Supply Chain Management
__________________________________
Content: Analysis of the supply chain
management situation of IKEA
Company
Lecturer: Nguyen Thi Minh Anh
Class: IB1709
Presented by: Group 1
Member: Dinh Thi Cam Ly - HS173302
Duong Tu Ngan - HS176100
Do Huong Giang - HS173246
Nguyen Thi Thu Phuong - HS160810
Pham Tuan Anh - HS173394
Nguyen Minh Vu - HE163575
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Outline
1. Overview
2. Define the competitiveness within the industry
(5 forces by Porter)
2.1. Threat of New Entrants
2.1.1. Lack of regulatory or technological entry barriers
2.1.2. Economies of scale
2.1.3. Distribution channel barriers
2.2. Bargaining Power of Suppliers
2.2.1. Importance of volume to suppliers
2.2.2. Limited potential for forward integration for suppliers
2.2.3. Size of suppliers
2.3. Rivalry among Existing Competitor
2.4. Bargaining Power of Buyers
2.4.1. Absence of switching costs for customers
2.4.2. Price sensitivity
2.4.3. Size and concentration of buyers compared to suppliers
2.5. Threat of Substitute Products or Services
2.5.1. Brand Loyalty
2.5.2. Collaborations
2.5.3. Extensive Range of Product
3. SWOT
3.1. Strength
3.2. Weakness
3.3. Opportunities
3.3.1. Expansion
3.3.2. Selling Goods Online
3.3.3. Diversification by Adding Other Products
3.3.4. Technological Innovation
3.4 Threats
3.4.1. Increased Competition
3.4.2. Inflation
3.4.3. Lack of a Sustainable Source of Raw Materials
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4. IKEA’s supply chain strategy
4.1. Global Sourcing
4.2. Automation of Processes
4.3. Lean Manufacturing
4.4. Commerce
5. Conclusion
6. References
1. Overview
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IKEA was founded in Sweden in 1943 by 17-year-old Ingvar Kamprad. IKEA
operates 422 stores in more than 50 markets. Nearly 70% of the stores located in
Europe. The best countries for IKEA are Germany (15% of sales) and the U.S.
(14%). The retailer added 19 stores last year, including its first store in India in
Hyderabad. Ikea received 957 million store visits in 2018 and 2.5 billion to
Ikea.com. It offers roughly 9,500 products. The typical IKEA store is extremely
large, generally covering an area of 186,000 square feet (17,280 square meters).
2. Define the competitiveness within the industry
(5 forces by Porter)
2.1. Threat of New Entrants
Threat of new entrants to furniture and home appliances manufacturing industry
in general is significant. The following set of factors, among others affects the
intensity of threat of new entrants into the industry.
2.1.1. Lack of regulatory or technological entry barriers
There are no legal or regulatory barriers to enter the furniture industry. Moreover,
knowledge barriers are not substantial as well because furniture producing
processes do not involve advanced know-how that is difficult to replicate.
2.1.2. Economies of scale
IKEA benefits from the economies of scale to a great extent internationally and
this advantage allows the Swedish furniture chain to maintain highly competitive
prices. No new market entrant would be able to utilize economies of scale to
IKEA’s extent and thus, competing with IKEA on price level remains as a highly
challenging, if not impossible task. Such a situation discourages potential new
players to enter the industry.
2.1.3. Distribution channel barriers
Although there are no regulatory or technological entry barriers as discussed
above, distribution channel entry barrier exists. It took more than seven decades
for the Swedish furniture chain to establish its global distribution network that
comprises more than 500 locations in 63 countries. Without such an extensive
distribution network it will be hard for new market entrants to present any real
threat for IKEA.
2.2. Bargaining Power of Suppliers
The bargaining power of IKEA's suppliers is limited. Several factors contribute to
this limitation:
2.2.1. Importance of volume to suppliers
As the largest furniture retailer globally, IKEA can place high-volume orders with
its suppliers. Suppliers rely on volume orders to grow their businesses, and for
many of them, IKEA is their largest or even sole customer. Due to the high
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volume of orders, IKEA possesses immense bargaining power in relation to its
suppliers and exercises this power extensively.
