Ikea

And so, below will be a brief intro to what Strategic management is about. Strategic Management is a dynamic process that requires a long-term perspective and flexibility. Top executives are usually responsible for strategic management. It also includes analysis of the internal and external environment of the firm, definition of the company’s mission, formulation and implementation of strategies to create or continue a competitive advantage. Gomez-Mejia ; Balkan, 2011)

The Strategic Management process involves 5 steps: Analyze internal and external environments Define strategic intent and mission Formulate strategies Implement strategies  Assess strategic outcomes (Gomez-Mejia ; Balkan, 2011) Introduction of KEA KEA was started by Angina Kampala in SMS?land in southern Sweden. He single exploration of furniture design, self assembly, advertising, the use of a catalogue and a showroom to reach his potential customers.

KEA originally sells pens, wallets, picture frames, table runners, watches, Jewelry and nylon stockings, meeting the increased needs with products at cheaper prices and still earning a sizeable profit. It has since expanded into 40 countries/territories around the world, including Singapore in 1978 which I will be focusing mainly on wrought this case study. Mission To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. Vision To create a better everyday life for the many people.

Values Humbleness ; Willpower

• Respect whoever we meet be it customers or fellow workers and by using willpower, it means getting things done Leadership by example
• All the leaders in KEA try and set a good example and fellow co workers are expected to do the same Daring to be different
• We eliminate old solutions if we eave better idea Togetherness ; enthusiasm
• Together, we have the ability to solve seemingly unsolvable problem Cost consciousness
• We achieve good results with small resources Constant desire for renewal
•  Adapting to customer demands with innovative solutions saves money and contributes to a better everyday life at home Accept and delegate responsibility
• We promote staffs with potential and drive them to surpass their expectation and being encouraged to learn from mistakes (KEA, N. D)

The SWOT analysis (Strengths, Weaknesses, Opportunities ; Threats) is a commonly used strategic tool. The SWOT analysis allows the firm to analyze the internal and external factors that can influence the organization’s success. (Gomez- Mejia & Balkan, 2011) .

In this case, by owning their own restaurant and market hall, IKEA already has an edge over its competitors as foods and snacks hailing all the way from Sweden can be found. By living up to their value of cost consciousness, IKEA are able to attract customers through the affordable prices by ordering through bulk at a cheaper rate & saving handling fees by delivering products directly from suppliers to IKEA stores worldwide. IKEA has always been an ambassador for CEO friendly products through its increased and smarter use of renewable or reclaimed waste materials. In order to pep improving and also be CEO friendly, feedbacks from customers are taken seriously and workers from various departments contribute ideas to one another so more unique and innovative ideas can be generated within IKEA itself.

Weakness

Firstly, as they are using cost conscious approach to produce their products. There’s as durable as of those of other furniture company. The designs of Kike’s home furniture are quite very modern and therefore, won’t be as appealing to the older generation as it is to the younger ones.

Opportunities

The future looks bright for IKEA due to the fact they are able to increase the variety of Rene products and it only helps because of the environment’s current condition while also meeting the demand of greener products. As IKEA are producing more green products, the production cost will be cheaper as recycled and waste materials are used instead.

Thus, sales price won’t be as expensive, meeting the demand of lower priced products. The cost of production of furniture are pretty low at the moment and so, new competitor will surface and it don’t take as much money as it did in the past to set up a furniture company. Economy recession is another factor that will threaten KEA tutus as lesser people will be spending their money to replace their existing furniture.

External Analysis

There will be 2 parts to external analysis; it will be done based on general environment and competitive environment. External analysis is basically analyzing the factors that are not within the control of an organization for the general environment part. As for the competitive environment part, the strength of an organization’s current competitive position, and the strength of a position it is considering moving into will be identified to help prepare itself for every possible appending in the near future.

General Environment

External analysis of general environment will be done using PESTLE which refers to how the political, economic, social, technological, environmental and legal environment affects an organization. Below will be a diagram of PESTLE, followed by a brief explanation of each factor and their examples. Monsoons, Gerry, Schools, Whittling, 2006) [pick] Political Factors – basically to what extent the government intervenes in the economy.

IKEA is one of the world’s most successful global retailers. In 2007, IKEA had 300 home furnishing superstores in 35 and was visited by some 583 million shoppers. IKEA’s low-priced, elegantly designed merchandise, displayed in large warehouse stores, generated sales of €21. 2 billion in 2008, up from €4. 4 billion in 1994. Although the privately held company refuses to publish figures on profitability, its net profit margins were rumoured to be approximately 10%, high for a retailer.

The founder, Ingvar Kamprad, now in his 80s but still an active “advisor” to the company, is rumoured to be one of the world’s richest men. IKEA was established by Ingvar Kamprad in Sweden in 1943 when he was just 17 years old. The fledgling company sold fish, Christmas magazines, and seeds from his family farm. His first business had been selling matches; the enterprising Kamprad purchased them wholesale in 100-box lots (with help from his grandmother who financed the enterprise) and then resold individually at a higher markup.

The name IKEA was an acronym: I and K his initials; E stood for Elmtaryd, the name of the family farm; and A stood for Agunnaryd, the name of the village in southern Sweden where the farm was located. Before long, Kamprad had added ballpoint pens to his list and was selling his products via mail order. His warehouse was a shed on the family farm. The customer fulfilment system used the local milk truck, which picked up goods daily and took them to the train station. In 1948, Kamprad added furniture to his product line; in 1949, he published his first catalogue, distributed then as now, for free.

In 1953, Kamprad was struggling with a problem: the milk truck had changed its route, and he could no longer use it to take goods to the train station. His solution was to buy an idle factory in nearby Almhult and convert it into a warehouse. With business now growing rapidly, Kamprad hired a 22-year-old designer, Gillis Lundgren. Lundgren originally helped Kamprad do photo shoots for the early IKEA catalogues, but he started to design more and more furniture for IKEA, eventually designing as many as 400 pieces, including many best sellers.

