IKEA was founded by Ingvar Kamprad in the entire year 1943. It started as a little town Swedish furniture company that was founded on the principles low prices and good quality. This simple idea could transform the business along with strategic management and excellent decision making. It now has over 250 stores and a presence in 30 countries. IKEA has become a global giant with whom local furniture companies have to struggle against. The fundamentals of the organization did not change drastically with expansion however the organization did adapt to the culture and practices in the host countries. The strategy was simple, give the people cheap compared to the peers, permit them to check the quality, do no compromise on the quality, save on costs from every possible angle and make sure they are feel happy about the purchases they made (10 Keys to IKEA's Low Prices, 2009).
This made their brand strong and helped in vertical and horizontal integration and expansion. IKEA maintained strong ties to its home country. Its colors are a representation of the Swedish flag and its own name is the initials of its founders name combined with the initials of the town he was born in. The business has used policies which have baffled researchers and lead to various analyst studying its reasons for success.
APPLICATION OF THEORIES AND STRATEGIES
When IKEA was first created, its owner had the vision of so that it is an international giant. He had started international meetings and proceeded for a quick expansion strategy of the organization. No other furniture company has already established this exponential growth in only a couple of years. First, it expanded from a tiny town to chains around Sweden. This was not a simple task. The business had no means of managing so many stores however through the wonderful entrepreneurship of its founder, his strategy and global vision, the business grew strong. The stores' priority is always to find ways that they could decrease costs. They started with lowering electricity costs during day time by opening windows; they used energy saving lights and didn't have a big profit percentage in the beginning. They then expanded to Germany, France and other European nations. After they expanded to other countries, they maintained the same policies and store strategies atlanta divorce attorneys store. This is done through impeccable management practices, which further helped the business open stores in other continents. IKEA's business model became famous and the store needed publicity. Their process analysis and operational strategies are unique. All their decisions have prevailed and their management of inventory, staff and stores is one of the best on the planet. IKEA used to acquire raw materials from manufacturers but after it expanded internationally, it started its production company. This resulted in saving costs as well as making new designs reach the stores faster with the least amount of compromise on quality (Ikea: How the Swedish retailer became a worldwide cult brand, 2005).
They started economies of scale by starting a production company near its stores. These companies were generally situated in areas where labor was cheap and it might be cheaper to ship the goods. In addition they used an extremely different design of marketing technique which concentrated on making people happy and reaching out on the base emotions.
Most of the stores which sold products at lower prices were considered to have cheap quality like Wal-Mart; therefore IKEA had to use a lot of advertising to put the easy message across that the quality had not been compromised in the offer.
They did so by hosting customer parties, sending free samples, giving huge discounts and maintaining a happy customer support service. This increased their goodwill. They also took active participation in local events and helped the city, increasing their goodwill and sales. IKEA believed in constant innovation which is one of the reason why for its strong presence. It comes up with furniture pieces that are classic and the as new. This adds to its brand presence along with rotation of furniture so that the customers should never be viewing the same thing every time they visit. Another strategy that IKEA arrived with was to keep huge inventories in its stores. This might mean more space and even more wastage as well as high inventory management costs however compared to the costs of maintaining the stores, the predicted sales were higher. This made them even more famous because they were the sole store that was capable of holding huge inventories allowing customers to buy any product by just entering the store. They were able to do this by holding flat line products. These products would them need to be assembled by the customer hence these were made in a fairly easy to assemble manner. By holding flat ling products, the organization could store an incredible number of product. These strategies enabled them to increase their market share (Ikea Components is Setting practical Business Targets, 2011).
COST ANALYSIS OF CURRENT OPERATIONS
IKEA is a privately held organization. They have seen an increase in costs during the last couple of years and it is struggling to survive given the recent global recession and low sales turnover. Although its new and ground breaking strategies have increased sales and helped them earn profits, the margin of profits and the sales turnover has decreased along with increase in the expense of recycleables and operations. An increase in sales from
Euro 21534 million in 2008 to a Euro 21846 million in 2009 2009 is considered slow however considering the marking conditions, it is above its peers. IKEA must find more ways to cut costs in order to create healthier results. They have started doing so by creating solar powered lamps etc and using solar power and saving on electricity. Its costs increased from Euro 7078 million in 2008 to Euro 7198 million in 2009 2009. Reducing its costs will also be another challenging for the business (Process Analysis Model, n. d. ).
OPERATION MANAGEMENT ISSUES IN PRODUCT DESIGN OPERATIONS
IKEA is strongly linked to its product and organization design. The procedure from which production starts until it reaches the stores and makes sales is very commendable for an international giant like IKEA. But the procedure process has been commendable you may still find a few loopholes along the way. The primary problem concerning IKEA is its inventory storage. Warehousing costs are on the high. The business cannot afford to store thousands of products for each and every different store. This would not only mean high cost of storage but also wastages in products. After the product gets old, it needs to be replaced by other more impressive products. This makes the lifecycle of the furniture short and increases the wastages that the organization will have to incur.
