 cents Trof mug comes only in blue and white - the least expensive pigments.

Product Description
IKEA is a Swedish company registered in the Netherlands that designs and sells ready-toassemble furniture (such as beds, chairs, and desks), appliances, and home accessories. As of January 2008, the company is the world's largest furniture retailer.Founded in Sweden in 1943 by a 17-year-old Ingvar Kamprad, who is one of the world's richest people in 2013,the company's name is an acronym that consists of the initials of Ingvar Kamprad, Elmtaryd (the farm where he grew up), and Agunnaryd (his hometown in Smland, South Sweden). The company is known for its modern architectural designs for various types of appliances and furniture, and its interior design work is often associated with an eco-friendly simplicity.In addition, the firm is known for its attention to cost control, operational details, and continuous

product development, corporate attributes that allowed IKEA to lower its prices by an average of two to three percent over the decade to 2010 during a period of global expansion.

IKEA owns and operates 332 stores in 38 countries. In fiscal year 2010, US$23.1 billion worth of goods were sold, a total that represented a 7.7 percent increase over 2009.The IKEA website contains about 12,000 products and is the closest representation of the entire IKEA range. There were over 470 million visitors to IKEA's websites in the year from September 2007 to September 2008. A July 2013 media report speculated that IKEA is the world's largest consumer of wood after a finding that the company uses 1% of the Earth's wood supply.

IKEA SUPPLY CHAIN


IKEAs supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centres, or directly from the 1,350 suppliers in more than 50 countries. IKEAs supply chain consequently has a global spread with both sales and purchasing in all major regions of the world. IKEAs growth has been tremendous and sales are still growing. Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the coming five year. Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs.

The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This has led to a fragmented supply chain planning with local optimization and a lot of manual intervention with plans throughout the supply chain. Furthermore, due to frequent shortage situations some regions have purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand

coverage. Hence, some markets have suffered from stock outs during long periods, whereas other markets have ended up with obsolete inventories. Forecasting has been done on a regional level with approximately 120 users striving for different goals and using different methods. Part of the explanation to this is that IKEA has lacked a common and structured tactical planning of demand and replenishment. In terms of capacity planning, all different parts of the supply chain (stores, warehouses, regions, etc.) tried to optimize its own part of the supply chain, leading to a set of imbalanced supply plans with a low and unstable total throughput with long replenishment times for the supply chain as a whole. The above mentioned situation led to a number of problems with direct impact on performance in a number of ways. First of all, the supply chain had a functional orientation with limited transparency, leading to a reactive behaviour with fluctuating goods availability (sometimes stock out situation and sometimes over stock). IKEA has also used extensive manual work in its planning processes and the planning was based on fragmented and unreliable planning information. Hence, there was a lack of trust between different parts of the supply chain, which even further have enhanced the bullwhip effects in the IKEA supply chain. Other problems related to the supply chain performance was difficulties to get enough attention of data maintenance, the lack of proper follow-up tools to monitor forecast deviations, hard to change mindsets among users, no synchronization of order and stock data, to name but a few. To overcome the difficult situation, IKEA initiated a program (cluster of projects) aiming to taking better control of its supply chain, and enhance performance in terms of delivery service and costs. A new global planning concept was developed and is currently being implemented. Its cornerstones are mutually integrated planning processes, a centralized planning organization, focus on data quality and use of advanced software support. The purpose of this article is to outline IKEAs global supply chain planning concept and describe the roles of the planning organization, data quality, software support and project and change management in the concept and its implementation. The IKEA code of conduct IWAY for Suppliers IWAY specifies the requirements that we place on suppliers of products and services. Suppliers are responsible for communicating the content of the IKEA code of conduct to their employees and sub-suppliers.

below is a summary of some of the key points of IWAY The IKEA supplier shall always comply with the most demanding requirements whether they are relevant applicable laws or IKEA IWAY specific requirements. START-Up Requirements

The following criteria need to be fulfilled before starting up a business relationship with IKEA: No child labour No forced or bonded labour No severe environmental pollution No severe safety hazards A transparent and reliable system for records of working hours and wages Insurance covering medical treatment for work related accidents to all workers Environmental STANDARDS

Suppliers shall have plans in place to reduce the environmental impacts from their production and operation Suppliers must: Work to reduce energy consumption Prevent pollution to air, ground and water Handle, store and dispose of chemicals and hazardous waste in an environmentally safe manner Ensure that workers handling chemical sand hazardous waste have the right competence and are adequately trained

Social AND Working CONDITIONS

IKEA expects its suppliers to respect fundamental human rights, and to treat their workers fairly and with respect. Suppliers must: Provide a healthy and safe working environment Provide health and safety training for workers Ensure their buildings are safe, have reasonable privacy, are quiet and have facilities for personal hygiene, in those instances where housing facilities are provided Pay at least the minimum legal wage and compensate for overtime Base overtime on voluntary agreements, not exceeding legal limits Allow time off and regular breaks Not discriminate on any basis Not prevent workers from exercising collective bargaining activities Not accept corporal punishment, threats of violence or other forms of mental or physical coercion.