2.2.2. Limited potential for forward integration for suppliers
IKEA's advanced global distribution channel, with over 500 locations in 63
countries, makes it highly challenging for suppliers to pursue a forward
integration strategy. Suppliers face difficulties in developing a distribution channel
of a similar scale, which limits their bargaining power. They are dependent on
IKEA's distribution network to reach a wide customer base.
2.2.3. Size of suppliers
While IKEA produces some of its products in-house, the majority (89%) are
sourced from external suppliers worldwide. The company purchases from
hundreds of suppliers, and no individual supplier accounts for more than 10% of
purchases. The relatively small size of suppliers in comparison to IKEA
diminishes their bargaining power, as they lack the individual influence to
negotiate favorable terms.
2.3. Rivalry among Existing Competitor
The presence of various influential players such as Wal-Mart, Home Depot,
Alibaba, as well as online retailers makes rivalry in the industry intense. High
rivalry shows IKEA can face strong pressure from the rival firms, which can limit
each other’s growth potential. If competitors can provide lower prices or attractive
offers, IKEA's market share can decrease significantly.
2.4. Bargaining Power of Buyers
Bargaining power of buyers in the furniture and home appliances manufacturing
industry is huge. The following factors increase buyer bargaining power:
2.4.1. Absence of switching costs for customers
Currently IKEA lacks an ecosystem of products and services that is able to retain
the customer through customer switching costs. Therefore, customers are able to
switch to an alternative furniture seller without additional costs. The absence of
switching costs increases customer bargaining power to a considerable extend.
2.4.2. Price sensitivity
IKEA pursues cost leadership business strategy and this strategy has certain
implications on customer bargaining power. Specifically, price sensitivity is
positively correlated with customer bargaining power in a way that if the furniture
retailer is unable to sustain its competitive prices it may lose customers.
Alternatively, for a business pursuing product differentiation business strategy,
such as Apple Inc. higher product prices do not usually alienate customers
because the brand value proposition is advanced features and characteristics of
products, not the cheapest price.
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2.4.3. Size and concentration of buyers compared to suppliers
Buyer size and concentration is positively correlated with their bargaining power.
In the global furniture industry the size and concentration of buyers compared to
suppliers is significant and accordingly, buyers possess a considerable
bargaining power.
2.5. Threat of Substitute Products or Services
The threat is low because the company provides a unique range of products and
services to customers that are rarely covered by other players. Brand image, its
popularity, and support gained via efficient marketing also decreases the chance
of success among substitutes. It is unlikely that substitutes' wares will be more
affordable than products sold by IKEA.
2.5.1. Brand Loyalty
Despite the fact that significant competitors, such as Wayfair in 2002 and
Amazon in 1994, joined the market and provided products through the e-
commerce segment, IKEA’s brand image and cost leadership position make its
products difficult to replicate. IKEA holds IKEA Proprietary Rights (“IP Rights”),
which have a book value of EUR 9.6 billion and include the IKEA trademark,
protection rights, intellectual property rights, and rights to the IKEA catalogue.
IKEA’s excellent market position is supported by the company’s sales growth
rate.
2.5.2. Collaborations
IKEA has advanced by using augmented reality (AR) as a tool for home
furnishing through its partnership with APPLE, bringing it closer to the homes of
many people. It has also been able to develop a variety of straightforward
storage options for both children and adults through its partnership with LEGO.
IKEA has a history of coming up with innovative concepts and one-of-a-kind
solutions for its clients that offer it a competitive edge.
2.5.3. Extensive Range of Product
Customers at IKEA have access to as many as 9500 products, and that figure
keeps growing by 2000 each year, making it tough for rivals to compete in that
broad range and with the distinctiveness of those products.
3. SWOT
3.1. Strength
The first strength of IKEA is its unique and fashionable product design. The
company always focuses on creating simple, functional, and affordable products.
Their designs are often creative, modern, and minimalistic, suitable for various
interior styles. This has helped IKEA attract a large number of customers
worldwide.
