Sample Essay on IKEA – Supply Chain

The organization’s supply chain includes raw materials, which are then taken for manufacturing. After manufacturing, the products are now ready for distribution to major suppliers of the organization. Suppliers are based in various countries in the world. The suppliers then avail the products to the retailers who are situated throughout the world; hence, sell the products to the organization’s consumers. The customers may however; purchase the company’s products directly from the company.

Raw materials are classified under the category of primary sector in which the extraction and development of the natural resources including timber, agriculture, oil, and minerals take place. Manufacturing is classified under secondary sector. In this case organizations make use of the extracted primary resources in order to build, manufacture, and develop products.  Both the distributors as well as retailers are classified under tertiary sector. Distributors and retailers provide the services that are needed to meet the needs of the end users, including retailing, distribution, insurance, as well as customer service. The final group under the company’s supply chain pipeline is consumers. Consumers are the end users of the company’s products (Jonsson, Rudberg, & Holmberg, 2013).

Macro or Microenvironment Variables that Impact the Company’s Ability

There are a number of both macro as well as microenvironment variables that impact IKEA’s ability to deliver goods and services. The macro variables that impact the company’s ability to produce goods and services include technological and economic factors. On the other hand, the microeconomic variables include price and product.

The organization’s aggressive effort to use sustainable as well as responsible materials in its products marks an important step towards ensuring a green initiative. This affects IKEA’s ability to produce goods and services since the company aims at using the available resources wisely, while at the same time sustaining the environment.  From the initial stages of product design through the product’s life cycle, the company designers, product developers, as well as the company technicians endeavor to consider the issue of safety, environmental aspects, and product quality. As a result, all of the organization’s products comprises of 71 percent renewable resources. Moreover, the company tries to include recyclable materials as much as possible.

When these environmentally friendly goods and services are produced, the company works hand in hand with its manufacturers to ensure aspects of safety, efficiency, and product sustainability. These products are then transported in smaller containers, which allow the company to obtain more space in the vehicles, therefore, reducing the rate of trips, emissions, as well as energy consumption. The company takes it a step further through ensuring that optimal loading methods are used, and that vehicles run clear fuels. IKEA also ensures that more fuel-efficient driving patterns are strictly followed.

The result of this motivation of IKEA’s products is the end users, who can proudly label the company’s products as “green.” The presence of raw materials from farmers and from other suppliers enhances the company’s ability to produce products. The price of these products also impact on the company’s ability to produce goods and services.  IKEA’s philosophy is to make all its customers well off, through the provision of goods and survives, which the customers can afford. Through selling its products at low prices, many of its clients can be able to lead better lives and embrace the company’s beliefs. This affects on the company’s ability to manufacture products because it seeks to be a customer-oriented company. Moreover, selling the company’s products at low prices would help in expanding the company’s market as well as customers.

Economical and technological factors also affect the company’s ability to produce in a significant manner. The company prides in a long and successful history. The supply chain system has allowed the organization to increase the use of wood from the forest to approximately 23 percent. This has lead to the production of recyclable materials by 91 percent. Moreover, the company intends to provide more recyclable products to its customers. The revenues brought as a result of the company’s supply chain as well as selling the company’s waste wood is estimated to be 51 percent, which has brought a lot of benefit to the organization.

The application of novel strategies and distribution centers has allowed the company to save on its transportation and handling costs significantly. This has contributed to the reduction of the company’s prices by 0.8 percent. Consequently, the reduction of the company’s costs has led to the increase in the level of sales by approximately 9.5 percent.

In terms of the technological factors, IKEA has utilized a number of technologies in its production and distribution line.  Certainly, no product can substitute the company’s furniture. IKEA has always sought to be updated by new and latest technologies to avoid losing their name as well as style. Through the company’s simplicity as well as innovative technology, IKEA is able to follow any new trend fairly well and quickly move each of the products into its stores. Since the inception of IKEA, the concept of furniture, trends, and styles have undergone tremendous change. Through embracing the customers’’ needs, the company’s functional furniture has remained reasonably stable. It is clear that technological advances, which the company has embraced over time, have had a great impact on the company’s ability to produce goods and services.

Variables and Type of Segmentation IKEA Is Using

A marketing plan is based on the anticipated client behavior in certain markets. In efforts to know the customers as well as their expected purchasing behaviors, a process of market segmentation is very critical. Market segmentation is described as the process of partitioning the market into various segments that are based on client needs as well as characteristics. IKEA uses a B2C strategy as market segmentation. Using B2C strategy, IKEA segments its consumer markets using location, buying behavior, and profiles. Location segmentation includes towns, regions, and countries. Profile segmentation includes income. Buying behavior market division for IKEA includes product usage as well as the benefits that the customers derive from the company’s products.

