analytical report ikea

8/11/2019 Analytical Report Ikea

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ANALYTICAL REPORT: Location of the future supplier base in a dynamic

environment

INTRODUCTION

IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was

founded in 1943. I chose IKEA as it is the worlds largest furniture retailer, recognized for its

Scandinavian style. The company operates in more than 40 countries and had total revenue

in 2013 of 11.5 billion dollars. IKEA is also being listed as 41 Worlds Most Valuable Brands

by Forbes. The overall goal of IKEA is to offer products with quality that are developed for

peoples life at home, at as low prices as possible, and the companys vision is to create a

better everyday life for the many people.

SUMMARY

IKEA of Sweden (IoS) is currently using offshoring method for their suppliers where they

outsource their manufacturing to low-cost country such as China and India. However,

offshoring offers challenges from a number of influences including economic, cultural and

political considerations. IoS thinking of using nearshoring to overcome the challenges that

offshoring causes like long lead times and a high supply risk. There are four basic internal

parameters that IoS considered before they decided where to locate the future supplier base

which is availability, sustainability, product quality and cost. They also mentioned the

external factors but this report will only cover the internal factors which focused on lighting

segments products only.

ANALYSIS

Availability, sustainability, product quality and cost have been identified as the internal

factors in determining the new location for future supplier base.

i. Availability

The aim with this strategy is to reach an optimal supplier base in Europe and at the same

time to get the same availability of the purchased items as globally. The distance between

supplier and the store has an impact on the product availability. By using nearshoring which

shorten the distances will decreased supply risk and short lead times. The short lead times

and decreased supply risk within nearshoring gives a better availability of the glass lighting

segment products. Availability is important for IoS lighting in the decision of where to locate

the future supplier base. Nearshoring also gives the benefit of a better supply planning since

it is easier to handle demand uncertainties. However, a challenge with nearshoring is the

availability of quality items to a low price, due to higher wages compared to offshoring. The


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glass lighting segment will face a large challenge to achieve the same availability of quality

items to a low price on the European market as globally.

ii. Sustainability

As mentioned before, nearshoring from an availability parameter will shorten the distances

which give less transportation. A benefit with the less transportation is it will gives less CO2

emissions. From the sustainability parameter, the benefit of using nearshoring for the glass

lighting segment is the decreased in carbon emissions. Nevertheless, it is important for the

supplier to be energy efficient. However, it is difficult to find suppliers that use renewable

energy in the production due to the few suppliers close to the sales markets.

iii. Product Quality

Focus of IKEA, is to offer products with a quality that are developed for peoples life at home

at as low prices as possible. But there is a challenge for the product quality parameter in

using nearshoring is to find suppliers that provide quality items to a low price. Furthermore,glass is a sensitive material that easily breaks. Nearshoring can give a great benefit as it can

decrease risk for breakage during the transport and handling of the product as the distance

is shorten. Moreover, a benefit with nearshoring is that the buying company and the supplier

belong to similar cultures which makes it easier to communicate. Therefore, quality issues

can be avoided since IoS lighting and the suppliers perspect ive on product quality are likely

to be similar.

iv. Cost

As mentioned before, IKEA focused on low prices as possible. It is important to look at the

price development not only from a purchasing perspective but also form the supply chain

perspective. From this perception, nearshoring has a benefit that the total cost is lower

compared to offshoring as hidden cost can be avoided. In addition, nearshoring decreases

the logistic cost by less transportation and short lead times which makes it possible to have

low stocks levels. As the goal is to lower the price, IoS lighting is more likely to reach it by

using nearshoring compared to offshoring. Moreover, nearshoring normally has the

challenge of keeping the costs low because of higher wages in the nearshore countries. In

order to overcome the challenge, IoS need to achieve an efficient supplier base with an

automated production which is required to minimize the human interaction in the production

and keep the cost on a low level.

CONCLUSION

There are both benefits and challenges with nearshoring in term of internal factors. The aim

of IoS is to keep the price low as possible. If IoS lighting manages to handle the identified

challenges with nearshoring large benefits, as short lead times and less supply risk, the aim

of IoS could be obtained.


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REFERENCES

Hahn, E.D., Bunyaratavej, K. & Doh, J.P. (2011), Impacts of Risk and Service Type on

Nearshore and Offshore Investment Location Decisions- An Empirical Approach,

Management International Review, volume 51, pages 357380.

IKEA (2014) Business type, Available at:

http://www.ikea.com/ms/en_US/jobs/business_types/product_development/index.ht

ml (Accessed 19 September 2014)

IKEA (2014) History, Available at:

http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/history/1940_1950.html

(Accessed 19 September 2014)

Location of the future supplier base in a dynamic environment. Case Study witihin IKEA of

Sweden. Retrieved 18 September 2014 from http://lnu.diva-

portal.org/smash/get/diva2:541113/FULLTEXT01.pdf

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