THE BILLY BOOK CASE LOWERING PROCUREMENT COST IN ORDER TO INCREASE PROFIT FOR IKEA IPAG BUSINESS SCHOOL PARIS 2014 A PURCHASING REPORT BY: - HANNES STAHRERG - IRENE FELIPE DIAZ - YOLANDA MORENO-ABADIA PEREZ - CAROLINA DIAZ JMZ LAURENT - SELENE CHANE
Aug 06, 2015
THE BILLY BOOK CASE
LOWERING PROCUREMENT COST IN
ORDER TO INCREASE PROFIT FOR IKEA
I P A G B U S I N E S S S C H O O L
P A R I S 2 0 1 4
A P U R C H A S I N G R E P O R T B Y :
- H A N N E S S T A H R E R G
- I R E N E F E L I P E D I A Z
- Y O L A N D A M O R E N O - A B A D I A P E R E Z
- C A R O L I N A D I A Z J M Z L A U R E N T
- S E L E N E C H A N E
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E X E C U T I V E S U M M A RY ABSTRACT OF THE BILLY BOOKCASE PURCHASING PROJECT
Keywords: Procurement, IKEA, Supplier(s), Purchasing
The content of this report concerns a purchasing and supply scenario for IKEA
regarding one of their products: The Billy bookcase.
The question at hand is the following statement: “How can the IKEA group create a
reality of the opportunity of lowering the procurement cost on the Billy bookcase in
order to increase the profit made from the product?”
To answer this question, our group came up with two plans, (A) Investing in new
machinery for IKEA’s current Billy bookcase supplier Gyllensvaans Möbler, AB and
(B) Change the material ABS plastic to ASA plastic which is a cheaper material to work
with.
Our conclusion is the following: The two plans mentioned in the report gave three
possibilities to achieve the goal of lowering procurement cost to increase profit. Plan
(A) where IKEA invest in new machinery for their supplier Gyllensvaans Möbler, AB
to decrease kWh consumption and increase production ratio. The second plan (B) was
to change the ABS to ASA plastic which is cheaper in kilo price. The third option,
which we recommended, was to combine the two plans if possible in order to reach the
best possible outcome for potential profit. If combining the plan is not possible for the
IKEA group, we recommend to invest in plan A since it is a more long-term
commitment with an already strong supplier relationship. In both plans, dividing the
increased profit of 2 € per unit (which is saved from a lowered procurement cost on the
Billy bookcase) is necessary as it works as an incentive for Gyllensvaans to approve of
the plans. This is because investing in new machinery would mean that Gyllensvaans
would have to pay as well. Changing the material might also come with an additional
cost. Therefore, dividing the increased profit (1 € per unit to IKEA and 1 € per unit to
Gyllensvaans) would be a gesture showing good faith in each other.
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TA B L E O F C O N T E N T
Abstract of the billy bookcase purchasing project ...2
Methodology – Background – Opportunity .............4
1.1 Methodology ......................................................4
1.2 Background ........................................................4
1.2 Opportunity description .....................................5
Current situation.......................................................6
Where are we going? ...............................................7
Plans & recommendation .........................................8
4.1 Plan A – Invest in new machinery .....................8
4.1.1 Plan A – KPI & budget overview ...................9
4.2 Plan B – Change the materials .........................10
4.2.1 Plan B – KPI & budget overview .................10
4.3 Recommendation .............................................11
Effectiveness control following the plans ..............12
5.1 Control of the new machinery ..........................12
5.2 Control of the new material .............................12
Report conclusion for the IKEA group ..................13
Appendix list 1 - 6..................................................15
1. Product description ............................................15
- Package measurement and weight .......................15
- Assembled size ....................................................15
- Product description ..............................................16
- BILLY B. Prices in EU (€): .................................16
2. Company hierarchy (IKEA) ...............................16
3. Geography – Area of importance .......................17
4. PSTO ..................................................................18
4.1 Supplier policies of ikea...................................18
4.1.1 Value chains ..................................................19
4.1.2 TOWS-table of IKEA ...................................20
4.2 Strategic ...........................................................20
4.2.1 The strategic triangle.....................................21
4.2.2 The product portfolio ....................................21
4.2.3 The supplier portfolio ...................................21
5. Tactical ...............................................................22
5.1 Specification ....................................................22
5.2 Selecting supplier & Contracting .....................23
6. Operations ..........................................................23
6. Illustrations ........................................................24
Reference list .........................................................25
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1 . I N T RO D U C T I O N METHODOLOGY – BACKGROUND – OPPORTUNITY
1.1 METHODOLOGY
Through-out this project, our group has worked a lot together during meetings at school.
