ikea case Flashcards
supply chain management
Scale economies, democratic design (affordability, sustainability)
They standardized their products which was different for the time
Creating a lot of volume for the lowest cost→ Promote production capacity and manage this supplier
20-30% cost savings
They are flexible and adaptable, they are committed to low prices
Pricing is their starting point→ need to fit price before the object is even made
They bring designers and suppliers so they can ensure the furniture is the exact price they want it
They use unconventional suppliers and for the long-term
The value of not too many products is to maintain economies of scale (sell to the most people possible, with less differentiation) this leads to cost savings
All of their supply chain management ideas are geared towards cost savings
1000 suppliers in 51 countries
Shorter distances for suppliers= less costs
Ikea produces only 10% of its stuff so they outsource
Ikea makes their suppliers like part of the team
Can focus on operating their stores in the best way→ pros of outsourcing
Fewer costs for factories, taken on by suppliers → outsourcing
had a team review the products
IKEA’s decision to buy production capacity rather than just product quantities means that instead of purchasing a set amount of goods from suppliers, IKEA invested in ensuring its suppliers had the facilities and equipment to produce large volumes of products. This arrangement created an incentive for suppliers to set up dedicated factories or production lines for IKEA’s needs, allowing for mass production at lower costs.
operations
Designing the store as a maze creates value because people spend longer and make unplanned (impulse) purchases
Less lines because of their storage area where customers can come pick up their items (less need for employees which lowers costs)
Their stores are also used as storage
distribution
Furniture used to be ordered through catalogues, but ikea changed that by showing furniture in stores→ people were getting suspicious about the quality of ikea because of the low prices which is why they had stores in person
Ikea started a price war. They had show rooms to have consumers go and try out the items to know its good quality
Blue box stores on the outskirts of the city
All about lowering costs
Ingka owns Ikea, they franchise to some other outsiders
Ikea made the strategic choice to manage and operate their own stores
Ikea does give a license to other companies to run under the name ikea
They trust local franchises or retailers (non europe) but for the most part they choose to operate their own stores through ingka
There are pros and cons about running your own store vs franchising → if local franchisee they possess local knowledge better than ikea so stores will perform better, can grow faster and at a lower financial risk if your franchising
marketing and sales
Globally their brand and design is Scandinavian and very consistent with their brand image and what they sell, in their home country they switch up their brand and designs
They adapt their products to different geographic locations
They do mockups of rooms in their stores
Many products are near the cash so people buy more which is called merchandising, people are forced to walk through the isles to popular products so they want to buy more on the way
53% of purchases are in store
follow up services
Follow-up service, traditionally their business model is heavy on after-sales service, they have a guarantee for life
They want to do little follow up services → reduces costs
support activities: finance
Privately held, financing was not a big issue (cantr buy at the stock market) → they dont have to pay out dividends, have control over the entire company, less financial reporting, dont have to explain decisions to the public
Culture of frugality
human resource management (support)
Frugality
Humble culture→ drive simple cars, don’t wear designer stuff, save money leads to a sense of community and belief in the brand
If there is a good sense of culture among the employees, consumers will be happier bc they will be served by happier employees
Reduces employee turnover
management information systems (support)
Have old technology interconnected like spaghetti, rceates a lot of complexity
If you want to make changes to the system, will be very costly
Consequences on interconnected systems→ involve hiring of transformation leaders who need to fix this, huge budget is required to revamp the technology
Reduces ikeas flexibility to adapt to ecommerce may miss out in sales
Its weakness is information management systems → thier IT system is too old and expensive to fix
Advantages of this system: cost advantage→ every step of the way they commit to very low prices which leads to cost advantages
core competencies of Ikea
cost reductions, cost savings, supply chain management as well, culture of loyal employees (HR management), the way they run their big blue box stores is also a core competency
threats
Threats: competition → wider range Wayfair offers 14million items, and 11 million supplier much bigger than ikea can offer which makes them a threat
Ikea keeps 9500 range of items
Economies of scale are realised by ikea but may be difficult for wayfair and amazon
More people move into cities→ 80% of pop will be living in the cities whereas ikea is int he suburbs
Threats
Less cars in the usa, ikea business model counts on people driving to the outskirts of the city, people value convenience instead diy, people want assembly and delivery, the diy culture doesnt exist in china, fluctuations in the prices, people like e-commerce nowadays→ more efficient
Customers like online ordering because they can compare prices, see many items → challenging ikeas business model
opportunities
Middle class is increasing in emerging markets, can be an opportunity and threat for Ikea because it can allow them to expand their customer base in china and india
Ikeas penetration rate: the Market share of ikea at home in Sweden is almost at 26% but in other markets its quite low (France, germany) opportunity for further penetration in existing markets
how is Ikea planning to increase their customers
their objective is 3 billion customers by 2025, at the time of hte case they had 1 billion customers