IKEA SUPPLIERS: Home Furnishing Supplier

A new, systematic approach to home furnishing supplier development was introduced. All 1,074 IKEA home furnishing suppliers have been classified based on capacity, performance and longterm potential, including sustainability aspects. Initially, around 200 suppliers with the highest

priority classification are eligible to be part of a Supplier Development Programme (SDP).During the SDP analysis phase, IKEA identifies a limited number of suppliers with particular potential to improve within a specific area, and offers support for a certain period of time. Support can be provided within six main categories: sustainability, purchasing (including raw materials), logistics, manufacturing, quality and product development. SDP Sustainability focuses on two sub-categories: energy and water. Forestry issues and several other environmental aspects of suppliers activities, such as raw material utilisation, are sub -categories covered by other SDP categories. . The work with sub-suppliers is primarily focused on compliance with the IWAY start-up requirements at those sub-suppliers that are categorized as critical. The purchasing organisation in South Asia, where suppliers often use many subsuppliers that can be home-based and/or spread over a large geographical area, has developed a web-based real-time database of sub-suppliers. here, suppliers continuously update details on their sub-suppliers to the end of the supply chain, providing the necessary details to allow for concentrated improvement efforts as well as unannounced audits in high-risk areas. IKEA is currently looking into a common database solution that can be used where todays systems do not meet IKEAs need. IKEA co-workers from our local and regional IKEA Trading Service Offices are often on-site at suppliers factories to support and motivate suppliers to implement and maintain IWAY requirements. Their active presence contributes to suppliers development. IKEA auditors regularly visit suppliers to ensure that IWAY criteria are met. These visits can be both announced and unannounced. Over the last few years, the number of unannounced audits has increased substantially. These give us more accurate picture of suppliers factories and help us focus support to specific areas of non-compliance. Each supplier is audited at least every second year, and more frequently in some countries based on risk assessment. IKEA auditors help with action plans when there is non-compliance, and they conduct follow- up visits to review

progress. There are clear mandatory directions for how to conduct audits, what the consequences are in case of incompliance, how to follow up, etc. Incompliance with the IWAY start-up requirements leads to im- mediate stop of deliveries, while suppliers have up to 90 days to implement corrective actions in case of non-compliance with other requirements. Once noncompliance. with start-up requirements is resolved, suppliers are still on probation for six months with intensified monitoring. Non-compliance data are followed up on a monthly basis. The

IKEA Compliance and Monitoring group (CMG) is responsible for ensuring that the same audit judgement level and follow-up procedures are used worldwide. This is done through separate calibration activities and training as well as compliance audits to verify results. Together these ensure a common audit and implementation standard. Third-party auditors such as KPMG, Intertek Testing Services and Price water ouse Coopers verify IKEA working methods and audit results. These third-party auditors also conduct their own audits at IKEA suppliers. IKEA Food Suppliers IKEA purchases fresh and packaged food from both global and national suppliers, and our IWAY audits at global suppliers have shown a high level of compliance with our social and environmental requirements. In FY10, we took the first step towards implementing the code of conduct at more than 1,000 national food suppliers. IKEA has taken a first step towards implementing our code of conduct IWAY at national food suppliers. All national food suppliers are expected to have signed the IWAY Compliance Commitment by the end of 2010, and they will have a maximum of 12 months to implement the code of conduct. IKEA realises that monitoring and auditing the many national food suppliers will be a challenge, requiring both resources and time. The first IWAY audits among more than a thousand national food suppliers are expected to be conducted in FY12, with around 100 suppliers selected for audits based on risk assessment. Packaged food for the Swedish Food Market is purchased centrally from our global suppliers, while food for the IKEA restaurants is purchased from both global and national suppliers. The global range, bought from 90 suppliers, is the same in all IKEA stores worldwide. In addition, each country purchases food for the local part of the menu. A person appointed as responsible for food safety systems, including crisis management, recalls, etc. Food safety training for all co-workers on a regular basis A Hazard Analysis Critical Control Point(hACCP) system in place A Global Food Safety Initiative (GFSI)third party approved food safety management certification

