Introduction

Supply chain is an important factor in the success of multinationals,

especially manufacturing companies. Through extensive supply chain
network, companies can get various benefits like meeting customer
demands, extending the companys network globally, and capturing more
market share.
IKEA is the worlds largest retailer of furniture products. Its website offers
more than 12000 products to its customers worldwide. IKEA is also known as
for its global supply chain network which is one of the biggest supply chain
networks in the world. It has over 250 stores in 35 countries of the world
offering its customers best quality furniture products on very affordable
prices. Out of these 30 stores are being run by franchises. IKEA is a privately
owned company that offers products like office tables and chairs, room
lighting and decoration, flooring, furniture solutions, bathroom furniture etc.
Concept of IKEAs Supply Chain
In order to respond the increasing customer demand, IKEAs supply chain
meets the customer requirements through the following measures:

Through heavy advertising and communicating to customers

Printing and issuing catalogs to customers
Offering products at IKEAs stores
Offering low price products

Some of the characteristics of IKEAs supply chain network are:

Long term relationship with suppliers

Efficient production capacity
Provision of products globally
Capacity agreement with suppliers
Market driven strategy

Using its extensive supply chain network, IKEA enjoys the following
advantages:

Controlling cost
Increasing business volume
Design differentiation
Steady and continuous supply of products
Quality products

IKEAs Supply Chain Process

IKEA has a simple yet very vast supply chain process. IKEAs supply chain
process starts with the products design, which is actually a differentiation
from its competitors. The designs of products of IKEA are different and
unique from its competitors. Then the designed products are manufactured
in the production process of supply chain process. After completion of
production, products are transferred to the local warehouse from where they
are shipped to the IKEAs stores around the world. And finally from its stores,
the products are either shipped to customers facility or customers can buy
products by physically visiting the IKEAs store.

DESIGN

MANUFACTURING

TRANSPORTATION

4
5
6

SHIPPING TO
WAREHOUSE
SHIPPING TO
OUTLETS
DELIVERY TO
CUSTOMERS

Design
IKEA has an integrated supply chain network that starts with its unique
designs. All of the designs of IKEA products are unique and differentiate it
from its competitors.

Manufacturing
After designing, the production factory purchases raw material from its
extensive network of suppliers. The suppliers provide all kind of raw material
right on the demand of IKEAs production facility. After brining the purchased
raw material, the designed product is, then, produced.
Transportation
Every IKEA production facility has its transportation system that enables the
produced products to get transported to the warehouses for storage.
Warehouse
Products are transported to the warehouses where the final quality check is
conducted.
Shipping to Outlets
From the warehouses, the products are shipped to the outlets in the country
where the production facility was established or to other nearby countries
where IKEA has its stores or franchises.
Delivery to Customers
IKEA, then, deliver the products to customers. For this purpose it has two
ways. either the customers can physically visit the outlet of IKEA to buy their
desired products or customers can order the products from IKEAs website
that offers a wide range of products to its customers.

Low-Cost Strategy
Through its extensive supply chain network, IKEA enjoys a low-cost
differentiation strategy. With designing process at the start of supply chain
process, IKEA differentiate its products from its competitors. And with its
reliable transportation and supplier contracts and with its vertical integration
strategy, the company is able to control the cost and thus provide unique
and cost effective furniture solutions to its customers around the globe.
Such a wide and effective supply chain managed resulted in the reduction of
prices of products to 0.8% in 2012 despite an increase in the cost of raw
materials, transportation costs and inflation.
Vertical Integration
Out of total 265 stores in the world, only 30 are based on franchises. The
remaining stores are owned by the company itself. In this way the company
is enhancing the affects of its supply chain process by providing the products
in its own retail outlets and warehouses.
International Supply Chain Design of IKEA
IKEAs supply chain is mainly based on make-to-stock concept, for this
reason the manufacturing is usually based on the tool of forecasting. Based
on various forecasting techniques, IKEA develops the design of new products
and send them for production processes.
Forecasting

Forecasting is an important element of IKEAs supply chain management

process. Forecasting is done on regional level. This is because the demand of
different regions differs from each other. So forecasting at regional level
helps the company to create a balance between demand and supply of
products at regional level.
Managing Supply Chain
Currently IKEA has made some changes in its supply chain management
strategy. Now IKEA set the targeted price of products before its designing.
The designers at IKEA design the product by keeping in mind the cost of
designing, transportation and warehouse. This helps in designing the product
with cost-efficient manner which is one of the important elements of IKEAs
supply chain.
Warehouse Management
IKEAs

warehouses

are

equipped

with

state-of-the-art

technological

equipments. This enables the company to store and release the products will
maximum efficiency level.

With its Automated Storage and Retrieval

Systems (AS/RS), IKEA is using its warehouses at the highest level of

efficiency.
Recommendations

Currently IKEA is pursuing a well managed supply chain strategy. However

there is always room for improvement in any strategy. IKEA can enhance its
supply chain by taking various measures, which are discussed below.
Offering Ready to Made Orders
With an efficient supply chain network, IKEA can offer its customer the
facility of ready to made option to some of its selective outlets in the world.
These places could be in Europe, East Asia, and North America where IKEAs
supply chain is considered most effective. It can result in increased customer
loyalty and capturing more market share.
Capture Growing Markets
There are many markets in the world which are still untouched. Most of them
are in Asia. Targeting these markets and using the efficient supply chain
network, these markets can also be conquered by IKEA.
Horizontal Integration
Just like the strategy of vertical integration, company can also go for
horizontal integration of its operations. IKEA can take over some of its
suppliers operations to make the raw material availability more efficient.
This can help the company to make its supply chain more efficient and can
become more cost effective.

References
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its

supply

chain

sustainable?.

[online]

Available

at:

http://cmuscm.blogspot.com/2014/01/how-ikea-makes-its-supply-chain.html
[Accessed 12 Jun. 2014].
Fredendall, L. and Hill, E. (2001). Basics of supply chain management. 1st ed.
Boca Raton, Fla.: St. Lucie Press.
Ikea.com, (2014). Welcome to IKEA.com - IKEA. [online] Available at:
http://www.ikea.com/ [Accessed 12 Jun. 2014].
Madsen, S. (2014). IKEA and Green Supply Chain Management--New
corporate trends?.