MBA 1ST TRIMESTER CASE STUDY
DATE: 22nd August, 2023 To: Mr. Suman Gorkhali
Subject: Supply Chain Management (SCM) in IKEA From: Avengers
Abstract: This research is based on the supply chain of the IKEA company which is the world’s largest furniture
retailers since 2008. IKEA being a large multinational company comes with several challenges and issues,
especially in supply chain. Some of IKEA’s supply chain issues are related to quality control, product availability,
and disruption caused by global event such as Covid-19. These problems could be solved by establishing
factories to the continent with the highest turnover, outsourcing to countries with cheap labor, providing high
quality products using few materials at lower cost with prompt order fulfillment.
INTRODUCTION
IKEA is the world’s largest furniture retailer since 2008 which is a multinational group of Swedish companies
headquartered in Deft, Netherlands, their mission is to “create a better everyday life for many people” and it
adopts a “People & Positive strategy to work towards this vision.” IKEA is a globally recognized company that
was originated from Sweden, founded in 1943 by Ingvar Kamprad, the name IKEA is an acronym for his initials
(I.K.) combined with the first letters of the farm and village where he grew up (Elmtaryd and Agunnaryd).
As of 2021, IKEA was the most valuable furniture retailer brand in the world,
furniture retailer brand in the world, and the eight most valuable retailer in the
world valued at over 21 billion U.S. dollars. The company operates 464 stores
worldwide and is present in most major markets. Before coronavirus (Covid-19)
pandemic, there were around one billion customer visits to IKEA, with that
number decreasing to around 775 million in 2023.
IKEA's stores Globally
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Source: https://www.statista.com/statistics/241821/number-of-stores-of-the-ikea-
group-worldwide-by-region/
This statistic depicts the number of stores of IKEA group worldwide as of February 2023 by region. That year,
Europe had a total of 277 IKEA stores throughout the continent, Asia had 79, North America had 70, Middle
East Region had 17, Oceania had 11, Africa had 4 and South America had 2.
Recognized for its Scandinavian style IKEA is an international home products company that designs and sells
ready-to assemble furniture such as beds, chairs, desks, appliances and home accessories. Most of the IKEA’s
furniture is flat-pack, ready-to be assembled by the consumers. This allows reduction in cost and packaging.
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MBA 1ST TRIMESTER CASE STUDY
SUPPLY CHAIN MANAGEMENT
Supply chain is the backbone of any retail company. According to McCarthy et. al., (2016) Supply chain are not
static- they evolve and change its shape, size and configuration, and the way they are coordinated, controlled,
and managed.
Basic supply chain consists of sequence of interconnected stages or entities that work together to move
products or services from the source to the end consumers. However, today’s supply chain is much more
complex. The following figure shows how a basic supply chain works.
Source: Gaurav et al. 2015
SUPPLY CHAIN MANAGEMENT OF IKEA
IKEA has highly efficient and complex supply chain management system. It focuses on cost efficiency,
sustainability, and meeting customers demands while maintaining quality standards. This allows customers to
provide affordable products to a wide range of customers around the world. By sourcing material, globally
optimizing distribution, and involving customers in the assembly process, IKEA can offer well designed products
at reasonable price in a way that aligns with its commitment to sustainability.
IKEA’s supply chain management practices are marked by their efficiency and innovation. The company’s
approach includes the use of flat pack designs and self-assembly, reducing transportation costs and boosting
space utilization. Their centralized distribution centers ensure streamlined product flow while lean inventory
management keeps storage costs low. Collaborative relationships with the suppliers lead to enhanced
production processes and cost savings. By globally sourcing materials, IKEA capitalizes on cost variations.
Furthermore, their commitment to sustainability and technology integration, from demand forecasting to
logistics, underpins their success in providing affordable products with a strong global presence.
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MBA 1ST TRIMESTER CASE STUDY
The following picture portrays how supply chain processes are performed in IKEA through different stages. This
entails the primary, secondary, and tertiary sectors that engage in procurement of raw material,
manufacturing, distribution, and retail sales to the end consumer, respectively.
