Posted: March 24th, 2023
The market today is quite fluid and competitive, and hence, it is crucial to link all business functions within a company to enhance sustainable competitive advantage. The process can be achieved through Supply Chain Management (SCM), which entails the organization of interconnected business networks to offer services and goods to end-customers (Almaz, 2017). The focus will be on the supply chain management of IKEA Company and how its business strategy aligns with the supply chain strategy. The company adopts a dynamic operations management approach, which has led to its sustained growth. However, this process can be improved; hence, the discussion will offer an analysis of potential issues and challenges in the supply and logistics management and propose recommendations to improve the processes.
IKEA is a company that deals with selling furniture and other household items. The company is based in Sweden with branches across the world, hence gaining the reputation of an international furniture-selling company. Its main product line includes furniture, appliances, curtain accessories, bathroom articles, bookcase ranges, children’s items, kitchen articles, bathroom articles, and upholstered furniture (Hamad, 2014). Hence, IKEA gathers considerable revenue and international status for its quality products.
IKEA was founded by a Swedish carpenter, Ingvar Kamprad, in 1943. The name IKEA was created from Ingvar Kamprad and Elmtaryd Agunnaryd, the name of the village where he resided. It is the largest retailer for furniture worldwide with over 400 stores in more than 49 countries and a revenue of about $46 billion. According to IKEA (n.d), the vision of the company is “to create a better everyday life for the many people,” while the slogan is “Affordable solutions for better living.” The culture of the company arises from the Swedish culture of approaching business realistically and focusing on cost consciousness
To succeed in a harsh economic state, changing business environment and technology development, companies must continuously innovate to gain a competitive advantage regarding business strategies and practices. Hence, the supply chain management strategy is a powerful and valuable tool for management in achieving business success. SCM concentrates on the maximization of added value and reduction of total costs through the entire operational process by focusing on certainty of market and speed, as well as coordination of inventory of production, distribution, and transportation of commodities to partners in the supply chain (Xiang, 2014). The entire is essential to achieve an appropriate mix of efficiency and demand for the market being served.
The management of IKEA emphasizes handling operational processes. One of the strategies the company use is seeking feedback from customers regularly to reinvigorate their business model. The company applies a specific approach, where customers spend an average of two hours within their stores, leading to longer retention as compared to their rivals. Besides, the stores are designed in a way that allows fluid shopping when customers visit the stores. They walk through showrooms that are arranged in a domestic style, from living rooms, towards the kitchens, to bathrooms and bedrooms, and finally, study spaces (Dhaiman, 2018). The customers take a code that is attached to the items they choose and retrieve it in the area for self-service furniture. In this setup, the customer can pay for furniture if they do not have other items; otherwise, they visit the main checkouts. However, they contact a staff member who assists them during checkout for larger items. The customer waits for the retrieval and delivery of the items. IKEA adopts a very functional layout where similar products are located in one area, hence viewed as a mass service offering of products (Dhaiman, 2018). This layout is essential in ensuring the flexibility of products, offering a wide variety of commodities, and creating robustness in cases of disruption, and enhancing easy supervision.
IKEA applies a push-based strategy to create a relationship with customers and to collaborate with other partners and stakeholders in the Company. According to Dhaiman (2018), the push-based strategy focuses on the needs of the customers. The approach emphasizes on ensuring that the company and product design achieve the consumers’ prerequisites. The company follows the supply chain strategy that recognizes buyers are online and popular configuration and that commodities are founded on a tiny number of configurations made for the same market with a considerable production size.
Companies are aware that supply chains are key sources of competition in the market today and that the main rivalry is not among companies but within the supply chains. Such a concept is based on the aspect that organizational performance is wholly dependent on supply chain performance (Hove & Pooe, 2018). Hence, it infers that improvement in supply chain performance is important in improving the overall business.
Companies strive to attain strategic competitiveness by appropriately implementing Supply Chain Management (SCM) practices. The entire process of SCM improves the sharing of information between all supply chain partners and enables smooth operations of materials within a company (Chandak, Chandak & Dalpati, 2019). Such an approach is vital because it ensures that the performance of the supply chain is enhanced.
The supply chain entails a process dealing with running the entire organization and the flow of commodities in a chain. The process involves using raw materials for processing and tracking the number of products produced for delivery until the commodities reach the end consumer. The supply chain analyzes the demand of the market concerning the commodities as well as production function. According to Hamad (2014), the two main concepts of a supply chain include manufacturing of the product to reach the end consumer and the long term procedure of the company based on linkages of all functions within the corporation. Notably, effective management of the supply chain relies on maximum customer values and sustainable competitive advantage. Customer value is maximized by analyzing the demand for products and the process of the company achieving that demand. On the other hand, sustainable competitive advantage entails retaining consumers for life and knowing their demand (Hamad, 2014). Such processes encourage innovation and product delivery to gain a sustainable competitive advantage.