Our primary source has been the IKEA website along with the documents they provide
from there. Another greatly appreciated source has been the documentary
“MEGAFACTORIES” made in 2009 featuring IKEA which told us a lot about the
manufacturing process of the Billy bookcase.
In this report, Irene Felipe Diaz has worked with the situation assessment, Carolina
Diaz Jmz Laurent has done the objectives, Yolanda Moreno-Abadia Perez has worked
with the appendix featured after the conclusion and Hannes Stahrberg has worked with
the plans, kpi and control. However, a lot of work has been done together which cannot
be neglected.
1.2 BACKGROUND
IKEA is known through-out the world as the giant among furniture retail stores.
Founded in 1943 in Sweden by Ingvar Kamprad, the company has become known since
for their affordable and quality orientated products. From the beginning, IKEA sold for
example pens and matches, but today the products include wardrobes, kitchen wares
and living room furnitures, all being closely looked at in regard of price, quality and
design (The IKEA concept, 2012).
One of these products which has become a time classic and international bestseller for
IKEA going on over thirty years is the “Billy bookcase” (National Geographic Channel,
2009). This bookcase was designed (similar to other IKEA standards) with the purpose
of being functional, durable and timeless and it certainly lived up to those expectations
since they have sold over 40 million units in three decades so it is understandable why
it is an IKEA bestseller (National Geographic Channel, 2009).
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With this said, IKEA continuously tries to improve the value of the product and one of
the methods used frequently for this is trying to lower the cost of buying the product
(IKEA, 2014). It should therefore be important for IKEA to have good and reliable
relationships with their suppliers in order for them to discuss situations like this and at
the same time create value for both them and their supplier(s).
The supplier connected to this case is “Gyllensvaans Möbler, AB” whom are
responsible for manufacturing the Billy bookcase. Located in Kättilstorp, Sweden, the
company was created in 1946 by Nils Gyllensvaan and is since then managed and
owned by the family. The company generally manufactures bookcases, including the
Billy series, and has since 1952 been a continuous supplier to IKEA (Gyllensvaans
Möbler, AB, 2014).
1.2 OPPORTUNITY DESCRIPTION
To begin this section, it is important for the reader to understand that no general problem
has been found regarding the purchasing process of the Billy bookcase. However, since
IKEA’s relationship with Gyllensvaans goes back a long time, it would be reasonable
enough that they together can achieve an improvement regarding the buying and selling
of the Billy bookcase. Therefore, this section is not stated as a problem but rather an
opportunity description due to the fact that nothing regarding the profit made on the
Billy bookcase is a right out problem. It can only be stated that there is a potential
opportunity in making more profit by lowering procurement cost.
From this opportunity an important question arise, which will be the theme through-out
this report. The question which arises is the following statement:
How can the IKEA group create a reality of the opportunity of lowering
the procurement cost on the Billy bookcase in order to increase the
profit made from the product?
In order to find the most plausible and feasible solution, the report is divided into four
main categories to give a better overview. The main categories are: situation
assessment, objectives, plan and control.
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The situation assessment will explain the current state of the purchasing process
concerning the product. It explains the current selling price and procurement cost for
IKEA.
2 . S I T UAT I O N A S S E S M E N T CURRENT SITUATION
As IKEA started in Sweden, we decided to focus our project in Älmhult, the place
where the first IKEA opened and where they still have large presence.
