STRATEGY IN INDUSTRIAL

NETWORK: EXPERIENCES
FROM IKEA

Submitted by:

27NMP22 Mukesh Kumar Sahu

27NMP43 Amit Gujjewar
27NMP51 Komal Tagra

INTRODUCTION
Ingvar Kamprad Elmtaryd Agunnaryd
Founded: 1943 in Almhult, Smaland, Sweden
Founder: Ingvar Kamprad
Headquarters: The Netherlands
Industry: Retail
Product: Self Assembly Furniture
Chain of Product: Restaurant, Manufacturing, Housing,
Revenue: 23.1billion (2009), 17 billion (2006)
Employees: 127,000 (2009), 104,000 (2006)
Area Served: Multinational
316 stores (2010)
699million visitors (2010)
https://www.youtube.com/watch?v=11AehTPD-Vg

IKEA HISTORY
Mission Statement: Ikea's mission is to offer a
wide range of home furnishing items of good
design and function, excellent quality and
durability, at prices so low that the majority of
people can afford to buy them
Started 1943 as a one man mail order company
The Ikea concept started in 1950
The company started sourcing supplies from
other European countries
In 1960, the warehouse principle was introduced
In 1963, Ikea went abroad, opening in Norway

STRATEGY
Long Term relationships with suppliers
To design & purchase products with low production
& transportation costs
products are developed in close interaction with
suppliers while taking into consideration the impact
of the raw materials, components, and facilities
involved, since all these resources entail costs and
have an impact on quality, design, and function
next to low costs, reasonable quality, appealing
designs, and adequate product functionality are
major goals for IKEA.
an innovative and fashion-oriented firm

IKEAS BACKGROUND
IKEAs concern with providing low-price products
characterizes both its current strategy and its history
The introduction of flat packs in the 1950s allowed
important savings in transportation and production costs
IKEAs customers took over assembly activities, and
suppliers only needed to deliver un-assembled furniture
components
selling costs could be contained thanks to showroomwarehouses
extensive knowledge of the network, from raw materials
to customer homes, is pivotal for IKEA to conceive
products that are not only cool and functional enough
to sell, but that can also be produced according to set
cost and quality goals

GEOGRAPHICAL SCOPE

SALES BY REGION
Europe 81%, North America -16% and Asia & Australia -3%
TOP SUPPLIER COUNTRIES
China -18%, Poland- 12%, Sweden -9%, Italy -7% and Germany -6%

IKEA AND ITS INDUSTRIAL

NETWORK

INDUSTRIAL NETWORK
A pivotal role in this network is played by IKEA
of Sweden, a leading business unit that not only
manages IKEAs product range, but also
supervises the entire IKEA universe and develops
long-term marketing, logistics, and purchasing
strategies
IKEA
of Sweden has both an overall
responsibility and a coordinating role in the
development, purchase, distribution, and ma
Network strategy, that is, a strategy that
considers and uses the external network for a
companys goals

IKEA, THE INTERACTING COMPANY:

HANDLING A NETWORK OF RELATIONSHIPS
IKEAs relationships and network are pivotal in fostering
development of IKEAs products and technologies, and in
sustaining efficiency in its daily operations.
IKEA does it in a special way.
IKEA stretches its interactions as far upstream as possible in
the network, all the way to raw material suppliers
Another important difference is the extent of IKEAs
cooperation with its partners: this extends to complex and
enduring development projects whereby IKEAs products and
technologies are co-developed with suppliers
Instead of solely exploiting the power of being a large buyer,
IKEA takes a long-term approach and strives to build lasting
relationships based on mutuality
For IKEA, mutual trust and commitment are more important
interaction mechanisms than power.

THE STRUCTURE OF ITS

NETWORK

Connecting this network geographically requires a very advanced

logistic system, including 20,000 transport corridors.
more than these physical connections are the organizational
connections that IKEA needs in order to interface with this complex
network
IKEA created specific organizational interfaces to handle relationships
with the various actors
From IKEAs hometown of lmhult, its 700 employees perform
another fundamental role: interacting from a central position with key
logistic partners and suppliers on such strategic issues as long-term
capacity planning and major technical development projects.
At a local level, the main interfaces with suppliers are IKEAs 40
Trading Offices, employing 3,000 people worldwide.
Their interactions with suppliers mostly concern daily issues (e.g.,
orders and deliveries) and occasionally development or tendering for
new product assignments
Finally, the daily logistic coordination with all suppliers and carriers
is handled by IKEAs 26 Distribution Centers.

