Introduction & History
A privately held international retailers of home products, being the largest retailers of the world they provide home products from furniture, fabric, glass, kitchen and bathroom accessories at an affordable price. Their vision being Anybody can make a good-quality product for a high price, or a poor-quality product for a low price. But to make good products at low prices, one needs to develop methods that are both cost-effective and innovative. This has been IKEA's focus. Maximizing the use of raw materials and production adaptation to meet people's needs and preferences have meant that their costs are low. The IKEA way of doing things is to pass these cost savings on to customers. This idea came into being in 1943 by Ingvar Kamprad in Sweden who laid basis of IKEA and then afterwards it was owned by Kamprad Family. Data of august 2009 shows currently it has 301 stores (outlets) in 37 countries (scattered in Europe, North America, Asia and Australia), with more than 135,000 employees. (Source net) All products are in flat packed form to be assembled by consumer himself (saving space and time from in store assembling, easy handling and transportation and reducing packaging cost.
IKEA Financial Progress this decade:
This graph clearly describes IKEA's progress in terms of financial point of view but in this recession period what could be the factors it has adopted to increase its progress towards a progressing/ profiting organization. Multiple factors can be mentioned starting from its outlets structure up to higher level management all working in a close coordination. They modernized their structure at every step ultimately profiting the organization and customers in terms of providing cheap furniture accessories.
Special Design of IKEA Outlets
IKEA outlets are often on “one way lay out pattern” to encourage customers to see the store in its entirety. A self service way is introduced as customers collect shopping cart, proceed to open-shelf warehouse (for smaller items) then proceed to furniture warehouse where they could collect previously noted showroom product (but in a flat pack form). Furniture warehouse is usually located adjacent to main store. Ultimately proceeding to cashier for due payments.
Retail Business Model of IKEA
All trading of IKEA is through its outlets as well as internet, called as Clicks and Mortar or Bricks & Clicks or Bricks, Clicks & Flips (Catalogues). The usability of both of the ways for sales proved advantageous for the IKEA and for consumers as well: Developers Perspective Profitability of IKEA Management Perspective Increased / better productivity User Perspective Accuracy/ satisfaction/ cost effective To fulfill the above described criteria products have be efficient, effective as well as user friendly. Flaws of this system include Security problems, staff retraining or new technical staff, more employees loosing jobs and redundancies. Establishment of e-business is still advantageous for IKEA as counter mediation made payment available to them before goods are delivered, goods are supplied in time further reducing inventory cost, space for storage, direct delivery to customer's home further reduces their cost.
Structure of IKEA:
Information Management system of IKEA
Main structure of IKEA family comprises of “INGKA Holding” which is the main (parent) company for all the IKEA group companies. This INGKA foundation consists of 5 member executive committee naming “Kampard”, his wife and 3 attorneys (The Economist, 2006). IKEA Group company supervisory board comprises of Goran Grosskopf, the chairman and Ingvar Kampard being senior advisor and many others representing their own territories. This group of companies is basically concerned with carrying out all the necessary functions to bring the right product to markets. These companies include IKEA Sweden, Swedwood (Industrial IKEA production company), purchasing, distribution, human resource services, internet technology and communications departments (all working together). All scattered branches of IKEA (Franchisees) are connected to a common system networking “inter IKEA system” at national as well as at international level (monitoring all the sales, stocks, cash, inventory, demand and supply balances). The basic unit of information is provided by managers at local stores (shift / branch/ area/ territory managers), all collaborating to disseminate information from local up to international level. This propagation of information is carried out through internet using wide area networks (ultimately spreading information from end user to main supplier). So Human computer interaction results in: Cost reduction less staff needed, Resource Land saving Tangible Deployment Business Improved More messages Productivity transmission New ideas/products Organizational new forms of integration Enhancement improved business Work Intangible Enhancement Business
Human Resource Structure of IKEA:
Human Resource is one of the strongest departments of IKEA as it gives emphasis on IKEA's vision Their HR philosophy believes that employees are more productive and committed when company takes care of them and their needs.
Timings of IKEA Store Opening:
IKEA outlets are open 24 hours a day, restoring and maintenance carried out at night hours. For such long working hours IKEA hires students at a minimum rate in return getting good quality work. As officially students are allowed to work part time hours, so remain available for various shifts.
Recruitment in IKEA starts from online basic test in form of multiple choice questions which are meant to judge the intelligence, personality and person's response towards a particular situation. Online testing is another factor for saving up the extra money spent on recruitment process as well as time saving. Passed candidates are then called for a face to face interview which shows their level of confidence, dedication, interests and future goals. Passing candidates then go through a short training period, ultimately becoming a member of IKEA.