The product, the Billy bookcase, has a current selling price at an average of 18 € (IKEA,
2014) and with this price IKEA has an estimated current profit of 2 € for each Billy
bookcase sold. The current cost for buying the product (i.e. the procurement cost) is
now at 10.2 € per unit which they pay to their supplier Gyllensvaans Möbler who
manufacture the bookcases as stated before (See the value chains for IKEA and its
supplier in appendix 5.1.1).
The aim of this project is as mentioned to increase the profit made by the Billy bookcase
by lowering the procurement cost. To understand how this cost is going to be lowered
it is important to understand how IKEA do purchasing. The example which will soon
be stated explains how the purchasing of the product for one month at IKEA Älmhult
works. However, before this part is mentioned, it is important to have introduced the
main actors of this process.
The three main actors in this case are as follows:
The IKEA group, Älmhult
Gyllensvaans Möbler, AB
IKEA Industry Hultsfred AB - Former Swedwood (IKEA Industry, 2013)
As for the current purchasing process regarding the Billy bookcase. First, the IKEA
group in Älmhult is going to issue an order of the quantity of the units they need, which
is estimated to 765.000 Billy bookcases per month (remember that the procurement cost
for each unit is 10.2 €). The supplier, Gyllensvaans, accepts the order and demands the
basic materials in order to make the bookcases which mostly consist of particle boards
made out of compressed and heated sawdust (National Geographic Channel, 2009).
Gyllensvaans issue this order with its specification to IKEA Industry Hultsfred AB in
Hultsfred. IKEA Industry receives the order and starts cutting wood to then process it
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into sawdust. The approximate amount of sawdust that one bookcase contain is 11 kg
and the procurement cost of this is estimated to 3.2 €. To make 765.000, IKEA industry
has to send 8.415 tons of sawdust to Gyllensvaans where it is processed into particle
boards and then produced into the bookcases. The finished products is then boxed and
sent directly to the store in Älmhult where it then gets sold. To see an illustration of this
process, see appendix 6.
With the current purchasing situation for the Billy bookcase stated, it is important to
again highlight the fact that IKEA in this situation has an opportunity to work with and
not a problem. The opportunity is, as stated, to make more profit from the product.
After having revised the method how IKEA do purchasing, two suggestions to achieve
an increase in profit were made which will be stated in the next section of this report.
2 . O B J E C T I V E S
WHERE ARE WE GOING?
“The overall purpose of Inter IKEA Group is to secure continuous improvement and a
long life of the IKEA Concept. As this will require investments in both good and bad
times we strive to be financially independent” (Inter IKEA group, 2012). So we ask
ourselves: Where are we going?
Our main objective is to lower our procurement cost by two euros in one year, i.e.
reducing the cost from 10.20 € per unit to 8.20 €, keeping our quality and our supplier,
Gyllensvaans Möbler as our continued long-term contract.
Our policy is based on partnerships, identifying and executing potential business
improvements together. The objective must keep the same quality of the Billy bookcase
using the KPI stated under the control part as our guideline.
Our strategy is performance based partnership with Gyllensvaans, because instead of
making the product, IKEA buys it and therefore the partnership between the supplier
and IKEA should remain.
As written before IKEA has a long-term relationship with Gyllensvaans for over 60
years they have done business, so our Tactic is lower the procurement by 2 €.
Regarding the operation in our report; we have two plans: Plan A - Investing in new
machinery. By investing in new machinery, Gyllensvaans Möbler AB will be able to
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produce more Billy bookcase in less time along with a reduction in electricity
consumption. Plan B includes changing materials (ABS plastics) to cheaper version of
plastic.
4 . P RO P O S A L S TAT E M E N T PLANS & RECOMMENDATION
After having done constructive research on the opportunity at hand, stating the current
situation and objectives, plan “A” and “B” were made in order to give two feasible
ways of reaching the goal of lowering procurement in order to increase the profit margin
on the Billy bookcase. The two plans differ from each other of course. However, the
scenario of combining the two is not out of the question which we will discuss further
more of later in this report.
