Seminar 2: Industrial Marketing

Marketing II (F1017), 7.5hp

IKEA- Case Study

Supply Chain Management

Marketing II
Seminar 2 (10th February 2016)

Group paper from:

Lisa Buchholz
920225T360
Giulia Catena
921211T349
Nicol Tassi
920210T318
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

Table of Content

1. Introduction ............................................................................................................................ 3
2. Supply chain management strategies & value- adding factors............................................... 3
3. Relationships within the chain ............................................................................................... 5
4. Future prospects and possible measures for improvement ..................................................... 6
5. Conclusion .............................................................................................................................. 7
6. List of References ................................................................................................................... 7
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

1. Introduction

IKEA can be stated as the worlds largest furnishing product vendor (Kotler et. al., 2009) with
sales of over 20 billion Euros in 2009 (Kelly, 2010). The company is known all over the world,
especially Europe, North America, increasingly in Asia and Australia and is popular for offering
a wide range of well designed, functional home furnishing products at prices so low as many
people as possible will be able to afford them (Kelly, 2010, p.1).

In order to be able to fulfil this aim and promise, IKEA had to and also did implement certain
strategies with the aim to be as efficient as possible and provide their customers with the
expected quality and mutually satisfy their needs for the reasonable price.

In the following it is to discuss the main supply chain strategies IKEA chose in order to work
effectively with their respective members and achieve their business goals. Furthermore it is to
enlighten the major advantages and value adding factors IKEA gains from their strategies and
good relationships and networks with their supply chain members, as well as the assumable
measures for improvement IKEA could develop in the future.

2. Supply chain management strategies & value- adding factors

Analyze IKEAs supply chain management strategies, and explain how the value is created
through these strategies.

This part is committed to analyse every step of the supply chain and examine the numerous
strategic factors which contribute to IKEAs success. It seems striking that the superior levels
of the supply chain are sustainability and long-term relationship with more or less every supply
chain member, which are aimed to be incorporated in all areas of the supply chain. The other
steps of the supply chain comprise the sophisticated distribution, internal quality and control
measures as well as the regulations for production.

IKEAs mission is to offer functional, well designed, low priced and sustainable furniture. In
order to scrutinize how IKEA has implemented its supply chain management to reach its goals,
the paper will refer to the model proposed by Lambert and Bennion (1982), to get a holistic
overview of IKEAs success.
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

First it is to enlighten the area of Suppliers. According to the case study of Kelly (2010), IKEAs
1,220 suppliers are operating in over 55 countries. The vast sum of suppliers makes it possible
for the company to be very flexible in adapting to external changes (Hkansson & Johansson,
1992). So for example if some suppliers do not fulfil the code of conduct of IKEA (IWAY), the
firm can easily switch to another supplier without having any problems within the network.
Furthermore it is not as risky as to rely on ones own subsidiaries or company. Therefore,
opportunity costs can be saved, as well as time and labour, considering a substitution of supply
partners (IMP-Group, 1982). At the same time, if a company is relying on many suppliers, the
market uncertainty is increased.

IKEA preferably choose their suppliers considering their production capacities and prices as
low as possible to achieve high profitability. Another determining factor for the decision-
making process is the IWAY, which is a code of conduct, listing the different regulations that
the suppliers have to meet in order to enter IKEAs network (Kelly, 2010). Hence, the Trading
Service Office ensures the control of each supplier and offers them help to reach higher levels
which subsequently strengthens the relationship between the parties.

In terms of Manufacturers, IKEA achieves its economies of scale by relying on mass production
that enables very low costs because of high quantities of the standardized products. Moreover,
the just-in-time approach gives them the opportunity to reduce costs taking into account all the
costs related to logistics, including inventory and storage (Kelly, 2010).

Another essential part of the supply chain is the Distribution which is optimized thanks to a
global network able to provide products in the right place, at the right time by mutually
enhancing the efficiency of transports in term of space and quantity. Taking advantage of the
large volumes which are transported in flat packages gives IKEA the competitive advantage to
save costs for transportation.

The final step of the chain, considering the underlying model of Lambert and Bennion (1982),
is about the Retailers. The catalogue and the web site are the main means of communication
and also of the first contact able to meet needs and desires of the consumers. The physical retail
experience is a capturing and emotional engagement inside IKEAs lifestyle and thus displays
an essential part of the supply chain that appeals directly to the consumers.

It is crucial to see the different steps in cohesion, because they are all interrelated and determine
each other. The success can only be enabled if every supply chain member, respectively
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

supplier, suppliers supplier and other associates work together in an effective and thoroughly
committed way.

3. Relationships within the chain

How does IKEA managing the relationships with its chain members?

The relationships within the supply chain of the global player IKEA can be seen as a real
challenge. By means of the sophistication of ties, both weak and strong, IKEA, being a global
company with thousands of suppliers and distributors all over the world, requires a simplified
model to capture the complexity of the main and affecting relationships. Evidently,
relationships evolve over time. Their content, strength and nature is changing as those involved
interact (Hkansson, H. & Johansson, J., 1995, p.22).