IKEA’s goal over time was to provide stylish functional designs with minimalist lines that could be cost-efficiently manufactured under contract by suppliers and priced low enough to allow most people to afford them. Kamprad’s theory was that “good furniture could be priced so that the man with a flat wallet would make a place for it in his spending and could afford it. ” Kamprad was struck by the fact that furniture in Sweden was expensive at the time, something that he attributed to a fragmented industry dominated by small retailers.

Furniture was also often considered family heirlooms, passed down across the generations. He wanted to change this: to make it possible for people of modest means to buy their own furniture. Ultimately, this led to the concept of what IKEA calls “democratic design” – a design that, according to Kamprad, “was not just good, but also from the start adapted to machine production and thus cheap to assemble. ” Gillis Lundgren was instrumental in the implementation of this concept. Time and time again, he would find ways to alter the design of furniture to save on manufacturing costs.

Gillis Lundgren also stumbled on what was to become a key feature of IKEA furniture: self-assembly. Trying to efficiently pack and ship a long legged table, he hit upon the idea of taking the legs off and mailing them packed flat under the tabletop. Kamprad quickly realized that flat-packed furniture reduced transport and warehouse costs, and damage (IKEA had been having a lot of problems with furniture damaged during the shipping process). Moreover, customers seemed willing to take on the task of assembly in return for lower prices. By 1956, self-assembly was integral to the IKEA concept.

In 1957, IKEA started to exhibit and sell its products at home furnishing fairs in Sweden. By cutting retailers out of the equation and using the self-assembly concept, Kamprad could undercut the prices of established retail outlets, much to their chagrin. Established retailers responded by prohibiting IKEA from taking orders at the annual furniture trade in Stockholm. Established outlets claimed that IKEA was imitating their designs. This was to no avail, however, so the retailers went further, pressuring furniture manufacturers not to sell to IKEA. This had two unintended consequences.

First, without access to the designs of many manufacturers, IKEA was forced to design more of its products in-house. Second, Kamprad looked for a manufacturer who would produce IKEA-designed furniture. Ultimately, he found one in Poland. To his delight, Kamprad discovered that furniture manufactured in Poland was as much as 50% cheaper than furniture made in Sweden, allowing him to cut prices even more. Kamprad also found that doing business with the Poles required the consumption of considerable amounts of vodka to celebrate business transactions, and for the next 40 years his drinking was legendary.

Alcohol consumption apart, the relationship that IKEA established with the Poles was to become the archetype for future relationships with suppliers. According to one of the Polish managers, there were three advantages of doing business with IKEA: “One concerned the decision making; it was always one man’s decision, and you could rely upon what had been decided. We were given long-term contracts, and were able to plan in peace and quiet…. A third advantage was that IKEA introduced new technology. One revolutionary idea, for instance, was a way of treating the surface of wood.

They also mastered the ability to recognize cost savings that could trim the price. ” By the early 1960s, Polish-made goods were to be found on more than half of the pages of the IKEA catalogue. By 1958, an expanded facility at the Almhult location became the first IKEA store. The original idea behind the store was to have a location where customers could come and see IKEA furniture set up. It was a supplement to IKEA’s main mail-order business; but it very quickly became an important sales point in its own right.

The store soon started to sell car roof racks so customers could leave with flat-packed furniture loaded on top. Noticing that a trip to an IKEA store was something of an outing for many shoppers (Almhult was not a major population centre, and people often drove in from long distances), Kamprad experimented with adding a restaurant to the store so that customers could relax and refresh themselves while shopping. The restaurant was a hit, and it became an integral feature of all IKEA stores. The response of IKEA’s competitors to its success was to argue that IKEA products were of low quality.

In 1964, just after 800,000 IKEA catalogues had been mailed to Swedish homes, the widely read Swedish magazine Allt i Hemmet (Everything for the Home) published a comparison of IKEA furniture to that sold in traditional Swedish retailers. The furniture was tested for quality in a Swedish design laboratory. The magazine’s analysis, detailed in a 16-page spread, was that not only was IKEA’s quality as good if not better than that from other Swedish furniture manufacturers, the prices were much lower.

For example, the magazine concluded that a chair bought at IKEA for 33 kronor ($4) was better than a virtually identical one ought in a more expensive store for 168 kronor ($21). The magazine also showed how a living room furnished with IKEA products was as much as 65% less expensive than one furnished with equivalent products from four other stores. This publicity made IKEA acceptable in middle-class households, and sales began to take off. In 1965, IKEA opened its first store in Stockholm, Sweden’s capita l. By now, IKEA was generating the equivalent of €25 million and had already opened a store in neighbouring Norway.

The Stockholm store, its third, was the largest furniture store in Europe and had an innovative circular design that was modelled on the famous Guggenheim Art Museum in New York. The location of the store was to set the pattern at IKEA for decades. The store was situated on the outskirts of the city, rather than downtown, with ample space for parking and good access roads. The new store generated a large amount of traffic, so much so that employees could not keep up with customer orders, and long lines formed at the checkouts and merchandise pick-up areas.

To try and reduce the lines, IKEA experimented with a self-service pick-up solution, allowing shoppers to enter the warehouse, load flat-packed furniture onto trolleys, and then take them through the checkout. It was so successful that this soon became the company norm in all stores. International Expansion By 1973, IKEA was the largest furniture retailer in Scandinavia with nine stores. The company enjoyed a market share of 15% in Sweden. Kamprad, however, felt that growth opportunities were limited. Starting with a single store in Switzerland over the next 15 years, the company expanded rapidly in Western Europe.

IKEA met with considerable success, particularly in West Germany, where it had 15 stores by the late 1980s. As in Scandinavia, Western European furniture markets were largely fragmented and served by high-cost retailers located in expensive downtown stores, selling relatively expensive furniture that was not always immediately available, for delivery. IKEA’s elegant functional designs with their clean lines, low prices, and immediate availability, were a breath of fresh air, as was the self-service store format.

The company was met with almost universal success even though, as one former manager put it: “We made every mistake in the book, but money nevertheless poured in. We lived frugally, drinking now and again, yes perhaps too much, but we were on our feet bright and cheery when the doors were open for the first customers, competing in good Ikean spirit for the cheapest solutions. ” The man in charge of the European expansion was Jan Aulino, Kamprad’s former assistant, who was just 34 years old when the expansion started. Aulino surrounded himself with a young team.

