IKEA Asset and Process for Supply Chain

The chain of IKEA stores is distributed around 37 countries of the world where 298 stores are open for the customers. IKEA’s overall strategy is consumer-centered, according to which all the furniture designed by IKEA is functional, of high quality, efficiently distributed, and environment-friendly (Lu, 2014). The concept of “Do-It-Yourself assembly lowers packaging costs,” allows for providing goods for competitive lower prices, and necessitates the design to contain minimum parts and materials for the most efficient and practical use (Lu, 2014). Such a product design approach reflects the company’s vision of providing affordable and high-quality furniture to as many people as possible.

Sustainable development is a significant aspect of IKEA’s overall business strategy. The firm commits to utilizing only renewable and recyclable materials that predominantly include wood, glass, and cotton (Rangan et al., 2014). IKEA particularly works on the energy use strategies, according to which it minimizes the use of energy across the process cycle and aims at producing as much renewable energy as it utilizes (Rangan et al., 2014). The environmental impact of the furnishing produced by the company is of significant concern to IKEA’s management (Rangan et al., 2014). Thus, the company contributes to improving community life by producing sustainable products for consumers’ sustainable life.

Despite the main focus on low prices, a functional design, and high-quality, sustainable material, IKEA chooses suppliers by prioritizing long-term business cooperation. IKEA has generated a system of relationships with its suppliers by outsourcing production services instead of owning its manufacturing facilities (Huy et al., 2011). Having more than 1,000 suppliers worldwide, IKEA enters into alliance relationships with the suppliers. The company provides technical and financial support in terms of facilities and materials. However, it does not develop a strategy of supplier ownership, with the only exception of Swedwood as a fully IKEA-owned company (Huy et al., 2011). The company concentrates on designing and selling processes while outsourcing the production processes.

Some other unique features of IKEA’s supply chain processes include an in-store logistic service, a cost-per-touch principle, and inventory replenishment. Firstly, warehouses function as physical stores accessible to customers, due to which the costs and management efforts are reduced (Lu, 2014). Secondly, the company shifts the outbound logistic cost to the customer and eliminates unnecessary costly steps of shipment, storage, and delivery. Finally, the inventory replenishment process allows for “the minimum amount of products available before reordering” and “the maximum amount of a particular product to order at one time” (Lu, 2014). However, the COVID-19 pandemic has had a negative impact on IKEA’s supply management since its continuous prioritization of physical store selling slowed down the development of online purchasing. Therefore, the company plans to invest in the digital domain to improve its remote selling capacity.

Since both IKEA and Wayfair are in the furniture business, they both utilize their resources differently to make sales. IKEA has a stronger brand name that has been trusted for many generations, since 1943, while Wayfair began in 2002. Many people are familiar with the IKEA brand as compared to Wayfair. In addition, IKEA has brick-and-mortar stores which gives it a competitive advantage as opposed to Wayfair, which only runs online stores (Lu, 2014). However, Wayfair has made considerable investments in technology as compared to IKEA. The process flow in IKEA entails the customer doing everything from the pickup, transport, and even assembling the furniture while Wayfair, in collaboration with shipping companies, ensures that the furniture is delivered to the customer.

References

Huy, Q., Jarrett, M., & Duke, L. (2011). IKEA: A furniture dealer. INSEAD.

Lu, C. (2014). How does IKEA’s inventory management supply chain strategy really work? Supply Chain 247. 

Rangan, V. K., Toffel, M. W., Dessain, V., & Lenhardt, J. (2014). Sustainability at IKEA Group. Harvard Business School, case 515-033.