“To create a better everyday life for the many people”
Supply Chain Analysis
IKEA’s supply chain is global, with sales in more than 298 own stores in 26 countries and 40 external franchisees in 15 countries. With 31 trading service offices in 26 countries, allowing IKEA to be close to their suppliers, which numbers up to 1300 in more than 50 countries. Stores are supplied via 33 distribution centers and 11 customer distribution centers in 16 countries.
Figure 1 - IKEA's stores location worldwide
The Manufacturing Process
The root of IKEA’s low price and high quality products come mainly from their manufacturing processes.
- The products are designed so that it can be packed as tightly as possible to lower handling and space cost. IKEA’s product design motto ‘We hate air’
- The products are ‘make to stock’ in large volume to lower the average cost via economies of scale, only a few products are made to customers order.
- Products are also come in modules and not the end product to maximize the use of space
The 31 trading service offices in 26 countries allows IKEA to be close to their suppliers, quality and production can be monitored, new ideas can be tested and price can be negotiated. Furthermore, IKEA outsources globally and resourcefully: going where talent skills and resources can be found. For example, in a table and chair set, you will find that the shelves are from Russia, chair from Thailand, computer desk from Poland, screw from China and carpet from India.
The Distribution Process
Distribution is defined as the route of the goods from the suppliers and manufacturer to the consumers as fast and as cheap as possible. The diagram below shows how IKEA’s inventory flow works.
IKEA prefers train and sea as the main methods of transporting goods, which are much cheaper than by trucks. To achieve this, many of the 33 distribution centres are built mainly near seaports to increase ocean transport and reduce road transport. Many products are also delivered straight to retail outlets if possible, lowering handling and transportation cost. For goods and products distribution strategy, IKEA follows the idea ‘Think Globally, Act Locally’. Here, distribution centre is used to handle low volume products for the entire region, and the local stores can focus on handling the fast moving products demanded by their local customers, increasing inventory efficiency.
Entering India:
IKEA already has a trading service office in India. This is to keep in touch with their textiles suppliers in India, which is where 30% of entire textile range of IKEA global operations is sourced from. IKEA plans to to open 25 stores, investing up to $2bn (£1.3bn) over the next 15 to 20 years. With this, a distribution center is essential to be able to support the growing retail operations. Furthermore, India also has many seaports, allowing a good strategic positioning of the distribution center.
However, India’s logistics and infrastructure are not yet well developed for efficient products distribution i.e. frequent daily delivery. Main transportation of goods in India can be via train network, which has access to all the main locations where IKEA stores are likely to be established.
In addition, unlike other retailers, IKEA has big warehouse next to its outlet to store their flat pack goods. This allows their ‘make-to-store’ products to be delivered in mass quantity, which means less delivery is required, reducing the stress on logistics and infrastructure.