Aulino recalled that the expansion was so fast paced that the stores were rarely ready when IKEA moved in. Moreover, it was hard to get capital out of Sweden due to capital controls; the trick was to make a quick profit and get a positive cash flow going as soon as possible. In the haste to expand, Aulino and his team did not always pay attention to detail. He reportedly clashed with Kamprad on several occasions and considered himself fired at least four times, although he never was. Eventually the European business was reorganized, and tighter controls were introduced.

IKEA was slow to expand in the UK, however, where the locally grown company Habitat had built a business that was similar in many respects to IKEA, offering stylish furniture at a relatively low price. IKEA also entered North America, opening 7 stores in Canada between 1976 and 1982. Emboldened by this success, in 1985, the company entered the United States. It proved to be a challenge of an entirely different nature. On the face of it, America looked to be fertile territory for IKEA. As in Western Europe, furniture retailing was a very fragmented business in the United States.

At the low end of the market were the general discount retailers, such as Walmart, Costco, and Office Depot, who sold a limited product line of basic furniture, often at very low prices. This furniture was very functional, lacked the design elegance associated with IKEA, and was generally of a fairly low quality. Then there were higher-end retailers, such as Ethan Allen, that offered high-quality, well-designed, high-priced furniture. They sold this furniture in full-service stores staffed by knowledgeable salespeople.

High-end retailers would often sell ancillary services as well, such as interior design. Typically these retailers would offer home delivery service, including set up in the home, either for free or a small additional charge. Because it was ex pensive to keep large inventories of high-end furniture, much of what was on display in stores was not readily available, and the client would often have to wait a few weeks before it was delivered. IKEA opened its first United States store in 1985 in Philadelphia. The company had decided to locate on the coasts.

Surveys of American consumers suggested that IKEA buyers were more likely to be people who had travelled abroad, considered themselves risk takers, and liked fine food and wine. These people were concentrated on the coasts. As one manager put it, “There are more Buicks driven in the middle than on the coasts. ” Although IKEA initially garnered favourable reviews, and enough sales to persuade it to start opening additional stores, by the early 1990s, it was clear that things were not going well in America. The company found that its European-style offerings did not always resonate with American consumers.

Beds were measured in centimeters, not the king, queen, and twin sizes with which Americans are familiar. American sheets did not fit on IKEA beds. Sofas were not big enough, wardrobe drawers not deep enough, glasses too small, curtains too short, and kitchens did not fit American-size appliances. In a story often repeated at IKEA, managers noted that customers were buying glass vases and using them to drink out of, rather than the small glasses for sale at IKEA. The glasses were apparently too small for Americans who like to add liberal quantities of ice to their drinks.

To make matters worse, IKEA was sourcing many of the goods from overseas, priced in the Swedish kronor, which was strengthening against the American dollar. This drove up the price of goods in IKEA’s American stores. Moreover, some of the stores were poorly located, and not large enough to offer the full IKEA experience familiar to Europeans. Turning around its American operations required IKEA to take some decisive actions. Many products had to be redesigned to fit with American needs. Newer and larger store locations were chosen.

To bring prices down, goods were sourced from lower-cost locations and priced in dollars. IKEA also started to source some products from factories in the United States to reduce both transport costs and dependency on the value of the dollar. At the same time, IKEA noticed a change in American culture. Americans were becoming more concerned with design, and more open to the idea of disposable furniture. It used to be said that Americans changed their spouses about as often as they changed their dining room tables, about 1. 5 times in a lifetime, but something was shifting in American culture.

Younger people were more open to risks and more willing to experiment. There was a thirst for design elegance and quality. Starbucks was tapping into this, as was Apple Computer, and so did IKEA. According to one manager at IKEA, “Ten or 15 years ago, travelling in the United States, you couldn’t eat well. You couldn’t get good coffee. Now you can get good bread in the supermarket, and people think that is normal. I like that very much. That is more important to good life than the availability of expensive wines.

That is what IKEA is about. To tap into America’s shifting culture, IKEA reemphasized design and started promoting the brand with a series of quirky hip advertisements aimed at a younger demographic: young married couples, college students, and 20- to 30-something singles. One IKEA commercial, called “Unboring,” made fun of the reluctance of Americans to part with their furniture. One famous ad featured a discarded lamp, forlorn and forsaken in some rainy American city. A man turned to the camera sympathetically.

“Many of you feel bad for this lamp,” he said in thick Swedish accent. That is because you are crazy. ” Hip people, the commercial implied, bought furniture at IKEA. Hip people did not hang onto their furniture either; after a while they discarded it and replaced it with something else from IKEA. The shift in tactics worked. IKEA’s revenues doubled in a four-year period to $1. 27 billion in 2001, up from $600 million in 1997. By 2008, the United States was IKEA’s second-largest market after Germany, with 35 stores accounting for 10% of its total revenues, or around $2. 4 billion, and expansion plans called for 50-plus stores in the United States by 2012.

Having learned vital lessons about competing in foreign countries outside continental Western Europe, IKEA continued to expand internationally in the 1990s and 2000s. It first entered the UK in 1987, and by 2008, it had 17 stores in the country. IKEA also acquired Britain’s Habitat in the early 1990s and continued to run it under the Habitat brand name. In 1998, IKEA entered China, where it had 4 stores by 2008, followed by Russia in 2000 (11 stores by 2008), and Japan in 2006, a country where it had failed miserably 30 years earlier (by 2008 IKEA had four stores in Japan).

In total, by 2008, there were 285 IKEA stores in 36 countries and territories. The company had plans to continue opening between 20 and 25 stores a year for the foreseeable future. According to one manager, an important limiting factor on the pace of expansion was building the supply network. As with the United States, some local customization has been the order of the day. In China, for example, the store layout reflected the layout of many Chinese apartments, and because many Chinese apartments have balconies, IKEA’s Chinese stores included a balcony section.