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Another strength of IKEA is its global distribution system. The company has over
400 stores worldwide and has developed an efficient business model to bring its
products closer to customers. IKEA's distribution system allows customers to
experience products firsthand in the stores and also provides convenient delivery
services. This helps the company expand and enhance its presence in the global
market.
Another strength of IKEA is its commitment to sustainability and social
responsibility. They have set a goal to become a company that has no negative
impact on the environment and have made commitments to using recycled
materials and saving energy. IKEA also carries out social projects and
contributes to the community, such as supporting education and worker training.
3.2. Weakness
There are also some weaknesses that need to be mentioned. One of them is the
product assembly process. Some customers have faced difficulties when
assembling IKEA's complex products. This can cause inconvenience and time-
consuming for some people.
Additionally, some people believe that the quality of some IKEA products does
not meet high standards. Although the company has improved the quality of its
products, there are still some negative feedback from customers regarding the
durability and quality of certain products.
3.3. Opportunities
3.3.1. Expansion
As of the end of August 2021, there were a total of 458 IKEA stores worldwide. A
year before that, the number of stores was 445. However, their presence is only
felt and seen in North America and Europe. Other parts of the world have very
few IKEA stores, if any. Out of 195 countries globally, IKEA operates from 55
countries. There’s a massive market in South America, Africa, China, India, and
Asian countries, just to name a few. Targeting low and middle-income earners in
such countries would generate additional revenue.
3.3.2. Selling Goods Online
Selling things on the internet allows them to save a lot on building materials for a
store. Of course, there would still be some other costs (like designing the site
itself). But it would be much cheaper than having stores across cities worldwide.
Selling goods online would mean higher profit margins and better cash flow.
3.3.3. Diversification by Adding Other Products
Even though IKEA’s business model is designed to offer quality and affordable
products, there’s still an opportunity for growth. Having established a good
customer base in low-level earners, the company can start targeting the upper
class. Coming up with elegant designs that appeal to high-end consumers would
open a new market altogether. The company can also take advantage of the
popularity of its brand name to venture into other products. Since they are
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already dealing in household items, they may introduce other household goods
that appeal to their customers like electronics, fitness equipment, etc. Doing this
would translate into more sales on top of making them a one-stop retail store.
3.3.4. Technological Innovation
In the modern world, consumers are becoming more tech-savvy and quite
demanding. With the current market dynamics and stiff competition, technological
innovation is one thing IKEA can’t afford to overlook. If implemented right,
technology would help boost productivity resulting in more sales. It would also
help in retaining customers who would appreciate the efforts to make their
purchasing experience great. The use of technology would also help in
minimizing wastage by streamlining operations. This would, in turn, help in
reducing costs, thereby boosting the profit margins.
3.4 Threats
3.4.1. Increased Competition
A key threat to IKEA in the foreseeable future is increasing competition from
other furniture retailers. The marketplace is becoming increasingly crowded with
similar companies, all of which have noticed what IKEA has done and are
attempting to emulate their success by developing new products and services. All
these competitors are coming with one goal in mind – to capture the market
share away from Swedish company. This includes large-scale retail competitors
such as Wal-Mart Stores .Inc and Target Corporation. To survive the competition,
the company needs to have sound business strategies to stay ahead of the pack.
3.4.2. Inflation
When inflation hits, it lowers the purchasing power of money. It has a significant
impact on IKEA’s business. With the increase in costs, pricing would be affected.
Without any increase in earnings, the customers’ ability to buy from the company
is reduced. If the customer cannot spend as they did before, the overall sales fall.
This means that production costs may remain high, which in turn affects the profit
margins. The employees would be affected by inflation, meaning that they would
demand pay rises. When that happens, the cost of doing business rises, leading
to an increase in the price of the goods.
3.4.3. Lack of a Sustainable Source of Raw Materials
IKEA is a company whose existence has been built on the sales of low-cost
furniture. It has established itself as one of the world’s leading furniture retailers
by offering affordable and functional products. However, IKEA’s success may not
continue to grow indefinitely because several threats may jeopardize its
existence in the future. These threats are linked to how and where they source
wood being their primary raw material for their furniture. With the rise in global
warming and climate change, IKEA will likely be the target of environmental
conservationists and activists. If that happens, it will significantly reduce their
production and sales, affecting their profits.
