Amity Business School

• Operations management is essential in as it maximises the efficiency of an

organisation while producing goods and services, which fulfil the requirements of the
customers. Operations management plays an essential role in accomplishing the
management strategies of an organisation 
 Amity Business School

• IKEA was established in the year 1943 as a mail-order sales business and started
selling furniture in 1948. IKEA is a multinational group that designs and sell ready-to-
assemble furniture, kitchen appliances, and home accessories

• The company currently operates in 49 countries and have 145 stores globally. IKEA
mainly manufactures types of furniture.

•  the retails stores of IKEA are constructed in the form of stores, the whole process of
maintaining stock and selling it to customers is the responsibility of the retail
departments

•  IKEA is an organisation that produces furniture and some operations management

decisions that are involved with this organisation are purchasing wood and fabric,
hiring and training workers, planning the location and layout of the furniture factory, as
well as purchasing cutting tools and other fabrication equipment. These operations
management decisions help the organisation to produce furniture, which is affordable,
functional, and attractive. The primary areas of operation management that are
focused by the organisation are quality management, supply chain management and
cost
 Amity Business School

Pre planning
• Min Cost in Manufacturing: consumption of wood is reduced as IKEA focuses more
on developing a design solution that includes the use of recycled plastic. 
• IKEA designs its commodities in such a manner that the least amount of resources
are involved in the manufacturing of the best quality products. The value of the
manufactured goods is increased by the big IKEA retail stores, which can store a
large volume of products.
 Amity Business School

Supply planning
FLAT PACKING :
Most IKEA furniture is designed and sold in pieces for the customer to assemble. The
pieces are placed into convenient and efficient, flat packages for low-cost transport
because they take up less room in trucks, maximizing the number of products that can be
shipped and minimizing order fulfillment costs.
This strategy of providing flat package reduces the cost of shipping, storing, construction
along with assembling.
The unique packaging also takes up less space in warehouse bins and reserve racks,
allowing for more room to stock additional items for order fulfillment. What the company
saves in fuel and holding costs is passed on to customers.
Cost Per Touch :
cost-per-touch inventory strategy which promotes the customers to select the products
that they want to buy instead of appointing staff members to do that work. According to a
rule of inventory management, the cost involved in inventory management is higher if
number of hands touching the product is higher. IKEA applies this approach quite
effective in reducing the overall cost involved in inventory management.
 Amity Business School

• For example, imagine when someone selects a piece of furniture to buy. The item is
then ordered, shipped from the manufacturer, moved from the delivery truck into
storage in the warehouse, moved from the warehouse to the customer’s vehicle or
delivered by the furniture retailer to the customer’s home. Every time the product is
shipped, moved, and loaded, it costs money. The fewer times someone moves or
touches the item, the fewer costs are associated with it. IKEA saves costs with this
guiding principle to minimize touches because it doesn’t have to pay the customer to
retrieve the furniture and take it home.
 Amity Business School
Each IKEA store is holds more than 9,500 products! How in the world does IKEA offer
so much at such a low price while always being able to keep items in stock?

Sustainable Material Manufacturing :

IKEA is distinctive in committing to a catalog of products that will be stocked for a year at a
guaranteed price.
More than 50% of the products are made from sustainable or recycled products. IKEA seeks
to use as few materials as possible to make the furniture, without compromising on quality or
durability. By using fewer materials, the company cuts down on transportation costs because
it uses less fuel and manpower to receive materials and ship products.
Supplier Management :
 “IWAY” (The IKEA Way on Purchasing Products, Materials and Services) is a set of
guidelines which IKEA presents to suppliers in order to set out in writing what it expects of
them and what it will provide in return.
IKEA is a very high volume retailer – it buys products from more than 1,800 suppliers in 50
countries, and uses 42 trading service offices around the world to manage supplier
relationships. They negotiate prices with suppliers, check the quality of materials, and keep an
eye on social and working conditions. Although IKEA fosters competition among suppliers to
ensure it attains the best prices and materials, the company also makes longstanding
commitments to suppliers by signing long-term contracts, thus lowering prices of products
further.
 Amity Business School

• Usage Of High-Flow & Low-Flow Warehouse Facilities

IKEA’s store operations are supported by high-flow facilities (focused on the 20% of
SKUs that account for 80% of the volume) and low-flow warehouses that are more
manual. In its high-flow warehouses, IKEA employs automatic storage and retrieval
systems to drive down its costs-per-touch. Products stocked in a low-flow facility are
not in high demand, and operations rely on manual processes since workers will not
be shifting and moving inventory around too much
 Amity Business School