Data Security Control/ Biometric Control:
Employees are supplied with specialized computerized made IKEA identity cards which they swipe on a card reader, having a data of time in, working hours and time out. For enhanced security each card contains picture of employee (which can be checked by shift manager on duty).
Job Security/ Benefits:
All employees are provided with benefits uniformly like worker health and safety, housing facilities, forced and bonded labor, no child labor harassment, abuse and disciplinary actions. Employees are empowered fully in terms of their task completion.
Supply Chain Management of IKEA:
Supply chain management spans all movement and storage of raw materials, work in process, inventory, finished goods, and their transportation from the point of origin to the point of consumption. Structure of IKEA is designed to optimize the efficacy of its designed products and supply process. For the purpose of ease it can be divided into 4 parts, each operating as a type of internal market. Sweden is the head quarter where all the basic furniture is designed. “Swedwood” the oldest supplier from Sweden for IKEA providing raw material mainly wood from its own forests but with time increasing demands of raw material forced IKEA to look for other suppliers. Currently there are more than 57 suppliers of raw material in furniture industry only, more interestingly these suppliers are not centered rather scattered worldwide but they all are connected with ECIS (IKEA' s own system) which allows them to have look at inventory level, forecasting and transparency of supply chain , ultimately helping them to anticipate orders. Here another important IKEA perspective can be appreciated that it further neglects/reduces its switching costs at minimum as it always try to negotiate with previous suppliers rather than searching for newer ones. Retail division largely keeps all the responsibilities of controlling stores (franchises) world wide. For this purpose they have integrated complex communicating system (with the help of IT) which is maintained at every step . “Istra” the marketing decision maker set up a competitive tender to decide the production. More interestingly most products are manufactured in developing countries to keep down the costs. It is the responsibility of the “distribution centers” for the distribution (transportation) of raw material/ goods and designs to manufacturers (which again are not centered, giving huge emphases on communication and continuous support). IKEA ‘s highly trained technical staff keep concentrating on design improvements as advised by management to make products that are functional, simple, well made, affordable, easy to get assembled and durable. A specialized integrated project team (IPT) ensures that all these demands are met at all levels. All the above described divisions though working independently but still are connected and being monitored by “Business Support Centers” which keep introducing newer technologies and logistics. Similarly IKEA transport manager make arrangements for all transportation s at a global level (in collaboration with support centers for product/ material tracing). IKEA's policy is to shorten lead time. Attempts are being made at supplier, manufacturer especially at transportation level, where bypassing most of the retail stores is being tried. For this purpose products are transported directly from the main distribution center to consumer's house (at consumer's cost) saving his time and saving IKEA money at the same time. For this purpose IKEA maintains 41 trading service offices, scattered in 30 countries with 1350 suppliers. Having discussed various steps of supply chain it can be said that it is the collaboration between suppliers, intermediaries, third party service providers and customers through various transport sources (Strategic Supply chain). On the basis of demands management takes decisions regarding purchasing and production, inventory decisions, transportation strategy and routes, at the same time keeping an eye on accounts (Tactical Supply chain) . Ultimately production and distribution planning, demand planning and forecasting, all inbound and outbound movements, order promising on day to day basis (Operational Supply chain).
Shopping at IKEA Franchises:
Radiofrequency Identification (RFID)
Newer technology which enables remote and automated gathering, then sending information between RFID tags (attached with the products ) and readers (which could be handled units or fixed units as both are in operation in IKEA). RFID tag consists of an integrated circuit, having specific data which could range from a unique identity number up to a thousand bites data. When these tags are shown to readers all necessary information get flashed at the device (reader) which is connected with not only in store local area network but also with a higher level management (at international level) as communication satellites are in operation as well. So information propagating starts as soon as a product is shown to reader without any delay.
Advantages of RFID System for IKEA
- Data transmission, storage and analysis become much easy now than before.
- Information between tags and readers is rapid, does not even require direct contact.
- Inventory and stock level could easily be accessed.
- On the basis of previous sales accurate forecasts for a particular product could be made.
Disadvantages of RFID System for IKEA
- Newer technology needed trained staff
- Data had to put over tags and readers with accuracy
- Required some investment.
Client Server Architecture
A customer can place an order online or through a computer system placed at IKEA franchise. For this kind of order placement customer places an order, pays cash through his debit card (in UK cash payments are handled through PayPal which is considered as the safest way of e-shopping. After making a transaction he is given a “specific order number” he shows to the main reception staff and gets his desired product straight away. Pic In this case information gets flashed at all (local, national and international levels).
