STRATEGY IN INDUSTRIAL NETWORK: EXPERIENCES FROM IKEA

Submitted by:

27NMP22 – Mukesh Kumar Sahu

27NMP43 – Amit Gujjewar

27NMP51 – Komal Tagra

INTRODUCTION Ingvar Kamprad Elmtaryd Agunnaryd Founded: 1943 in Almhult, Smaland, Sweden Founder: Ingvar Kamprad Headquarters: The Netherlands Industry: Retail Product: Self Assembly Furniture Chain of Product: Restaurant, Manufacturing, Housing, Revenue: €23.1billion (2009), 17 billion (2006) Employees: 127,000 (2009), 104,000 (2006) Area Served: Multinational 316 stores (2010) 699million visitors (2010) https://www.youtube.com/watch?v=11AehTPD-Vg

IKEA HISTORY

Mission Statement: Ikea's mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them

Started 1943 as a one man mail order company

The Ikea concept started in 1950 The company started sourcing supplies from

other European countries In 1960, the warehouse principle was

introduced In 1963, Ikea went abroad, opening in

Norway

STRATEGY

Long Term relationships with suppliers To design & purchase products with low

production & transportation costs products are developed in close interaction

with suppliers while taking into consideration the impact of the raw materials, components, and facilities involved, since all these resources entail costs and have an impact on quality, design, and function

next to low costs, reasonable quality, appealing designs, and adequate product functionality are major goals for IKEA.

an innovative and fashion-oriented firm

IKEA’S BACKGROUND IKEA’s concern with providing low-price products

characterizes both its current strategy and its history The introduction of flat packs in the 1950s allowed

important savings in transportation and production costs

IKEA’s customers took over assembly activities, and suppliers only needed to deliver un-assembled furniture components

selling costs could be contained thanks to “showroom-warehouses”

extensive knowledge of the network, from raw materials to customer homes, is pivotal for IKEA to conceive products that are not only “cool” and functional enough to sell, but that can also be produced according to set cost and quality goals

GEOGRAPHICAL SCOPE

SALES BY REGIONEurope – 81%, North America -16% and Asia & Australia -3%TOP SUPPLIER COUNTRIESChina -18%, Poland- 12%, Sweden -9%, Italy -7% and Germany -6%

IKEA AND ITS INDUSTRIAL NETWORK

INDUSTRIAL NETWORK

A pivotal role in this network is played by “IKEA of Sweden,” a leading business unit that not only manages IKEA’s product range, but also supervises the entire IKEA universe and develops long-term marketing, logistics, and purchasing strategies

IKEA of Sweden has both an overall responsibility and a coordinating role in the development, purchase, distribution, and ma

“Network strategy,” that is, a strategy that considers and uses the external network for a company’s goals

IKEA, THE INTERACTING COMPANY:HANDLING A NETWORK OF RELATIONSHIPS

IKEA’s relationships and network are pivotal in fostering development of IKEA’s products and technologies, and in sustaining efficiency in its daily operations.

IKEA does it in a special way. IKEA stretches its interactions as far upstream as possible

in the network, all the way to raw material suppliers Another important difference is the extent of IKEA’s

cooperation with its partners: this extends to complex and enduring development projects whereby IKEA’s products and technologies are co-developed with suppliers

Instead of solely exploiting the power of being a large buyer, IKEA takes a long-term approach and strives to build lasting relationships based on mutuality

For IKEA, mutual trust and commitment are more important interaction mechanisms than power.

THE STRUCTURE OF ITS NETWORK Connecting this network geographically requires a very

advanced logistic system, including 20,000 transport corridors. more than these physical connections are the organizational

connections that IKEA needs in order to interface with this complex network

IKEA created specific organizational interfaces to handle relationships with the various actors

From IKEA’s hometown of Älmhult, its 700 employees perform another fundamental role: interacting from a central position with key logistic partners and suppliers on such strategic issues as long-term capacity planning and major technical development projects.

At a local level, the main interfaces with suppliers are IKEA’s 40 Trading Offices, employing 3,000 people worldwide.