Supply Chain Management (SCM) is an inter-disciplinary concept based on the holistic optimization of different flows. SCM focuses on operational and design aspects associated with the manufacturer, customer, supplier, and logistics network through the process in which companies deliver commodities to the market. The procedure covers the entire life cycle of products in the company, from the launch in the market to the period of withdrawal (Muhammad & Xiaonan, 2011). Such processes involve consideration of logistical functions and entail the movement of material across the supply chain, including the management of suppliers, producers, and customer relationships.
Within IKEA Company, the supply chain includes different functional areas such as outbound and inbound transportation, inventory control, warehousing, procurement, sourcing and supply management, forecasting, production scheduling and planning, customer service, and order processing (Xiang, 2014). Logistics involve transportation, inventory, information, warehousing, packaging, security, and material handling. IKEA Company applies two different types of logistics. The first includes the Forward type, which involves procurement, sourcing, production planning and scheduling, and storage of raw materials. The second approach involves the reverse type, which comprises inventory, warehousing, order processing, finished goods, returns management, and customer service (Xiang, 2014). Hence, the two approaches enhance effective processes within the company.
IKEA Company applies Supply Chain Strategy (SCS) alignment and reward structures to enhance sustainable competitive advantage to ensure that SCS applied by the company is connected with the entire company strategies. If the strategies fail to match organizational strategies, the entire system is disturbed. This means that the companies’ SCS includes assets of the organization since the company uses the processes. IKEA Company boasts of the most significant supply chain management globally concerning furniture appliances. The company prefers coordination and collaboration strategy before conducting any activity. Hence, if the strategy fails to match the entire organization’s strategy, it will likely create challenges in the whole company. Notably, IKEA follows a flat structure where preference is given to all employees; hence, senior managers are allocated to all functions in all locations (Hamad, 2014). Such an approach ensures alignment of SCS to the entire IKEA company strategy
Distribution is a vital aspect of the marketing mix. Retailers only sell commodities that they can deliver, while salespeople promise only deliveries they can make because broken promises and late deliveries may affect the company’s reputation, leading to loss of customers. Hence, filling orders and billing appropriately, delivering in good time, and products arriving in good condition are all significant aspects of product success. The main objective of SCM is to enhance the satisfaction of customers through efficient coordination of all tasks in the supply chain in a seamless process. In the past, manufacturers made standardized commodities, which were “pushed” across the channel of supply to reach the consumer. However, in the current market, commodities are driven by customers with the expectation of receiving products and services that match their individual needs (Lawrence et al., 2018). Therefore, it is imperative to consider that SCM is customer-driven.
Through partnerships of the channel of suppliers, wholesalers, manufacturers, and retailers in the supply chain, collectively work towards achieving a common objective of creating customer value. Supply chain managers have the responsibility of making critical channel decisions, scheduling production, coordinating procurement and sourcing, order processing, inventory management, storage and transportation of supplies and coordination of customer service activities (Lawrence et al., 2018). In addition, supply chain managers ensure that the information flows efficiently through the supply chain. Furthermore, supply chain managers coordinate the relationship between the external partners, such as carriers, third-party companies and vendors (Lawrence et al., 2018). Therefore, it is evident that the supply chain affects the way goods and services move within an organization from the company to the end-users.
The integration and coordination of critical processes, activities, resources, and capabilities of supply chain participants are vital aspects of successful Supply Chain Management. To achieve these objectives, suitable interface management needs to be implemented to create boundaries among partners in the supply chain. Challenges arise from the cross-functional performance of tasks between partners in the supply chain and their concentration on main competencies. This creates complexities, losing on joint objectives, knowledge barriers, and confusion regarding responsibility at the interface of the supply chain (Herwig and Sabine, 2014). As the number of suppliers and other parties within an organization increase, the diversity and quantity of information involving these parties need to be enhanced. Hence, the more the number of parties involved within the company, the more the supply chain complexity. Thus, these complexities lead to increased costs within the company in the process of synchronizing the functions. Since the bodies tend to be functionally differentiated in terms of incompatibility and different and divergent objectives, they tend to concentrate on their individual goals and not the Company. In addition, the parties might not achieve the joint objectives due to leadership deficiency from management and poor coordination within the company (Herwig and Sabine, 2014). Hence, such an aspect threatens the company’s competitive advantage in the market.
Companies integrate their supply chain systems with those of channel partners such as suppliers to increase performance. Hence, successful coordination between the chain partners offers the potential for cost minimization, revenue maximization, and increase in performance and profits within a company. However, information sharing is one of the main challenges that arise in integration. To counter this weakness, organizations have embraced information technology, which enhances efficiency and reduces costs related to information sharing. Efficient integration between partners such as suppliers and wholesalers ensures that companies achieve their objectives and goals efficiently and effectively. It also enables the company to satisfy the wants and needs of customers (Abdullah, Handan & Maryam, 2010). The approach ensures customers’ satisfaction which equates to an increase in loyalty, and in the long term, it leads to sustainable competitive advantage.
