1. Running Head: IKEA’s SUPPLY CHAIN Strategic Decision Making in IKEAs Supply Network Chain [Name of the writer] [Name of the institution]
2. IKEA’s Supply Chain 2 Strategic Decision Making in IKEAs Supply Network ChainIntroduction to the Paper This paper will be making a positive contribution to Cowling and Sugden’s work on thetheory of the strategic decision making in the multinational companies. It will be focusing ontheir study “the essence of the modern corporation: markets, strategic decision-making and thetheory of the firm.” It will extend this definition to account for the fact that strategic decision-makers engaged in the coordination of production operate under conditions of ‘fundamentaluncertainty’. The significance of such an extension is that it avoids many of the problemsassociated with Cowling and Sugden’s framework while reinforcing their main conclusions andproviding a technical definition of the concept of strategy. It further will be discussing the theoryof Strategic Decision Making in Multinational Companies by Cowling and Sugden and the caseof IKEA’s supply network chain.Background of the Company IKEA has been very thriving because of the time they spend comprehending theircustomers. Ingvar Kamprad founded IKEA in 1943 at the age of 17. Ingvar originally tradedballpoints, wallets, image borders, table runners, watches, and jewelry and nylon stockingsthrough IKEA at a decreased price. Ingvar understood that he could purchase goods in bulk at asmaller cost and still sell them cheap while making a profit. IKEAs achievement has arrivedfrom the way they offer a wide variety of well conceived furniture products at charges lower thanthe competitors. By keeping their goods prices low, they have been able to create a large demandfor their products. IKEA had a vision, expressed by founder Kamprad that the company should
3. IKEA’s Supply Chain 3sell a basic product that is "typically Swedish" wherever it goes in the world. IKEA accepts astrue in employed closely with manufacturers, suppliers, designers and other specialists. Expertiseof these diverse stakeholders is combined in to come up with innovative methods to decreasecharges so that these can be passed on to the customers. Its clientele groundwork consists ofpersons who are dynamically seeking better worth for cash in their products.DiscussionChallenges faced by IKEA in their Supply Network Chain IKEA was doing very well when it was a well-established retailer. However, thecompetitors then came into this market and made it a bit tough for IKEA to maintain their marketshare in this industry. They experienced a decline in their sales and profitability. This is thereason why the key stakeholders of IKEA started preparing a strategic plan for the future.Following a meeting with the key stakeholders, the Managing Director announced that CompanyIKEA will start operating in the traditional store retail market as well. The Managing Directorcreated plans to expand the company operations across the country in the next few years.However, the planning of these operations will not be enough for IKEA as they would need toimplement as well. There is a difference between Contemporary and Traditional Supply Chain.There are various activities which need to be performed in Traditional Supply Chain. The majordilemma for IKEA will be retail logistics and supply chain management. Under such scenario,they would even face few challenges and there will be a need to prepare appropriate strategies indealing with them (Zhao, 2002, pp 24). The first major challenge which IKEA might face is the Departmental wars. The mainreason behind this factor is supply chain projects involving multiple departments, such as
4. IKEA’s Supply Chain 4procurement, distribution and information technology. In the worst cases, this may mean fightingbetween rival factions, and, even in the best cases, different departments may be supporting theoverall objective but maintain different priorities. All these departments have got their own valueand are equally important. It will only happen due to the new initiative taken by IKEA. After fewmonths, this issue would not create problems for the company. Senior Management would needto prepare appropriate strategies to deal with this issue in an effective way. The role ofprocurement Department would be high in traditional supply chain because they will buy itemsfrom various distributors (Yee, 2005, pp 33). The only thing that will be necessary for them is the buying of adequate stock to meet thecustomer. In this particular area, planning Department will need to play their role. They aregoing to be the one who will forecast the demand of customers in different product categories.The observation of the trend in the market and knowledge regarding competitors will be crucialfor IKEA. It will also help them in achieving their desired objectives. The role of InformationTechnology will not have a very big role in the traditional supply chain method. In contemporaryform of Supply chain, their role was quite high because of online retail system. In traditionalSupply Chain method, all customers will visit the store and would purchase a variety of products.So, achieving a balance between these interests will be a major challenge for IKEA. The second major challenge which the IKEA would face is the availability of all theitems in the store. During the online business, they were able to meet the demand of consumersquite easily. It was due to easy interaction with customers and was dealt one at a time. Thesupply of orders to the customer’s place was not even difficult. Everything was totallycustomized which made it convenient for both the buyer and seller during the trading. On theother hand, the traditional supply chain is totally a different setup (Silveira, 2006, pp 932). IKEA
