IKEA is an international furniture and home retailer company that was incorporated in Sweden and was founded by Ingvar Kamprad in the year 1943. Since inception, the company has been working on observing its vision that is meant to create a better everyday life for its customers. This has been successful in the stores operated in UEA through manufacturing variety of well-designed and functional home furnishings that are charged prices affordable to all its targeted customers in different segments. IKEA operates in furniture industry where it focuses on producing superior designs, and great quality products that are fairly lowly priced to win a competitive edge over their competitors (Meredith, & Mantel, 2011).
The furniture industry in EAU is mostly dominated by the local manufacturers and retailers giving IKEA an edge in competing effectively with retailers that concentrate on domestics and regional markets. Major competitors in EAU for the company include the Home Centre and the Pan Emirates. The company being the world’s largest home furnishing store, it has managed to be the market leader in many of its stores that are located in more than 30 countries including the EUA where it started its operation in the year 1991 (Lambin, Chumpitaz, & Schuiling, 2007).
The founder of the company, Ingvar Kanprad, was the one who formulated the mission that is meant to offer a wide range of functional furniture to be used in houses that are of high quality and sell them at an affordable price to its target customers. The main principles that are to be achieved by the mission are specifically quality and economy entailing creation, usage, and range. The company can also follow three strategies including innovation, cheap, and stylish. For instance, creation of innovative showroom campaign via the social media like facebook that is cost-free where they could be used for tagging photos and comments increasing its customer base. IKEA Company has many major competencies that include flat packaging, diverse functionality, low pricing, and excellent quality (Lambin et al., 2007).
The company applies the low-cost business model that has enabled it to benefit from winning a competitive edge over its rivals. This is because IKEA has been able to provide flat packaged pieces of furniture that are of relative low prices as compared to the competition in the industry. The company has been applying franchising and operations as its primary structures representing its business. Franchising has helped the company to achieve its low-cost strategy through lowering the costs of entry in the market and the initial costs that are associated with the new startups. The company has applied franchising in almost all its stores, which have allowed it to benefit from low initial cost and hence low overheads (Lambin et al., 2007).
For the company to manage forecast on its demand, and hence, avoid losing customers due to shortages, it uses the previous sales records and trends to analyze and forecasts the future demand. Using the historical records has helped the IKEA Company to determine the future demands through projection, and hence, enabling the business to utilize its capacity optimally. The company can as well apply both qualitative and quantitative techniques to forecast the future trends in sales and cost. Qualitative method is used when the company lacks historical data to use in projecting the future outcomes. The technique employs the judgmental ideas of the experts in generating forecasts. It applies three major techniques that include Delphi that uses a group of experts in a given field that tries to develop forecast by group consensus. IKEA can use the marketing team, for instance, to help in projecting sales. The second method is scenario writing, which involves coming up with different scenarios and judging using assumptions of the most likely scenario to happen in the future. A third method is a subject approach where the company uses individuals to apply personal experience, ideas, and feelings. The qualitative technique is used when a company has the historical data well maintained in the books of accounts concerning the variable of interest. For instance, the IKEA Company can use the past data from sales to project the future demand of the company. The company can as well use the prices of furniture and household items to determine the effects of changes in prices to the prevailing demand (Meredith, & Mantel 2011).
Capacity planning is highly applied in determining the capacity need of a company. The outflows of products are estimated when computing the capacity need of the company. The IKEA Company has managed the capacity need through applying the bottom-up approach. IKEA uses the bottom-up approach to compute the future sales outflows in cubic meter indicating that projected sales for all products are aggregated into a total sales plan. The company applies top-down approach when calculating the sales outflow in volume in the secure capacity and process plan. In IKEA Company, the capacity planning is under the supervision of the INGKA Holdings. The IKEA Company has enough capacity that is reflected by its financial benefits of utilizing its capacity in an efficient manner. Insufficient capacity could result in deteriorating deliveries, unneeded work-in-progress that could be frustrating to both the sales people and the manufacturing staffs. Excess capacity could have reflected in the IKEA incurring unnecessary storage costs, hence, failing to achieve its maximum performance goals (Stevenson, & Sum, 2009).
Long-term capacity of a company depends on different factors that affect its performance, for example, design, production sustainability in capacity, and effective capacity. It is a long-term goal of producing the maximum level of output under normal working conditions in an organization. Short-term capacity refers to the strategic planning that a company applies periodically, for example, labor shifting scheduling and balancing resource capacity. For the IKEA Company to enhance its capacity management agenda, it applies contracting strategy to cater for the capacity. IKEA uses the good relationship the company maintains with its suppliers who are networked in different regions and strategically located distribution centers enhance its capacity management, making the products more efficient. The firm capacity is according to a low-cost strategy where it avoids unnecessary costs to keep its overheads under controllable levels (Stevenson, & Sum, 2009).
