Operations Management (BUS 650)

Report on:

Case Study on Rolls-Royce and Ikea

Section: 01

Spring 2020

Submitted To

Prof Abdullahil Azeem, PhD

School of Business & Economics
North South University
 Submitted By

Anika Azam

ID: 1815250060

Date of Submission

04-06-2020

LETTER OF TRANSMITTAL

June 4, 2020

Prof. Abdullahil Azeem, PhD

North South University

Dhaka

Subject: Submission of Report on Case Study on Rolls-Royce and Ikea

Dear Sir,

I am pleased to submit the final report as per your guideline on the Case Study on Rolls-Royce
and Ikea by integrating the knowledge gained from this course and the practical scenario.
I have tried to make this report as informative and comprehensive as I could and hence have put
all the relevant information. I have given an effort to complete this report meaningfully and
correctly, as much as possible. Any sort of query or criticism is welcomed, as it will help me to
enrich my knowledge.

Therefore, I would be obliged if you could accept this report.

Sincerely,

Anika Azam

ACKNOWLEDGMENT

I wish to express my gratitude to the Almighty for giving the strength to complete this report
within the stipulated time. I would like to give a special thanks to the course instructor, Prof.
Abdullahil Azeem for his immense knowledge sharing and dedication that helped me implement
all that I have learned throughout the semester and paved the report to be a success.
TABLE OF CONTENTS

Contents

LETTER OF TRANSMITTAL.. 2

ACKNOWLEDGMENT.. 3

TABLE OF CONTENTS. 4

ORIGIN OF STUDY.. 5

OBJECTIVES OF STUDY.. 5

METHODOLOGY OF STUDY.. 5

LIMITATION OF STUDY.. 5

EXECUTIVE SUMMARY.. 5

CASE STUDY ON ROLLS-ROYCE.. 6

INTRODUCTION ON ROLLS-ROYCE.. 6

RFID AND ROLLS-ROYCE.. 6

MAJOR FINDINGS ON ROLLS-ROYCE.. 6

RECOMMENDATION ON ROLLS-ROYCE.. 7

CASE STUDY ON IKEA.. 8

INTRODUCTION ON IKEA.. 8

RFID AND IKEA.. 10

MAJOR FINDINGS ON IKEA.. 11

RECOMMENDATION ON IKEA.. 11

CONCLUSION.. 11

ORIGIN OF STUDY

This report is required of the Operation Management (BUS 650) course of the MBA program.
The respected faculty Prof. Abdullahil Azeem gave the option to choose two cases out of five
and I chose to study the case of Rolls-Royce and Ikea. I have tried my best to make the report
informative with the latest data. I am very thankful to the faculty for giving such a project where
I learnt a lot about the supply chain of two giant companies.

OBJECTIVES OF STUDY

The core point of this report is to analyze how Rolls-Royce and IKEA is trying to implement
RFID technologies in their supply chain and product distribution to visualize the production and
customer data to ensure proper supply to customers. The additional data required to complete the
case study report were collected from various online sources.

LIMITATION OF STUDY
Due to the current Covid-19 pandemic situation, I could not visit the university library, hence
any physical book or journal was unavailable to me. In addition to the information available in
the two cases, I could only utilize the information that is available online.

EXECUTIVE SUMMARY

Rolls-Royce and IKEA have been testing the implementation of RFID since 2007. Both
companies are trying to improve their supply chain performance by using RFID. Rolls-Royce
conducted a series of RFID trials to track cases of parts. Their project team performed an
assessment with the help from IBM. Through the trial, Rolls-Royce reported being able to
successfully read tags 99.7%. IKEA commenced a study of which systems and methods were
being used for traceability in the group and how these could be improved. They invested in the
GS1 system. They quickly got many positive effects. IKEA started using RFID to improve
traceability, exception reporting, and inventory control.

CASE STUDY ON ROLLS-ROYCE

INTRODUCTION ON THE CASE OF ROLLS-ROYCE

Radiofrequency identification (RFID) is an automated data collection technology. It uses

radiofrequency waves to transfer data between a reader and an RFID tag. The information is
transmitted automatically so no one needs to unpack or scan individual bar code labels, yet it
provides accurate data transmittal. The RFID tags contain encoded information that identifies
items at the case, pallet, or container level. Rolls-Royce now uses RFID technology to track
components used in military transport and combat aircraft and helicopters. The company started
to work with RFID early in 2004. It was still in the trial stage in November 2006.

