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IKEAs Global Sourcing Challenge :

Indian Rugs and Child Labour (A)
Presented by : Ernima Sukmasari
Email : ernimasukmasari@gmail.com
Blog : nimprot2012.wordpress.com

Business Formats History
The IKEA story begins with the founder Ingvar Kamprad Elmtaryd
Agunnaryd and a dream to provide people with necessary goods. He
began selling various items via mail order as IKEA in 1943.
In 1948 IKEA started to sell furniture and the company as we know it today
started to take shape.
In 1951 IKEA published their first catalogue to draw a picture for customers
as to how the products would look in their homes.
This was followed by IKEA beginning to design their own furniture in 1995
and opening the first store in 1958. The store was in Stockholm but not in
the traditional down town area but instead in the suburbs where ample
customer parking and more floor space allowed IKEA to display their
products in a new style.
By 1956 IKEA had started using the flat pack technique, selling furniture in
flat boxes with assembly required by the customer, and began sourcing
furniture outside of Sweden.


External Condition
Post war
Cartel industry policy in Swedish - high price
Creating a better life for
the many people
Cost Advantage
Saving transport
Minimize storage
Sales Performance
1953 1953 - 1955
SEK 3 million SEK 6 million
Rivalry and looking abroad
Cartels in Sweden pressured manufactures not to
sell to IKEA.
IKEA unable to meet demand by local supply
1961, Look abroad Polland - for new sources.
IKEA brought its know how, taught its process,
provide machinery to the new suppliers
International Expansion
Furniture dealer
IKEAs ambassador in all units as role models.
Porters Diamond

By the mid-1990s, IKEA was the world's largest specialized furniture
retailer. Sales for the IKEA Group for the financial year ending August
1994 to taled SEK 35 billion (about $4.5 billion). In the previous year,
more than 116 million people had visited one of the 98 IKEA stores in 17
countries, most of them drawn there by the companys product
catalog, which was printed yearly in 72 million copies in 34 languages.
The privately held company did not report profit levels, but one
estimate put its net margin at 8.4% in 1994, yielding a net profit of SEK
2.9 billion (about $375 million).
After decades of seeking new sources, in the mid-1990s IKEA worked
with almost 2,300 suppliers in 70 countries, sourcing a range of around
11,200 products. Its relationship with its suppliers was dominated by
commercial issues, and its 24 trading service offices in 19 countries
primarily monitored production, tested new product ideas, negotiated
prices, and checked quality.
Source Contracts
Our objective is to develop long term business
partners, said a senior purchasing manager ---
page 745
We commit to doing all we can to keep them
competitive as long as they remain equally
committed to us.
Loans to its suppliers at reasonable rate
Porters Value Chain

Unusual way to get lower
We do not buy products from our supplier, but
we buy unused production capacity.
Store Growth
1954 1964 1974 1984 1994
Number of
0 2 9 52 114
Franchise strategy
1986, Kamprad stepped down, Anders Moberg
(Kamprads personal assistant)- took over as
President and CEO of IKEA
Environmental problem issue
1980s, some IKEA products emitted more
formaldehyde than was allowed by legislation.
Watery eyes, headaches, a burning sensation in
the throat and difficulty breathing
The case was widely publicized -- IKEAs sale
dropped 20% in Denmark
Suppliers bought from sub suppliers, who in turn
bought the binding materials from glue
Environmental issues
German, deadly poisoned bookshelves
IKEA stopped the production and sales of Billy
bookcase worlwide and corrected the problem
IKEAs lost of sale $ 6 to $ 7 million
Issue encountered
IKEA established a forestry policy based on Green peace and
WWF, Forest Stewardship Council
Not accept any timber, veneer, plywood or layer glued wood
from intact natural forests or from forests with a high conservation
IKEA appointed forest manager to carry out random check of
wood suppliers around the world.
Free recycled paper in its catalogs
Projects on global censervation with WWF
Funded a global forest watch program

Social Issues
Swedish television documentary showed children in Pakistan working
at weaving looms, include IKEAs carpet and rugs.
IKEA sent a legal team to Geneva - ILO convention 138, adopted by
the ILO in 1973 and ratified by 120 countries for the abolition of labor by
children under 15 or the age of sompulsory schooling in that country.
India, Pakistan, Nepal were not signatories of convention
IKEA appointed third party agent to monitor child labor practices -
Scandinavian company
IKEA educated themselves in India, Pakistan meet unions,
politicians,activists, NGO, UN organization and carpet export
Used Rugmark label --->free of children labor
Key success factor IKEA
Clear vision
Business core value committed
Economic scale
Core competence : designing and marketing - innovation product
Compliance with government policies
Strategic alliances with related supporting industries ( WWF, ILO, etc)
Balance score card - manage econoomic and non economic



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