Supply Chain Management

Significant concentrations of those suppliers are located in Eastern Europe

IKEA’s supply chain has a global spread with growing sales and purchasing in all major regions of the world.

IKEA’s supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centres,there are more than 1500 suppliers in 50 countries.

Global Supply Chain of IKEA

In terms of supply(purchasing); Europe:69% (Poland 16% of total purchasing) Asia :28 % (China 22%) North America: 3%.

The majority of sales Europe :82% (Germany 16%) North America :15% of sales (USA 10%). Asia and Australia :3%

New Planing System

-One integrated planning process providing reliable planning information

- A common ”working-together environment” creating supply chain visibility

- Working methods and tools to detect and deal with problems at an early stage

-A coordinated and ”balanced” Supply Chain

IT is the key!

-Key Performance Indicators (KPIs)

-E-Commerce:Receiving order

Change ,split , move order Receiving forecast Sending order confirmation Transport booking Create dispatch information Invoices Documents , follows-ups,logs

-EDI

-Cross Docking (efficient handling)

-RFID

-JDA Software

-Order Tracking System

-Order Point Distribution Centre(OPDC)

-Vender Managed Inventory or VMI

-Proof of Delivery (ePOD) -Store Replenishment Planning (SRP)

-(AS/RS)

Warehousing

It has a total storage volume of 180.000cubic meter and covers more than 280.000 cubic meter,supplying about 70 stores with its products in Sweden ,Norway, DEnmark, East Europe and Asia.

 

*. 24 hour distribution,Major Economis Region,Wide Access,Cutting Edge IT Solutions,High Productivity,Efficient Customs Handling,Language

Stacking,Handling,Packing

It’s not enough just to make sure the goods arrive at the right stores and customers at the right time; they must also arrive in good shape, ready to be sold at the lowest possible price.

IKEA faced a political risk in Russia in terms of ORGANISED CRIME

Political Risk Is the possibility that anunexpected and

drastic change due to political forces will result in adverse circumstances for business operations.

Key political risks in the U.K.:Protests.The coalition.The economy.

Key political risks in Portugal: Opposition pushes for snap elections.President dissolves Parliament or sacks

government.Deficit cut test and growth.Talks with union on austerity measures.  Key political risks to watch in Nigera: Elections.National security.Policy and spending.

1998 the Russian Monetary policy finally collapsed-This caused a MACRO POLITICAL RISK for all companies operating in Russia, including foreign companies.

• Due to this INTERNAL THREAT, all foreign companies left the country.

The cultural, political, and economic environments in developing markets are so vastly different from anything that they encounter in their own domestic market (or even in other developed markets) that the costs involved in navigating them exceed even their most conservative estimates.

Weeks before the opening of its flagship store outside Moscow in 2000, employees of a local utility company approached Ikea. If the Swedish retailer wanted to have electricity for its grand opening, it had to pay a bribe.

Instead, Ikea rented diesel generators large enough to power a shopping mall. The generators roared to life in a loud rebuke to the corrupt executives who thought they had the retailer cornered, and soon the utility turned on the power

As Ikea opened stores across Russia, and became one of the most outspoken Western corporate critics of Russian corruption, renting generators to thwart extortion from power companies became standard practice.

Discovered that the Russian executives hired to manage the generators were taking bribes from the rental company to substantially inflate the price of the service-This fraud could have cost IKEA over 190 million dollars in two years.

Russian Civil Court charged IKEA 5 million euros for breach of contract in the Trial imposed by them against Generator Rental Company.

Cultural Impact

IKEA were faced with CULTURAL PARADOX, which means that due to their lack of knowledge about Russia they faced problems.

Although it is obvious that all human beings share some basic needs regardless of culture, race or religion, some national traits exceed national boundaries.

Russians preferred dark wood, massive, lacquered and expensive furniture.

Russians believed that Quality usually only comes with a High Price.

Russian priorities are the normal living costs, then comes a car and then TV and then afterwards maybe a trip abroad.

Consumer Behaviour is strongly influenced by culture and is not universal; the different tastes , habits and customs may prevent consumers from universally preferring the same marketing mix. Even if the product is the same, the customers may still differ in terms of why they buy, how they buy, etc.

Cultures Impact on Marketing

Consumers perceive some products as culture-free, others as culture-bond. The greater culture sensitivity in a product, the greater the need for marketing managers to address country specific economic, regulatory, social and cultural conditions and to localize marketing.

IKEA adopted a POLYCENTRIC APPROACH meaning each host country is unique, sees differences in foreign countries and such differences should be taken into account in the decision making process.

For products, they used a standardized approach, the reason they used this approach was because it is a common strategy for IKEA that when entering new markets they usually more or less use the same product range in all new countries-irrespective of what is considered popular by local customers

Vital to understand customer needs.

They adapted in some ways to the needs that could be satisfied within the range and to inspire customers with new solutions revolving round their existing range.

They used the “Living with small spaces” solution in Russia. Since the average apartments in Russia are small and often house several families.

Three generations often live under one apartment of about 50-60 square metres. Due to this IKEA considered the local preferences by adjusting their ROOM SETTINGS to reflect local conditions in terms of apartment sizes and the local traditions of furnishing.

The US market provided both challenges and opportunities, Ikea tried and failed in the 1990s, the reasons are listed below

Challenges in the US market

1) Huge demographic differences inside the US, different lifestyle and needs for different demographic groups.

2) Did not listen to the customers in the issues that impeded the sale of Ikea products.

a. Stores are not big enough to offer full Ikea experiences b. In poor locations c. Prices were too high d. Beds were measured in centimeters, not King, Queen and

Twin e. Sofas weren’t deep enough f. Curtains were too short g. Kitchens didn’t fit US size appliances

Ikea needs to conduct more customers’ surveys, marketing research and learned from their mistakes then they could enter the market slowly to fine their strategy for the US market.

IKEA seems to be a big success in China, but how does the Swedish company fit with the cultural dimensions and customer appeal in China?

Ikea became a luxury brand for Chinese when IKEA entered into the Chinese market

IKEA’s target group is “middle class” not low income young people. IKEA furniture is becoming cheaper and cheaper in China, but the mass in China still don’t have the purchasing power to consume IKEA products.

Challenges

An important challenge for IKEA is the need to understand the different environments the company needs to operate in.

Understanding different cultural, economic, and political environments becomes necessary for success.

The Chinese Culture

Confucianism and Taoism. China is a culture with high power distance, there is a

large difference between people’s social status, status symbols are important .

Being a collectivistic culture, family is very important

in China.

Long-term orientation. This indicates that consumers are very concerned with the price of products, because they want to save money .

DIY in China (Do it yourself!)

IKEA’s main argument for the flat packaging and DIY is that they can provide low prices for the customers.

DIY did not suit its exclusive image.

The middle class “white color” who buy IKEA products, they prefer to buy assuming service .

Low price remains

Being able to lower the prices during the past years has increased the purchasing power of the IKEA customers. Lowering the prices even more would create a larger market potential.

The development and expansion of the Chinese economy and raised income levels of the Chinese people will make IKEA products become affordable for potential consumers in the future.

IKEA in ChinaIKEA did some changes to fit the Chinese

culture but IKEA has not given up any of the core concepts or changed the style of their products to accommodate local preferences.

Low price is the most important reason for IKEA’s success, but it’s still not cheap for the Chinese.

IKEA has to continue lower the price in the Chinese market while make more adaptations to meet the Chinese customers needs.