Currently IKEA ships the unwanted goods to other stores where it might have a high demand however this not only increases the risks of no sale but also increases the price of shipping. Since it produces flat line furniture, the place adopted is not really a lot but the store has expanded into all departments of housing and office furniture hence must bear a high cost of storage. An excellent option open to the business is to show goods in the store and ship the products later to the customers through mail. This might help in preventing storage costs, cost to keep inventory management and save on any sort of wastages. The business can also concentrate on re using the unsold furniture into other products. Since the organization owns its production company, it can re use the unsold furniture pieces and make other innovative products. Currently it generally does not pay too much attention into re using and re cycling however if it wants to keep costs low it requires to consider this alternative (SWOT Analysis and Sustainable Business Planning, 2011).
Another Operation management issue with IKEA is the fact that the organization is incredibly large. It not only needs to focus on maintaining the existing stores but also on expansion into other countries. IKEA's expansion into India and other developing countries is on the hold. It's been extremely conservative in its method of expansion and trying to be overly cautious. A good example is its indecision over opening stores in China. Once the company decided that China will be a good market, its management was scared to consider the risk of entering market where consumers were traditional and other furniture retails offered cheaper products.
However, the expansion went perfectly and China is a very good turnover for the business. The government too was pleased with IKEA. Hence IKEA's management must take more risks and consider global expansion while maintaining the grade of products and service given and lowering costs.
By using process model analysis on the organization's approach to its day to day operations, the next flow chart was developed. A process flow chart is necessary to be able to recreate the look of the organization and understand the process in a simplified manner.
The above flowchart demonstrates there is a lot of the time that is wasted in the transportation of the goods as well as in inspection of the merchandise. Waste recovery has not been given a lot of attention as required and time spent on planning needs to be increased in order to build up products that lead the furniture market. Analysis models using classifier analysis, location analysis, cost and duration analysis and resource analysis have shown that the business has been using all possible varieties of increasing business however there is more scope and a lot it can do to boost its current standards. It generally does not utilize its resources like space for storage, marketing for customers and training employees for better client satisfaction and higher sales. It's very conservative in its approach to location and store openings and production company locations. It needs to get more aggressive to be able to build a more powerful more stable and even more profitable brand.
The overall design of the business is great with importance given on lowering costs; the sole problems are inventory management and cautious expansion.
IKEA's simple business strategy of low prices has generated a lot of trouble for the organization. By lowering prices, the quality of products offered lowered and although the business has been thriving to keep up its quality it has sometimes been unable to meet international standards. The products are also a little below quality but their search for lowering prices in addition has affected their quality of service offered. Customer care does not get proper attention and the staff don't have the time or resources for proper international training (Levine, 2010).
The organization is barely scrapping through with the product quality required which has adversely affected the business. The sales have been down and possible sales from elite consumers have observed a sharp decline. Another noticing factor on quality management is the promotional initiatives that the business holds. They are unable to research well on the marketplace because to be very cost conscious and also have therefore missed out on their target customers in their marketing plan. Because IKEA is an international brand, it not only has to consider international policies however in order to do well in the host country, the business must also pay special attention to the customs and traditions of the host country. It's been failing to do this correctly resulting in profits dwindling below expectations in certain regions and countries like the United States (Levine, 2010).
IKEA is a privately held organization, hence information on IKEA is difficult to achieve. IKEA follows a very difficult return service with delays and sometimes refusal to take back the goods purchased by consumers. This reflects back on the credibility and goodwill. For any organization that works directly with customers, service must be impeccable especially for a global organization like IKEA however IKEA is not very good with its quality management approach. The business has however taken a lot of steps to keep its Corporate Social Responsibility (CSR) and taken many making a notable difference in the host country.
IKEA can take many steps to improve quality. The organization can adopt TQM (Total Quality Management) in its businesses to be able to ensure quality. It requires to invest money on its processes nevertheless the returns it may possibly earn are potentially greater than the costs. The business must adopt a six sigma method of management and strategically boost the quality of products and service provided. This should increase collectively in all the stores. It has been seen that the majority of the sales come from EU nations which makes up around 50% of its sales with only 5% coming from North America. That is a potentially untapped market and IKEA needs to improve quality and assure the consumers of its products and quality to be able to increase its potential in not only the markets it already has a existence in but also the markets in which it plans to open stores.
IKEA may use the theories for quality improvement to be able to manage the quality. Management stresses on the following important principles and theories for quality improvement that IKEA may use to its advantage.
1. Develop customer focus in each step of the process and train employees to supply the best client satisfaction. IKEA is determined by its consumers and it needs to prove to the consumers that they can rely upon IKEA as well.
Customer focus is very important internally as well as externally in the workings of the business.
2. Leadership. The international size of the business makes it difficult for them to manage and lead the procedure. Leadership is necessary for every different store and everything the leaders have to have a similar set of rules, aims and objectives. This can be done by training each leader of the store together. Using the values that should be used in the organization.
3. Process based quality management. One theory of quality management states that if each process in the organization deals with the optimum use of resources and time, the overall outlook of the business will be much different.
4. Decision making approach of the business needs to change. The management needs to realize that they can't be over cautious in their approach if indeed they want to gather all the market share and potential sales if indeed they continue being conservative.