RFID AND ROLLS-ROYCE

A Rolls-Royce RFID project team first performed a technical assessment with help from IBM.
Once the information requirements were established, Rolls-Royce tested RFID hardware from
six vendors including nine passive and four active RFID tags and interrogators at its facilities in
Derby and Bristol, the headquarters of its defense aerospace division. Rolls-Royce preferred not
to purchase equipment off the shelf without first testing it, or to hire a systems integrator. In most
cases, the tests revealed that the packaging of aircraft parts did not appear to cause RF
interference, which can make it difficult to read the tags. Instead, the most significant factor for
getting highly accurate read rates was shown to be tag orientation. Later trials revealed some
specific interference issues for example when tagging bags of fasteners or other small
components. To avoid RF interference with tagged bags of metal screws (metal is known to
interfere with RF signals), the bags of screws needed to be placed in double bags, with the
components in one end and an RFID tag on the other, to provide tag/metal separation. Once the
RFID equipment testing was completed, Rolls-Royce began a live trial employing ultrahigh-
frequency (UHF) EPC Gen 2 tags from Alien Technology for tracking parts between Bristol and
Ansty. At that point, the company determined that it wanted to use RFID to track parts flow
throughout its Bristol warehouse, provide status reports on the parts' locations in the warehouse,
and track when the parts left the Bristol warehouse and were received at the MRO facility in
Ansty. From the trial, the company determined that its existing tracking mechanism for the
inbound pipeline (based on bar-coding technology and a supply chain system from Exostar)
already provides enough visibility and that there would be less incremental benefit from using
RFID technology at this stage. The trial ran for eight weeks, and Rolls-Royce reports being able
to successfully read tags 99.7 percent of the time during its tests.

MAJOR FINDINGS ON ROLLS-ROYCE

Rolls-Royce has been testing RFID for use in tracking its internal supply chain to determine
whether the technology can be utilized across its entire operation, to cut costs and improve its
logistics operations. The company has conducted a series of RFID trials in eight weeks to track
cases of parts moving between a warehouse and a maintenance facility. After testing, the
company began a live trial and from the trial, the company determined that its existing tracking
mechanism provides enough visibility. In the future, Rolls-Royce plans to extend the supply
chain test utilizing a combination of passive and active RFID technologies.

RECOMMENDATION ON ROLLS-ROYCE

Rolls-Royce started planning for RFID in 2004 when the Department of Defense told its
suppliers they would have to tag cases, pallets, and all other packagings by 2007. Shipping
containers sent to any Department of Defense location worldwide have been tagged since 2005.
Once RFID has been made to work at Bristol, Rolls-Roycereplicated the trial at its Ansty facility
near Coventry and then the RAF's Marham airbase in Norfolk. The company anticipated a wider
RFID deployment in 2007.The Bristol project started by using RFID solely to automate the
business processes within Rolls-Royce's own warehouses. Products were subjected to different
checks as they move through the warehouse, making the task of introducing RFID more
complex. Rolls-Royce's supply chain department was hopeful and happy about it. The company
has identified several benefits from RFID. However, Rolls-Royce already started to use RFID in
supply chain functions using two types of RFID tags. The business needs can be met by
introducing correct technology variants. They should conduct a creative review of the supply
chain in conjunction with a detailed understanding of the attributes of the RFID variants.

CASE STUDY ON IKEA

INTRODUCTION ON IKEA

A privately held international retailers of home products, being the largest retailers of the world,
they provide home products from furniture, fabric, glass, kitchen, and bathroom accessories at an
affordable price. Their vision being Anybody can make a good-quality product for a high price,
or a poor-quality product for a low price. But to make good products at low prices, one needs to
develop methods that are both cost-effective and innovative. This has been IKEA’s focus.
Maximizing the use of raw materials and production adaptation to meet people’s needs and
preferences has meant that their costs are low. The IKEA way of doing things is to pass these
cost savings on to customers. This idea came into being in 1943 by Ingvar Kamprad in Sweden
who laid the basis of IKEA and then afterward it was owned by Kamprad Family.

Many Qualified individuals have the opinion that RFID if used in the IKEA supply chain it can
enhance the efficiency of its supply chain and the performance of the organization as the whole.
RFID is a new technology in this new era and currently the latest technology which is inspiring
many large firms to buy and invest. Because of its advantages in supply chain top-performing
organizations are ready to take the risk to buy it although it is not cost-effective. Currently in
Warehousing bar code system is been used by IKEA in Warehouse Management System and as a
technology other than RFID. RFID is the latest and emerging new technology after bar code
where Line of sight scanning is not needed but it’s quite expensive than the bar code.

