IKEA Operation strategies

8/10/2019 IKEA Operation strategies

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Presented by:-Team 2J. Prabhat

Paritosh kanwar

Rohit Jain

Rinky Sachdeva


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Flow of presentation

Summary ofthe case

Background

Issues identified

Solutions

Learnings andreferences


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Summary of the Case

Established in the 1940s in Sweden by IngvarKamprad, and is one of the world's largest

retailers of home furnishings.

IKEAs vision is to: To create a better life for the

majority of people which is the basis of its strategic

orientation

USP is to sell value for money products.

Production oriented, Swedish roots in itsinternational advertising, "Swedish" blue and

gold color scheme for its stores; that is spreading

Swedish culture and lifestyle all over the world.


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A group with 138 stores in 28 countries and

sales of close to $6 billion till 1997

Have a very strong bonding with vendors (as

business partners)

There are about 2500 vendors in 65 countries

They enjoy : long term contracts , technical

advise & leased equipments

11% sales in Sweden, 29.6% from Germany,

42.5% from the rest of Western Europe, 14.4%

from North America.

Source-Exhibit 4, case 2, Operations strategy by Nigel Slack and Michael Lewis


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Background

Idea of A better life,for many people

Searched for

furniture manufactures

Began to build long term businesspartnerships with manufactures

and distributers

We do not buy products from

our suppliers, we buy unused

production capacity. -- IKEA

Sold small itemsout of families

kitchen.


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Source-Wikipedia.com and IKEA facts and figures, 2003 and 2004 editions & Internal documents


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IKEA in today's world

Source-http://www.ikea.com/ms/en_GB/about-the-ikea-group/company-information/index.html


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Improvement Strategy

Source-Operations strategy by Nigel Slack and Michael Lewis,Pg.189


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Todays marketing strategy

Catalogue distributed world-wide as 191million copies (in 56 different editions and 27different languages).

IKEA has 31 trading service offices in 26countries so production can be monitored,new ideas tested, prices negotiated andquality checked.

All of the companys home furnishing productsare comprised of 71% renewable material andinclude as much recyclable material aspossible.


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TheEnvironmental

Issue

The Social Issue


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1980:

Formaldehyde

scandal in Denmark

ComplicationThe Environmental Issue

1st

Action

Alternative

action

Action


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1992:

Formaldehyde

scandal in Germany

1stAction Immediately stopped the production and sales of Billy

bookcases worldwide

Estimated lost: $6-7 million

Alternative Action Forestry: Forestry policy working with Greenpeace and

World Wide Fund for Nature

Environmental Criteria: working with suppliers, adapting

the product range,transport and distribution, ensuring

environmentally conscious stores

ComplicationThe Environmental Issue


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What are action plan taken by IKEA

to prevent Environmental issues?1. Replace polyvinylchloride (PVC) in wallpapers, home textiles, shower

curtains, lampshades, and furniture

2. Minimize the use of formaldehyde in its products, including textiles

3. Eliminate acid-curing lacquers

4. Produce a model of chair (OGLA) made from 100% pre-consumer plastic

waste

5. Introduce a series of air-inflatable furniture products into the product line to

reduce the use of raw materials and transportation weight and volume

6. Reduce the use of chromium for metal surface treatment

7. Limit the use of substances such as cadmium, lead, PCB, PCP, and AZO

pigments

8. Use wood from responsibly managed forests that replant and maintain

biological diversity

9. Use only recyclable materials for flat packaging and "pure" (non-mixed)

materials for packaging to assist in recycling

10. Introduce rental bicycles with trailers for customers in Denmark


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ComplicationSocial Issue

1994:

Child labor scandal in

Pakistan

1stAction Marianne Barner, business area manager,

had to deal with the issue

Apology for ignorance and acknowledge

not being in full control

Alternative Action Take advice from International Labor Organization

"Black-and-white Clause"

Monitoring child labor practices with a third-party agent.

Appointed a Scandinavian company for quality assurance program and random

audits of child labor practices at suppliers' factories


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ComplicationSocial Issue

1995:Child labor scandal reported

by German TV channel at

Rangan Exports

Barner's concerns

Child labor issue not universally concerned within IKEA

Proactive stand can bring cost disadvantage Working with foundations

Rugmark

Swedish Save the Children, UNICEF, ILO


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Environmental Issue

Child Labor Issue

?


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Acts Ethical Dilemma Purpose Principle People Ikea

Accept

theinvitation

Short vs.

Long-term

Explain what happen

Take the blame

Prove how we do notapprove to child labor

No law obligation

Ethical principles

Our right forexplanation

Haunt them

Make it less

bad Affect on

shareholders

Terminate

Rangan

Exports

contract

Justice vs.