IKEA also has had to adapt its locations in China, where car ownership is still not widespread. In the West, IKEA stores are generally located in suburban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers delivery services so that Chinese customers can get their purchases home. IKEA has also adopted a deep price discounting model in China, pricing some items as much as 70% below their price in IKEA stores outside China. To make this work, IKEA has sourced a large percentage of its products sold in China from local suppliers.

Organizational Theory and Behavioral Problems/IKEA Ingvar Kamprad, founder of IKEA, has built a monumental business from the ground up. Through innovation and creativity, he gained valuable market share in an untapped market. By providing a great product at a great price, through exceptional customer service, IKEA has distinguished itself among some of the top international organizations. The common thread throughout the case is a patriarchal style of leadership. Although Kamprad’s style of leadership has led to the success of his business, I will assume that problems are beginning to surface and that future issues are being questioned.

Through his leadership, Kamprad has taken a hands-on approach to running his organization and is involved at great lengths in the day-to-day operations of his business. Simply defined, a patriarch is “a man who rules a family, clan, or tribe”. (www. websters. com) In this case, IKEA is treated and run much like a family, clan, or tribe. Everyone is expected to have the same outlook on their position, the organization’s goals first in mind, and perform their job to benefit the organization, not the individual. The most immediate threat to IKEA is the difficulty in finding employees who will accept and adapt to IKEA’s philosophy.

Job security is a tremendous issue with modern-day employees. Often, employees are more concerned with doing a mediocre job to secure their position than to take risks and be creative due to a fear of losing their job. Current economics has instilled a fear in employees that hinders creativity and the offering of suggestions and ideas. Another threat perceived by some employees as well as by some consumers is that IKEA is expanding at a rate that is difficult for them to keep up with. Stores are being established at multiple locations internationally at a rapid rate.

This leads to the issue of whether or not IKEA is capable of handling this level of expansion and whether or not they have ample qualified employees to fill all vacant positions within the organization. Also, it is a growing concern that IKEA’s well-established reputation of impeccable customer service will deteriorate due to an overwhelming amount of new clients, new demand, etc. There is also the issue that employees find it difficult to follow the frugal spending procedures of IKEA when the company is making such a large profit. Kamprad personally follows the spending guidelines and expects all employees to do so as well.

Employees find it difficult to “bargain shop” for supplies, travel accommodations, etc. , when the organization is making more and more money every given year. If the money is there, why not splurge a little? A final threat perceived by individuals within the IKEA organization is an inclination to believe that the organization will deteriorate when Ingvar Kamprad retires or otherwise leaves the organization. Due to the patriarchal style of leadership that Kamprad has taken, who will carry on this philosophy? Who will take over the position of motivator and promote enthusiasm and innovation once he is gone?

Can anyone really take his place? Related Literature In theory, the patriarchal style of leadership that Ingvar Kamprad has taken towards running IKEA and its operations is done so in a very positive light. It is pertinent to the success of the organization to make employees aware of all the positive aspects of his leadership style. For example, Kamprad has a very humane and compassionate relationship with his employees. He views them as individuals, not as numbers, and makes every effort to personally meet each and every one of them. This type of interaction is vital if he is going to defend his leadership position.

By gaining the respect, trust, and adoration of his employees, Kamprad can show those within the IKEA organization that he is truly looking out for everyone’s interests, not just his own, or just those of the IKEA organization. Finding employees who will accept and adapt to IKEA’s philosophy is probably one of the most difficult tasks faced by the organization. IKEA’s reputation and future rely on it. Considering his years in business and his standards of what a valuable employee is to Kamprad, he should target his job vacancy marketing to individuals who may fit this profile of an “ideal” employee.

For example, simply placing an advertisement in the “Want Ads” of a local newspaper may draw dozens of applicants, none of which may be qualified and/or right for the job. Young, motivated, easily-trainable individuals should be targeted directly. This may be college students who are currently taking sales and marketing courses who are looking for part-time work that may eventually be promoted into leadership positions. A target may also be stay-at-home moms who are reentering the workforce, with prior sales experience.

First, a target market must be determined and a more focused approach to hiring should be taken. Once employees are hired, continuous training and reinforcement of the organization’s goals and principles need to be instilled. Mandatory training is pertinent and should be in a laid-back, relaxed, and friendly atmosphere, to mimic the IKEA persona. To dispel fears of losing their jobs due to risk-taking and creative thinking, employees need to be constantly reassured and encouraged that such behaviors are not only acceptable but expected.

The best way to present this point is to provide employees with examples of other employees who have taken such risks, offered their opinions, and shared their ideas. If individual employees will not consent to being “used” as an example, names can be left anonymous. However, specific details should be given. It is especially important to point out the individuals who gave their thoughts, ideas, concerns, etc. , that may have proved to be wrong or disadvantageous to the organization. The most advantageous examples would be such employees who have since been promoted, rewarded, etc.

By showing current employees that ideas and suggestions that don’t succeed with flying colors are not reciprocated with negative repercussion, employees may feel more confident about speaking up. Stress should be placed on the fact that the employees who have showed the most creativity and offered the most suggestions, creative criticisms, etc. , are the ones who hold the top management positions within IKEA. Expansion is necessary for any organization to succeed. IKEA’s global market is enormous and the rapid growth may not always be easy to keep up with.

However, Kamprad had the right idea when appointing the head of Canadian IKEA to oversee US operations. This strategy ensures that a successful, well-trained, experienced individual is responsible for the groundbreaking of new markets. This, of course, should only be temporary until a proper replacement is found and/or thoroughly trained as to not overwhelm the individual with too many responsibilities. This will also allow Kamprad to be confident that a proven leader is paying attention to all the crucial details of starting up the business in a new market.

New products and new services is also an important part, as well as a possible detriment, to IKEA’s expansion. Different markets demand different products and services. First and foremost, IKEA needs to decide where they stand, what their core values are, and how much or how little they are willing to change to adapt to various markets. For example, one market may rely heavily on furniture delivery options. IKEA, however, is known for the no-shipping policy. Should they change this policy to meet their consumer’s needs? In my professional opinion, IKEA should stay true to their policies and procedures.