Full traceability for all ingredients in IKEA products including packaging material Routines for analysis from raw material to finished products Verified declared shelf life of products Verified declared content and nutritional values. The product shall be analysed for energy, water, protein, ash contentsodium, total fat content, saturated fat, trans fats, carbohydrates and sugars. If the product has a declared content of dietary fibres, reduced sugars, or if the product claims to be free from certain allergens, e.g. gluten, this should also be analysed Appropriate, legal labels and packaging for all IKEA markets.

IKEA Transport service Providers IKEA transport service providers are key to efficient and sustainable goods shipments from suppliers to warehouses and stores, and to home deliveries from store to customer. In FY10, customer delivery transport providers started implementing IWAY to secure our requirements on social and environmental responsibility. IKEAs long-haul ocean and land transport service providers have been covered by the code of conduct IWAY since 2005. In FY10, IKEA expanded the IWAY scope to include customer delivery carriers that transport products from our customer distribution centres (CDC) directly to IKEA customers. These carriers generally use smaller vehicles to transport products to customers homes. In the first year, eight customer delivery carriers representing 20 percent of our total expenditure in this category were audited and approved as compliant with IWAY as well as the industry-specific requirements. This indicates a generally high level of preparedness in the industry with regard to the issuesincluded in IWAY. The goal is that these carriers as well as the long-haul carriers shall comply with IWAY and the industry-specific requirements by the end of FY12. New suppliers must comply with the IWAY startup requirements before being allowed to deliver to IKEA, while being given a maximum implementation time of nine months for all other requirements.

IKEA products are transported by road, rail and sea between suppliers, distribution centres and IKEA stores, and from our stores home to our customers. IKEA audits its transport service providers at least every 24 months to monitor compliance with our code of conduct IWAY, including the transport industry-specific requirements. In addition, IKEA transport social & environmental developers engage in dialogue with transport service providers on a regular basis to support best-practice exchanges between suppliers and to make sure transport service providers conduct their own internal audits annually.

LOGISTICS MANAGEMENT

At IKEA, thousands of products are handled daily. The movement of goods must be as efficient as possible, under all circumstances, guaranteeing service to our customers and ensuring that the products they seek are available to buy at all times. Jobs in logistics account for about 20 -25% of each stores co-workers, all of whom provide a vital link in our operations. Our goal is to be in full control of the space and the volumes of goods in order to maintain uninterrupted sales. A good team spirit, professionalism and the willingness to work hard and learn. These are all qualities that help logistics co-workers progress within this field. The better you know the IKEA stores activities, the greater the likelihood of finding new solutions that make things run even more smoothly. With operations on both national and international levels, those who demonstrate exceptional personal initiative have the chance to progress rapidly in this field. Work areas in logistics Management are: Receiving & replenishment

The efficient flow of goods within an IKEA store is one of the key activities that ensures high sales and a high level of availability of goods for our customers and low costs. The goal of receiving and replenishment co-workers is to monitor and record deliveries, carefully check delivery notices, sort and separate the goods and get them off to the correct sales area or designated overstock locations. As part of a larger team, receiving and replenishment co-workers must then load the goods from the floor onto the stores racks and shelves. This not only requires good problem solving skills and an ability to make the sales location commercially attractive, but is also physically demanding.

Managing logistics

The sheer volume of goods coming in and out of each IKEA store each day makes running a logistics department an enormous challenge. A manager in this area drives the cooperation between the sales and logistics departments, knowing how to exploit every cubic meter of space. It is also the managers responsibility to supervise the ordering of products to the store, en suring the correct quantities are acquired.The qualities required for this job are a high level of communication and education skills, an analytical mind, an ability to lead teams, coordinate tasks, set long term goals and follow them through.

Stock controlling

Efficient routines for dealing with stock are an important part of successful store operations. Since there are literally thousands of goods moving in and out of the sales space and warehouse, it is a huge task to keep track of them all. The stock controller does this, establishing routines and procedures that also help keep logistics costs down. Inventory accuracy, inbound checks, and transfer types are all key aspects of the job. To succeed in this position, you need to be analytical and good at solving mathematical problems, whilst also able to communicate well with colleagues.