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4. IKEA’s supply chain strategy
4.1. Global Sourcing
IKEA’s global sourcing strategy is a key part of its supply chain strategy. This
involves sourcing goods from a wide range of countries, including Europe, Asia,
and the US. This allows IKEA to have access to a larger range of products at a
lower cost, which helps it to remain competitive in the retail market. The company
also has a strict ethical code that ensures that all goods are sourced responsibly
and with respect to the environment. This has helped IKEA to establish a strong
reputation for quality and sustainability.
4.2. Automation of Processes
IKEA’s supply chain strategy also involves the automation of processes. This
involves the use of robots and other automated systems to reduce costs and
improve efficiency. This allows IKEA to streamline its operations and reduce
costs, while also ensuring consistent quality and customer satisfaction.
Automation also helps to reduce the amount of manual labor required, which
helps to improve the working conditions of the people employed by IKEA.
4.3. Lean Manufacturing
IKEA’s supply chain strategy also includes the use of lean manufacturing. This
involves the use of techniques to reduce waste and improve production. This
includes techniques such as Just-in-Time (JIT) production, which ensures that
materials and components are delivered just in time to be used in production.
This helps to reduce costs, improve efficiency, and reduce the amount of waste
produced.
4.4. Commerce
IKEA’s supply chain strategy also includes the use of e-commerce. This enables
the company to reach a wider audience and extend its reach beyond its brick-
and-mortar stores. IKEA has an extensive online presence, with an e-commerce
store, mobile app, and social media presence. This helps to increase the
company’s visibility and reach a larger customer base. Additionally, IKEA has
invested in sophisticated logistics systems to ensure that online orders are
fulfilled quickly and accurately.
5. Conclusion
IKEA has demonstrated a strong and efficient supply chain management system
that contributes to the company's success. By analyzing the supply chain
management situation of IKEA, we can get to a conclusion, that: The
competitiveness within the industry are threat of new entrants, bargaining power
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of suppliers, rivalry among existing competitor, bargaining power of buyers and
threat of substitute products or services. The strength of IKEA is its unique and
fashionable product design, their designs are often creative, modern, and
minimalistic, suitable for various interior styles which was helped IKEA attract a
large number of customers worldwide. There are also some weaknesses
included the product assembly process can cause inconvenience and time-
consuming for consumers and there are still some negative feedback from
customers regarding the quality of products. Moreover, IKEA is having a lot of
opportunities such as market expansion in Asian and African countries.
combined with technological innovation and online sales will help ikea increase
sales and reduce costs. A threat to IKEA in the foreseeable future is increasing
competition from other furniture retailers. IKEA’s supply chain strategy is a key
component of its success in the retail market. The strategy is focused on
leveraging global sourcing, automation of processes, lean manufacturing, and e-
commerce to optimize the company’s operations. Global sourcing allows IKEA to
access a larger range of products at a lower cost, while automation of processes
helps to reduce costs and improve efficiency. Lean manufacturing is used to
reduce waste and improve production, while e-commerce enables the company
to reach a wider audience. All of these strategies have enabled IKEA to remain
competitive in the retail market and remain a market leader. Overall, IKEA's
supply chain management situation reflects a well-designed and efficient system
that enables them to offer a wide range of affordable products, maintain a
sustainable approach, and deliver a unique customer experience. By leveraging
global sourcing, efficient distribution, and technological integration, IKEA has
established itself as a leader in the furniture retail industry.
6. References
https://www.ikea.com/us/en/this-is-ikea/about-us/
https://research-methodology.net/ikea-porters-five-forces-analysis/
https://www.portersfiveforces.org/ikea-porters-five-forces/
https://www.theguardian.com/business/ikea
https://www.forbes.com/companies/ikea/?sh=692c6e322ad0
https://www.statista.com/statistics/1060053/number-of-ikea-stores-worldwide/
https://businesschronicler.com/swot/ikea-swot-analysis/
https://dfreight.org/blog/an-insight-into-ikeas-supply-chain-strategy/
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