An overview of IKEA
Undoubtedly, in the modern, technological and developed world, IT defined as the storage, protection, conversion, transmission and retrieval of data, has a significant role in various important activities and contributes in industrial development. The usage of Information technology in businesses is a useful tool in managing and administering their regular operations and activities. An example of wise and effective application of IT into business is IKEA. IKEA is the world’s largest home furnishing retailer with stores located worldwide. Every year IKEA stores welcome 565 million visitors, while more than 450 million visits have been recently recorded to its website. The followed low-price strategy coupled with a wide range of functional, well designed products that satisfy every lifestyle and life stage of its customers, who come from every age group and type of household, is responsible for its rapid growth and its enormous success.
2. The company
2.1 Company overview
IKEA began to design its own furniture in 1955 and opened its first store in Sweden in 1958. In 1959 it began to produce self-assembly furniture to lower freight chargers and other costs to retail customers, an approach that continues until today. IKEA now has over 200 stores in 30 countries. Each store has about 9500 items for sale. Its 2008 sales were over â‚¬20 billion.
The company, over time has become a leader in its niche by the choices made in that process. Nevertheless, the IKEA uniqueness presents a formidable barrier to competitors- one that supply chain planners can look in creating their own business models.
The â€œIKEA conceptâ€ guides the company. This concept is to make â€œwell-designed, functional home furnishing productsâ€ at low, affordable prices. In fact, the design process for a new product begins by setting the retail price. It then proceeds to design production processes that meet the cost objective. Finally, the product is designed to IKEA’s style standard. This standard omits cost-adding frills that add no value in terms of functionality.
Each IKEA store carries -on average – a selection of 12000 products, while the core rage is the same worldwide and independently of the store size. Managing over 200 stores spread in 30 countries worldwide and having 1,600 suppliers in 55 countries, requires apart from outstanding support staff, exceptional logistics and the best information systems. IKEA, in order to maintain an integral supply chain at its most efficient level, it must incorporate the right people, the high technology and the best information systems.
2.2 IKEA’s timeline
2.2 SWOT Analysis
2.3 IKEA’s challenges and goals
The company requires the best tools available to ensure a faultless transition and has to be able to solve any problems as quickly as possible, particularly when it is the world’s leading home furnishing retailer. The rapid development of technology creates new standards and increases demands in planning process. The company has to be modernized and able to adjust quickly to changes, place additional pressure on the whole operation of the supply network and be innovator in using the most up to date information systems. Being sustainable should remain a central part of IKEA’s image. Failure to deal with new challenges and problems that arise due to market forces and to various economic factors will cost IKEA in every area of its business. Hence, to ensure that this would not happen, IKEA needs to invest in IT, helping the company to adapt quickly and easily to the developing situations (agility) and face any problems occurred. Investing in IT can achieve:
- Increased visibility in the sales patterns of IKEA products.
- Improved forecast accuracy.
- Improved planner experience and productivity through exception-based management.
- Enabled the consolidation of supplier base with a focus on low-cost countries.
- Increased overall supply chain visibility and efficiency.
3. IKEA and IT
3.1 IKEA’s major IT systems
IKEA has many company-wide IT systems. These IT systems are facilities which aim to process data and provide meaningful information to users but each of them varies in function. IT systems are able to track data and information to all resources external or internal making possible design, production processes, distribution, retailing take place in the most productive and effective way.
3.2.1 IKEA’s intranet: bringing people and information together
In 1997 IKEA launched its intranet, IKEA inside.At its first steps it included useful information for co-workers and had a basic although unclear structure: content was static, interactivity inexistent but it improved through trying and learning. Through time the need to share the intranet’s content not just with IKEA’s co-workers in the service office but also with the people working in IKEA’s stores emerged. What was considered critical to success was the way the site would be set up in order to match the retail personnel’s needs and skills. In the following years IKEA replaced its traditional paperwork system with digital equivalents which led to great accomplishments, decreasing costs and time needed to complete different kind of tasks within company.
Intranet offers a wide range of applications such as online surveys, details about products, company news, customer feedback, inventory and supply management tools and material concerning marketing. Hence, is considered by employees as their second hand that promptly provides them, whenever and wherever needed, with the necessary tools and information to perform their duties.
Innovation and effort for improvement through intranet in IKEA never stops. Recently in May 2008 the Swedish company launched the ico-worker which houses information about employees and it is used in general as a digital human resource centre. Applications vary from managing retirement plans to requesting time-off and accessing online pay checks. This latest addition to intranet has saved hundreds of thousands of dollars and also many hours of work for IKEA’s HR department.
Through intranet IKEA has managed to decrease costs in departments other than HR. The intranet consultant, Toby Ward, mentions that IKEA US has managed through intranet to decrease costs more than $500,000 per year. More precisely, it has managed to decrease paper costs by $192,000, streamlining processes and self-serve process by $4,590, modernizing communication technologies -video conference to webex- by $90,000 and finally self-service HR by $219,000.