Other procedural challenges that are likely to occur between suppliers and manufacturers are problems in quality and timing. In the process of transferring commodities and exchanging information, issues with quality can occur due to distortions between the parties (Herwig and Sabine, 2014). Within IKEA, two operational problems arise, the point of sale delay, and warehouse logistics delay. Due to the reputation of well priced, stylish furniture, IKEA experiences a long time of waiting at the checkouts and delayed delivery of products from the warehouse (Dhaiman, 2018). Thus, such challenges affect both customer and company experience.
A key challenge facing IKEA is the selection of suppliers since they fail to supply commodities effectively. There is a problem in coordination and collaboration among all partners. Coordination is significant both inside and outside the company. The process is imperative for all functions in the organization, such as logistics, sales, production, human resources, procurement, among others, to coordinate, else the chain is broken (Hamad, 2014). On the other hand, collaboration among partners in other functions is key to achieving synergy else the productivity of the company is adversely affected.
IKEA uses supply chain strategy, out-of-market, for better utilization of commodity. However, this strategy is limited in local demand because customization of the product is minimal while the value density of products is high. Therefore, this creates a challenge in achieving international level demand (Hamad, 2014). Hence, IKEA must apply policies that enhance the achievement of demand at both national and international levels.
Financial issues have a powerful effect on Supply Chain. Notably, SCM is an organizational-wide problem involving resource-intensive and significant cash flows, and the process is large scale regarding decisions and the number of state variables (Muhammad & Xiaonan, 2011). Hence, its successful solution has a direct effect on the viability of the company.
Traditional Supply Chain Management models rely on profit determination, maximization of revenue, and minimization of costs in the production schedule within the supply chain that flow from suppliers to manufacturers and retail outlets. These models tend to ignore the cash flow impact of optimal production, such as opportunity cost linked to prospects in missed investment, debt interest, among others (Muhammad & Xiaonan, 2011). More so, coordinating net current assets is a significant issue in SCM.
Beyond the flow of goods optimization with an emphasis on stocks’ physical reduction, it is important to analyze cash management instruments. SCM considers the timing of activities optimization to take care of liabilities, receivables, and advance payments. Besides, support and optimization of cash management and inventory are explained as part of SCM. Moreover, financing is vital for investments in the supply chain process, such as production process, equipment production, product innovativeness, and expansion of markets, among other concepts (Muhammad & Xiaonan, 2011). Thus, it implies that the supply chain will likely fail when financial resources are limited, affecting the entire chain.
Factors such as transfer prices, corporate income taxes, and exchange rates are some of the significant components of the supply chain. The integration of financial segments ensures a systematic assessment of the main decisions during production and financial operation and later chooses the ideal combination, guaranteeing the Company’s competitive advantage. Supply chain commences with decisions on capital and financial budgeting of value creation, and the chain ends after payment is received (Muhammad & Xiaonan, 2011). Hence, such factors reveal the importance of financial resources flow in the supply chain.
Customer value is a broad concept that bears different meanings. The term could mean low price, quality of goods paid for, meeting expectation in the product among other aspects. At lower levels, customer value is explained as the features of a commodity in which customer feels they receive value from and at higher levels. Customer value is the emotional satisfaction of the customers from the product they order (Rebecca and Mirella, 2006). Whenever the value arises from the commodity, the customer derives value from the characteristics of the product and performance, as well as satisfaction received from using the commodity.
Some of the values obtained by customers in IKEA company include time spent with the entire family within the stores, the process of selecting furniture for their residences, the cozy atmosphere in the stores, the low monetary costs of products (Perry, 2015). Hence, IKEA Company should increase the value of a customer by emphasizing on customer satisfaction, which will lead to the loyalty of customers and repeat purchases. In addition, the company needs to recognize that customer value is created both within and outside the stores. Therefore, the firm can enhance the value by ensuring customer relations, such as answering questions, improving returns and contact experience, and receiving feedback from customers in a responsive manner.
Overall, the discussion focused on the supply chain management of IKEA Company and how its business strategy aligns with the supply chain strategy. The discussion presented an analysis of potential issues and challenges in the supply and logistics management and offered recommendations to improve the processes. IKEA Company has a very active and efficient Supply Chain Management system, which integrates all functions of the organization, such as logistics, production, transportation, distribution, finance, customer experience, among other aspects. The company has synchronized supply strategies and the entire organization’s approach to enhance its competitiveness in the market. The study recommends improving customer experience both within and outside the company stores.
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