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Operational Logistics of Ikea sample essay

1. Introduction

IKEA is a Swedish company which was founded in 1943 with its headquarter in Denmark. IKEA succeeded on its low cost strategy which is able to offer a wide range of stylish home furniture with good design and functional at competitive pricing. It carries a range of nearly 10,000 products and is well known across the world. IKEA is also recognized as a socially responsible and environmental friendly company. Currently, there are 287 IKEA stores in 26 countries. In year 2011, IKEA has gained the total sales of 25.2 billion (in EUR). IKEA was also the first company in the world to realize the benefits of flat pack furniture in 1956. With this flat pack method its does not only help to save material, but is also saves the transportation costs with efficient distribution and warehouse storage space.

Franchises are part of IKEA expansion plan. All the franchised are granted by Inter IKEA System B.V.The IKEA Group which has over 267 stores in 25 countries and franchisees outside IKEA Group in 16 other countries/territories. The Swedwood Group is part of IKEA Industry Group to manufacture and distributes wood and controls the entire value chain. Consisting of some 50 production units and offices in 10 countries across the continent. They are driven by their vision of achieving excellence in transforming wood into quality furniture and focused on continuous improvements in order to maintain competitiveness in the market.

2. IKEA Global Supply Chain

IKEA is also recognized as a global strategic firm as most of the IKEA’s stores operations are under Ingka Holding BV which is located in the Netherlands. IKEA has an excellent supply chain management with the latest information technology system which is able to gather all the information across their worldwide retail stores, manufacturers, suppliers as well as the distribution centres. IKEA has adopted the integrated JDA software which has increased their overall supply chain visibility and efficiency. In this way, IKEA is able to have more forecasts planning for supplier, warehouse and transportation capacities.

IKEA has a large number of suppliers of both furniture and furnishings across the world. IKEA plays an important part to build up good relationships with its suppliers as its helps to create a huge capacity for producing the product through the worldwide suppliers. Today, IKEA operated more than 28 distribution centres and 11 customer distribution centres in 16 countries across the world. Its main function is to support stock replenishments program. As the location of production facilities focuses heavily on transportation costs, IKEA is able to efficiently distribute mass products with short lead times by concentrating manufacturing in large factories and in specific countries.

3. IKEA Franchising

Franchises are part of the IKEA expansion plan. All the franchised are granted by Inter Ikea System B.V. The IKEA Group is the biggest group of franchisees which has over 267 stores in 25 countries. They also have some franchisees outside the IKEA Group in 16 countries. 3.1. IKEA United States

IKEA store has one of its franchises in the United States. They own a total of 38 stores which are served by 10 distribution centres in North America.

3.2 E-Commerce on IKEA Atlanta

IKEA is also adopting the Business-to-consumer (B2C) ebusiness model. It is an online retail store where customers can do the shopping at anywhere anytime. IKEA USA on-line shopping is also able to provide well-selected items which are similar to the promotional theme of “from living room to bedroom’ and etc. Customers are able to find suitably priced and stylish home furnishing solutions that suit their needs. This sales method mainly targets end-users.


IKEA has opened biggest logistics Distribution Centre (DC) in Shanghai for Asia-Pacific region, taking advantage on its geographical, government’s support and management. China is the biggest center of finance, economy, and business and shipping, therefore it is recognized as the most important hinge of logistics. In addition, the centre in Shanghai adopts Radio frequency identification (RFID) System that will greatly improve the responsive and quality service to the customer, providing logistics service platform that helps the expansion of the IKEA in Asia. As for Europe IKEA choose Dortmund in southern Germany to be a European distribution centre. It is because it has geographical advantage at centre of the Europe where IKEA can use rail and road transport for transporting its goods.

4.1 IKEA Atlanta and the DC Savannah

For the Distribution Centre in Port Wentworth, Georgia, located near the port Savannah, the products were processed where they should be stored based on the product specifications and demand. It is the primary inventory to IKEA stores in Alberta British Columbia, Utah, Oregon and Washington State. The facility can also supply to other stores across the country when needed. Location was chosen based on the fastest movers closest to the stores for replenishment. That not only improves service times, it also reduces transportation costs. The facility’s location allows it to quickly deliver fast-moving products to IKEA stores in local markets in the south-eastern United States, including North Carolina, Florida and Texas. In North America, DC was equipped with a 13-crane Automated storage and Retrieval (AS/RS) system (via store), featuring a 100 foot-tall high-bay in-house rack system.