They need information that is correct and they need to work slowly because of their mere size however they also have to take an aggressive role in this slow recession filled economy in order to survive and compete.
5. Continual improvement in quality. Quality management is not really a onetime approach, the organization must imbibe it into its daily workings, control the quality and give feedback on the improvements done. The constant feedbacks would be supplied combined with the advantages that the organization achieved due to the procedure for quality management.
IKEA can also use the Crosby theory of quality management which stresses on zero errors, prevention of errors, quality as an adherence to requirement and quality to be a price payed for non conformity. It sets goals for lower amount of days so that the results would show, it requires total commitment from top of the management, encouragement to the employees, training given accordingly, creating incentives for high sales, identifying the costs for quality etc.
IKEA being the world's leading furniture retailer does not utilize its capacity or use capacity management to its advantage. It uses Data Core Virtual Storage Solutions globally considering its size. The new version uses auto provisioning which is allocation of products to its demand, auto failover which is mirroring and using high availability in its products and snapshot functions this means creating backup for all your information that is feed from all its stores worldwide. The program is the latest and expected to increase the management of inventory. Before the implantation of the program, IKEA struggled using its supply chain management. It sometimes had over supplied products and sometimes there was a lag in products which diminished demand. Since it is not an internet based supplier, it requires to keep adequate product as reserves. It requires to make a balance between oversupply and under supply so as to reduce wastages. IKEA has tried to take advantage of the technological improvements to straighten out its supply chain management. The organization had earlier used JDA system in 2006 to resolve its problems in supply chain management (IKEA Services, 2011).
1. It needs a technology that can forecast with a great level of accuracy predicated on past results and future market environment the marketplace demand and offer movements. This forecasting accuracy will help the business improve its functions and save millions of dollars in shipping, storage and recycling.
2. It needs an approach that increases the sales forecasts and predicts consumer behavior. The predictions need to be translated into sales figures so the organization can anticipate expansion and innovation. All of the departments in the business are interrelated and using capacity management to its highest level may help create more potential from the other departments as well.
3. Another area where IKEA needs to focus on is the anticipation of problems before they occur. A large organization is prone to have problems in its supply chain management and capacity management however if it is in a position to predict the changes and challenges well in advance, it can be better prepared for the threat or to a certain extent assist in preventing it. This is an integral part of management function through which
the organization can gain further market share and capital.
4. Transportation and logistics methods have to be simplified with each consignment being traceable so that the management can better predict the merchandise whereabouts and steer clear of loss in transportation. With all the rise in fuel costs the management needs to carefully construct its supply chain management as well as logistics problems. With over 12000 products and 250 stores in 30 countries the organization needs better capacity management solutions (Supply Chain Management, 2006).
IKEA store layout is in the form of a maze. The consumers need to walk through different custom rooms build to provide them a concept of the merchandise they might like. The stores are therefore multi layered with additional space given for storage.
It wastes a lot of its store space
It confuses the clients who find it hard to return to the merchandise they liked before
It irritates consumers who are buying a particular product and have to go through the entire store for it and it wastes lots of time which consumers do not prefer.
However, this marketing strategy is important but it could be improved upon to enough time above hindrance. You will discover many other store formats that the organization can pick from rather than its free flow layout. A graphic of the store layouts is mentioned below.
Therefore IKEA can decide on a grid layout or a spine layout to avoid confusion. Having different layout on each store may also be helpful and prevent any wastage of space. Since the organization has 20000 products they have to be displayed in an arranged format with utmost importance given to layout in order that they appear attractive for the clients to buy. The lighting also should be create in a manner that enhances the qualities of the products. The benefits associated with having a store layout are that it can help the customers organize their wants. It has been proven in countless studies that a good display of the merchandise makes the customers more inclined to buy the products. This means that a layout can make or break a sale hence needs attention from top of the management (Waters, 2011).
IKEA has a great future ahead. It requires for taking an aggressive role in the forex market because its sales are now stagnant and costs are on a rise. It includes used the best method for inventory management along with supply chain management it can further expand its dominance over the other furniture retailers by learning to be a public company rather than staying private and add additional funds to its disposal. The has been orthodox and conservative in its approach to management so far but it requires to improve its policies into being more impressive not only in the merchandise it creates but also in the strategies it follows. The company has great potential and an enterprise plan that matches no other organization in the world. It size and its own success undoubtedly have been commendable. It company must also become being more online which would reduce the cost of transportation and logistics.
It has a lot of potential and a goodwill that precedes every country it decides to open a store in, however marketing is also an important feature IKEA needs to consider. Its current marketing strategies were effective within an expanding economy where people where prepared to spend however in this current recession the only path IKEA can make increased sales is through advertising its fundamental business objective; low priced. It requires to cash into the recession and increase sales by lowering prices and making its products quality checked. IKEA also has a lot of improvement to do in the client care area where it is lacking behind because of its policy to lower costs. The organization needs to train its employee in order that they are better and better equipped to make a sale.
To conclude I would like to add that IKEA has great potential not only in its existing countries but other countries where it does not have any stores. It needs to utilize the sales before some other organization does.
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