Demand Planning
•
Demand Planning at IKEA ensures between balance Commercial and Supply,
turning in depth analysis of sales history into an accurate forecast that is used to
secure the availability of products to customers around the globe.
Maximum/minimum settings as a proprietary system:
• The in-store logistics managers use an inventory replenishment management
process developed by IKEA called ‘minimum/maximum settings’ to respond to store-
level inventory reorder points and reorder products.
• Minimum settings: The minimum amount of products available before reordering.
Maximum settings: The maximum amount of a particular product to order at one
time.
• All IKEA inventory is only stocked at night after opening hours, the logic of its
min/max settings is based on forecast of the number of products that will be sold
from the reserve stack of the bin in a single day or two-day period. The process
meets customer demand while minimizing ordering too few or too many products.
• This strategy also ensures that IKEA has inventory ready to meet customers’
demands, lowering the cost of lost sales. 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 manually count the product stock.
 Amity Business School

Demand Forecasting :
Demand Planners are responsible for the forecasting of the IKEA range broken down to article per country
according to the process below :
Sales forecasts for all articles are based on sales history for the last three years (156 weeks) and are all
aggregated from the bottom up to easier take seasonal patterns into account. The weekly sales history for
each article and for each selling unit is aggregated to regional level (e.g. Europe). Market information, such
as activities, catalogue changes and promotions, is added on regional, retail unit or selling unit level to
create the regional weekly forecast. The sales history for each retail and selling unit in relation to the
aggregated sales history on each level makes up their forecast share
Stores also make their own forecasts without the
participation of demand planners. Like the demand
forecasts, these are based on sales history but
include the stores’ own analyses and perspectives.
 Amity Business School

• Need planner : Based on the demand forecasts, the need is calculated in Fulfillment.
The purpose of need planning is to balance need versus capacity through inventory
and replenishment planning, enabling availability to the lowest total cost. Need
Planners are accountable for defining the replenishment solutions and planning the
stock structures. This includes identifying potential overstock or out-of-stock
situations and acting on deviations outside the lead timeIf the need exceeds the
defined capacities in Fulfillment, the Need planner should inform the Supply planner
in order to check if the suppliers can handle the extra need or if it needs to be
balanced against capacities. Balancing the need is commonly done by ordering the
extra needed quantities earlier when there is free capacity at suppliers.
 Amity Business School

Controlling
• IKEA uses a self-service model instead of appointing salespeople to attend
customers. It also focuses on low-cost, modular, and ready-to-assemble furniture.
The products are provided to the customers in a flat-packed form. These flat-packed
form of the products help to increase the supply chain of the organisation as they are
easy to carry for the suppliers as well as the consumers. This strategy of providing
flat package reduces the cost of shipping, storing, construction along with
assembling. It also provides greater transportation facility and warehouse space.

• The other area of operation management that is focused on by IKEA is quality

management. Quality management provides an opportunity to increase the
effectiveness and productivity of the organisation. The organisation has introduced
some quality control tools and practices as they are concerned with the quality of the
products. The process of quality management is performed in teams and quality
circles that has been incorporated by the organisation. 
• In order to become an IKEA supplier, the quality compliance standards must be
implemented. The quality compliance standards, analysis and fulfil all the
requirements of IKEA and work efficiently in order to control the quality 
 Amity Business School

SCHEDULING
• The scheduling process of IKEA is mainly divided into three phases. The first phase is
the product design process, which includes four different criteria that every product
must meet to be available for the customers. The criteria include affordability,
sustainability, good design and functionality. The scheduling operation starts by
assigning a price to its product that is to be sold. For this purpose, the designers
select the elements, raw materials and production techniques for reducing the overall
production cost.

• The scheduling operations are the process of managing, arranging, optimising work
and workloads in a manufacturing process whereas purchasing management
optimises the total IKEA value chain, which contributes to the goal of providing better
products at lower prices. IKEA tries to find effective ways to manufacture its products
by making more products by using less material.
 Amity Business School

• Lean management is an organisational approach that contributes to the continuous

improvement of IKEA. The benefits of practising lean management in IKEA are the
reduction in cost, increase in efficiency, reduction of Manpower, the total involvement
of the company, improvement in the morale of the employees, increase in
productivity, increase in customer satisfaction and environmentally friendly. Managing
capacity is a significant part of operations management in IKEA. The capacity
management in IKEA is not related to the demand pattern of the product and is also
not carried out in accordance with the uncertain situations.

• Hence, IKEA is dependent on various operational factors, such as operations

management, process management, capacity management, and lean management