IKEA divides up the homogeneous customers in the market into small heterogeneous groups of clients in its market. The company gives segmenting markets great attention as segmenting helps the company to achieve excellent results. This has helped the company put in place a number of strategies in order to influence the primary customers. Segmentation of markets may also help the company to grow its sales due to grouping the customers based on their reactions and services.

IKEA is one of the globe’s largest furniture retailer and an organization that has profoundly benefited from customer segmentation. In designing new offers to the market, the company targets particular segments of customers, who comprise young and stylish people. This segment is a combination of both psychographic as well as demographic segmentation. Demographic type of segmentation implies to the process of dividing the market into heterogeneous groups that are based on characteristics such as gender, income, occupation, family status, race, education, as well as nationality. Psychographic segmentation, on the other hand, implies the process of defining the market in terms of the activities of the customers, such as hobbies and interests. IKEA produces both innovative as well as stylish furniture. This is the major segment that the company has indentified. Since these categories of customers love stylish individuals and mainly comprise of the younger generation, the company has also ventured into selling its products to customers between the age of 18 and 35 years. This points out to the demographic segmentation variable.  The company has also identified college students and young couples as its market segment. This segment of the market likes products that are highly stylish, convenient, clever, reasonably priced, and products that look great.  Moreover, IKEA also appeals to customers between the age of 40-50 years who may desire to decorate their homes and offices as well as family rooms, with durable and inexpensive products. This is yet another market segment IKEA has indentified.

Target of the IKEA Company

Being one of the world’s largest retailers in furniture, IKEA has a number of target groups in its market. The company targets a particular group of people in its market, including young couples, college students, 18 to 35 years individuals, business people, and homes. The company’s mission is providing a wide range of well designed and functional home furniture at relatively low prices so that many can afford. The company operates in more than 37 countries in the world, which increases its market.  This also suggests that IKEA operates in a very broad market. It not only targets college students and young couples, it also targets individuals between the age of 40 and 50 years, who may wish to furnish their homes and offices.

Key Suppliers and Stakeholders and How they Impact IKEA’s Value Proposition

Stakeholders of IKEA are people like the company suppliers, customers, employees, retailers, freight careers, managers, and the government.  The company’s suppliers are located across the world. They include people like farmers, ginners, distributors, and NGOs.  IKEA’s stakeholders and suppliers are individuals who affect the company in a direct or indirect manner. It is critical that the company realizes the importance of these categories of people, since they are very resourceful and on the company’s value preposition. Stakeholders are divided into four major categories including high power, high interested, low power, as well as less interested. The company’s managers need to make specific strategies in order to manage these strategies. The company’s in the category of high power as well as high interested play a very important function in the operation of the company. IKEA gains manage through communicating with its stakeholders as well as partners. They play a very important role in the company’s success as well as development.  Through cooperating with the company, organizations, and trade unions, these stakeholders learn, accomplish, as well as share more experiences.  Through this cooperation, the company is able to develop and improve its business operation.

The value preposition is the utility creating service and product that a company offers to its customers. The value proposition of a company includes all the key elements of the benefits as well as situations of the target clients.  IKEA employees ensure that they deliver the necessary labor required to manufacture the company’s products. They also make sure that they offer customers with excellent customer service and meet all their demands. The company’s suppliers comprise of those individuals who make supplies to the company. They also distribute the company’s products to the retailers and other individuals who use the company’s products. Customers are very important for the survival of the company. IKEA’s customers buy the company’s products, hence providing a market for the company’s goods and services. Moreover, the government is also another important component in the operation of the company.  The government designs and develops strategies and regulates the business environment. With every effort from all the stakeholders of IKEA, the value proposition of the company is ensured.

The role of suppliers is also very critical. They make sure that the company’s goods and services are distributed to the required destinations across the globe. IKEA’s suppliers include people like farmers, ginners, as well as those who participate in the distribution of the company’s products. Ginners process the raw materials before the company finally purchases them. They can also sell the raw materials to the company directly. The famers also play an equal role in ensuring the production of the company’s raw materials. Given the tremendous efforts of the suppliers, the company’s value proposition stands are the forefront. Both the company’s stakeholders as well as suppliers comprise the most important aspects of IKEA.  Their participation towards the company’s operations cannot be measured. The following diagram can help in explaining value proposition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Strategy That Better Suits IKEA

The strategy that suits IKEA Company is the transnational strategy. Since the level of competition in the market is very intense, IKEA needs to concentrate on both the cost-effective as well as differentiation of the products. Although this kind of strategy is difficult to pursue given its conflicting demands on the side of the company, IKEA has been successful in implementing this strategy. In terms of the pressure from the global integration, the company has successfully standardized whatever possible; its marketing is centrally developed at the company’s headquarters, and almost 90 percent of the company’s product line is similar across in more than 10 countries. Moreover, in terms of pressure from the local responsiveness, the company has successfully adapted whatever necessary, modified its furniture in order to suit the needs of individual countries, as well as implemented local adjustments in its marketing in order to suite catalogues and languages.         