For this reason the paper applies the ARA model to understand the nature and the characteristics
of the network between the different actors (Hkansson, H. & Johansson, J., 1992).

Resources of IKEA are mainly raw materials as wood, plastic, paper and hardware like nails
and bolts. It would be interesting to understand the level of control and power of IKEA on the
resources to understand also the negotiation power of itself but the company does not reveal
enough information about this. However, the exchange and use of knowledge is a crucial part
of the resources as it displays the basis for further commitment in the relationship.

The actors of the relationships are IKEA itself, the suppliers and the manufacturers. The
suppliers are in Europe (60%) and in China as the manufacturers. Moreover IKEA is the owner
of Swedwood, a manufacturer company, and has to coordinate relationships between
distribution centres, retailers and logistics centres (Kelly, 2010).

The activities actuated inside IKEA, intended as the cycle of transformation and transfer of the
resources operated by the different actors, are the fruit of complex synchronization between the
different stakeholders.

The characteristics of the networks established in the IKEA environment are characterized by
long term relationships, an average of 11 years per supplier (IKEA Group, 2014) which also
reduces the uncertainty in terms of transaction costs. Those stable long-lasting agreements make
it possible to be more flexible considering adjustments and to be more competitive in the market
(Hkansson, H. & Johansson, J., 1992). IKEA understands the dyadic relationship with the
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

suppliers as it creates mutual advantages for both, this is possible by sharing knowledge and
the expertise in a way to create a trusted relationship and strong expertise.

4. Future prospects and possible measures for improvement

What do you think IKEA can do to improve its supply chain in the future?

After having scrutinized the sophisticated supply chain management of IKEA one can state that
there are always small and maybe also bigger issues that can be improved and need further
maintenance and monitoring. In case of IKEA it seems that the company is very successful in
the implementation of their strategies concerning the relationship with suppliers, manufactures,
the distribution channels and retailers, referring to the above.

The company managed it to become the worlds largest furniture retailer, thus is in urgent need
of a well-functioning system. Since the last decade, IKEA is increasingly focussing on
sustainability which it wants to implement in every step of the supply chain. Obviously, this
may not be that easy as the intended strategy can vary from the real performance. However, in
its Code of Conduct (IWAY) and the numerous alliances with for instance the Rainforest
Alliance, IKEA manages it to produce more ecologically friendly.

According to the BGGB report (2014) there is a difference between the perception of the efforts
of brands from the outside and their real performance. IKEA achieved to be on the 14th rank
(BGGB, 2014), which means that the company is balancing out its communicated efforts with
the real performance in a reasonable manner. However, there is room for improvement to get
even more green and monitor their ecologically friendly efforts in every part of the supply
chain and thus really achieve the aimed goals.

Additionally, it might be beneficial to improve the communication of the company in terms of

being more transparent for the consumer. The improvement of the relationship to the consumer
can be extraordinary ameliorated by revealing more information about its sustainable efforts
and also assuring their effectiveness. In this way, the whole brand identity can even be
enhanced.

In view of the fact that for IKEA it is of utmost importance to establish and keep long-term
relationships with its partners, it is still important to keep track of the companys internal aims
and requirements in order to be successful in the overall network with all its supply chain
members in the future.
 Seminar 2: Industrial Marketing
Marketing II (F1017), 7.5hp

5. Conclusion

In order to conclude it is to state that an overview of the main steps of the supply chain
management could be established. The paper has depicted the ties and the relationships in this
complex environment focussing on the Supply Chain Metrics-model from Lambert and
Bennion (1982) and the ARA- model from Hkansson and Johansson (1992), illustrating the
dynamics of IKEA and of the other actors in the business scene.

6. List of References

BGGB. (2014, 06). The Power of Participation. Retrieved from http://interbrand.com/wp-

content/uploads/2015/08/Interbrand-Best-Global-Green-Brands-2014-Overview-8.pdf

Hkansson, H., & Johansson, J. (1992). A model of Industrial Networks. In B. Axelsson, & G. Easton,
Industrial Networks- A new view of reality (pp. 28-34). London: Routledge.

Hkansson, H., & Snehota, I. (1995). Relationships in business. In Developing relationships in business
networks. London: Routledge.

IKEA Group. (2014). IKEA Group Yearly Summary. Retrieved from

http://www.ikea.com/ms/en_US/pdf/yearly_summary/ikea-group-yearly-summary-fy14.pdf

IMP-Group. (1982). Interaction approach. In International Marketing and Purchasing of Industrial

Goods (pp. 10-27). Chichester: Wiley.

Kelly, S. (2010). Written Examination Stimulus Material Case Study- IKEA.

Kotler, P., Keller, K., Brady, M., Goodman, M., & Hansen, T. (2009). Marketing Management (13th
ed.). Upper Saddle River : Pearson Education Limited.

Lagrosen, S., & Svensson, G. (2006). Marketing-Broadening the Horizons. Lund: Studentlitteratur.

Lambert, D., & Bennion, M. (1982). New Channels Strategies in the 1980s. In M. Harvey, & R. Lusch,
Marketing Channels: Domestics and International Perspectives (p. 127). University of
Oklahoma: Center for Economic Management Research.