The intranet team has accomplished not only to decrease costs but also increase sales by empowering employees and sales teams. It has succeeded this goal through delivering a highly focused on sales content. Employee discussion boards and provision of information concerning sales number and metrics are only some of the tools offered on a daily basis to employees working at IKEA.
IKEA inside has managed to bring people and information together in the most productive way. Other companies use intranets as well without being merely as successful. What is the element that has ensured IKEA’s intranet long term success? Is it a very sophisticated technology? The answer is that the key element to success has been the provision and ability to coincide the technology based system to the people it is meant to support. Technology was definitely not the sole focus when developing IKEA’s information systems and especially intranet: The emphasis has been placed more to people rather than data or technology. Specifically, the IT was designed to enhance the connection between employees and data in respect to IKEA’s people-centered culture. Beth Gleba, Internal Information Manager for IKEA explains that “We are a people-based company. Face-to-face time is very important. We’ve built our intranet to complement this. We don’t want people to feel technology replaces but enhances our connection to one another. Working with our culture, not against it, has been key.”
The Intranet as part of IKEA’s information landscape has been able to decentralize work, impact the bottom line, improve IKEA’s financial factors and all that because people building the intranet right from the start had in mind that it should be more than its bits and bytes, it should be able to respond to peoples’ needs respecting their work culture.
3.2.2 IKEA’s product information assistance (pia)
One of IKEA â€˜s key IT systems is PIA , Product information assistance which was introduced in 1998. This system has as a core objective to help administrate product information and is therefore useful for product development projects.
PIA is provided with information by project teams and product developers. Input data include several kind of information about the product: sale price, expected cost, product composition, goals. PIA is also fed with information by other specialists at IKEA who provide details about suppliers, materials etc. Product developers are the main users of output information but all of IKEA’s employees have also access to the system: they can either browse information or create documents such as internal reports.
When we refer to product development at IKEA we should have in mind a fully vertical integrated system: A system that provides resources and coordinates the different stages of design, manufacturing, logistics, warehousing and finally exhibition in retail stores. So, behind each product there is a vast system of internal and external resources that interact one with another.
Through PIA, IKEA has been able to perform miracles: It has been able to create products -like Lack, a simple table- that had a constant price for decades although the price of input materials has increased substantially. This accomplishment was possible with the use of PIA which has combined resources in different ways to reach the same result. PIA is responsible for collection, process and diffusion of the large amounts of information needed for each product, Lack as well, to both external and internal units.
Of course PIA is not yet a perfect system. Certain limitations emerge from its direct and indirect connections its passive and active users but PIA is a system which constantly evolves with changing features and patterns getting better each time.
3.2.3 Supply Chain Management
IKEA’s supply chain follows the â€œphilosophyâ€ of make to stock. This means that products are not built upon customer request and that’s why there is a large dependency on demand forecasts. In the past, there was a great degree of freedom concerning stock planning and replenishment at a regional level. Through time this has led to stock outs, overstocks and obsolete inventories. But this was not the only problem faced by IKEA’s previous supply chain. The fragmented and unreliable information used -coming from manual work- created lack of trust between the different parts participating in the supply chain. Moreover problems in data maintenance were spotted as well as lack of the proper tools to handle deviations in demand.
In order to address these problems IKEA decided to attain better control of the supply chain and improve performance. The new concept is being currently implemented and an important part of it is the IT technology being used. IKEA has reformed to a centralized planning organization with integrated planning processes and high data quality.
APS (advanced planning systems) are tools used to help make decisions in this complex environment of global networks. The main idea is that one central planning engine includes all decisions concerning the supply chain: stock replenishment, sourcing, production and distribution decisions.
The following figure shows the new planning concept where all forecasting activities are centralized and stock levels are under control through out the whole supply chain In the new global planning process corporate sales planning takes place first, its results are used as input in to the global need planning process. The next step is the capacity planning process and finally the planning of the distribution supply chain takes place.
Most of the planning processes are supported by APS and the forecasting processes have been supported by JDA. The contribution of these two systems to the improvements described concerning the integration of the supply chain has been amazing.
With the use of APS
- the number of forecasts has reduced from 120 to around 30
- the average forecast accuracy has increased from 60% to 80%
- Several roles in IKEAâ€˜s planning organization have been supported with up to date information concerning stock levels, replenishment needs and safety stock calculations.
APS has improved supply chain planning in the following ways:
- It has helped reduce stock levels and improve services
- It has provided management of large amounts of data and run of â€œ what ifâ€ scenarios to ensure the best decisions will be taken
- It has present results in an understandable way
- It has contributed to the improvement of the degree of automation planning and therefore has save time for decision making
- It has helped to balance the supply chain through coordination
- It has offered tools to detect and deal with planning problems in early stages
- It has improved the data quality
In the year of 2001 IKEA has launched a new cooperation with JDA which in its turn provided a new solution to apply JDA Demand solutions on all company products in the international market. The primary objectives pursued by the company were to design a methodology to plan sales, to come up with real sales forecasts in order to determine capacity for stocks as well as plan for suppliers and estimate the transpiration costs. Due to this global supply chain planning system, today IKEA has the opportunity to manage its sales, capacity, inventory and distribution in an efficient and visible manner. This gives the company to better consider its sales prospects and improve the business operations as a whole. The reports state on the company’s planning departments testifying about the efficiency of this method as it was vividly reflected in more accurate forecasts.