Their interactions with suppliers mostly concern daily issues (e.g., orders and deliveries) and occasionally development or tendering for new product assignments

Finally, the daily logistic coordination with all suppliers and carriers is handled by IKEA’s 26 Distribution Centers.

RELATIONSHIPS IKEA’s approach to supplier relationships depends on the product

involved Complex products are assigned to suppliers with which extensive

mutual trust, commitment, and knowledge have been established through long-term relationships

Products whose technical simplicity means they are easily interchangeable (e.g., rugs) are usually purchased through shorter-term relations

A similar variation exists in the relationships with logistic partners: out of over 500 such partners, IKEA has developed close cooperation with only 50 (e.g., Maersk, Willy Betz, SJ Cargo, and TNT), which between them account for 80% of IKEA’s transport volumes.

Still, the majority of IKEA’s purchases happen through deep and established relationships not through power purchase

IKEA does not unilaterally control these relationships but accepts that it may sometimes be strongly dependent on its suppliers, as in the case of key logistic partners and those suppliers that daily refill IKEA’s stores

IKEA does not even unilaterally control such key sources of its innovativeness as product and technology development projects

DIFFERENT TYPES OF RELATIONSHIPS IN IKEA’S NETWORK The composition of IKEA’s network varies greatly in terms of

the size of the actors involved. There are many small suppliers (and especially sub-suppliers)

that are highly dependent on IKEA, and which IKEA can more directly influence with its powerful position. However, IKEA exerts its influence not only by holding down prices, but also by inducing suppliers to upgrade their technologies in ways that eventually benefit the suppliers themselves. This mutuality is in fact the hallmark of all of IKEA’s business relationships

On the other hand, there are also larger counterparts with which IKEA has a much more balanced power relation. These large actors are not easily influenced by IKEA, and they comply with IKEA’s requests only if they gain something from a specific cooperation.

Relationships with such large actors directly involve IKEA of Sweden for central negotiations

DIFFERENT TYPES OF RELATIONSHIPS IN IKEA’S NETWORK IKEA’s relationships are also very heterogeneous from a

geographic point of view, because they are spread over the regions that provide specific resources or location advantages, such as nearness to IKEA’s major markets (Germany and Central Europe).

Geographical location is one of the key factors when selecting new suppliers, because it strongly affects costs, competences, and delivery times

Geography is an important factor, but not the only factor, in supplier selection and hence in constructing the structure of IKEA’s network

With some suppliers, IKEA develops long-lasting and complex-content relationships, which entail large volumes and commitments

IKEA applies a ladder model to IT and supplier logistics issues increasing supplier responsibility in deliveries (from simple fulfilment of IKEA’s orders to “Vendor-Managed Inventory”)

LADDER MODEL

WHAT GOES ON IN IKEA’S NETWORK? TWO INTERACTION PROCESSES Order Management Routines Different suppliers interact with IKEA by means of different

ordering routines, depending on their ability and type of product.

All order management modalities are highly interactive routines performed daily by IKEA and its suppliers according to rigid scripts, mostly decided unilaterally by IKEA

Ad hoc projects IKEA searches constantly for technologies that can reduce

costs, improve quality, or allow new designs Printed Veener Project - technical development initiated for

cost reduction has opened up another way to sustain IKEA’s image as an innovative and cool furniture company.

Interaction processes would not be possible without two important premises: IKEA’s internal structure and competences and its well developed interfaces for interacting with the network.

STRUCTURES AND DYNAMIC INTERACTIONSIN A NETWORK STRATEGY

What sustains IKEA’s network strategy? What are the key factors that enable IKEA to

interact with its network in order to fulfill its efficiency and development goals?

Structural components and dynamic interactions.

Before interacting with the network and using it dynamically, a network structure needs to emerge because network structure and dynamics are tightly related

SUMMARY

The Structural Components of a Network Strategy

1: Defining Relationship Contents 2: Forming the Network Structure 3: Evaluating Goal Matching with the

Network The Dynamic Interactions of a Network

Strategy 1: Interacting via Inter-Organizational

Routines 2: Interacting via Joint Projects

THANKS