Competitive Advantages From Its Implementation Information Technology Essay

IKEA is the worlds 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.

The company

Company overview

IKEA began to design its own furniture 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 €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 “IKEA concept” guides the company. This concept is to make “well-designed, functional home furnishing products” 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

2.3 IKEA’s challenges and goals

The company needs the best tools available to ensure a seamless transition and has to be able to resolve any problems as quickly as possible, especially when it is the world’s leading home furnishing retailer. This was the case with IKEA, which was looking to change its supply chain strategy by cutting back on suppliers and focusing on those located in low-cost countries. However, in order to do this, it discovered it would have to endure longer lead times if it wanted to benefit. This would then force higher demands on the planning process and affect the firm’s ability to adjust quickly to changes as well as put extra pressure on the whole operation of the supply network. Failure to deal with these problems would have made the whole process a costly mistake. To ensure that this did not happen, IKEA needed to invest in a solution that could be implemented quickly and easily, yet could be amended to suit any developing situations.

> 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

3.1Developing IT through time

3.2 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.

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 coworkers 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.

The main goal of IKEA ‘s intranet is to be considered by employees their second hand that will promptly provide them whenever and wherever needed with the necessary tools and information to perform their duties. 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.

Innovation and effort for improvement through intranet in IKEA never stops. Recently in May 2008 the Swedish company launched the icoworker 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 working sectors other than HR. 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 at an amount of $192,000, streamlining processes and self-serve process by $4,590, modernizing communication technologies video conf to webex has saved $90,000 and finally self-service HR had as a result decreasing costs 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 & 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 to that question is that the key element to success was the provision and ability to match the technology based system to the people it was meant to support. Technology was definitely not the sole focus when developing IKEA’s information systems and especially intranet: The emphasize has been placed more to people rather than data or technology. More precisely the IT was designed to enhance the connection between employees and data in respect to IKEA’s people-based 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.

IKEA’s product information assistance (pia)

One of IKEA ‘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.

Supply Chain Management

IKEA’s supply chain follows the “philosophy” of make to stock. This means that products are not build upon customer request and that’s why there is a large dependency on forecasts. At a regional level there is a great degree of freedom concerning stock planning and replenishment. 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 are the IT technologies 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 draw 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 IKEA’s planning organization have been supported with up to date information concerning stock levels, replenishment needs and safety stock calculations.

APS has helped improve 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 ” what if” 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 balance the supply chain through coordination

It has offered tools to detect and deal with problems in early stages.

It has improved the data quality

The company began working with JDA in 2001 and the first thing the solutions provider did was to implement JDA Demand solutions on all IKEA products globally. IKEA laid out a number of objectives for JDA such as developing a sales planning methodology and tools that assured realistic forecasts used for planning supplier, warehouse, and transportation capacities. JDA also developed a capacity planning methodology and tool that make it possible to benefit from the cost savings of long-term commitments while keeping the risk of imbalance between commitments and demand to a minimum level. A global and regional supply planning system component would make it possible to have a coordinated and consolidated sales, capacity, and distribution planning while having them directly linked to replenishment. The solution would also allow IKEA to consider all inventories in the need calculations and to have supply chain visibility in the order management process.

“We currently have Demand live on all products globally and Fulfilment is currently being rolled out for DC replenishment,” says Tommy Stjernfeldt, Project Manager for the ongoing fulfilment implementation. “Performance has always been a concern for IKEA and benchmarks and performance fine-tuning activities were critical in the success of the project. JDA is invaluable in providing support for IKEA’s business needs with this.”

“We have seen a sizeable number of benefits from the JDA implementation. Planners have been enthusiastic about the solution because it gives them better visibility into the sales patterns of the IKEA products and has improved their global view of the business. The planners are happy with the new exception-based working method and we have seen marked improvement in our overall forecast accuracy between the original rollout in 2002 and today. It has been a successful move for us and has made it far simpler to start focusing on low-cost countries and cutting back on suppliers, which will in the long run help to improve profits and make our management system more efficient,” said Jimmy Biesert, Head of Supply Chain Planning at IKEA.

Success is based on the idea of keeping the cost between manufacturers and consumers down

Effective use of modern IT can be seen as a requirement to succeed in the markets

…although IT system is not a shortcut to success

IT system needs to be implemented on the needs of business

Improving and using technology in the most effi cient way is important to be able to offer good design at low prices. A smart solution for IKEA was to implement ReadSoft’s data capture software for incoming goods invoices. It certainly helped IKEA to minimize costs and maximize efficiency in administration. “In our line of business, value for money is a key success factor. We had to find the most efficient way to capture the vast fl ow of invoices within the entire organization. We soon discovered that ReadSoft was the natural choice”, says Anders Svensson, Invoice Services Administration Manager at IKEA, Sweden. Imagine an Internet application where did the case study at IKEA.

you can experience how different forms of Information Technology (IT) have been used in different real contexts. Imagine that the cases include details on the design of the IT systems and their effects on use situations, using video, sound and hands-on prototypes as well as text. Imagine that there are lively electronic discussions of the cases where members of the world-wide IT design community give comments on central issues, question conclusions and point out similarities to cases from their own experience. That application is what I call the Qualitheque. I am specifically going to reflect upon the result of the design of a sale support system at IKEA. One of the questions being asked during the IKEA case is how a computer based information system at IKEA named MHS acronym for Möbel Hus Systemet, in English Furniture House System) is used in its context. To find out something about the use of the MHS, I have chosen to do some participative observations at different departments of an IKEA store, and studied the employees way of handling the daily work with the support of the MHS. The members of the project have taken part in work in some specific real working situations. This active participatory part has been conducted by two members of the project working in different departments at the IKEA store in Malmö. We followed the goods through the store house, starting our study by working some days at the loading ramp and store. In total, we spent four weeks working in most of the departments, ending up at the goods delivery office. By asking the coworkers questions during the work we had the opportunity to form an idea of work with the system in its real context (e.g. the context of a new employee).

