Ikea Global Sourcing Challenge

* Diversification can be a good way that IKEA does to sustain growth after it loses some cache. Product innovation and market development such as IKEA’s expanding goal in U.S. market. It is a risky strategy but with careful selection of the right kind of businesses, considerable improvements in profitability can be experienced.  To try and maintain growth, IKEA is considering diversification outside of the furniture market.

The only way to avoid other furniture stores to imitate IKEA’s strategies is to keep it a secret from all but the highest executives , imitating the strategies of IKEA can lead to not having any competitive advantage , and in order to preserve a competitive advantage is to keep it hidden and to keep it a

In 1951, to reduce product returns, he opened a display store in nearby Älmhult village to allow customers to inspect products before buying. It was an immediate success, with customers traveling seven hours from the capital Stockholm by train to visit. Based on the store’s success, IKEA stopped accepting mail orders. Later Kamprad reflected, “The basis of the modern IKEA concept was created [at this time] and in principle it still applies. First and foremost, we use a catalog to tempt people to visit an exhibition, which today is our store. . . . Then, catalog in hand, customers can see simple interiors for themselves, touch the furniture they want to buy and then write out an order.”2 As Kamprad developed and refined his furniture retailing business model he became increasingly frustrated with the way a tightly knit cartel of furniture manufacturers controlled the Swedish industry to keep prices high. He began to view the situation not just as a business opportunity but also as an unacceptable social problem that he wanted to correct. Foreshadowing a vision for IKEA that would later be articulated as “creating a better life for the many people,” he wrote: “A disproportionately large part of all resources is used to satisfy a small part of the population. . . . IKEA’s aim is to change this situation. We shall offer a wide range of home furnishing items of good design and function at prices so low that the majority of

Global sourcing is an important sourcing strategy for IKEA Company. According to Hultman, Hertz and Johnsen (2012), in 2008, IKEA has 54 different sourcing countries and 30 purchasing departments which were located all over the world. With the expansion of its market, IKEA was not satisfied with selling its product only in domestic and Nordic market instead it put its higher goal in global market. Therefore the sourcing market also expanded with the growing market. There were 64% of its products were sourced from European countries which were mainly in eastern part like Czechoslovakia, Rumania and Hungary; China with a 22% share of the supply was the largest single supply market, and Poland with a 16% share (IKEA 2007). However, IKEA also trades off the cost of raw materials and cost of transportation, hence IKEA combined the Global sourcing with local sourcing strategy to lower the total cost.

In IKEA’s history two different modes of entry were used. Both were met with big success and allowed IKEA to enter new markets very easily, and in a secure way.

IKEA is rumored to be a very standardized retailer, i.e., a certain set of marketing strategies is used that are the same around the world. This indeed sets IKEA, operating on markets in Europe, US as well as Asia and Australia, apart among international retailers. Often the theoretical conclusions in international

The size of IKEA’s stores is also an important feature. With their large centralised combined stores and warehouses IKEA can take advantage of economies of scale. This leads to lower costs in every part of their supply chain (e.g. facility costs, inventory costs, transport, procurement). From the IKEA concept and their supply chain strategy they have managed to reduce their prices to a minimum.

In this business report on the global retail business IKEA, it will cover the nature of business, influences on operations, operation processes, operation strategies and how the business can sustain competitive advantage. IKEA was founded in 1943 by Ingvar Kamprad in Älmhult, Sweden. The business established after and with the money his father awarded him for succeeding in his studies, Kamprad sustained a cash inflow by selling pens, wallets, watches, picture frames, table runners, jewellery and nylon stockings at reduced prices to customers. Although, later on in 1958, IKEA was introduced as a leader of Swedish Furniture Company as they started to produce local furniture by the Swedish local manufacturers, which gained positive attention from their customers. Eventually, developing flat packs of furniture for storage and self assembly, making their signature style of IKEA and turning the small business into a global sensation.

IKEA is the largest furniture chain in the world, and in 2011 the Swedish company operated over 270 stores in 25 countries. In 2011 IKEA sales soared to over $35 billion, or over 20% of the global furniture market. Most of its stuffs believed IKEA will massive growth throughout the world in the coming decade because IKEA could provide what customer wanted: good design, and good made contemporary furniture with an affordable price. In one word, IKEA’s global approach focuses on simplicity, attention to detail, cost consciousness, and responsiveness in every aspect of its operations and behavior. (Jones, 2013)

IKEA also based on low cost to achieve hybrid strategy. Big items are all flat-packed that the customers transported and assembled themselves. This saves IKEA with shipping costs from suppliers and delivery costs to customers so that they can pass this benefit to customers through low price. In the stores, there are no armies of sales staffs. Customers are providing with tape measures and pencils so that they can self-served. This reducing the number of sales staff required. IKEA encourages customers to create value for themselves by taking on certain tasks traditionally done by the retailers and their low expectation on service levels keeps costs down. Additionally, IKEA choose most economical suppliers over traditional suppliers around the world. The company buys great volume of materials from suppliers to get the economies of scale. Since the labour in UK is expensive, their products are produced in

IKEA organized their stores in a different way than its competitors. While its competitors put its items in

As pointed out in Ikea's mission statement, the company is in business to produce high quality products at a low cost. This would support a

The next one will be the economical environment. During the economic recession, most people don’t want to spend too much. Customers will think twice before they pay for the product. IKEA have the advantage that the price is very reasonable for the general public. They can

At the outset, it may be useful to characterise IKEA in terms of the characteristics of demand (also known as the four Vs, see Slack et al. p 20). First, IKEA is clearly a high volume operation – as indeed most international retailers are – which lends to systematising operations but which implies capital intensive processes and therefore cost considerations will be crucial. Second, IKEA offers a large number of products (up to 14000 depending on the country/store) so there is high variety in the

IKEA’s strategy before the mishaps in America could be characterized as going against the norm charting their own path to success using low priced manufactures to secure lower selling prices aimed to target those who were of older age and of middle class standing. Their new strategy was to target those of a younger demographic, young married couples, college students, and 20-30 something singles. By reemphasizing design, promoting through hip quirky advertisements, and encouraging consumers to do away with their old furniture, IKEA revenues doubled in a four-year period. IKEA today has adapted somewhat of a local customization strategy where their store layouts will resemble that of many local household layouts as proven by their success in China where they failed to expand beforehand. They also keep their prices extremely low in some areas as China by sourcing a large percentage of products in the area of operation.