4. Future Challenges
Over the next five years IKEA’s strategy has been to keep expanding in the international markets which makes them to face new challenges, particularly with the distribution system. Such enormous growth urges the company constantly review its distribution structure and adapt it to the required needs. One of the primary moves the company should do is to reallocate its distribution structure in a way that the low-flow range will be stocked centrally for big regions and high-flows near to the appropriate market. Meantime, the company should work on increasing direct deliveries.
The other upcoming challenge that the company is coping with is about organizing remote shopping over phone and Internet. Even though IKEA customers still prefer to visit the stores as it is a whole experience for them, however internet shopping and phone orders is on demand and in order to meet this expectations the company should find new and flexible distribution solutions.
5. Evaluation of the impact of IT in IKEA’s success
5.1 IT’s impact on IKEA’s success
As the globalization is increasing in the retail industry in terms of sales and supplies the significance of IT is rising substantially and is playing a vital role in managing the complexity of retail operations. Major retail industry players are willing to allocate larger amounts for IT costs as they realize the importance of its application in the business as it generates numerous advantages over the competitors and delivers value.
IT has played a great role in IKEA’s success and this is because the company was not merely integrating these systems into its operations but also combining them with its strategic goals. At the same time, IKEA was able to maintain successful in the market as it was evolving the IT systems in the company as the business was growing starting from simple and base systems to finding complex solutions to complex problems.
5.2 Competitive advantages from IT’s implementation
In this dynamically moving business environment it is a challenge for companies and organizations to sustain their competitiveness. Today by integrating IT systems in its everyday operations, IKEA has empowered its grounds in the market as these systems provide best information that the company needs to do its tasks more effectively. It has quick access to information and it minimizes the errors in business transactions. At the same time it serves as a powerful competitive tool for IKEA to interact with its customers, supplier and employees in an effective manner that contributes to a mutual benefit by making its stakeholders loyal to the company.
Today, due to its successful Supply Chain Management system IKEA is able to achieve cost benefits and offer reduced prices to its customers. At the same time the implementation of Supply Chain Management system in its global planning has given IKEA the opportunity to reduce its stock level and increase the service level. This in its turn contributes to the overall satisfaction of the company clients and supplier. Contrary to its competitors, IKEA is able to detect and cope with problems related to the supply chain at an early stage which helps the company to have a balanced chain. It also has accuracy in its forecasts and better visibility and efficiency in its overall chain.
In summary, the IT implementation in various business operations gave number of competitive advantages and benefits to IKEA. Today the company has improved its overall operations in the market and runs the company with a better and global view. These IT initiatives gave the company long-run significant competitive advantages in the market that will contribute to improved profits.
5.3 Lessons learned from IKEA’s IT applications
IT systems became the heart of IKEA operations and it plays an important role in alleviating pressure points in its business transactions. On the other hand, those companies who do not manage their IT systems effectively it becomes a problem rather than solution, especially when a retail industry player has to deal with advanced planning and scheduling systems, merchandizing and inventory management systems. However, these systems play crucial role in retail operations and when the company uses it effectively, it can improve efficiency and increase revenues.
In IKEA’s example we learn that the company matched its IT systems to its existing culture and found success in its initiatives. Their objective was not to create a sophisticated systems but systems that could promptly respond to the employees’, suppliers’ and customers’ specific needs.
One of the success factors that have to be taken into consideration was that IKEA did not compromise its corporate culture by using information technologies. The company was aware that these systems exist to support people and not the technologies. They understood that those tools should not have negative impacts on healthy and powerful organizational culture as these tools are not capable to replace the nuances of the human experience.
Another important aspect that has to be taken into consideration is the change management in IKEA, when implementing new IT projects. Most of the IT systems integrated by IKEA have been implemented successfully as the company spent money and efforts to support workers to adapt to methods and tools by creating awareness and interest among the employees, trying out the solutions and adapting to the change.
Undoubtedly, effective use of modern IT can be seen as a requirement to succeed in the markets. Information technology secures the efficient information flow needed to develop and support a growing IKEA. IT has the ability to support a global organization such as IKEA with business solutions and services that keep the company running and to develop the way the company does business by supply quick, lean and user-friendly IT services rather than just technology. IT offers countless opportunities to simplify, streamline and improve every aspect of IKEA operations. Most of the specialized jobs and projects are based in the IKEA IT centers, but IT support functions are needed in all parts of the company. Historically, IKEA has developed many of its own IT-solutions and stands as a model for various businesses worldwide. In the future, considering the globalization, internet’s expansion and technological growth, the role of IT will be even more critical.
Given that IKEA’s personnel has been proved through the company’s long history as a solution-oriented and creative organization with a genuine interest in the overall success of IKEA as a home furnishings company, the future of IKEA is even promising with its IT systems to be the shortcut to success.
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The table was extracted from Jonsson P., Rudberg M. , Holmberg S. Global supply chain planning at IKEA inOrder Now