A Report On Ikea: Characteristics, Layout And Strategic Performance Objectives
Summary
This report examines the Characteristics, layout and strategic performance objectives of furniture manufacturer and seller, IKEA. It finds that IKEA is a high volume, high variety and low cost producer. IKEA is particularly strong when it comes to using innovative technologies to lower costs incurred by the production and distribution of products.
Introduction
IKEA was founded by Ingvar Kamprad in 1943, since 2008 it has been the world’s leading homeware manufacturer with stores in 48 different countries and current plans to expand further in the US and china. They were the first to conceive a style of furniture which would be sold disassembled to be built by the consumer at home with minimal tools necessary which has given them a significant advantage over competitors. This cost saving approach allows them to offer their clean, modernist style furniture at a price point affordable to the masses and thus it can be said to have been a significant driver in revolutionising our approach to interior design away from the more traditional styles popular throughout the 20th century.
Characteristics of the operation
IKEA is an extremely high volume manufacturer as they need to supply to their 380 stores worldwide alongside a website which allows consumers to order directly to their homes. They are able to sustain this through the approximate 600,000 people employed by their direct suppliers, and the millions more who work in their extended supply chains. High volumes of output often indicate repeatability due to familiarity of the process and this logic can be applied to IKEA as their flat pack DIY style of furniture most often consists of similar or identical components for different products which simply fit together in an alternative way, this style of packaging also significantly cuts back on costs incurred through the assembly and transportation of products which allows IKEA to keep prices low and reinvest in themselves. When it comes to variety, the brand has approximately 9,500 different products on offer in their home furnishing range with new ones being designed and developed continuously by their team of dedicated designers. One of the things which sets IKEA apart from other home stores is the fact that they design products to theoretically furnish your whole home rather than just one small part of it, despite this almost all their products feature similar design characteristics in keeping with the brands modernist, Scandinavian aesthetic. Ikea has a medium level of variation in their operations, as a company they strive to constantly innovate and thus are regularly updating and devising new processes. However, overall IKEA uses the same raw materials and production techniques for most of their products and they all are flat packed using very similar technology. Furthermore, this flat pack style limits the variations possible to the products themselves as they need to be simplistic to build and light enough to be carried whilst remaining cheap and innovative. Even though IKEA tend to take a standardised approach across the world they have found that certain products need to be adjusted to suit different markets, for example in the USA they discovered it was necessary to increase the size of their sheets and beds to accommodate the larger American style. In terms of product design and manufacturing IKEA has a fairly low visibility for consumers, they do intensive research into what customers are looking for but products are created to a standard design. The company relies more on offering a huge variety of products so the consumer will most likely find a style which adequately fits their needs rather than creating or altering products based upon specifications set by the customer which is the approach taken by other higher end furniture manufactures.
Layout and flow
The layout of IKEA’s operations is extremely complex and spread out owing to the huge scale on which they operate however if simplified it would fall into the category of a functional layout based upon the definition by Slack et al. stating that “the functional needs and convenience of transforming the resources that constitute the process dominate the layout decision. Materials, information or customers will flow from activity to activity per their needs, making the flow pattern complex. ” All IKEA products are designed in prototype shops based mainly in Europe, the designers here are given assignments to create a product based upon certain specifications. Once approved and patented, designs are then outsourced to specialised manufacturers located largely in china and India due to the low cost of labour, here the raw materials that IKEA sources from Europe (60%), Asia (30%) and the USA (10%) are transformed into finished goods via a production line layout and flat packed ready to be transported to IKEA’s strategically placed distribution centres. Unlike other large scale manufacturers, IKEA will very often develop specialised technology to use in the creation of each product rather than rely on traditional methods and equipment, this aids the company in their goal to be constantly innovating and allows them to find cheaper ways to replicate usually highly specialised design techniques.
Strategic performance objectives
Having low costs is the strategic performance objective upon which IKEA places the highest importance. When tasked with creating something new, designers are given a strict budget thus challenging them to constantly look for ways to lower expenses, a basic example of this is the fact that chair legs on IKEA products are almost always hollow to reduce the amount of materials needed. Furthermore, IKEA works on a cost per touch basis, meaning that each time a product changes hands it’s overheads increase and therefore customers personally collect most products from in store warehouses as this is a more direct and therefore cheaper method. Finally, the original IKEA flat pack style is crucial to achieving their low-cost objective, not only does it allow them to save on the assembly of products but as the company’s founder Ingvar Kamprad has previously stated they do not waste resources transporting and storing ‘air’. In terms of dependability IKEA employs in-store logistics personnel who use an inventory management process developed internally to respond to instore inventory fluctuations and reorder products to meet customer demand. Using IKEA’s proprietary inventory system, logistics managers take information gained from point-of-sale (POS) data and can forecast sales for the next couple of days to order enough products to meet that demand. Speed is reasonably important to IKEA as they need to have reliable manufacturers which can meet the demand necessary to stay ahead of changing markets and trends but it is not something that it particularly needs to focus on. In store warehouses are restocked during the day from reserve bins and at night stock is delivered from distribution centres. Here they have separate high and low flow warehouses with products classed as high flow those which need to be replenished more often, to do this as efficiently as possible products stored here are retrieved and prepared for shipping using robots in comparison to those in the low flow warehouses where products are retrieved manually due to being bulky or less popular. IKEA is not a very flexible company, although it is always evolving and innovating due to the sheer size and complexity of the company it would be difficult to suddenly change a lot of their operations strategies. Furthermore, to keep costs low they tend to take a standardized approach to manufacturing and distribution which has proven to have worked in the past due to their evident success and rapid growth. When shopping at IKEA customers do not expect products to be extremely high quality, they look good and are affordable which is a concept which allows people to overlook the fact that they may need replaced within a few years. Despite this IKEA are very strict when it comes to sustainability of the raw materials used in their products. All suppliers must agree to the IKEA way of Purchasing Products and Services (IWAY) which is a code of conduct specifying that they must take steps to ensure all materials which can be reused or recycled are and any new ones are sourced ethically. IKEA conducts announced and unannounced audits to ensure that this is complied with.
Recommendations
IKEA are undoubtedly leaders in their field, their commitment to innovation allows the company to stay competitive in the industry as it continually seeks more advanced methods to streamline operations. The company has a strong supply chain supported by cross-functional logic which not only differentiates IKEA from its peers, but also provides it with a competitive advantage that is difficult to duplicate at other organisations. Intense focus on keeping expenditures low is one of the company’s biggest assets, by utilizing their scarce resources in creative and cost effective ways products can be sold relatively cheaply, demand is high and profits are significant. IKEA’s production methods have thus far proven to be very successful as is very evident in their rapid growth and dominance within the market and thus I do not have any recommendations.