Figure: IKEA’s global supply chain processes
Current Issues in Supply Chain Management in IKEA
IKEA supply chain problems relating to inventory management.
Managing an optimal level of raw materials for manufacturing products to meet customer demand has always
been a problem for IKEA.
The situation was worsened when Covid-19 started in China, and many countries placed restriction on flights
and shipments coming from China. The Chinese government as well put curfews that restricted movement
within the country. All these halted businesses and as a result, the global supply chain was disrupted, since
many companies produce in China due to cheap labor.
This affected the business operation and supply chain of IKEA as well because many of its products are
manufactured in China. The major issue for IKEA was to get the finished goods to the customers out of China
which resulted in delay in fulfilling orders and unavailability of some orders.
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MBA 1ST TRIMESTER CASE STUDY
Distribution and Logistics Problems
Delivering large products like washing machines, technical machinery, and freezers to the customers was a
challenge for IKEA. To address this situation, they started delivering component parts separately that could be
assembled locally. This reduced the packaging size and made room for other products to be delivered in the
same vehicle that minimized the transportation cost.
By utilizing local assembly, shipping containers can be loaded to their maximum capacity, leading to a more
efficient and cost-effective and sustainable supply chain. This strategy helped it to save money on the
transportation of large items.
Supplier Relationship and Sourcing Challenges
IKEA’s purchasing organization goal is to optimize the total value chain, contributing to the goal of providing
better products at lower prices. The purchasing is categorized based on materials and suppliers. Suppliers are
selected based on their competitiveness, including price, capacity, innovation capabilities, and sustainability
performance.
suppliers
category
Metal, Plastic & Home furnishing
Flat line Wood Comfort Textiles Electroni
Floast glass business
Supplier management can cause issues in IKEA’s supply chain because the company sources products from
many suppliers globally. The problem with this is ensuring consistent quality across different suppliers.
IKEA purchases various items from different suppliers which results in product variation in product quality.
Therefore, IKEA must have robust supplier management practices in place to maintain the desired level of
quality for its products. Some of the quality checks include the use of cameras, lasers, and software in the
factories to monitor the process in real-time.
Sustainability and Ethical Supply Chain Practices
With numerous suppliers and subcontractors spread across the globe, it can be challenging to monitor and
enforce sustainable practices consistently. Some suppliers may prioritize cost-cutting measures over
sustainability, leading to potential environmental and ethical issues such as excessive resource consumption,
pollution or labor violation.
To address these IKEA’s supply chain problems, the company has implements supplier auditing and monitoring.
It conducts regular audits to assess supplier’s compliance with environment, social, and labor standards. These
audits help identify areas to be taken when violation is found.
To add up, IKEA collaborates with suppliers to provide support and guidance on adopting sustainable practices,
making it more cooperative and constructive.
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MBA 1ST TRIMESTER CASE STUDY
IWAY: IKEA uses IWAY in purchasing products, materials, and services. It depicts basic supplier code of conduct
which comprises with minimum requirement relating to the Environmental and Social & Working Conditions.
With the help of IWAY, IKEA rationalizes the suppliers as shown below.
Traceability of Raw material throughout its supply chain
For a company that produces a vast range of products, ranging from furniture to textiles, obtaining full
transparency on the origin of raw material can be challenging. Supply chain often involve multiple tiers of
suppliers, making it difficult to track the entire chain back to the source. This lack of transparency can lead to
issues such as deforestation, illegal logistics, and unstainable sourcing practices.
To address this, company actively engages with suppliers to map the sources of materials used in the products,
particularly those that are considered high-risk for environment and ethical concerns. This mapping process
helps identify potential risks and enables IKEA to take appropriate actions to promote responsible sourcing.
Problem statement
Optimization of supply chain management
IKEA’s supply chain involves numerous complex processes, from sourcing raw materials to delivering finished
products to customers. The problem statement addresses the need to optimize and streamline these processes
for maximum efficiency.
Coordinating Sourcing, Manufacturing, and Distribution
IKEA operates on a global scale, which means it needs to coordinate the procurement of raw materials, the
manufacturing of products, and the distribution of those products to various locations around the world. This
coordination becomes a significant challenge due to the vastness of the operations.