Thin wallets in the usa is not the same as in china
Where can tehy find 3 billion customers→ entering new markets
How can they get there? → they are planning to enter a dozen new markets, through expansion, south America is an opportunity, china and india are the two huge markets to concur, also→ asia, europe, north america are where their customers already are and great places to increase their customer base
Have to win over customers while things are changing
3 areas they want to focus on
Affordability, accessibility and sustainability
affordability
if they are going after the thin wallets they need to have affordable prices, how can they be more affordable: - they can reduce costs in the supply chain by subbing out materials (they are outsourcing so they can talk to suppliers), renting out furniture is another way, have to think outside the box, decrease the range of items, could help economies of scale → mass produce the smaller range of items, commonalities between countries ex: humid climate in India but also in other places (can achieve economies of scale) decrease the range to create economies of scale and economies of scope, second hand market
We want to stay true to ikea but also adapt so these initiatives are in line with being a cost leader
We want to ensure that our changes dont change the brand image
What activities in ikeas value chain need to be revised: supply chain management is mostly affected here (talk to suppliers to reduce costs)
Need to market themselves to customers properly to thin wallets
Marketing → need to remarket themselves to make sure that poor people know that ikea caters to them
accessibility
City center stores
Created visualization platform online→ online initiatives
Pickup points where people can get their things
Multichannel shopping
Enter south americans market
Costs will be driven up if they expand to city centres
Need to start selling online, to become capable of this they need to fix their spaghetti information/tech system→ hired transformation leaders to help with this
Distrubtion is changed
Operations would be impacted
Human resource management is a support activity taht is being used→ bringing in people who have the knowledge to update the company
Will accumulate data by selling online→ ikea will understand why consumers are buying and what
follow up service
Continue investing in big blue box stores
acquired task rabbit
sustainability
Extending life of products
Recycling
A lot of their materials are driven by natural resoruces (lower the depdendnce )
Using less materials for packaging
Investing in solar and wind energy
Brand reputation is why they feel they need to be sustainable
A company with such large footprint very small change they make will have a large impact
organizational history
inter ikea= rights to ikea
ingka= owned and managed the existing stores
two separate companies
franchisor and franchisee
one brand many companies
culture and values
team based environment, kamprad was very down to earth, ikea is like a religion, hire people that fit ikeas values
care about customers
ikeas success formula
relied on efficient supply chain and economies if scale (democratic design) to keep prices low and have good quality , they also try and fit cultures , they care about their suppliers by buying production capacity , also have good relqtionshipswith suppliers , use flatpack to save costs , self service saved money, consistency in the stores
potential issues
kamprad was getting old, lgal structure was too complex, retail industry was looking to e commerce
growth in traditional markets was hard
competition, e e-commerce, convenience
income levels were rising
china and India
china: ikea had to adapt its furniture to small living spices and relevant household items like chopsticks, also offered home dpeivery and Assembly, bc Dif culture , increased size of stores, slashed prices
india: good opportunity, growing middle class, also accommodated to local culture, assembled a team that would deliver items the next day
when does outsourcing make sense vs not makes sense
makes sense: to save costs have an efficient supply chain
core activities should remain inhouse–> they need to create a good culture , supplier relationships
Outsourcing makes sense for IKEA when it comes to non-core activities, areas where local expertise is needed, or when cost savings are substantial without compromising quality (e.g., outsourcing non-differentiating products or services).
Outsourcing does not make sense when it risks compromising IKEA’s core competencies—such as product design, customer experience, and operational efficiency—or when IKEA’s strategy of vertical integration provides competitive advantages.
ikeas business model history
offered standardized products which helped save costs
minimalism
ikea expanded geograohucakky
owned most stores but started franchising
why were the flatpacks helpful
they slashed trnposrt and storage costs so Ikea could further lower prices
democratic design ikea
meant that each prodict had to be affordable, sustainable, good design and functional
issue that ikea faxed earlier on
failing to act locally but they learned from this and aimed to fit local cultures
ikea and suppliers
partnered with unconventional suppliers
they bought production capacity rather than product quantities –> it refers to the strategic decision of securing the ability to produce large volumes of products at low cost by investing in the manufacturing capabilities of its suppliers
had long term relationships with suppliers in many countries
Europe and usa: challenges in the field
in Sweden, ikea had a 25.9% market share
hard to grow in traditional markets bc markets were cpmeotitve, e commerce and lot of competition, convenience
also now income levels were rising a lot –> they adjusted to this
what happened to ingka
they got limited to just a retail role
igka was so big so hard to manage
bc they didnt have god IT, what was happening
there were having stockout
but they improved it
if ikea does delivery, how does it affect its entire structure
adds more complexity to the supply chain,
distribution will also be more complicated
may need more marketing to promote that ikea is delivering
hiring and training delivery staff (operations) and may need to change store layouts (operations)