I say this based on the idea that if you change the way you operate for one market, it leaves other markets to question, “you did it for them, why can’t you do it for me? ”. It is important, however, to consider the negative consequences of this type of approach. Market studies should be done to determine just how dependent consumers are on this type of service. Comparisons should be made with local furniture companies that may compete with IKEA to see if they are a threat to business. Overall, the market itself should be thoroughly analyzed to weigh the risks versus the benefits.

If IKEA’s whole philosophy needs to be jeopardized to adapt to the target market, perhaps it is not in the organization’s best interest to bring their business to that location. It is important to remember that every change made to one market can either positively or negatively impact the organization as a whole. As for spending procedures, IKEA may not being doing a thorough enough job of presenting employees with the benefits of their cost-saving efforts. Again, communicating this type of information to employees is crucial. It needs to be reiterated over and over again that the company is doing so well artially because of IKEA’s frugal spending policies. Although it is important to show these benefits as they relate to the organization, it still may leave many employees asking, “what’s in it for me? ”. Incentives should be given to help motivate employees to continue their money-saving practices. This may include a bonus, time off with pay, a luncheon for the store that saves the most in a given period of time, etc. In concept, the money employees save the organization will far exceed any bonuses or perks that are rewarded.

However, employees will feel more appreciated and more motivated to cut back where they can. It is necessary though to ensure employees are not sacrificing quality or service in order to save money. Combating the perception that IKEA will deteriorate when Ingvar Kamprad retires or otherwise leaves the organization is a rather difficult task. In order to find an individual who will carry on this philosophy, succession planning is a must. An individual hand-picked and personally trained and mentored by Kamprad would be the best choice.

Also, an individual who has worked their way up through the ranks and has a thorough and genuine understanding of the organization, its goals, and its policies will best suit this position. Because Kamprad is so “hands-on” and personally meets all his staff, he should be able to make an educated and well-informed decision as to who would best suit the position and best represent the employees of IKEA. Although no one may ever take his place, Kamprad can certainly find an individual who will carry on the IKEA philosophy in their own unique, creative, and prosperous way.

Overall, I see IKEA as a very strong, very well-structured organization. They have a clear set of goals and objectives and have built a framework of the path to success. Problems they face are mostly due to the changing economy, the need for expansion, and the doubts of individuals within the organization. Although they face some serious problems, they can be solved through logical and rational decision-making. Research, planning and execution of these plans can address the issues discussed before they become problems. Using the innovative and creative ideas that the organization encourages of its employees, IKEA will continue to prosper.

Evaluation and review of quality standard

1. Meeting of Departments to review problems
2. Survey to choose the best Supplier
3. Proper Training
4. Seem-annually standard procedures by Join departments
5. Better quality of Reports Appraisal Costs
6. Calibration of measuring and test equipment
7. In-process and final inspection/test
8. Material checking Failure Costs

Internal Failure Costs

1. Scrap
2. Rework
3. Re-calibration
4. Return back the Purchased Material

Why has Cascade run into a quality problem, despite a sizable number of people performing the quality control function?

First, the material’s quality is not great according to the Purchase Manager. The many of product returns are also due to the lack of skills of workers. Besides that, the SOP itself hasn’t been updated for years. The SOP also made by the Quality department homeless without any inputs from another departments. Other problem is Quality department only control the output goods and not the in-process.

Has the current accounting system helped or hindered the quality efforts?

The current accounting system hindered the quality efforts. From the information on the case, the Cascade’s current accounting system cannot show the lack of problems they have in quality area. Improve product quality? Cascade Inc has now been downgraded by GM from preferred supplier to backup applier.

From the analysis we have conducted, there are major problems found:

1. Lack of skills of Workers
2. Lack of cooperation inter-departments
3. Not-current SOP
4. Decreased in Material

So, in order to improve our products we need to do several things:

1. Give more budget to educate workers
2. Buy better material although it’ll cost more.

This paper draws on the model that operations and logistic management form the base of any organization with its mission geared towards efficient production and distribution of goods and services in the right quantity and quality as well as in the right place and at the right time. In the business environment, organizations draws on the strategic models of logistics and operations management to make valuable contributions towards design, implementations and system management for the deployment of physical facilities, personnel, in-process inventories, raw materials as well as finished gods and services in the most efficient way.

Business and economics analysts argue that logistics and operations management facilitates a concise approach to supply chain, from the acquisition of raw materials, productions of goods and services to the point where they are consumed. IKEA Group is a National Competitive Advantage of Swedish Company founded in 1943. It operates a multinational chain of stores for home furniture and furnishing; specializing in stylish but inexpensive Scandinavian design furniture, and thus enjoying the reputation of a world’s largest furniture retailer.

Over the years, IKEA Group has employed strategic logistics in its operations, production and marketing (Chary, 2004, pp35-37). Examining the case of IKEA Groups, logistics and operations management has propelled the company to designs its products in a pattern that disassemble the entire unit and transport parts of the furniture in flat packages.

The corporate interplay between IKEA’S corporate strategy and the business model of logistics and operations management is evident in the evolution of IKEA’S expansion strategies, business model, supply chain planning and processes as well as the relationship between Ikeas’ management, its suppliers, warehouse operations and store design. The Interplay between IKEA’S Corporate Strategy and Operations Management Research shows that the operations functions of IKEA reflect a relationship with its corporate strategy by exhibiting strategic operations management, supply chain planning, processes and control (Chary, 2004, pp113-114).

Accordingly, the productions of goods and services in involve the organizations commitment and ability to responsibly ensure that business operations in the company are not only efficient but also effective. In light of this, IKEA has drawn from logistics and operations management to paint a business picture of its corporate strategy manifested in the management of resources, production as well as distribution of goods and services to customers in an efficient queue system. Read also Challenges Facing By Ikea

Hoek and Harrison (2008, pp 76-77) postulates that operations and logistics management of IKEA focuses on the concise approach of achieving their goal enshrined in their motto, “ Affordable Solutions for Better Living”. IKEA expresses a relationship between the whole concept of operations management and its corporate business strategy by using the company’s resources in an effective way and thus gain huge profits by equally developing a more economic pedestal of producing their wide range of goods.