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MBA 1ST TRIMESTER CASE STUDY
Reducing Costs
One of the primary objectives of effective supply chain management is to minimize costs throughout the entire
process. This includes reducing costs associated with procurement, production, transportation, and other
operational activities.
Ensuring Sustainability
In today’s environment conscious world, companies like IKEA are increasingly focusing on sustainability. This
means ensuring that supply chain practices are environmentally friendly and socially responsible, which can be
a complex challenge given the scale of operations and the need for sustainable sourcing and production
method.
Consistent Quality Standards
Maintaining consistent quality product is essential for customer satisfaction and brand reputation. With a wide
range of products produced in different locations, ensuring uniform quality across the supply chain is a
significant challenge.
Expansive Global Operations
IKEA operates in numerous countries, each with its own regulations, market conditions and cultural factors.
Managing a global supply chain introduces related to these variations. For a company like IKEA, it means
managing a vast network of stores, suppliers, and partners while addressing the challenges and opportunities
presented by the global marketplace.
SWOT Analysis of Supply Chain Management in IKEA
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MBA 1ST TRIMESTER CASE STUDY
PESTEL Analysis of Supply Chain Management in IKEA.
A PESTEL analysis is a framework that helps analyze the external macro-economic factors that can impact on
business. Here’s a PESTEL analysis of IKEA’s supply chain management that can be helpful to understand the
external factors that affect the business operations of the company.
Political Factors: Government and macroeconomics issues affect business to a large extent. For
example, BREXT contributed to IKEA’s supply chain problem through tariffs, labor shortage, more paper
works and delay at the borders.
The exit of UK from European union (EU) caused several issues in IKEA supply chain, one such problem
is the increase in tariffs; the UK government-imposed tariffs on some good imported from EU, which
increased the cost of goods for IKEA.
The increased paper works needed for goods moving between the UK and EU resulted in longer lead
times and higher costs because company is forced to stockpile goods in order to avoid shortcuts.
Economic Factors: The global price of crude oil is an economic issue that adds up IKEA’s supply chain
problems. The crude oil affects the price of fuel that is used for transportation or delivery of products-
whether it is by air, land or sea. Over past three years the increase in price of crude oil has affected the
supply chain of IKEA as well as that of other companies.
Currency fluctuations can affect IKEA’s pricing strategy and profitability, especially given its international
presence.
High-interest rates can also pose issues in IKEA’s supply chain, as the cost of borrowing money becomes
higher. This means the company may have to pay more to borrow to finance its operations which put
pressure on its cash flow.
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MBA 1ST TRIMESTER CASE STUDY
Social Factors: IKEA’s flat-pack furniture concept resonates with customers’ preferences for easy
assembly and convenient transport.
The trend toward sustainable living has driven IKEA’s efforts to offer eco-friendly products and minimize
waste.
IKEA’s Scandinavian design ethos resonates with the modern lifestyles, influencing its products offerings
and store layouts to cater different cultural preferences and customer needs.
Technological Factors: IKEA incorporates technology in its supply chain, such as RFID tags to track
inventory and optimize stock levels, ensuring popular products are readily available while minimizing
overstock.
IKEA has embraced technology to optimize the supply chain, automation in warehousing and employing
digital tools for inventory management.
Online shopping has expanded IKEA’s reach and improved customer experience.
Furniture business has slow absorption of innovation & change.
Environmental Factors: IKEA aims to use 100% renewable or recycled materials in its products by 2030,
reflecting its commitment to environmental sustainability.
The company has invested in solar and wind energy, reducing its carbon footprint.
Other Interesting activities which IKEA is involved is reducing its water consumption, designing products
to minimize water use in manufacturing, by using printing technique called Soft Pigment Printing. It is
working on developing new products like ‘MISTELN nozzle’ with a start-up altered, which can reduce
water use by more than 90% and ‘GUNRID’ air purifying curtains which are being prepared with the
universities in Asia, Europe, IKEA suppliers and innovators.