IKEA’s Weighted Factor Model

The process of weighing involves stressing on the contribution of some aspects of an event in order to find an end result, giving more weight in the process of analysis. Weighted factors are used to define the level of significance of criteria. Assigning meaning to the factors is very subjective and is often relative to a company. For these reason, the number of the weighted factor is kept small. For instance, for IKEA’s weighted factor, its product can be used to find the weighted factor. Taking the company’s furniture, the following criteria can be used.

Criteria

Weight Meaning
5 Very high importance
4 High importance
3 Medium importance
2 Low importance
1 Very low importance
0 Not important

 The weighted factor

criteria Weight Score Weighted
Criteria 1 5 2 10
Criteria 1 2 5 10
Criteria 1 4 3 12
Criteria 1 3 1 3
Total 14 11 35
Score     5
Weighted     35

 

The Strategy that Best Suits IKEA in Terms of Sourcing

The strategy that best suits the company in terms of sourcing is the outsourcing strategy. The outsourcing as a strategy is one of the greatest strategy the company will need to pursue. Strategic outsourcing marks the decision that the company has undertaken in order to allow one or many other companies to perform specifically or selected value chain activities through independent and specialized firms, which focus their skills as well as knowledge on one of the activities. Currently the company outsources   approximately 90 percent of its product, while 10 percent is internally produced.  Outsourcing brings a number of benefits to the company including making it possible for low cost structures, helping the company in focusing on its core business, helping the company to operate under low as well as controlled costs, initiating the development of products, as well as expanding the company’s market penetration and development. Outsourcing strategy is the best that can fit IKEA since the company needs to serve the international community. This will be only possible through the use of this strategy.

A Relationship or Transactional Approach

IKEA Company Is Using Both The Relationship Approach as well as a transactional approach in its operation and interaction with its customers. The company makes sure that it has a stable and lasting relationship with all is stakeholders and suppliers. The company maintains its customers through meeting their demands in the market. In terms of a transactional approach, IKEA ensures better as well as enhanced transactions with is partners and client across the world.

Type of Products IKEA Is Selling

The company is the world largest retailer in terms of furniture. The company prides in proving high quality furniture to its customers throughout the globe. Meeting the client’s needs marks the company’s philosophy. The company sell good such as convenience, specialty, and stylistic furniture to various homes and offices in the world. With these assortments, the company targets a large number of buyers who are distributed globally.

The products range from eating, office desks, mirrors and children furniture. This is in addition to cooking products that include cooking accessories, ovens knives and chopping boards, and many others. For products in the bathroom storage range, the company sells sink cabinets, sinks, faucets and bathroom accessories. IKEA also sells home utility products in its bed and mattresses that include full, queen and king size beds, headboards, bed legs and pillow tops.

Within the range of clothes storage, the company stocks hooks and hangers, wardrobes, chest drawers, clothes organizers among other products within this range. The company’s ranges also encompass decoration, flooring, lighting, small storage, kitchen cabinets and appliances, sofas and armchairs, storage furniture, tables textiles and rugs, tools and hardware as well as TV and media furniture.  Within these product clusters are individual high quality products, with professional finishes and affordable pricing (IKEA, 2010).

Return/Risk Matrix

            The company uses the return/risk matrix of high impact as well as high likelihood. With this matrix in place, the company has and expects high returns from its products, which are sold globally. It also stands a high risk since risks are part of any business endeavor. The company believes that risks are part of its daily operations. In the same way, great returns come from high risk businesses. Thus, the company’s actions are those of high returns and high risks.

The company’s return in/risk matrix is largely based on its innovation. The company’s strategy involves SKU at low prices, but with a good relationship with its suppliers. Thus, to offer the value proposition at the low prices that they are known for with the customers, the company develops deep and long-term relationships based on mutual dependency and trust. With such an investment on the suppliers the company therefore initiates joint ventures with the supplier to address quality and cost, therefore creating a shared vision and goal for the company’s ecosystem. Such risk taking ensures that the company’s suppliers can accomplish their orders and contracts, as well as establishing long-lasting trust between the parties.

Part of the IKEA’s risk also involves venturing into other markets, such as the US. While it was a risky venture given the US attachment to their furniture, targeting the young demography with little of attachment therefore enabled the company to establish its presence and niche among the young. The risk has therefore proven worthwhile, with considerable returns to the company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

Dahlvig, A. (2012). The IKEA edge: Building global growth and social good at the world’s most iconic home store. New York: McGraw-Hill.

Jonsson, P., Rudberg, M., & Holmberg, S. (January 01, 2013). Centralised supply chain planning at IKEA. Supply Chain Management: an International Journal, 18, 3, 337-350.

IKEA. (2010), Multiple Pages. 

IKEA has the last laugh: Retail giant turns around its supply chain planning. (January 01, 2014). Strategic Direction, 30, 3, 16-18.

IKEA’s Supply Chain Management. (2014). Case Study.