This dimension has made IKEA company to work closely with its suppliers in a bid to control elements of business from the production line to supply chain management. Unlike many furniture stores, IKEA builds on operations and logistics management to sell goods that are meant to be assembled by the customer. This operations planning has enabled IKEA to efficiently use the available space in the warehouse.

The company extensively uses operations management to reinforce its corporate strategy by developing business methods that satisfies customers with the wide use of technology as well as their unique selling points such as stock control (Greasley, 1999, pp 217-219). Operations Strategy of IKEA Company IKEA stands out in its supply chain due to its idiosyncratic operations strategy which is inspired by its mission to offer a wide range of furniture of excellent quality, durability as well as lows prices that most customers can afford to buy (Chary, 2004, pp 86-87).

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The primary operations strategy is enshrined in the innovative approach of IKEA founder to design functional furniture that are inexpensive to build, receive them at the stores when they are already disassembled and display them in the showrooms thus making the need for sale people almost unnecessary (Kent, 2006, p 192). Accordingly, IKEA benefits from this operations strategy by modeling its operations and logistics management to empower customers to typically spend some time in the store.

In this distinguished approach, IKEA achieves a competitive edge in the market place and makes shopping at its store more of an endearing experience. IKEA stores double up the role of a warehouse and they are build for the purpose of browsing such that the furniture are displayed in the stores as it would be in a home setting . Rosenfield et al, (2005, pp 311-312) argue that although this operations strategy seem simple, it enables shoppers to see everything in terms of IKEA’S products, ranging from kitchen wares, furniture to bowl soups under one roof.

Arguably, the genius of this business model is inherently built in the flat packed, assemble at home beds, cabinets, bookcases and other furniture; a concept that reduces the operations cost by making the customers half producers and half consumers. Operating just like a warehouse, IKEA Company produces a high volume of products that are easily self-assembled. With regard to this, Fender et al (1998, pp 62-63) argue that IKEA is able to operate in many companies thereby allowing for the economies of scale and reduce its productions well as operations cost and still maintain a high volume production.

Similarly, there is a variety of dimension in IKEA’S operations strategy such that its furniture becomes the value for money within a wide range of choices. For example, IKEA designs its products to be stored and sold as flat packs that can be easily assembled by the customer. In addition, IKEA promotes its products in a modular perspectives allowing for varied dimensions of the same product to personalize to yield greater variety. Accordingly, these varied dimensions allow IKEA as a company to offer greater variety for its products without the necessity of holding larger amounts of stocks in the stores.

Significantly, IKEA builds on the unique operations management where customers have the flexibility of moving around the stores to pick whatever they want thus eliminating the need for sales personnel. The philosophy behind this approach is not to hassle the customers but instead allow them to make their shopping decisions at their own convenient time. As such, if customers are in need of any advice, the staff only guides them around the store. Process Types and Layout Design It is significant to understand that the older stores for IKEA are usually very large often designed around a layout feature that is one way.

Schonsleben (2007, pp 91-92) underscores that such layout design leads customers on the natural consumption way. In essence, this layout design is made to encourage customer to tour the stores and see the products in entirety as opposed to the customary retail stores that allow customers to go straight to sections with products they need. Newer IKEA stores on the contrary integrate the use of glass for aesthetic as well as functional reasons. In this way, there are advanced self service warehouses, which reduce the costs of energy and improve the morale of the staff, give an improved and better impression of the product.

In addition, IKEA involves a warehouse design in their store integrating a showroom and a market place on one end. This allows for the stock to kept and still allow large stock quantities to be accessed at a single day. According to Hoek and Harrison (2008, pp 145-146), most stores of IKEA company are designed in a layout that reflects a unified business platform such that at the end of the warehouse, there is a cashier and similarly, the returned, damaged or formerly showcased furniture which are not in the good condition are taken out of the IKEA product range and sold at a significant discount.

This means that the operations management and logistic helps IKEA company to communicate the policy of environmental issues. As such, the stores have omitted spaces and the vast stores are located outside the city centers to primarily cushion the element of traffic access and land costs. Facility Design The facility design of IKEA in light with operations and logistics management concerns the wider angle of moving finished products to the customer. In facility design, Greasley (1888, pp 79-81) argues that the element of physical distribution is factored in, where the customer becomes the final destination in the whole channel of marketing.

Accordingly, IKEA Company uses the availability of the product as the important aspect of facility design where each participant in the marketing channel makes a significant contribution in the production and consumption of products. Through the process of facility design and physical distribution, IKEA enhances the customer space and time making it an integral part in the operations management. The logic of this design aims at providing well established warehousing, transport and inventory controls. It also provides IKEA with an opportunity to plan and control supply chains by reaching at strategic decisions.

In addition, the manufacturing flow is enhance through a facility design of this nature where activities related to scheduling, planning and supporting production operations such as work in process storages, transportation and emphasizing of components are done in addition with the geographic as well as assemblies of physical distribution operations (Kent, 2006, pp 221-222). Capacity In this dimension, IKEA continues to use the performance management in the wider perspective of logistics and operations management to increase their ability and produce quality products hence afford to gain a competitive advantage.

Rosenfield et al (2005, p 318) contend that capacity management of IKEA portrays the ability to enhance production process in large measures through planning that helps in decision making about the overall business investment and growth. IKEA, through capacity management, portend a process of embracing global approaches as well a solutions in managing supply planning and replenishment based on store level forecast. Through various operations and logistics managers, IKEA is building on technology and information technology in a bid to network the operations of its 202 stores across the world.

In light of this, Fender et al (1998, pp 67-68) assert that the capacity management of IKEA explain how the company has been able to hold over 3million stock keep units with a variety of products. The reported growth of IKEA over the years describes its efficiency in capacity management. Accordingly, the company has managed to work and solve the problems of transparency in supply chain and integrate earlier supply planning and thus rise above the capacity management challenges associated with high inventory costs, and a fragmented information technology.