At full operation, the system can process 600 pallets an hour, or nearly one pallet per minute from each crane. IKEA Atlanta is one of the IKEA stores that are supported by IKEA’s Savannah Distribution Centre. Geographic area is the main reason that IKEA has the DC in Savannah. In terms of transportation, it only needs less than a 4 hours’ drive if goods are delivered by truck and it only takes about 1.3 days to reach Atlanta if delivered by rail. With this speedy transportation, IKEA Atlanta can achieve responsiveness in goods supply to customer for both in-store and online purchase. Unfortunately, there is limitation product from buying on line. Consumer may not able to get some of the needs product on line.

4.2 Savannah Transit time by rail truck

4.3 The Highway and Rail Network

The Company is always constantly looked for ways to maximize in each transport. To achieve this goal, packaging was designed in such a manner as to fit the maximum possible products into containers. Plus all DC share similar objectives which is to have lower total cost and improve customer service at the same time, using of advance technology to emphasis sorting and sequencing material processes, enhancing responsiveness to the customer.


IKEA’s company main concept is based on a three points: cheap, innovative and stylish. These three points are affecting the IKEA’s product design and development concept. Nowadays, IKEA’s in USA have launched with online retail or E-commerce. E-commerce has been become part of the IKEA’s digital strategy and should be the next big offering from IKEA. Every customer may easy online shopping without travel out, queue, purchases and collects their purchases from the stores. E-commerce or shopping online at IKEA is now become very convenient, enjoy and fun for every customer. Process or step to e-shop at IKEA as per following: 5.1 Operation logistics for E-commerce

The whole process cycle take about 2 to 3 days depending on the customer order time. 1.The successful online order will transfer to IKEA Delivery Planning System. 2.Planning System will send the data to Savannah Distribution Center. 3.Savannah DC will do the order picking and packing.

4.Goods will be sending out to customer by Savannah DC team.


IKEA’s in USA has run the business with Customer Relationship Management (CRM) and provide the E-commerce applications. Customer Relationship Management (CRM) with E-commerce applications that enable IKEA’s easily to view the both interaction channel and profitable sales channel for consumers and business customers via internet. With CRM, IKEA’s can allow their customers with convenient self-services and a personalized Web experience. The E-commerce applications also helping IKEA’s in service operations and strengthens sales to reducing the customer service calls and transaction costs.

Features and Functions of CRM of E-commerce processes:

IKEA’s have use the latest technology to ensure all the personal information which customer submitted through the internet website such as credit card numbers, address and other information are under secure, stable and reliable. IKEA’s have using the SSL technology which allows it to be transmitted securely over the internet without accessing to it by anyone else. Successful to secure the customer loyalty will achieve the company goal and target in the following:

Increasing the customer online spending on IKEA product
Can reducing marketing, advertising and communication cost
Can reduces data and information maintenance cost by giving customers authorities to update personal details such as address details, contact number, email address and requirement on the IKEA website. To achieve the customer service and satisfaction, IKEA have set up the strategy in the following:

Hire the right people
Bring in the employees who have more experience on the customers’ skill and knowledge in order to develop the customer service focus such as to have better communication with customers, pleasant, motivated and cooperative. Also, can retain those customers that are desirable to keep.
Provide orientation and training

IKEA have provided the necessary training for each employee to maintain the customer services standards and also can improve on communication skills with the loyalty customers.
Set the standard for customer service

IKEA have set the clear standard for performance such as Enable Company to establish, monitor, and control quality.

7. Risk

During development stage, thousands of tests were carried out on IKEA products each year. And more tests are conducted during production. Once a product is approved for production, IKEA will reviewed and decide whether additional risk assessment testing is required for any proposed changes to the product or to the production method. IKEA ensure that banned chemicals such as formaldehyde and phthalates don’t exceed their requirements. IKEA requires suppliers to order certified products testing by third party auditors. Likewise, IKEA has a third-party accredited test laboratory that is certified each year by external auditors.