I do a little, you do a little, and together we do a lot. This is a concept that’s deeply embedded in the business model for IKEA, the global home furnishing giant with over 270 stores in 36 countries. The strong sense of teamwork, community, and collaboration expressed in this simple principle forms the basis of IKEA’s organizational and operational culture. It means as much to those working in HR, Sales, and Marketing as it does to consumers who buy the company’s flat packed furniture that they assemble themselves.

A strong corporate culture, however, doesn’t always translate into effective information systems. In fact, when done poorly, the latter can be a detriment to the former. There’s always been an unfortunate disconnect between technology-based systems and the people they’re meant to support. But IKEA’s humanistic, people-focused approach to its business naturally carried over to the development of its intranet.

Rather than forcing its corporate culture to bend to accommodate a technology-based system, IKEA used its firmly established culture as the foundation for its IT solutions. It’s an approach that garnered IKEA North America’s intranet, IKEA Inside, much praise when it was recognized as one of the world’s ten best intranets of 2008 by the user-experience research firm Nielsen Norman Group (NNG). It’s an approach that enables IKEA to keep all its employees up-to-date with everything going on within the company. And it’s an approach that defines the true purpose and spirit of an intranet: To bring people and information together.

Connecting people with technology

Since their inception, intranets have been used to manage large repositories of content and to share this centralized information with a company-wide user community. This goal hasn’t changed much since intranets first came onto the corporate scene, but an intranet is worth more than the sum of the bits and bytes that make up the system. Although the technology has gotten much more elaborate, a clear shift in focus has emerged.

The results of NNG’s eighth annual intranet design competition highlights a development shift in today’s top intranets, emphasizing access to people rather than data. It’s a trend that corresponds with IKEA’s business model: A perfect marriage of corporate culture, business imperatives, and the technology that supports the two. For IKEA, the implementation of technology-based tools was a natural progression of its already strong sense of corporate community and teamwork.

“In the past decade, I believe we have seen our American workers adopt technology at an amazing rate in their personal lives,” says Beth Gleba, Internal Information Manager for IKEA North America. “Of course this has an impact on how people come to expect similar tools in their workplace.”

But IKEA’s adoption and integration of technology wasn’t done at the expense of the human experience. All too often information systems fail within organizations when technology itself becomes the sole focus and reason for development. This type of technology-driven development perpetuates and widens the gap between the tool and the user. It’s an unnecessary gap that prevents users from accepting a technology-based solution as a true business tool.

“We are a people-based company,” explains Gleba. “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.”

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

Coping with the company’s expansion presents an enormous challenge for distribution. The company is planning more than double volumes over the next 5 years and to serve more and more markets around the world. Growth on this scale necessitates regular adaptations to the company’s distribution structure. For example, one important step will be to reorganize its distribution centre structure so that the low-flow range will be stored centrally for large regions while the high-flow range is stored in centres closer to the relevant market. At the same time, they should strive for an increase in direct deliveries.

Another example of a future challenge for its experts in distribution is to meet the demands generated by remote shopping over phone and Internet. Although IKEA customers will always enjoy an inspiring visit to the store, Internet shopping and telephone orders are steeply on the rise, requiring new, quick and flexible distribution solutions according to the customers’ expectations. Examples of work areas in this business type are:

Store distribution manager: The store distribution manager should analyse the supply chain, ensuring distribution centres can accommodate the volume of goods required by stores.

Customer distribution manager: The customer distribution manager should be responsible for operating and developing the order distribution business, from warehouse to customer.

Transport operational coordinator: The transport operational coordinator should be the lynchpin between IKEA and its carriers, ensuring an efficient flow of goods. Warehouse operations manager: The warehouse operations manager should ensure efficiency within the distribution centre and respond to the needs of the supply chain. Quality manager: The quality manager should be responsible for quality control in the warehouse and efficiency of delivery to the customer.

Transport business developer: The transport business developer should build and maintain relationships between IKEA and its carriers whilst negotiating mutually beneficial transport scenarios.

Goods flow coordinator: The goods flow coordinator should secure the highest product availability to the customer with the lowest possible supply chain costs

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 coinciding 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 task 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 an accuracy in its forecasts and better visibility and efficiency in its overall supply 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.

6. Conclusion

Information technology secures the efficient information flow needed to develop and support a growing IKEA. IKEA IT is a global organization supporting IKEA with business solutions and services that keeps IKEA running and develops the way the company does business by supply quick, lean and user-friendly IT services rather than just technology. IT is active throughout IKEA and 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. In the future, more standard solutions from external suppliers will be used, since IKEA IT co-workers are solution-oriented and creative team players with a genuine interest in the overall success of IKEA as a home furnishings company.