“Just In Time” (JIT) Policy OF IKEA:
For the purpose of further reducing cost IKEA uses just in time policy as all the furniture is not stocked at the store level, so when a product is ordered it is directly shipped from the warehouse to customer's home at a cost of additional transportation charge (bypassing intermediaries and reducing costs to both consumer and IKEA itself).
Pre requisite for JIT
- All departments (suppliers, designers, manufacturers, transportation) have to work in close association to shorten the time frame, cut the cost while no compromise at the quality.
- Requires handsome inventory.
- IT plays the most crucial part for JIT to function at its best.
Pull Based Model for IKEA
Customer Relation Management
Customer relation management can be discussed under 3 headings: Customer Relation Management Sales Marketing Customer Service “Sales” could be further discussed as IKEA uses the below given ways for sales. Web sales Sales Phone Field (Franchise) These Points have discussed earlier in the assignment. IKEA Catalogue
Marketing of IKEA
IKEA catalogue provides the most important tool for the purpose of marketing. IKEA is known as the trend setter in the catalogue publishing field. Annually published catalogue is in 27 languages and is published in 36 countries (……..) Catalogue accounts more than 70% of the IKEA's annual marketing budget. It is said that more copies of IKEA Catalogue are printed as compared to Bible each year. PIC A quarterly printed magazine “IKEA FAMILY” further supplements the catalogue in terms of marketing.
IKEA Website Marketing
An up to date, well maintained website for marketing purposes is maintained round the clock. A specialized team of IT consultants remain available for all the times. Every promotional, seasonal offers, sales, discounts and special offers are displayed for the interest of customers. A wide range of products remain separately available on stock for e- shopping.
On field Promotional staff
Customer Service Play Area for Kids
Bargain Corner IKEA Warranty IKEA Special handling booklets
On field/Ground Staff:
A well trained ground staff is available at store round the clock providing a high level of customer support. Friendly staff of IKEA feels pride helping their customers. It's a part of their routine practice to promote and assist their customer's interest and guide them towards purchasing their goods.
Play Area for Kids:
IKEA has introduced a separate play area for children (aging 3 to 10 years of age). This facility is provided free of charge. As play area is a separate unit in the IKEA franchise so parents are provided with hand held pagers in order to get back to their children if they need some help during shopping. This unique feature is available only at IKEA stores which makes its customers more interested in visiting and shopping from IKEA.
A bargain corner is specially meant for returned, damaged or previously displayed products at a fairly reasonable low price. These products though are priced quite low as compared to other products but with no warranty. Furthermore on buying such goods customers are reminded again that this product does not carry any warranty and all the products clearly mention that either they are repaired, returned damaged or previously was displayed in the store.
All IKEA products come with IKEA warranty cards. Warranty of IKEA products ranges from minimum of 5 years up to 20 years depending upon the type of product and its life cycle. If a product gets damaged before this time customer is offered free service or even complete new product replacement. For these purposes IKEA keeps its customers details on records in order to trace them on their demand.
IKEA Special Handling Booklets:
As IKEA products are pre assembled and customer has to assemble the furniture himself, for this purpose customer is provided with a special product handling booklets which describes all the basic information regarding assembling all the material. Booklet further provide guidance for its proper usage, any precautions and safety advices.
IKEA Help lines
IKEA uses its help lines as a basic tool for outsourcing. A well trained, highly motivated staff is available round the clock to assist customers at all the levels. These help lines are free of charge and can be assessed 24 hours. Customers make calls; tell them their product reference number (mentioned on the booklets) Customer service assistant check that number in their computer system and get all the necessary information. Then they guide consumers what to do and where to report further or in case if they need any guidance they are given guidance if possible at the same time.
Development of Internet Technology (IT)
IKEA main center can be assessed through internet as all necessary guidance, sales, discounts, special offers and details of specified products can be assessed while sitting at home, or on work without any time delay. Development of IT therefore provides a major source of not only promotional perspective but sales and customers service as well. Help desk is available not only at IKEA stores but online as well.
Limitations of IT
- Internet technology is labor intensive for both data input as well as accessibility.
- Well experienced staff is needed to gather all the necessary information from all the relevant departments (starting from a local level to national to global level).
- A separate IT department is mandatory for its time to time approach and functioning efficiently.
- Internet viruses/ hackers are a continuous threat for an active IT department.
- Many organizations may not want to supply information regarding their quality costs as they may have to face increased competitive force.
- Human errors, environmental hazards and computer system failures still remain unintentional threats.
- An educated/ well aware audience is needed to avail the internet advantages.