Demand Forecasting
Some 32 Demand Planners are active in the tactical demand planning process, each responsible for forecasting a certain part of the assortment. The tactical forecast resides with IoS and is done on a rolling 84 weeks planning horizon on store level, with new historical sales data loaded once a week. The operational forecast is a manual forecast (for the most of the time replenishment needs in the stores) registered by the respective sales unit (i.e. store) for the coming three weeks, whereas a tactical forecast (based on sales history) is used for weeks four to 84. The operational forecast and the tactical forecast are combined to create a final forecast for each article on the selling unit level (i.e. the store level). Thereafter the forecasts on store levels are aggregated, reconciled, and compared with the sales frames on the retail forecast group level (i.e. normally country level) and on the distribution services region level. A Retail Forecast Group (RFG)

consists of one to several stores located geographically close to each other. In Europe, a Retail Forecast Group normally corresponds to a country. The Retail Forecast Groups are usually grouped and served by a fewer number of Distribution Services regions, in Europe for example, there are six such regions. The market input on the two upper levels concerns every countrys activity plan (for example campaigns) and estimated price changes on product level. IKEA encourages the individual countries and stores to have local campaigns and activities. But country specific activity plans must be decided at least six months in advance. Activities on store level can be planned on shorter notice. Demand Planners review the forecast on the regional level each week in order to identify those products for which the forecast deviates considerably from actual sales. In case that sales deviate considerably from forecasted figures, the Demand Planner looks for the reason and adjusts the sales figures or forecast model accordingly. Tactical demand planning Market FC on region input level Aggregate Reconcile sales history forecast Market FC on retail input unit level Sales frames Need calculation Aggregate Reconcile sales history forecast FC on selling unit level Statistical Operational forecast forecast.

On 19th October 2013, worlds largest furniture retailer Ikea has deployed a demand forecasting system so that it can manage a decline in the number of its suppliers. Ikea, which reported worldwide sales of 9.93bn in its last financial year, wants to purchase more of its goods from a smaller number of suppliers in low-cost countries, often in Asia. By using countries that are further away than its traditional suppliers, Ikea needs to forecast its demand for those products earlier. This has been a successful move for us and has made it far simpler to start focusing on low-cost countries and cutting back on suppliers. In the long run, this will help us to improve profits and make our management system more efficient. Ikea chose the demand forecasting and fulfilment modules from merchandising software supplier JDA. Ikea has also deployed a

demand forecasting system to manage suppliers working with longer lead times, as it moves to increase its sourcing from low-cost destinations further from its European headquarters. The furniture retailer, which reported worldwide sales of 9.93bn in its last financial year, wants to purchase more of its goods from a smaller number of suppliers in low-cost regions such as Asia. By using countries that are further away than its traditional suppliers, Ikea needs to forecast its demand for those products earlier.

Conclusion
IKEAs conservation drive extends naturally from this cost-cutting. Adding to the challenge, the suppliers and designers work to customize some Ikea products to make them sell better in local markets. That said, the global middle class, that IKEA targets, shares buying habits: The $120 Billy bookcase, $13 Lack side table, and $190 Ivar storage system are its best-sellers worldwide and average spending per customer globally is even similar: According to IKEA, the figure in Russia is $85 per store visit - exactly the same as in statistically more affluent Sweden. IKEA operates approx 25 US stores, which account for 11% of the company's sales and Germany is its biggest market, accounting for nearly one-fifth of revenue. Sales have been growing steadily each year thanks both to expansion of its store network and the ongoing price cuts - 18 new stores were opened in 2005 and the retailer reduced prices by 3%. Such expansion has kept IKEAs turnover rising in 2005 by 17.3% to $18.8 billion from $16.0 billion in 2004. And, although being privately held IKEAs profit figures are not published, conservative estimates put pretax operating profits at around $1.7 billion. IKEA maintains these profits even while it cuts prices steadily with operating margins of approximately 10% being among the best in home furnishing. To keep growing, IKEA is accelerating store rollouts in both large outlet and new high-street formats. Nineteen new large outlets are set to open worldwide in 2006, at an average cost of $66 million per store. The firm plans to boost their profile in three of its fastest-growing markets: In Russia, where it is already a huge success in Moscow, in China, where is has a strong footprint, and in the US, where the goal is to have 50 outlets by 2010. IKEA demonstrates that, when underpinned by strategic partnerships with manufacturers and suppliers, providing access to affordable contemporary design, in an exciting, yet simple format can be a winning formula.