IKEA started using its own SAP system to manage data that would include such details as when
a product was loaded, for which customer it was intended, and as part of which order. To test the
use of RFID, Autepra UAB first installed a single CAEN RFIDR4300P-ION reader, wired to a
mobile computer at one the warehouse's four dock doors, and then tested the read rate for a
period of two to three weeks. After determining that the technology performed satisfactorily, the
company proceeded with full deployment, consisting of an R4300P-ION interrogator installed at
the loading ramp for each of the four dock doors. Newer technology which enables the remote
and automated gathering, then sending information between RFID tags (attached with the
products) and readers (which could be handled units or fixed units as both are in operation in
IKEA). An RFID tag consists of an integrated circuit, having specific data that could range from
a unique identification number up to a thousand bites data. When these tags are shown to readers,
all necessary information get flashed at the device (reader) which relates to not only in-store
local area network but also with higher-level management (at international level) as
communication satellites are in operation as well. So, information propagating starts as soon as a
product is shown to the reader without any delay.
RFID AND IKEA

Qualified experts in IKEA have a very strong opinion about RFID advantage of visibility. They
feel that RFID in the supply chain will help in improving the visibility of it. IKEA being the
largest furniture retailer has many retail stores around the world. There is a big loss of revenue
on the part of big firms like IKEA and 42% of it comes from the goods which have not been
there on the retail shelf. The visibility offered by RFID could help to reduce this loss, by
reducing waste, lowering inventory levels, and improving safety. Improving visibility in the
supply chain can help lower distribution and handling costs and reduce Inventory levels. This is
how it helps the retailers as it removes the labor to handle their stocks in the stores. Another
advantage can be used as in asset tracking, to identify items, to do the inspection, it also helps in
theft detection because it also deals with item-level tracking. As IKEA operates in many places
around the world, RFID would be useful to them to identify and check if the goods are being
stolen by anyone.

Most of the task in the supply chain in IKEA is quite labor-oriented. The use of labor is
especially required as IKEA has a huge amount of inventory that needs to be checked and taken
care of. Apart from that, the RFID helps with a clear picture of stock levels and it also helps to
cut the cost of inventory. All of this helps the firm to cut down the expenses. RFID also leads to
the cut down of the manpower in an organization which helps to cut down the expenses in
distribution by around 50-80%. IKEA uses more water transport and its distribution centers are
located near the ports so that it could use more of water transport and less of road transport.
IKEA products are either directly shipped at DC or to the stores. By using RFID, it decreases
labor savings up to 36% and a reduction in verification cost by 90% for shipping processes. This
leads to saving of capital for an organization as well it also saves enough time in checking and
waiting for other processes.

Further, it also helps in quality control and regulation not only internally but also when their
goods move along the supply chain. Thus, the reliability of the goods is maintained wherever in
the world it operates. One more advantage with RFID is, it is impossible to copy it and hence can
also be used as a security tool.
MAJOR FINDINGS ON IKEA

During the autumn of 2007, IKEA started to use GS1’s system of barcodes and SSCCs. They
started studying the possibilities and advantages of implementing RFID. In April 2004 they
commenced a study of which systems and methods were being used for traceability in the group
flow and how these could be improved. The goods could not be traced at pallet level outside of
the warehouse, only at the truck level and it was a time-consuming process. IKEA decided to
invest in the GS1 system and its package number SSCC. This consists of 18 digits and is bar-
coded using GS1-128. Using this key, a package can be uniquely identified by everybody
involved: suppliers, transporters, and, in this case, IKEA’s warehouses and stores. IKEA is
planning to start carrying out an RFID test at several stores for certain product flows.

RECOMMENDATION ON IKEA

Risk can be effectively reduced and managed in IKEA by the highly automated and
technological advancements like RFID technologies. It will increase error-free improved
centralized data visibility; the accuracy of the forecast can be dropped down to zero or negligible
error. Hence, it is concluded that the risk management techniques used in IKEA can be more
efficient and the risk is being effectively managed. IKEA is a family run business and running it
throughout a huge capital is required. If IKEA considers RFID which is going to cost huge, its
other expansion plans might be hindered as they might not be having enough funds to
simultaneously spend on both RFID and international expansion.

CONCLUSION

Both Rolls-Royce & IKEA plans to extend the supply chain test to incorporate customer’s
premises and include the tracking of parts utilizing a combination of passive and active RFID
technologies. Both companies are carrying out RFID tests to several stores for certain product
flows. Hence after all this discussion of using RFID, we conclude that any organization would
like to enhance and optimize its supply chain. RFID is important as it reduces the labor cost,
increases visibility, and improves investment management.
 REFERENCES
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ID Tech Ex. (n.d.). Retrieved from https://www.idtechex.com/en/event-presentation/rfid-

at-rolls-royce/810

RFID Card. (n.d.). Retrieved from https://rfidcard.com/ikeas-adopt-rfid-technology/

Supply Chain Brain. (n.d.). Retrieved from

https://www.supplychainbrain.com/articles/2111-rfid-may-drive-productivity-at-rolls-royce

UK Essays. (n.d.). Retrieved from https://www.ukessays.com/essays/marketing/the-

function-of-ikea-supply-chain-marketing-essay.php