Legal Factors:
Product Regulations: Compliance with the product safety and labeling regulations in different markets
can impact the design and production of IKEA’s products.
Intellectual Property Laws: Protection of intellectual property is crucial to prevent counterfeit products
from entering the supply chain.
Antitrust Laws: Compliance with antitrust and competition laws is important to maintain fair business
practices within the supply chain.
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MBA 1ST TRIMESTER CASE STUDY
Objectives
The objective of Supply Chain Management (SCM) in IKEA encompasses a range of strategic goals aimed at
optimizing operations and delivering value to customers. The foremost objective is achieving cost efficiency by
refining processes across sourcing, production, transportation, and inventory management, while maintaining
quality. Operational excellence is pursued by ensuring seamless coordination among SCM components,
minimizing delays and optimizing workflows. Inventory optimization strikes a balance between meeting
customer demand and avoiding excess stock. Sustainability remains paramount, entailing responsible sourcing,
waste reduction, and environmental consciousness. Quality control is a priority, ensuring products uphold
IKEA’s high standards from start to finish. Customer satisfaction is pursued through timely delivery, quality
products. Adaptability to trends and technology, supplier collaboration, risk management, and digital
transformation foster a robust SCM. Ethical practices underpin these objectives, while global expansion and
market adaptation round out IKEA’s SCM pursuits.
Recommendation
Enhance demand forecasting: Invest in advanced data analytics and AI-driven forecasting models to predict
customer demand more accurately. This can reduce stockouts, optimize inventory levels, and improve overall
supply chain efficiency.
Supplier collaboration: Forge deeper relationships with suppliers by sharing information, and jointly
addressing challenges. This can lead to better communication, faster lead times, and improved product quality.
Digital integration: Embrace technology to create a more connected supply chain. Implement real-time
tracking systems for shipments, use IoT devices for monitoring inventory levels, and adopt blockchain for
enhanced transparency and traceability.
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MBA 1ST TRIMESTER CASE STUDY
Localization: Customize product offerings based on local preferences and trends. This approach can resonate
better with diverse markets and help reduce excess inventory due to mismatched product demand.
Employee Training: Provide regular training and skill development for supply chain employees to keep updated
on the latest technologies, best practices, and industry trends.
Last-Mile Optimization: Invest in last-mile delivery solutions, such as local distribution centers and
partnerships with the third-party delivery services, to ensure timely and efficient delivery to customer
doorsteps.
Augmented-Reality (AR): The deployment of AR component included with QR codes markers, which can be
interesting into product catalogues or attached to product. Consumers can basically see what furniture fits best
in their living room, kitchen, hall etc. This could be helpful for consumers to find out what products they need
and get it customized according to their needs. This would reduce customer dissatisfaction after buying the
product and frequent change of furniture. This could also reduce overstocking.
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MBA 1ST TRIMESTER CASE STUDY
Future Action
Technological Integration: IKEA will likely continue leveraging technology to optimize its supply chain
operations. This could involve further implementation of data analysis, artificial intelligence, and Internet of
Things (IoT) devices for real-time tracking and predictive analytics to enhance efficiency and responsiveness.
IKEA’s use of an AI platform accelerates the next step of their supply chain operation; Micro Fulfillment Centers
(MFC). As Forbes’ Chris Walton “hyperlocal micro fulfillment is the practice of retailers taking steps to either
collocate fulfillment centers online at their stores or near their stores to take advantage of inventory already
placed closed to customers.
Supply Chain Transparency: As consumers become more conscious of the origins of products, IKEA might
enhance its supply chain efforts. Blockchain technology could be used to create a tamper-proof record of the
journey from raw material to finished products, ensuring authenticity and ethical sourcing. IKEA is moving
towards greater transparency within and industry-first global wood supply map sharing where all the wood
materials in IKEA products comes from and more information about why it plays such an essential role in the
range.
Personalization and Customization: As customization becomes more important to consumers, IKEA might
explore ways to incorporate flexibility into its supply chain. This could involve modular designs that allow
customers to personalize products within predefined parameters.
