Distribution takes on a essential role, not limited to physical movements and circulation of goods, also for maximizing efficiency, analyzing and managing source string issues and retaining quality control throughout the resource chain, from the maker to the client in the warehouse and retailers. You will find over 42 circulation centers in 36 countries (IKEA Corporate Composition n. d. ) Circulation centers are located worldwide to cater to demands of its retail stores. Its distribution centers observe and maintain its inventory effectively by making use of barcodes as well as programmed robots and machineries which minimizes the necessity for manpower. Thus, affordable management of distribution centers is their competitive edge.
In the procedure of distribution, suppliers of IKEA use third party logistics companies to transport their products to various IKEA locations. The role of vehicles is important as it offers the critical links between these organizations, allowing goods to stream between their facilities. The international logistics services company Maersk Logistics, area of the Danish AP Moller Group gets the duty to control the Swedish furniture and home accessories group at IKEA's syndication centre in Valls, Spain. Maersk Logistics and IKEA have similar co-operation set up in Sweden and also Malaysia (Maersk Logistics to control IKEA's new circulation centre in Spain 2002).
How IKEA's Vision is supported over the Firm (Source: ARC Advisory Group; click to enlarge)
The IKEA group provides modern household furniture. Their products sold are flatly-packed or known as ready-to-assemble furniture. IKEA can store large inventory of products because the merchandise are flat loaded by automated machines which focus on a day, in 365 days and nights a year. The application of robust machineries leads to minimal labor, thus it is practical and cost-saving. Flat loaded inventory save space for storage and cost. Therefore, IKEA have the ability to have a low warehouse cost. This strategy maximizes efficiency and completely utilizes the product packaging capacity. The filled goods are then carried to their syndication centers. IKEA creates distinctive products that are also made for low-cost creation. Most furniture is made for the customer to assemble, and they're also designed to fit into an efficient packaging cube for low-cost travel, which benefits both customer and IKEA. Because of the fact that IKEA is an extremely high volume store, thus it is able to set a minimal price on its products for end-users on what it procures.
Another unique feature of its logistics function is the fact that IKEA's shops become warehouses, which means the retail store is also the warehouse itself. The business has a unique structure for its retail stores. It includes distinctive product designs, while its retail stores have a typical warehouse format on the floor floor. The first and second flooring surfaces provide a comfortable environment such as a showroom with furniture displayed nicely to permit customers to search its home furnishing ideas. On the ground floor, customers can surf for inventory and select them to purchase. Unlike many furniture sellers, IKEA has ready inventory to meet customers' needs. Therefore, the expense of Lost Sales (COLS) in IKEA is very low.
IKEA also reduces logistics cost with customers as part of their supply chain. Customers accumulate their furniture from self-serve area without long waits and assemble the furniture themselves. The products selected by customers are chosen faraway from a floor pallet location racking as high as the normal person could reach. Some additional free parts are stored in reserve racks above these locations. For protection reasons, forklifts and pallet jacks aren't used during store hours. About 1 / 3 of the lower level is made up of a warehouse off boundaries to customers. This area consists of items too cumbersome for customers to fill without assistance. Since IKEA intends to put into action its concept of self service as much as possible, it tries to reduce and limit the amount of items in this large storage area (Banker 2009).
IKEA's store operations are recognized by high-flow facilities which focused on the 20 percent of SKUs that take into account 80 percent of the quantity and low-flow warehouses that tend to be more manual. In its high-flow warehouses, IKEA adopts the system of automatic storage and retrieval systems (AS/RS) to power down its costs-per-touch (Banker 2009).
Furthermore, IKEA also employs logistics personnel at its stores. There is an in-store logistics manager who is in-charge for procurement and buying process. There may be another store-goods supervisor who specializes in material managing logistics. Having logistics staff work in stores is uncommon, therefore we can easily see that IKEA differentiates its stores with other home furnishings retailers to obtain warehouse in its retail stores (Banker 2009).
The efficient stream of goods within an IKEA store is essential to ensure high sales as well as to maintain advanced of option of goods in order to improve customers' commitment. The tasks of the logistics employees are to screen and track record deliveries, carefully check delivery notices, type and separate the goods and have them off to the correct sales area or designated overstock locations (IKEA Logistics 2011)
The in-store logistics supervisor runs on the proprietary system produced by IKEA to manage and respond to the store-level inventory reorder items (min and utmost adjustments), which is also fairly unique. Most stores forecast at the circulation centre (DC) level and inventory replenishment logic. For instance the machine works as minimal order number before reordering or maximum amount of a specific product to reorder at anybody time, which also resides at the DC level.
Due to the actual fact that IKEA group does not fill up its inventory in the day which is during the store time, the logic of its min/max is based on having a bin large enough to repay all the sales for just one whole day. In IKEA, what is sold is registered in its Point of Sales System (POS) and what's added into the store is also handled by the Warehouse Management System (WMS). Therefore, the advanced technology of information systems brings about very little cycle counting needed.
However, IKEA's system is able to find irregularity. If the machine desires a certain volume of a specific product to obtain sold-out in a brief period of time, and much less has sold, the machine will inform the in-store logistics supervisor to visit the location and carry out a manual stock checking process. IKEA feels that its inventory control process and system allows for the right goods to maintain the store with better certainty, and better value, than the other traditional retail forecasting and replenishment process (Banker 2009).