Accused for Logging Ancient Trees in Russia

Swedwood, whom IKEA’s fully owned production subsidiary which was founded in 1991, was found irresponsibly logging Russia’s ancient trees of over 300 years old. And as a whole, IKEA are under the heat internationally especially in the forestry industries. This has been a huge issue because natural grown trees take centuries to grow. And it’s these trees that has greater biodiversity and could stabilize the climate by locking carbon in the soil to reduce global warming. In their defence, IKEA forest manager, Anders Hildeman mentioned they have been working with the NGOs, and they have been working with the scientists to develop these inventory methods.

Though there are old trees present, that do not mean that it’s high conservation value. Species, size of the area, exposition, position has to take into considerations to define them as High Conservation Value Forests (HCVF). Hildeman welcomes WWF’s (World Wide Fund of Nature) recommendations for a full certification control audit. And had invited FSC’s (Forest Stewardship Council) for a control audit from their accreditation body to avoid any doubts and that we are following the Russian FSC.

7.1 Sustainability

Taking a leading role towards a low carbon society

In support to reduce carbon dioxide emission, IKEA are working together with WWF to investigate on how to calculate climate-positive aspects from what they do together with their customers. Majority of carbon dioxide emissions related to IKEA come from material extraction, suppliers, customer transportation, and the use and disposal of products. And all these are areas that IKEA can only indirectly influence. In order to influence the society, IKEA has to put these into practice first.

They are walking towards to installing photovoltaic (solar) panels to turn sunshine into electricity in around 150 stores and distribution centres over the next few years. The panels will provide these buildings with 10-25 percent of their electricity need.

When they plan a new IKEA store, good public transport is an important consideration, and in many cities they offer free shuttle buses between the city centre and the store.

IKEA Foundation contribution to UNICEF

Since 2001, IKEA has taken part in basic social services to help children in underdeveloped and developing countries like India and Haiti. Contributing to UNICEF’s work through philanthropic donations, sales of UNICEF Greeting Cards and many more has been IKEA’s key of support for over 10 years. In addition to that, IKEA has committed more that $200 million both in cash and in-kind donations to UNICEF’s programs making them the largest corporate cash donor.

What makes IKEA a true partner, is the company’s deep commitment to social responsibility and their direct engagement with issues affecting children. In addition to providing financial support for child protection, education and health programs, they work together to provide expertise and knowledge gained over the years on addressing labor issues in the supply chain.

Forest Project with WWF for Nature

WWF (World Wide Fund for Nature) collaborate with external organizations in a number of forestry projects in order to contribute to the development of responsible forestry practices and policies. To date, there are 13 forest projects by IKEA and WWF. These projects aim to increase forest areas with responsible management practices, combat illegal logging, support forest certification and promote responsible timber trade.

8. Conclusion

From the research we found, we notice that IKEA has a good strategy in sourcing from the raw material from suppliers to the location of distribution centre and store. Their strategy is also to keep their product in low pricing. Overall IKEA is still very success in the business with the concept of keeping low price policy. From customer point of view, they are able to enjoy the stylish furniture and functional with low and suitably price. IKEA also success in managing the product quality, prices with supplier by maintaining the good relationship with their worldwide suppliers. We also notice that IKEA vision is “to create a better everyday life for the many people” which is hang on every store. Till today, IKEA is still continuing finding the effective way to further reducing the cost.

9. Implementation

IKEA Singapore should consider implementing E-commerce instead of focusing on their in-store shopping business. There are 2 stores here in Singapore, in Alexandra Road (West) and Tampines (East). Poh Tiong Choon Logistics (PTC) was hired as their 3rd Party Logistics (3PL); they are located within IKEA at Alexandra. Other than transportation, PTC also provides installation services on behalf of IKEA. All necessary information; from product measurements, product descriptions, product amount and product comparisons has already made available in their website. In term of online payment Singapore is considered as the most secure country as IDA (Infocomm Development Authority of Singapore) which helps businesses to leverage ecommerce’s benefit where both businesses and consumers confident with the mark of TrustSg.

Why customers should purchase online

•Most of the IKEA’s products are consider bulky
•Save traveling time
•Save time from long queues for payment
•Save time from long queues for taxi
•Product measurements information made available online
•Check for stock availability online

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