A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLD

Abstract : The case study will look into the development of IKEA from a small Swedish
furniture company to global home furnishing giant that it is today.

Keywords : IKEA, case study

4.

What is IKEAs strategy toward its suppliers? How important is this strategy to
IKEA success?

In retailing business, supplier and retailer relationship is very important in order to

maintain the sustainability of the business itself. Suppliers functions are, among
others, to adhere to certain standards prescribed by the retailer and responsible to
some extent in product designs. According to Dunne and Lusch (2008, p. 159),
mutual trust, two-way communication and solidarity are three fundamental elements
that create harmonious relation between retailer and supplier and but without mutual
trust the retail supply chain will disintegrate.

IKEA is a strong believer in having two-way relationship with its suppliers. As low
priced products meant low cost of production, IKEA was dedicated in selecting and
appointing its suppliers. For instance, in the production process of IKEAs best selling
seat, the Klippan, IKEA had managed to lower the price almost 40% by switching the
production location from high cost production plant to lower cost manufacturer, i.e.
from Sweden to Poland.

Further, the synergy of relationship between IKEA and manufacturers helped IKEA to
obtain its supply sufficiently. IKEA had also invested in latest technology and shared
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them with the manufacturers. This move, in fact, had successfully reduced the
operation / manufacturing cost of products resulting the tag price of IKEAs goods
were relatively cheap.

According to Simchi-Levi, Kaminsky and Simchi-Levi (2004, p.123) the formation of

strategic alliances between retailers and their suppliers is becoming more common in
many industries. Suppliers, in most of the cases, have far better knowledge of their
lead times and productions capacity than do retailers. Thus, as margins get tighter
and customer satisfaction becomes even more important, it makes sense to create
cooperative efforts between suppliers and retailers in order to leverage the
knowledge of both parties.

Unfortunately, the long term understanding between IKEA and its manufacturers also
had its up and downs. For example, relationship between IKEA and its Eastern
European manufacturers/suppliers had drastically changed with the fall of the Berlin
Wall in 1989. As the article under review states that with the collapse of communism,
new bosses came into the factories, and many did not feel bound by the relationship
with IKEA. These new bosses took advantage of the political situation to demand for
increment of prices as well as to review their contract terms with IKEA. This
inevitable situation had forced IKEA to look for other solution.

IKEA later bought Swedwood , a manufacturer in their home base (Sweden), as the
solution to its short-supply problem. Here again, IKEA had imposed a two-way
relationship where IKEA the retailing stores shared the latest technology and
knowledge of manufacturing aspects with Swedwood. Swedwood in effect is IKEA,
the furniture manufacturer which supplies and makes furnitures for IKEA the furniture
retailing store. The move had significantly benefited IKEA in that IKEA was able to
improve and to design its own products with low price as it is done internally
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Sharing technology and knowledge are the main factor to establish a strong
relationship between business partners. Such mutual understanding had assisted
IKEA to extend its technology and knowledge with other suppliers. By doing so, IKEA
had built a concrete business relation with its suppliers and at The same time,
securing a consistent products supply.

Beyond sharing those information and technologies, IKEA also encouraged the
suppliers to explore new and cheap resources in the product making process without
neglecting the standards designated by IKEA itself.

Shih (2007,p.288) agreed that If parties to any proposed supply chain system
partnership understand their unique needs and then share their needs and
expectation up front with their partners, levels of anxiety and fear would lessen and
mutuality of interest culture could begin to develop. In a supportive, trusting
environment, previously hidden information and actions are brought into the open,
driving costs throughout the supply chain lower.

Shih further emphasizes that, Relationship and trust building become necessary
ingredients to any long-term successful supply chain partnership or alliance. IKEAs
approach by having strong binding ties with its suppliers and manufacturers ensures
that the product supplies are always sufficient in quantity, the concern of quality
control and cost control are shared together.

5.

What is the source of IKEAs success today? Can you see any weaknesses in
the company? What might it do to correct these?

As has been mentioned above, IKEA strength (i.e. the key to its success) comes
from its mastery of three key aspects of value chain, namely, unique design
capabilities, unique sourcing and tightly controlled logistics (Grol and Schoch (1998,
p.89). This in turn translates to IKEAs ability to produce products that are distinctive
enough to provide market recognition, secure sourcing for the long runs at profitable
levels and reduce inventory costs through regional warehouses which works very
closely with stores. In other words, IKEA has competitive advantage over its
competitors (which when we come to think of it, IKEA has none).
Apart from that, this paper also submits that one of the sources of IKEA success is its
ability to foster relation with people around and within them, be it their customers,
employees or suppliers. The article under review mentioned that Kamprad seems to
have viewed his team as extended family (see further discussion below on perks and
benefits accorded to IKEAs employees). Worth mentioning is the Polish managers
who had been quoted saying that doing business with IKEA could have never been
easier because of three main factors namely decision making was done by one
person only, the manufacturers were given lengthy terms of contract so they had
enough time to perform their works efficiently and the knowledge sharing culture
adopted by IKEA towards its suppliers helped them to produce better products. That
are the essence of triumph in IKEA retailing business i.e. IKEA takes care of the
people that matter. As for customers, IKEA measures to appease their customers are
legendary right down from the very beginning (i.e. choice of store locations)
customers comforts are being taken into account.

IKEA is also notorious for its casual, no-red-tape attitude in the workplace. Anders
Dahlvig, IKEA then-CEO was quoted by Kling and Goteman (2003) as saying that
IKEA is saving costs through less hierarchy and less bureaucracy as well as through

developments in Human Resource Management and a strong corporate culture

without reducing quality.

The egalitarian working atmosphere also contributes to the success of IKEA which
employs more than 36,400 employees worldwide. The recruitment of staff was done
without education preferences and in fact according to the article under review, IKEA
has historically tended to shy away from hiring the highly educated status oriented
elite because of their inability to adapt to IKEA egalitarian working culture. Stripped of
class and status pretension, the working environment at IKEA demands creativity and
dedication where appreciation would definitely be showered on those who deserved
it. At IKEA, the employees work like a big family in which each member knows his or
her own duties and responsibilities. This harmonious human resource is
indispensable element in ensuring the continuous prosperity of IKEA business.

According to Konzelman, Wilkinson, Craypo and Aridi (2008,p.141), IKEA believes

this employee culture is central to its philosophy and success and therefore conducts
appropriate training and mentoring programmes throughout the organization. It also
tries to export the culture to suppliers and to maintain diversity within the workplace
[and] to meet its employment commitments, IKEA pays good wages and provides
benefits including full health care to parental leave of seven paid weeks for mothers
and one week for fathers and adoptive parents.