Process Selection and Facility Layout
The supply chain of the IKEA Company starts with product development that takes place in Sweden headquarters. The designs are passed to the company’s suppliers in different parts where the company carries out its operations. The process of purchasing then follows and the products are sent to the stores for distribution to the customers. The whole process is centralized where the production and selling processes are designed to be cost effective. The company observes the policies of buying its inputs in large volumes, flat-packed, and self-transportation. For example, in UEA, the company carried out research on the design that would satisfy the needs of the customers. The advantage of the process is that through operating a centralized process, the company can ensure that its mission of low price strategy is implemented in all the stores.
IKEA operates an open-shelf Market Hall where the store is designed with a unique layout that has warehouse and parking facilities for the customer’s vehicles. The layout facilitates easy movement of the customers in the unique store and hence facilitates faster selection of the purchases using trolleys or yellow plastic shoulders. There is a play area where the customers can leave their children as they carry out their purchasing processes. Customers finally pay for their goods at the cash register. The process is advantageous in that customers can move freely to the store and buy their preferred items according to their tastes and preferences. The layout is effective in that the company is using glasses that play a significant role in both aesthetics and functionality. Natural light from the store reduces energy consumption and hence enhancing the firm’s low-cost strategy through lowering the overheads. It also plays a significant role in boosting the morale of workers and giving a better impression of the products (Stevenson, & Sum, 2009).
Product and Service Design
IKEA has been aiming at providing its customers with a comprehensive range of products under one roof and can hence buy all they require in a one-stop shop. In Dubai Festival City store, there are over 6,000 products with different solutions being offered for different uses in the house, for example, bedroom furniture and equipment, kitchen and outside areas. The company concept is to sell Scandinavian design globally having similar products all over the world.
The firm’s products fall into the maturity stage of the product lifecycle. This is because the company aims at maintaining the market share that it has built-up and also modifies their products to win a competitive edge over competitors. The company products are designed to satisfy the demand and hence avoid unnecessary costs incurred in warehouses and during production for it to maintain low costs strategy (Bozarth, & Handfield, 2015).
The company should take social and environment responsibility when designing new products that are set by the legislators. The company should avoid the activities resulting in environmental degradation and exhausting the supplies of raw materials. In observance of legal, ethical issues for the product sustainability, the company has taken different measures. The company has implemented environmentally friendly policies, for instance, the use of recycled products during the manufacturing process. This minimizes pollution and dwindling of raw materials (Bozarth, & Handfield, 2015).
The company in UAE has placed its stores strategically in the hearts of city making it easy for the customers to access. For instance, the Dubai Festival City in a shopping mall where there is a high flow of customers and also parking spaces to accommodate tracks. The element of location is a key to any firm’s commercial success and a suitable strategy for winning a competitive advantage. The location according to my opinion is good since the company can nature mass flow of customers who can access the stores with ease. The company considered customer conveniences when making the location decision to enable accessing the stores with ease. The location decision is in line with the low-cost company strategy since it enables the company to benefit from large scale productions hence lowering the selling costs (Stevenson, & Sum, 2009).
Quality is the extent to which the customer’s perception towards a product is met. Management of quality strives to produce a quality product that meets customers’ expectations. IKEA on its effort to improve quality has put in place strict measures on pricing, e-procurement policies, quality and ensures there is a long term relationship with company’s suppliers. It is recommendable for the IKEA to concentrate not only on the value of the products but also on the quality to ensure customers get value for their money. The company should also acknowledge quality since customers do not concentrate on price as a factor to determine their purchasing need (Lambin et al., 2007).
The costs that are associated with quality include prevention cost; quality training, appraisal costs; tests and inspection costs; internal failure; rework labor and net costs of scrap and the external failure costs that include warranty, repair, and maintenance.
Quality tool are used in organizations to control and assure the quality of a product, and they include flow charts, histogram, control chart, cause, and effect diagram, check sheet, Pareto charts and scatter diagram. IKEA use cause and effect tool of quality when analyzing any business problem for it to solve them effectively after understanding the cause. The tool requires teamwork and even brainstorming to for the organization to result in having a successful cause and effect diagram (Meredith, & Mantel 2011).
Inspection refers to the appraisal technique of determining the quality of a product. IKEA uses inspections during the appraisal to determine the quality in materials, processes, and supplies to meet the company’s standards. The company uses 4-steps approach during the examination of supplier performance while focusing on customer experienced product and quality. Benchmarking refers to the standards that are set by which the quality of a product can be measured. The company uses the standards set by the ISO certification body to ensure that it meets the international agreed standards in overall performance. The firm uses benchmarking in all its business operations while the inspection is mostly applied in appraisal process (Meredith, & Mantel, 2011).
It is evidenced that there is a lot of potential for the e-commerce at IKEA Company in UAE. The potential could be used in integrating suppliers and the distribution networks. The company can, as a result, make use of a global website where it would ensure that is being adapted to its various locale and also localization. E-commerce would enable the company increase its customer base in future and hence benefit from operating large scales. Continuous application the low-cost strategy would significantly help the company win a competitive advantage over its rivals and hence continue being the market leader in the industry
Bozarth, C., & Handfield, R. B. (2015). Introduction to operations and supply chain management. Prentice Hall.