Supply Chain Management

Supply Chain ManagementHidayat HeydarovMartin WichmannFacts10000 products by 1600 suppliers at 186 Stores(Supply Facing warehouse)27 warehouses31 distribution houses (Demand facing warehouse)Aim of IKEA:a global distribution network large volumes flat packages low costs

Today 60 percent of all IKEA freight is transported by road, 20 percent by rail and 20 percent by sea. Less than one percent is air freighted.

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Supply Chain Planning

Both Anticipatory & Responsive Business Model

Outsourcing 90% of production advantages:Low-Cost StructureBetter Economies of ScaleFocus on Core BusinessGlobalization StrategyIKEA is Multi-National CompanyDomestic Marketing and DeliveryStrategic Distribution pointsGlobal SourcingFrom countries with low wage Many sources through domestic suppliers in low-cost countriesFacilitation of sales in the international sourcing countryProcurement & ManufacturingThe supply chain is mainly make-to-stock and only a few products are made to customer orders. SC is heavily dependent on forecasts. Stores have local freedom in terms of planning and placing replenishment requests. This led to fragmented supply chain planning with local optimisation and a lot of manual intervention with plans throughout the supply chain. Due to frequent shortage situations, some regions purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand coverage. Hence, some markets have suffered from stock-outs during long periods, whereas other markets have ended up with obsolete inventories. For Procurement they have: Alternative Strategies of procurement: Buyer Involvement and Consolidation of Volume

The supply chain is mainly make-to-stock and only a few products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores traditionally had strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This led to fragmented supply chain planning with local optimisation and a lot of manual intervention with plans throughout the supply chain. Furthermore, due to frequent shortage situations, some regions purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand coverage. Hence, some markets have suffered from stock-outs during long periods, whereas other markets have ended up with obsolete inventories. For Procurement they have Alternative Strategies of procurement: Buyer Involvement and Consolidation of Volume7Inventory ManagementDo-It-Yourself Assembly Lowers Packaging Costs

Quick Response (QR)

Vendor-Managed Inventory (VMI)

Cost-per-touch

Quick Response (QR) is a technology-driven cooperative effort between retailers and suppliers to improve inventory velocity while closely matching replenishment supply to consumer buying patternsVendor-Managed Inventory (VMI) is a modification of quick response that eliminates the need for replenishment orders. The goal is to establish a supply chain arrangement so flexible and efficient that retail inventory is continuously replenished. Having customers select the furniture and retrieve the packages themselves is an inventory management tactic calledcost-per-touch.As a rule of thumb, companies find that the more hands touch the product, the more costs are associated with it.

8Logistics&WarehousingIn-store logistics personnel IKEA Stores= Warehouses

It employs in-store logistics personnel to handle inventory management at its stores. There is an in-store logistics manager responsible for the ordering process and a store goods manager responsible for material handling logistics at all IKEA stores.

The duties of the logistics personnel are to monitor and record deliveries, carefully check delivery notices, sort and separate the goods, and get them off to the correct sales area or designated overstock locations. Overall, they ensure an efficient flow of goods within IKEA stores.

IKEA stores are also warehouses. On the first floor, the products selected by customers are picked off a floor pallet location racking as high as the typical person could reach. Additional product is stored in reserve racks above these locations. Inventory is let down to the lower slots at night (forklifts and pallet jacks are not used during store hours for safety reasons). About one third of the lower level is comprised of a warehouse off limits to customers. This space contains items too bulky for customers to load without help. Since IKEA wants as much self service as possible, it works to minimize the number of items in this bulk storage area.IKEAs store operations are supported by high-flow facilities (focused on the 20% of SKUs that account for 80% of the volume) and low-flow warehouses that are more manual. In its high-flow warehouses, IKEA employs automatic storage and retrieval systems to drive down its costs-per-touch. Products stocked in a low-flow facility are not in high demand, and operations rely on manual processes since workers will not be shifting and moving inventory around too much.

9Contd.Economic Benefits of Warehouses:Break-BulkCross-Docking

Service Benefits: Spot-Stocking in strategic markets.

For handling they use: Forklifts ConveyorsCorusels

Process Management

SKU-Stock Keeping UnityAS/RS- Automated Storage/ Retrieval System11Operations ManagementCorporate Management making Sales ForecastFront-end&Back-end chainEfficient Supply ChainApplying Six SigmaLean OperationsThe sales planning starts with the corporate management making a sales forecast. Theforecast is made on an aggregated level in terms of total sales volumes in monetary units intotal. This plan is updated three times a year. At the other end of the sales planning process,Demand Planners at IoS provide forecasts for each of the 12 business areas in terms of salesvolumes taking into account the business areas growth plans.Lean production, lean enterprise or lean manufacturing, sometimes referred to as lean, is a form of a production practice that places emphasis on achieving the maximum customer value while reducing waste.

12CRMWe offer the lowest price, ease of shopping, the ability to take your furniture home the same day and last, but not least helpful, friendly and knowledgeable co-workers when you need help

Customer relations at IKEA includes many roles inside and outside IKEA stores, from the information desk and childrens play areas to checkouts, exchange areas, returns and contact centers. Customer relations co-workers help people find answers and prevent problems. We want our customers to come back, and the best way to do this is to make each contact with IKEA a positive experience. Whether it is before, during or after a purchase, IKEA customers should find our support and services as good as our products. We want them to trust that there is always a satisfactory solution if a problem arises.

13Risk ManagementTests During Development Stage

Third-Party accredited test lab

Certified Products from SupplierEach year thousands of tests are carried out on IKEA products during the development stage. Even more tests are conducted during production. Once a product is approved for production, any proposed changes to the product or to the production method are reviewed by IKEA to decide whether additional risk assessment testing is required. We must also ensure that banned chemicals such as formaldehyde and phthalatesdont exceed IKEA requirements. IKEA has a third-party accredited test laboratorythat is certified each year by external auditors and third-party accredited testlaboratories perform random tests. IKEA requires suppliers to order certified productstesting by third party auditors.

14ES/CSRrenewable electricity suppliespromote Forest Stewardship Council (FSC)IKEA Foundation supports programs that improve the lives of children in need through health, human rights and education.The company continues to follow through on its commitment to develop and ownrenewable electricity supplies, with a 2020 goal of producing more energy than it uses. IKEA has numerous other sustainability-related goals, and is expanding its offerings to customers as well.The IKEA Group supports the Rainforest Alliance to promote Forest StewardshipCouncil (FSC) forest management certification in China by educating foresters andstakeholders on the principles of FSC certification. The project provides key expertswith the training, tools and materials to conduct Rainforest Alliance workshops inorder to increase the level of sustainable forestry awareness in China.

15THANK YOU!