Mercy

Short vs.

Long-term

Truth vs. LoyaltyRugmark

Solo

Monitorship

Exit India

Customers have

the right to know

Shareholders andemployees have

the right to be

protected

Maintain order with

social and corporate

rules

Taking clear, quick, and

investigative actions.

Teach by example legal

vs. moral

Policies are clear, if

child labor is

involved, contract is

cancelled.

It is within our rights

Some of

Terminante

Rangan

employees will be

fired for their

companys

mistakes.

Lose a good

supplier

Positive public

response

Lesson to other

suppliers

Remove any negative

associations with the

brand name

Rebuild the trusted

brand name

Within our rights;

dimensioning India

from our supply

chain will make us

lose our companys

culture.

Affect India image

Pull other

companys

Decrease the

standard of living

further

Customers facehigher prices

Lose a good

percentage of

their suppliers

Cheap child-

labor free

countries

dont exist

Child labor and IKEA

never tie again

Our contract was

based on a goal that

was dismissed, give

formal written

warning or fire them.

More pressure on

Rugmark

employees

Send a negative

message to

stakeholders.

Chances of

reoccurrence

The Alternative Responses


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Course of Action

Immediate actions

Work with

RugmarkFoundation

1 2 3 4 5 6

Take full

responsibility

- Fire RanganExports

Find new

supplier that

aligns with

our valuesand

corporate

ethics

Take legalactions

Work with

our CSRdepartment

Monitoring

of the rest

of oursuppliers


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YESAccept taking part in the videoGo public

Explain the situation

Elaborate our course of action

Minimize impact

NODo not acceptTake all the measurements

Do not fall in his trap

Do not allow him to use us

Be proactive and prepare

Take advantage of his mistake

Debate

Decision!

Accept the interview


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Rugmark Foundation Financial assistance

Staffing

Improve quality of services

Monitoring controls

Community based rehabilitation Community development programs

Health care services

Expansion plans

IKEA

Monitoring IKEA CSR department

Avoid same mistakes

Become part of any community we enter

Recommendations


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After 1997

By 2009 they had 267 store out which in USAthey came up 37 & in Germany 44 stores

By 2013 they started capturing new emergingmarkets like Latin & middle east

If one is in UK it is better to head to IKEA outletsrather a real estate agent

One can grab a flat-pack house for a fraction ofthe cost.

The BoKlok houses were originally released inSweden in 1996, and have since expanded toIKEA stores across Northern Europe.


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In 2008 IKEA UK launched family mobile a

virtual mobile phone network , that runs on T

mobile

IKEA family loyalty card


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ISSUES FACED BY IKEA

Before 1997

Environmental issues in

1980 (in Denmark)

The lacquer on thebookshelves

Child labour in 1994 in

Pakistan

Child Labor in 1995 inRangan

After 1997

2011 Labor unrest inVirginia , US

Illegal activity of spying on

its employees and clients byillegally accessing Frenchpolice records.

2012, Glendal Foodsamajor supplier to IKEA Store

Restaurants in Australiawas the subject of bullyingallegations by about 50% ofstaff at the company

d


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IKEA and UNICEF

The largest corporate cash donor to UNICEF - IKEA

Foundation

More than $200 million in both cash and in-kind

donations to UNICEFs programs to save and improve

the lives of children and their families

For more than 10 years, IKEA has been a key supporter,contributing to UNICEFs work like sales of UNICEF

Greeting Cards, cause-related marketing promotions, in-

kind assistance and national-level fundraising

By the end of 2012, funding from the IKEA Foundationwill have enabled UNICEF to help over 74 million

children in India create a better future for themselves

and their families

Source: http://www.unicef.org/corporate_partners/index_25092.html


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Key Learnings

Never compromise with the core values and

beliefs embedded in the firms culture

Avoid myopic view: Evaluate long-term

consequences of short-term decisions

Ensure that excessive attention to profit-

making are not harming the firms image and

reputation

Exploit unused production capacity

Maintain good relations with business

partners


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Contd..

Fulfillment of performance objectives requires

continuous improvement and innovation.

Global sourcing strategy should be carefully

monitored in order to avoid

issues(environmental, social)


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References

Official website of IKEA group, accessed on 27/10/14 usingthe link:-http://www.ikea.com/gb/en/

IKEA logo taken from google images.

About IKEA group-http://en.wikipedia.org/wiki/IKEA

Environment friendly solutions taken from the official IKEA

website link:-http://www.ikea.com/ms/en_SG/about_ikea/the_ikea_way/our_business_idea/our_product_range.html


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Thank you !

IKEA Operation strategies

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