The digital age has paved way for the use of ICT in inventory management and so, IKEA Group relies heavily on the use of information technology to track their inventories by scanning in and out of any merchandise on a daily basis (Schonsleben, 2007, p 86). This method, involves the use of a database or other software that are relevant with supply management. Accordingly, the method helps IKEA in the cataloguing of information including the quantity on hand, cost of the item as well as location on the warehouse.

Software inventory management gives a clear picture of how items are sold and allows inventory checks to be processed more efficiently and quickly. Process Design Within the perspectives of logistics and operations management, IKEA Company employs a strategic approach of service characteristics within all operational issues. Scholars have argued that the process design of operations management works within the wider service unique characteristics (Greasley, 1999, 73-74).

In essence, the process design of IKEA include the intangibility, customer influence, heterogeneity, labor intensity as well as the inseparability of both production and consumption aspects of operations management. As service characteristics, the operations management of IKEA uses them within the framework of interdependency. According to Chary (2004, pp 89-91), the process design in these characteristic not only makes them interdependent but also overlap to some degree. As such, IKEA benefits from these processes design by making the operations management easy and efficient.

Essentially, it is plausible to argue that customer interaction, customer contact, customer involvement and participation reflects the impact of IKEA’S process design in operations management. The process design therefore determines the logistic management of inventory management. Primarily, IKEA Group as an organization believes that the ultimate goal of any inventory management system is to facilitate a complete and up to date view of all components in an organization, ranging from assets to capital to turnover.

Greasley (1999, pp 176-177) outlines that the fundamental essence of inventory management is to provide an actual state of affairs for all infrastructural components in the organization. Ideally, IKEA benefits from this rationale hence, as an organization; it forms inventory systems, which facilitates easy and efficient retrieval as well as sharing of information either vertically or horizontally. Various ways used by IKEA organization to manage inventory and the overall operations management, borders the precincts of planning, replenishment and control of activities.

These inventory management have improved an IKEA’S inventory turnover ratio, thus facilitating the transformation of frozen inventory into cash. The organization’s inventory management is one of the biggest in the world with many hubs located across many nations (Kent, 2006, pp 97-98). With this concise process design, IKEA enables the production of goods from the company without the presence of customers then they are stored in the showrooms which facilitates how they are sold.

The simultaneous production and consumption that characterizes how IKEA allows the customer to buy and assemble the furniture at home makes the production process exposed for customer evaluation as well as influence. However, it is plausible to note that the process design of IKEA does not present a clear cut distinction between the stages of production and consumption. IKEA Operations Management The approaches of operations management add value to the delivery of IKEA Company by enhancing the performance and measurement.

There is a strong interplay between the company and customer integration to market share and profitability. Scholars explain that with the operation strategy and capacity as well as process design, IKEA takes advantage of distribution capabilities and extensive emphasis on the perspectives of supply chain in customer relations as well as the company’s performance index (Rosenfield et al, 2005, p 318). In addition, the company realizes logistics competencies by creating and maintains a competitive advantage.

Manufacturing firms that engage in operations management such as IKEA, benefit from the performance measurement that improves the overall productivity of the company. Facility design, process types and layout design are concepts of operations management that enhances the company’s delivery value in light with quality and reduced distribution costs.

Improving Operations and Logistic Management in IKEA Implement leagility in Supply Chains According to Greasley (1999, pp 56-57) leagility, defined within the precincts of supply chain design, is the combination of both agility with lean capabilities within a single supply chain.

It therefore follows that IKEA group should improve its inventory by using leagility because it works best in operational terms as lean capabilities contributing largely to agile performance. In addition, Chary (2004, p221) underscores that leagility is the logistic approach that is required to fit succinctly within a purely agile supply chain strategy as opposed to a rather lean approach. Inventory results using this model will optimize asset utilization in terms of manufacturing because of the variability driven by demand spikes such as customer order, by manufacturing processes themselves in the light of logistical upsets.

Outsource Inventory Another approach to inventory management that IKEA should build on is to apply service-parts technology to the inbound supply side such as vendor managed inventory system. For proof of concept, IKEA Group has virtually no inventory other than the finished product shipped to customers. The entire inbound supply-side inventory is maintained by IKEA vendors and as a result, this approach makes organization’s no-inventory claim somewhat disingenuous. Significantly, the suppliers are carrying the inventory in plants and warehouses camped production plant.

However, somewhere a happy medium exists in IKEA’s managed inventory (Hoek and Harrison, 2008, pp 345-346). Conclusion The fundamentals of any company’s success rest on the elimination of wastes and maximization of profits. Inventory management and transportation approaches in supply chains designs, comes in handy by helping supply managers of IKEA Company, in achieving this coveted business goal. From the foregoing discussions, it is evident that effective logistics and operations management through the various available methods have made it possible for IKEA to benefit from over production and eliminate unnecessary processing.

By including logistics management and workflow, IKEA has set up thresholds and other parameters for a wide variety of variables associated with forecasts, customer demand, production, material movement, and logistics management. In addition, efficient operations management increases the organization’s success in satisfying customers’ demand and at the same time reduces the control of daily logistics operations. Bibliography

Chary, W. 2004. Productions and operations Management: A Case of IKEA Company. New York:

McGraw Hill Fender, M et al. 1998. Global Operations and Logistics. London:

John Willey and Sons Greasley, A. 1999. Operations Management in Business. London:

Nelson Thornes books Hoek, R and Harrison, A. 2008. Logistic Management and Strategy. Competing Through Supply Chain. Oxford:

Prentice Hall Kent, G. 2006. Operation and Logistics Management: A competitive Advantage in the 21st Century. London:

Blackwell Publishers Rosenfield, D et al. 2005. Modern Logistic Management: Integrating Manufacturing, Marketing and Physical Distribution. New York:

Sage Books Schonsleben, P. 2007. Integral Operations and Logistics Management in Comprehensive Value added Networks. New York: Routledge

IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) 1) How should Marinanne Barner respond to the invitation for IKEA to have a representative appear in the upcoming broadcast of the German Video program? Two months after being hired as a business manager of carpets and rugs, Barner already had to face that kind of problem. Indeed, in 1994, a Swedish television broadcasted a documentary showing children working at weaving looms in Pakistan. IKEA was the only famous name listed in the documentary, the brand image of the company was damaged.