In this competitive world, developments can be very easily imitated and carried out by opponents. But IKEA has a specific vision recognized by complementary cross-functional logic. Thus, this not only differentiates IKEA from its peers, but also provides it with a competitive benefit that is difficult to be duplicated by others.
IKEA's quick extension has been tremendous and sales remain growing with an increase of customers realizing their low prices yet distinctive furniture. Currently IKEA designs to open up 10-20 new stores yearly aiming to twin sales within the arriving five years. Considering the rapid enlargement and growth in sales, the many stores and warehouses, and the actual fact that some business areas change up to 30% of its collection every year, source chain planning is a real obstacle to IKEA.
The IKEA supply chain is generally make-to-stock (MTS) and just a few products are made to customer orders. Consequently, the whole supply string is greatly dependent on forecasts. IKEA encountered the condition of inaccurate forecasting, with the focus on local optimization due to limited transparency within resource chain. The regions and the stores used to have a higher level of local freedom in conditions of planning and replenishment control. This has led to a fragmented supply chain planning with local search engine optimization and lots of manual involvement with programs throughout the resource string planning process.
The main reason for the situation of inaccurate forecasting to are present is the actual fact that forecasting has been conducted on a regional level with approximately 120 users striving for different goals and using different methods. Area of the explanation to the is that IKEA has lacked a standard and structured tactical planning of demand and replenishment. In conditions of capacity planning, various different parts of the supply string such as stores, warehouses and etc. attempted to optimize its own area of the supply chain which caused a set of imbalanced supply with a low and unpredictable total throughput with long replenishment times for the supply chain as a whole (Jonsson, Rudberg & Holmberg 2008).
Besides that, insufficient accurate forecasts triggered many regions and stores to follow a reactive behavior in taking care of its inventory with fluctuating goods availability. As a result, some stores would face regular shortages although some would overestimate demand and face the issue of overstock. Hence, some marketplaces have experienced stock outs during long periods, whereas other market segments have ended up with outdated inventories.
Another issue encountered by IKEA is the lack of central coordination, instead focus on local autonomy which believed to be easier for parts stores to plan and replenish their own inventories. However, IKEA has used comprehensive manual work in its planning functions and the planning was predicated on fragmented and unreliable planning information. These details helps it be harder to manage setup and holding costs. Hence, there is a lack of trust between various areas of the supply string, which even further have enhanced the bullwhip results in the IKEA resource chain (Jonsson, Rudberg & Holmberg 2008).
Other issue related to the resource chain performance was difficulties to get enough attention of data maintenance, which eventually leads to inaccurate forecasting. Inadequate maintenance of lead time data gave wrong suggestions to need calculation and induced stock out problems in stores. Process improvement was difficult because of incompatible data get and business lead time measurements throughout the source chain. Furthermore gleam lack of proper follow-up tools to supervise forecast deviations. Besides that, it is challenging to change mindsets among users to create a central coordination because of the many participants in the resource chain.
IKEA is growing globally and fast gaining market share. The organization has a total of about 12, 000 products in the whole product range. It includes over 200 stores in 30 countries around the world. This involves exceptional logistics and excellent support staff as well as the best alternatives. IKEA has 1, 600 suppliers in 55 countries, and investments through local IKEA purchasing office buildings in 33 countries. To be able to be sure that the source chain remains involved with its maximum efficiency level, it must incorporate the best technology and the right man resource.
To reduce source chain costs whenever you can, the retailer has to rely on source and demand optimization solutions from JDA Software, including JDA Demand and JDA Fulfillment. The suggested solution is thought to help IKEA maintain steadily its position as the world's leading home furnishing shop with an agile and responsive supply chain strategy. Through the application of JDA software, the demand planner could help IKEA to forecast their sales globally and ensure that their production is able to meet their global demand. Alternatively, the need planner helps IKEA to balance what they need appropriately to the global demand. While using help from the software, the amount of forecasters is thought to reduce from 120 to 30. As a result the accuracy and reliability of demand forecasts would improve to operate a vehicle gains and efficiency with their supply chain is increased. In addition, it support other jobs in IKEA's planning corporation with appropriate and up-to night out information net requirements, stock levels, safety stock calculations, and replenishment needs.
Coordinated planning is recommended where replenishment of goods is directly linked to inventory levels. Hence, real time revisions on inventory levels helps to prevent stock outs, overstock or dual counting. The real time revisions can minimize the possible cost of lost sales. Thus, allow IKEA to synchronize replenishment using their suppliers, thus reducing lead time.
Furthermore, a global and regional source planning system would boost better performance for a coordinated and consolidated sales, capacity, and syndication planning while having them directly associated with replenishment. The perfect solution is would also allow IKEA to consider all inventories in the need calculations and have supply string visibility in the order management process. Hence, the new planning theory could reduce threat of imbalance between commitments and demand.
To further improve the planning and offer chain, IKEA needs to upgrade the maintenance of better data quality which can boost better performances. As a response to the difficulties to keep up good data quality, a new lead time strategy that assigns clear responsibilities was suggested to be executed. A centered group can be produced with parties engaged across the supply chain choosing functional methods, lead time issues and a web-based request to be able to imagine lead times and exceptions on absent lead time data.
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IKEA Corporate Framework n. d. , IKEAFANS, looked at 11 May 2011,
IKEA Logistics 2011, IKEA, seen 11 May 2011,
IKEA sustainability article 2010, IKEA, viewed 11 May 2011,
Jonsson, P, Rudberg, M & Holmberg, S 2008, 'Global supply chain planning at IKEA', IKEA of Sweden, pp. 91-92.