Supply Chain
Management in
IKEA
By: Sneha Jaiswal (506)
• About IKEA
• IKEA’s Supply Chain framework
• Contracts with Suppliers
Flow of • Inventory Planning and strategy
Presentation • Sales Forecasting
• Strategy to reduce cost
• Distribution strategy of IKEA
• Transportation system in IKEA
Introduction
• IKEA (Ingvar Kamprad Elmtaryd Agunnaryd)
• IKEA is a European multinational group that
designs and sells ready-to-assemble
furniture, kitchen appliances and home
accessories.
• IKEA was founded in Sweden in 1943 by
Ingvar Kamprad and headquartered in
Leiden, Netherlands.
Cont…
• IKEA owns 276 stores in
25 countries and 37
stores are owned by
franchisees outside the
IKEA Group in 17
countries.
• IKEA has 1 store in India
in Hyderabad.
Supply Chain
Network of
IKEA
Manufacturing plants
• China
• Vietnam
• Malaysia
• Poland
• Romania
IWAY Contracts
with Suppliers
A code of conduct for suppliers
called IWAY. It is based on widely
recognised international documents
and conventions for human rights,
environmental protection, and worker
safety, as well as on IKEA values and
legal compliance.
Relationships with suppliers
• IKEA keep a healthy relationship with
materials suppliers and manufacturers to get
good prices.
• IKEA is a very high-volume retailer; they buys
products from more than 1,800 suppliers in 50
countries (Mostly from Europe).
Long-Term Relationships
with less Suppliers
• Instead of engaging in short-term
relationships with many smaller
suppliers, where the focus is on buying
articles, IKEA is increasingly engaging in
long-term relationships with fewer
suppliers, where the focus is on buying
capacities.
• IKEA reduced the number of suppliers
from 2500 during the 1990s to 1074 in
2010.
Inventory
Planning and
strategy of
IKEA
In-store Warehouse
Every IKEA store has a warehouse on the
premises. On the main showroom,
customers browse for items and then obtain
the products themselves from the lower
floor pallet location.
Refilling of lower floor
pallet
IKEA stock is let down to the lower
slots at night.
Unique designs lead to Less
holding Cost
IKEA use as few materials as possible to make the
furniture, without compromising on quality or
durability. By this, IKEA cuts down the holding cost
of the product as it takes less space in warehouses.
Unique Packaging
(Flat Pack)
The unique packaging takes up less
space in warehouse bins and reserve
racks, allowing for more room to
stock additional items for order
fulfillment.
Having customers select the
furniture and retrieve the
packages themselves is an
inventory management
tactic called ‘cost-per-
touch’.
Cost-per-touch inventory tactic
Do-It-Yourself Assembly
Most IKEA furniture is designed and sold in
pieces for the customer to assemble. The
transport cost gets reduced for these
products because they take up less room in
trucks, maximizing the number of products
that can be shipped and minimizing order
fulfillment cost.
High-flow & low-flow
warehouse facilities
• IKEA’s store operations are supported by
high-flow facilities
• In its high-flow warehouses, IKEA employs
automatic storage and retrieval systems to
reduce its costs-per-touch.
• Products in a low-flow facility are not in
high demand, and operations rely on
manual.
• At IKEA there is an in-store
logistics manager responsible
for the ordering process like
monitor and record deliveries,
check delivery notices.
• A store goods manager
responsible for sort and
separate the goods, and get
them off to the correct sales
area.
In-store logistics
Sales Forecasting
Logistics managers calculate what is sold
through point-of-sale (POS) data and how
much inventory comes into the store
through direct shipping, and from
distribution centers. Using this data,
they forecast sales for the next couple of
days.
Manual StockTake
If the sales data doesn’t match the
projected number of items that should
have been sold that day, the logistics
manager goes directly to the pallet and
bin to do a manual stocktake.
Maximum/minimum settings
IKEA uses an inventory replenishment
management process called
‘minimum/maximum settings’
Minimum settings: The minimum amount of
products available before reordering.
Maximum settings: The maximum amount
of a particular product to order at one time.
Push-Pull Strategy
• As all the IKEA store warehouses
is only stocked at night, they
forecast the sale of next day and
then order accordingly from the
distribution centers.
• They do not keep too many
products or do not order too few
products.
Strategy to
dismantle cost
Self-Service Model
Instead of having salespeople
attending customers, IKEA use a
self-service model in store
displays.
Self manufactured low-
cost furniture
Rather than relying on third party
manufacturers, IKEA designs its
own low-cost, modular, ready-to-
assemble furniture.
Distribution
strategy of IKEA
Global Network
Hallmarks of IKEA Large Volumes
distribution System Flat Packaging
Low Costs
Distribution Statistics
• 27 Distribution Centers
• 11 Customer Distribution centers in
16 countries
• 1380 suppliers in 54 countries
• Most Supplies are being purchased
from Europe.
IKEA Distribution Center
Strategy
• Building DCs near to Sea to
use more ocean transport.
• Delivering direct from
manufacturer to IKEA store
to cut the handling cost.
Almost every store
has a warehouse in
the premises. This
helps the company to
reduce transport
costs.
In-Store Warehouses
Cont…
Flat packs reduce the cost
of transportation, lower
the storage space, reduce
damages during
transportation and reduce
labor cost.
Distribution challenges
in India
• No “DIY” Culture.
• No brand awareness
• Low home and design
expenditure.
Transportation
system in IKEA
3rd Party Logistics Partner
IKEA doesn't own its own fleet, and its
products are delivered via roughly
about 10,000 vehicles globally that are
owned or operated by delivery partners
such as DHL, UPS and PostNord
• IKEA transports 19% of goods
using intermodal solutions and
is striving for increasing this
proportion further.
• IKEA use Cargo trains to
transport manufactured
products form Asia to Europe
(China to Estonia by EVR Cargo)
Transportation Modes
Cont…
IKEA transport the goods by rail and
ships where possible to reduce the
transportation cost.
• IKEA Transport has introduced
minimum standards for
transport sub-suppliers
through a Sub-Contracting
Chain Management
Programme.
• The IKEA IWAY process
commits all IKEA Transport
suppliers, with whom they
have frame an agreement, to
comply with clear
requirements on working and
social conditions, health &
IWAY safety and the environment.
Logistics Partner in India
IKEA selected GATI-KWE as
their logistics partner for home
deliveries of their products
across Telangana state.