5. IKEA’s Supply Chain 5took a wise decision to increase their market share but obviously will face certain difficulties increating this set-up. IKEA would need to make sure that they would be having adequate suppliesto meet the customer demand. If they are not going to meet these challenges properly, then thebusiness would suffer. The option of traditional supply chain would be a useful option but certainsteps will be necessary to be implemented by IKEA. The competition is even very high in traditional supply chain and few of the businessesare doing very well in this regard. The initial days will be tough for IKEA but gradually thingswill start getting better for them. They will experience high number of customers at a certaintime period which would be a difficult situation for them. Under such scenario, IKEA wouldneed to make sure that there would not be any shortage of items, as it would disappointcustomers to a very large extent. However, if they will be efficient in their work and wouldprovide good service to their customers, then they are not going to face any problem. In fact,their reputation as a traditional retailer would improve in the eyes of customer and it will evenassist in increasing their overall market share. Third challenge will be the storage of the large number of items in the store. When IKEAis going to sell a large number of items to the customers, it will be a need for setting up a largestorage area to keep these items. The establishment of a large storing area would mean a highcost for the company which they would need to spent on its development. The placing of theseitems will be even necessary to assist customers in buying goods. When the proper categories aremade in the shop regarding every item, it not only helps in selling products to the customer but itdoes not create a confusion and congestion in the shop (Krause, 2006, pp 637). All these thingsmatter a lot during the shopping of various items. The role of Supply Chain is vital because it isrelated with demand and supply of goods. When the company maintains good amount of sales
6. IKEA’s Supply Chain 6level, the revenues and profits increase of the business. On the other hand, if the company fails inmeeting the customer demand, it creates a negative impact on the revenues and profits of thebusiness.Possible Solutions for IKEA to tackle these challenges There are various solutions for IKEA in tackling these three challenges. Currently,methods of managing the supply chain have changed radically evolving all forms and ways thatcan be applied. Today, people can understand of managing the supply chain to the combinationof technological systems along with improvements in business around the world. Companies thathave achieved an improvement in internal operations corresponds to current work managing thesupply chain to focus more on saving resources and acquisition of benefits by improvingprocesses, and, information exchanges produced by the business partners. According to Cowlen and Sugden, in order to offer something more specific concept,managing the supply chain is responsible for carrying out the planning, organization and controlof all activities involving the supply chain (Cowling and Sugden, 1987, pp 57). These activitiesare related to cash flow management, information services through their own supply chain, withthe primary objective of maximizing the value of the product that is delivered to the finalconsumer, while there was a decrease in costs for the company. The management of the supplychain must take care that the product primarily be offered to the customer is right, and in turn, tobe delivered in appropriate time and place, with the required price and applying the lowestpossible cost(Blackhurst, 2005, pp 4067). IKEA would need to adopt certain measures to provide appropriate solutions to thechallenges faced during the implementation of Supply Chain in traditional retail business. They
7. IKEA’s Supply Chain 7would need to work with developers in order to have an access towards timely information ofwhat customers want and what providers are able to help in producing. These tools reduce timeto market, product costs and communication problems between engineering groups. The firstbasic step that is vital is planning. Planning solutions include sales and order forecasting,manufacturing planning and distribution, and correspondence of future customer demand toavailable supplies. These processes can optimize production and shipping operations, and enableit to fulfill most customer orders on time and at lower cost (Federgruen, 2001, pp 578). The second step is adoption of proper Distribution and Logistics system. As Cowling andSugden mention that distribution and logistics solutions