April 19th, 2004 Group B1

April 19th, 2004 Group B1

Distribution:The Secrets of Market Logistics

IKEA’s Sustainable Competitive Advantage

Section B- Group 1:Are HofstadEdo AvrahamKelly PenderMark Amritanand Robert Weiming LiStefan Salzer

April 19th, 2004 Group B1

IKEA Timeline

1943

Selling pens,wallets, jewelry, nylon stockings

Selling pens,wallets, jewelry, nylon stockings

1945

First newspaper advertisement

First newspaper advertisement

1951

The first catalog

The first catalog

1955

Designs own furniture

Designs own furniture

1956

Flat packaging Testing

Flat packaging Testing

1958

Opens the first IKEA store in Älmhult, Sweden

Opens the first IKEA store in Älmhult, Sweden

1965

Stockholm store opens; Warehouse concept born

Stockholm store opens; Warehouse concept born

1997

IKEA.comintroduced

IKEA.comintroduced 2001

IKEA Rail opens

IKEA Rail opens

Ingvar Kamprad from Elmtaryd, Agunnaryd

April 19th, 2004 Group B1

IKEA by Numbers2003 Figures Number Countries

Visitors to outlets a year 310 million visitors

Range of articles 10,000 article

Employees 76,000 43

Purchase offices 43 33

Suppliers 1,600 55

No. of Factories (SwedWood Group)

32 9

Distribution Centers 27 16

Outlets (“Warehouses”) 207 31

Catalogs 131 million, 45 editions in 23 Languages

Web site visits 75 million visits

SwedWood Group produces ca. 10% of IKEA’s purchasesMain task: focus on areas where IKEA has difficulty finding external suppliers, at a good price and with guaranteed deliveries

April 19th, 2004 Group B1

Value Network / Market Logistics Ecosystem

Governmental & Tax Agencies

Research Institutions

Classical Supply Chain

Sup

plier

Manufactu

rer

Distribu

tor

Consum

er

Raw

Material

Raw

Material

Machines

What is Market Logistics?

April 19th, 2004 Group B1

Market Logistics ObjectiveThe right product,

at the right place, at the right time, at the least cost

• Market logistics can account for up to 30%-40% of product total costs

• Lowering Market Logistics costs directly impacts profitability

April 19th, 2004 Group B1

Market Logistics Planning

1. Factors to consider:– On-time Delivery scheduling– Careful Handling– Damaged goods replacement policy– Quick re-supply– Supplier’s willingness to meet emergency needs

2. Assess relative importance of customer’s needs

3. Evaluate competitor’s service standards4. Set service standard and design logistics

system vis-à-vis costs

April 19th, 2004 Group B1

Market Logistics PlanningA. Determine target marketB. Plan Demand Chain

Method: Design supply chain backwardsConsiderations:

1. Decide company’s value proposition to customers. 2. Decide best channel design & network strategy for

reaching customers (use of intermediaries)3. Develop operational excellence in:

1. Sales forecasting2. Warehouse management3. Transportation management4. Materials management

4. Implement solution using best information systems, equipment, policies, and procedures

April 19th, 2004 Group B1

Market Logistics Decisions

1. Order processing Minimize order-to-payment cycle

2. WarehousingEfficient supply to the stores

Could also include assembly, packaging, etc.

3. InventoryEnsure customer service level

Minimize inventory-carrying costs

4. TransportationChoose appropriate means of transportation

April 19th, 2004 Group B1

Market Logistics Cost Structure

Total Market Logistics system costs are:

Total freight cost

Total fixed warehouse cost

Total variable warehouse costTotal cost of lost sales (due to avg. delivery delay)

Total market logistics system cost

April 19th, 2004 Group B1

Manufacturer to DistributorIKEA designs its merchandise and outsources

manufacturing to its dedicated manufacturers

Concerns:• Selection of manufacturer• Inventory management• Consider to self-manufacture goods

IKEA transports finished goods from manufacturers to IKEA’s distribution centers in flat-packaging

April 19th, 2004 Group B1

Inventory Management

Inventory management• Order Management

Daily orders from outlets• IT solution: ILS (Integrated Logistics

System)• Demand forecast

April 19th, 2004 Group B1

From Distribution Center to Outlet

Delivery time to outlet is region-dependentTransport to outlets (“Warehouse”) is done by: • 60% truck• 20% train• 20% boat• less than 1% by air

Franchise outlets (21 out of 207) are serviced from Sweden’s distribution centers

After the introduction of IKEA Rail in 2001, IKEA aims to increase rail transport to 40% by 2006

Source: Johan Sandberg, Logistics Manager, Norway

April 19th, 2004 Group B1

IKEA Shopping ExperienceLocation: City’s outskirts

Parking, Easy access (customers & goods) Cheap rent, long operating hours

Requires special transportation

Design: Maze-likeStationary and Shop-&-Carry

Sales forceAmenities Child-Care, Exit Bistro

Swedish flavorsProduct names in SwedishSwedish food, Sweden Shop

April 19th, 2004 Group B1

The Do-It-Yourself Concept

• Pickup by customer• Delivery home by customer• Assembly done by customer• Customization if possible is done by customer

April 19th, 2004 Group B1

Outlet AlternativesCatalogs purchase (by fax or phone)• Benefits:

– Huge penetration– Better product exposure before outlet arrival– Used as coffee table reading

• Disadvantages:– Low Purchase-per-catalog ratio– Expensive – custom annual catalog in 45 editions– Postage costs

Web Site purchase• Benefits:

– Low cost– Longer delivery time (better for IKEA)– Margins on delivery

• Disadvantages:– Greater ratio of replacement due to customer error

April 19th, 2004 Group B1

Summary

IKEA’s Competitive Advantages• Efficient Market Logistics System • Emphasis on design & distribution, less on

manufacturing• Various means of ordering & transport• Low markup, high volumes • Flat-packaging• Self-assembly

April 19th, 2004 Group B1

And one more thing…

April 19th, 2004 Group B1

Market Logistics

Questions?...