IKEA introduces DIRIGERA and IKEA Home smart app that allows users to personalize and make home activities
more interactive and creative. This service makes it possible to merge digital solutions with life at home in a
simple and accessible way.
Circular Economy Practices: IKEA’s commitment to sustainability might lead to increased adoption of circular
economy practices. This could involve designing products for disassembly, recycling, and reuse, thus reducing
waste and extending the lifecycle of material.
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MBA 1ST TRIMESTER CASE STUDY
The furniture industry is characterized by the linear business model with take, make and dispose of perspective,
IKEA has addressed this issue by aiming to transform their current linear business in a circular business by 2030.
IKEA’s solution towards a circular economy business model.
• Buy back and Take back services.
• After sales part which helps people to maintain, care for, update and repair their belongingness to
prolong product lines.
• Offering use oriented-product service system: Users model is an initiative program in which IKEA offers
products to customers for use instead of buying in given period based on the contract. The
maintenance would be done by IKEA during the use period, customers will be given choice to renew
the contract, take ownership, or return the product to IKEA.
A returned product will be re-distributed either through a new user or sold as secondhand product.
Last-Mile Innovation: The focus on last-mile delivery efficiency could lead to experiments with new delivery
models, such as autonomous vehicles or drones, to reduce delivery times and costs.
Solar-Powered cargo bikes to reduce the home delivery climate footprint. In recent years IKEA has been using
electric trucks to make home delivery services. Now they are approaching a more sustainable and cost-effective
way to deliver products to consumers by using Solar-Powered cargo bikes for last-mile shipping.
Collaboration with Suppliers: IKEA could strengthen its collaboration with suppliers, fostering innovation,
sustainability, and mutual growth. Close relationships with suppliers can result in share insights.
IKEA collaborates with partners to lower carbon on one of the longest non-stop rail distances in Europe. For
the first time, IKEA works with another transport buyer to deliver home-furnishing products without stops on
one of the longest rail distances in Europe- around 2,000 km.
IKEA expands renewable electricity programme to suppliers in ten additional markets. The Czech Republic,
Germany, Italy, Lithuania, Portugal, Romania, Slovakia, Sweden, Turkey, and Vietnam. The energy consumption
for production in these markets is 0.27 million tons CO2 eq, or 13% of the climate footprint from production.
Struggle of supply partners to purchase 100% renewable energy is difficult which could be possible by working
together with the supply partner.
Sustainable Packaging: The company invests in innovative and sustainable packaging solutions, further
reducing its environmental impact and catering to environmentally conscious consumers.
IKEA will phase out plastic for packaging starting with all new range by 2025 and running range by 2028 and
develop packaging solution based on renewable and recycled materials. IKEA spends over 1 billion Euros on
approximately 920,000 tons of packaging materials out of which less than 10% of the total volume of packaging
consists of plastic.
Eco-Friendly Materials: As sustainability remains a key concern, IKEA continues its push toward using eco-
friendly materials and processes, aligning with consumers preferences and regulatory changes.
IKEA commits to zero-emission on heavy-duty vehicles and joins forces with four global companies by
committing to EV 100+ to transition to zero-emission electric trucks by 2040. EV100+ is an initiative made by
companies who want to make their transportation mostly run by EV. It is installing charging infrastructure for
employees and customers which will be completed by 2030.
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MBA 1ST TRIMESTER CASE STUDY
Conclusion
IKEA’s supply chain practices have been instrumental in its global success. The company’s commitment to
efficiency innovation, and sustainability has set it apart in the furniture retail sector. Through flat pack design,
centralized distribution centers, and lean inventory management, IKEA achieves cost savings and high product
availability. By prioritizing strong supplier relationships and global sourcing, the company maintains quality and
flexibility. Moreover, IKEA’s emphasis on sustainability underscores its responsibility towards the environment
and resonates with socially conscious consumers. By using a combination of in-house manufacturing,
outsourcing, and flat-pack design to streamline processes and reduce costs. Additionally, their demand-driven
approach helps maintain inventory level and reduce waste. Overall, IKEA’s supply chain strategy has enabled it
to offer affordable, well-designed products while showcasing leadership in both business and sustainability.
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