include inventory management andstorage, transportation inside and outside, order management, physical distribution andmanagement of external partners. A distribution and logistics solution helps in ensuring that thecustomer has the appropriate product number, the precise location of the supply chain and at theright time, at the lowest possible cost. This improves the movement and storage of goods andensuring an adequate supply of liquid assets from beginning to end supply chain. They can alsokeep track of customers, suppliers and orders as well as monitor and manage their procurement,transport and customer needs. The third step includes the option of shopping. According to Cowling and Sugden, shopping solutions include the acquisition of productcomponents, standard raw materials and specialized supplies necessary to manufacture the finalproduct (Cowling and Sugden, 1987, pp 57). Through Internet technology, they can streamlinethe purchasing process and reduce costs along with money and time on these activities. Thefourth step is a production if in case they would take a step of vertical integration. The option ofproduction includes the manufacture, assembly automation and outsourcing. They will be able totrack report and analyze real-time information from the manufacturing process and from the
8. IKEA’s Supply Chain 8manufacturing plant to service its stores. IKEA will be able to identify and eliminate areas ofoverproduction, material movement, manipulation and excessive inventory and bottlenecks. Theintegration of business partners has its own value. The integration solutions allow businesspartners to focus on what it does best and take advantage of the capabilities of them (Chan, 2006,pp 110). These solutions help to develop partnership strategies through the identification ofstrengths in relationships with partners and suppliers will also help define the processesassociated with these relationships and networks will use technology to exchange informationamong the business partners and suppliers. The last step is developing a technology strategy forthe entire supply chain. However, to achieve this factor, IKEA would need to adopt performancemeasures for all channels. The implementation of these principles can balance the needs of anexcellent customer service with the requirements of profitability and growth. In determiningwhat customers want and how to coordinate efforts across the supply chain to meet thesedemands faster, cheaper and better (Chopra, 2004, pp 53). Cowling and Sugden state that the impact of Information Technology is even very highon various businesses. There are many processes within a supply chain, and each of these can beas complex as the same supply chain. Companies have growing needs and challenges that forcebusiness people to have systems information and communication in order to help them manageand run these processes. There are several technological solutions, in many shapes, sizes andprices. Internet virtual integration favors creating new business opportunities in electronicmarkets and distribution channels, and facilitates collaboration among members of supply chains(Cowling and Sugden, 1987, pp 57).
9. IKEA’s Supply Chain 9Conclusion In conclusion, it can be said that all the solutions discussed in this paper, are going to bevery useful for IKEA in terms of meeting the challenges faced by them. Supply Chain is one ofthe major fields these days and is gaining value day by day. The procurement, logistics anddistribution are one of the major areas of Supply Chain field. This is the reason why main focusin this case was on these factors. Therefore, all issues related to implementation of appropriateSupply Chain concepts in IKEA have been discussed in detail.
10. IKEA’s Supply Chain 10 ReferencesBlackhurst, J (2005) an empirically derived agenda of critical research issues for managing supply-chain disruptions. International Journal of Production Research, 43 (19), pp 4067- 4081Chan, H (2006) A review of performance measurement systems for supply chain management. International Journal of Business Performance Management, 8(2, 3): pp 110-115Chopra, S (2004) Managing risk to avoid supply chain breakdown. Sloan Management Review, 46 (1), pp 53-61Cowling, K and Sugden, R (1987) `Market Exchange and the Concept of a Transnational Corporation: Analyzing the Nature of the Firm, British Review of Economic Issues, Vol. 9, No. 20, pp. 57-68Federgruen, A (2001) Design for postponement: a comprehensive characterization of its benefits under unknown demand distributions. Operations Research, 49 (4), pp 578–598Krause, D (2006) the supply base and its complexity: Implications for transaction costs, risks, responsiveness, and innovation. Journal of Operations Management, 24 (5), pp 637-652Silveira, G (2006) Effects of simplicity and discipline on operational flexibility: an empirical reexamination of the rigid flexibility model. Journal of Operations Management, 24 (6), pp 932–947Yee, S (2005) Impact analysis of customized demand information sharing on supply chain performance. International Journal of Production Research, 43(16): pp 33-53Zhao, J (2002) the impact of information sharing and ordering co-ordination on supply chain perfonnance. Supply Chain Management, 7(1), pp 24-32