RELATIONSHIPS
IKEAs approach to supplier relationships depends on the product involved
Complex products are assigned to suppliers with which extensive mutual
trust, commitment, and knowledge have been established through longterm relationships
Products whose technical simplicity means they are easily interchangeable
(e.g., rugs) are usually purchased through shorter-term relations
A similar variation exists in the relationships with logistic partners: out of
over 500 such partners, IKEA has developed close cooperation with only 50
(e.g., Maersk, Willy Betz, SJ Cargo, and TNT), which between them account
for 80% of IKEAs transport volumes.
Still, the majority of IKEAs purchases happen through deep and
established relationships not through power purchase
IKEA does not unilaterally control these relationships but accepts that it
may sometimes be strongly dependent on its suppliers, as in the case of key
logistic partners and those suppliers that daily refill IKEAs stores
IKEA does not even unilaterally control such key sources of its
innovativeness as product and technology development projects

DIFFERENT TYPES OF
RELATIONSHIPS IN IKEAS
NETWORK
The composition of IKEAs network varies greatly in terms of
the size of the actors involved.
There are many small suppliers (and especially sub-suppliers)
that are highly dependent on IKEA, and which IKEA can more
directly influence with its powerful position. However, IKEA
exerts its influence not only by holding down prices, but also by
inducing suppliers to upgrade their technologies in ways that
eventually benefit the suppliers themselves. This mutuality is
in fact the hallmark of all of IKEAs business relationships
On the other hand, there are also larger counterparts with
which IKEA has a much more balanced power relation. These
large actors are not easily influenced by IKEA, and they comply
with IKEAs requests only if they gain something from a specific
cooperation.
Relationships with such large actors directly involve IKEA of
Sweden for central negotiations

DIFFERENT TYPES OF
RELATIONSHIPS IN IKEAS
NETWORK
IKEAs relationships are also very heterogeneous from a geographic
point of view, because they are spread over the regions that provide
specific resources or location advantages, such as nearness to
IKEAs major markets (Germany and Central Europe).
Geographical location is one of the key factors when selecting new
suppliers, because it strongly affects costs, competences, and
delivery times
Geography is an important factor, but not the only factor, in
supplier selection and hence in constructing the structure of
IKEAs network
With some suppliers, IKEA develops long-lasting and complexcontent relationships, which entail large volumes and
commitments
IKEA applies a ladder model to IT and supplier logistics issues
increasing supplier responsibility in deliveries (from simple
fulfilment of IKEAs orders to Vendor-Managed Inventory)

LADDER MODEL

WHAT GOES ON IN IKEAS

NETWORK? TWO INTERACTION
PROCESSES

Order Management Routines

Different suppliers interact with IKEA by means of different
ordering routines, depending on their ability and type of product.
All order management modalities are highly interactive routines
performed daily by IKEA and its suppliers according to rigid
scripts, mostly decided unilaterally by IKEA
Ad hoc projects
IKEA searches constantly for technologies that can reduce costs,
improve quality, or allow new designs
Printed Veener Project - technical development initiated for cost
reduction has opened up another way to sustain IKEAs image as
an innovative and cool furniture company.
Interaction processes would not be possible without two
important premises: IKEAs internal structure and competences
and its well developed interfaces for interacting with the network.

STRUCTURES AND DYNAMIC INTERACTIONS

IN A NETWORK STRATEGY

What sustains IKEAs network strategy?

What are the key factors that enable IKEA to
interact with its network in order to fulfill its
efficiency and development goals?
Structural components and dynamic interactions.
Before interacting with the network and using it
dynamically, a network structure needs to
emerge because network structure and dynamics
are tightly related

SUMMARY
The Structural Components of a Network
Strategy
1: Defining Relationship Contents
2: Forming the Network Structure
3: Evaluating Goal Matching with the Network
The Dynamic Interactions of a Network
Strategy
1: Interacting via Inter-Organizational Routines
2: Interacting via Joint Projects

THANKS