She undertook a lot of actions of her own free will in order to understand what the problem abroad was and find a solution to stop dealing with child labor. The main purpose of those actions was also to be more aware of those practices: “[Barner contacted child associations to expand her understanding and to get advice about the issue of child labor]”. As we’ve seen in class, two companies faced the same issue: Walmart and Siemens. Walmart’’ CEO used doublespeak in front of medias: nothing of what he said was answering the main question whereas Siemens managers told the whole truth to the journalists.

According to us, Siemens managers were right in admitting their unethical practices because they took the entire responsibility of this case. That showed to the medias and the customers that they assume and that they can repair their mistakes. That is why we advise Barner to go to the German television and tell the truth to the world: they assume the fact that Rangan Exports was using child labor. Nevertheless, she has to talk about their unawareness about the fact that Pakistan was not signatories to the Convention 138.

Moreover, she should talk about their ignorance regarding all of what happened in the factories because every meeting between IKEA and the supplier was held at the headquarters of Rangan Exports. They never have been visiting the factory, which is the main reason why they were ignoring the child labor. Finally, to show that she was involved in this issue, she should talk about every action she took to “do something that would make a difference in the lives of children she had seen” and to stop the practice of child labor at IKEA’s suppliers. ) What actions should she take regarding the IKEA supply contract with Rangan Exports? According to us and from what we learnt in class, brand image is one of the most important things for a business. It enables the company to transmit its own values to its customers and make them buy your products / services. Once the loyal customers disagree with the values and practices of the company, they will directly stop buying products from and related to the company. This is why all ethical problem such as this one has to be solved quickly and efficiently.

So, regarding the IKEA supply contract with Rangan Exports in Pakistan, Barner should take the decision to stop all business activities with this supplier which use child labor, and should end the contract. It would be better for the image of the company to deal with a new supplier, which can be more expansive but which shares the same values than IKEA. On a long term basis, it would be more important for IKEA to improve its brand image and make less money from it. Keep using child labor and make a lot of money would damage IKEA’s brand image and customers won’t be loyal anymore to the company.

That’s why break the contract with Rangan Exports would be a good idea, even if it will affect considerably the company’s budget. 3) What long-term strategy would you suggest she take regarding IKEA’s continued operation in India? Should the company stay or should it exit? (Be prepared to describe the impact of such a decision and how you would manage it. ) Regarding the long term strategy IKEA should take in India, we think that they should exit India for a few reasons: * First of all, even if they don’t want to deal with suppliers which use child labor, the awareness is still low.

That means that in the future they could sign with a supplier which uses child labor in hiding that to IKEA. * Second of all, even if they sign up with Rugmark, which is a foundation struggling against child labor, those rules won’t be respected because laws are poorly enforced and prosecutions are rarely severe in India. Indeed, IKEA, as a Swedish company has to face huge differences of culture with India. The child labor is difficult to solve because of the poverty of families: children has to work to help their parents to recover their debts.

It is a political and social related problem which cannot be solved by a company. * Finally, as we mentioned early, IKEA has to think about its brand image, staying in India and continuing operations with Indian’s supplier would not help the company to improve its image, even if it signs for conventions. IKEA has to show to its customers that it is implicated in the child labor issue, so, exiting this country and looking for new suppliers sharing the same values of IKEA would be the best way to start a new strategy on the long term.

A such decision would lead to consequences for IKEA and their suppliers. Looking at the importance of IKEA in the world and how big they are, the stores are located everywhere, if they leave the country, it would lead to a huge loss of jobs in India, which would then have serious impact on the local economy, what are all the employees from IKEA’s factory will do after being fired? That is a problem. Exiting India would also have consequences on IKEA finances (budget) because the labor in India is cheaper than in Occidental countries, and that’s why they built factories there.

Plus, they would also have to change their whole supply chain, and creating a new and efficient one will take forever; it seems that IKEA deals with suppliers and others businesses involved in the supply chain for a long, and built a strong and reliable relationship with them. To conclude, we think that IKEA has to weigh the pros and cons of its Indian’s factories. But it has already enough damaged the brand image of the multinational company.

IKEA has to think on the long term basis, about a strategy that would help them to stop using the child labor to produce its rugs and carpets. We state that IKEA should see the earnings they can obtain in dealing with new and clean suppliers from another country than the money they can save when producing at a low cost. It’s all about what the company wants in the future, but we don’t believe that signing conventions and keep doing business with this supplier would help the company. Even if managers go often visiting the factories, IKEA cannot change Indians and their culture.

Introduction

Ingvar Kamprad, Swedish born citizen and founder and former CEO of Ingvar Kamprad Elmtaryd and Agunnaryd or better known as IKEA. Kamprad created a one of a kind furniture company that has become the largest furniture store in the world. The uniqueness is because they company specializes in everything being able to be broken down and shipped, “from furniture to the now famous mobile kitchens- could be packed in flat, stackable boxes (Nelson and Quick, 2011-438)”. His way of running the company is based on creativity, hard work and being frugal in his own life as well as the way he runs his company.

So frugal that when employees travel they must share hotel rooms, a policy not carried in any major company. The philosophies that he has developed for IKEA are distinctive and have provided a successful way of being very profitable. Kamprad’s leadership characteristics have made him a very wealthy entrepreneur and admirable person but with a dark past. A past that he does not deny but states that he has learned from this and according to some has a message to send to other that carries great wisdom. Issues Addressed Kamprad’s company IKEA has been on the rise along with that his personal problems also increased.

Alcoholism, his history of Nazi affiliation, and store openings where people died were his biggest problems. Even during his personal problems he never failed to provide creativity for IKEA and to make sure the company was on the right track. He always found a way to lead his company in the direction to be successful despite his personal life. His appreciation for what it takes to be successful and the knowledge that he realizes “there are no guarantees to economic success tomorrow apart from hard work (Nelson and Quick, 2011-438).