4.1 PLAN A – INVEST IN NEW MACHINERY
As stated earlier in this report, IKEA works close with their suppliers (IKEA, 2014)
and Gyllensvaans is definitely not an exception. However, the question is if IKEA is
willing to make an investment in their suppliers. Looking at Gyllensvaans, what could
IKEA invest in so that the result becomes a lower procurement cost for the Billy
bookcase?
To lower this cost, it can be assumed that looking at the production of the bookcase
itself can be a possible source of opportunity. Gyllensvaans factory involves a lot of
machines that are all under heavy pressure to keep producing the product (National
Geographic Channel, 2009) and having an assessment of these in order to notice cost
leakages in forms of kWh consumption, missed optimization of the production ratio
and so on, could be beneficial in the quest for a cheaper bookcase.
Plan A therefore includes IKEA investing in the machinery that Gyllensvaans own and
use to produce the Billy bookcase. The intention of the investment is to update the
machinery in order to improve the production and save cost, both for IKEA but also for
Gyllensvaans. As stated in the objectives, the goal is to lower procurement cost from
10.2 € to 8.2 €. However, since it is an investment in machinery that Gyllensvaans own,
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it would mean that Gyllensvaans have to be convinced that updating the machinery will
be a gain for them as well. Therefore, the cost saved (i.e. increased profit) ought to be
divided between Gyllensvaans and IKEA, meaning that the 2 € made should be a profit
increase of 1 € for IKEA and 1 € for Gyllensvaans. The fact that the profit is divided
between the two parties should work as an incentive for Gyllensvaans to approve of the
plan and acquire new manufacturing machinery.
4.1.1 PLAN A – KPI & BUDGET OVERVIEW
The key performance indicators for plan A are as follows:
i. Cost of the investment with Gyllensvaans machinery
ii. Quality of the purchased machinery (which in the effectiveness control would
measure kWh consumption and production ratio)
iii. Final selling price of the product
iv. Time before goal of lowered procurement is achieved
v. Budget forecast for the product after plan A has been implemented
i. The cost of the investment will be an estimate sum of 1.8 million euros. This figure
is worked out from the current assets of Gyllensvaans in 2013 along with the yearly
increase of the current assets from 2011. The calculations for this can be found in
Appendix XX page XX.
ii. The quality of the purchased machinery is vital if the objectives are going to be
reached. Since the plan includes lowering the kWh consumption along with improving
the production ratio, it is important that the new machinery actually manages to fulfill
the plan, hence why the quality of the machines must be sufficient.
iii. The final selling price of the product will remain at an average of 18 € since
increasing the profit is of interest for this project. Therefore, the lowering or increasing
the price is not of any relevance in this plan, or the overall report.
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iv. It will take at least one year to have this plan fully implemented. An estimation of
six months research on the machinery needing replacement or update along with six
months installation process for the newly purchased machinery.
v. The budget forecast for the first year concerning the procurement of the Billy
bookcase is an estimate of 86 million euros. This is the sum of the total amount of Billy
bookcases bought (with the new procurement cost of 9.2 € / unit) plus the initial cost of
1.8 million euros investment.
4.2 PLAN B – CHANGE THE MATERIALS
Another way of looking at the opportunity to lower the procurement cost is to change
the materials instead of changing the machines that produces the product. The current
product description of the Billy bookcase can be found under Appendix 2 in order for
the reader to see what the bookcase is made of. From the description it can be read that
the bookcase contains ABS plastic which have an average price of 0.82 € per kilo in
the EU (Plasticker, 2014). Another plastic called ASA has the lower price of 0.60 € per
kilo and changing the current ABS plastic to the cheaper version will help IKEA lower
the procurement also.
The profit made will still be divided between IKEA and Gyllensvaans since changing
the material is something the supplier must do in order to achieve the goal. However,
making more profit will most likely still work as an incentive for Gyllensvaans to
approve of plan B as well.
4.2.1 PLAN B – KPI & BUDGET OVERVIEW
The key performance indicators for plan A are as follows:
i. Cost of the introducing the new ASA plastic in the product
ii. Quality of the product after having introduced the new ASA plastic
iii. Final selling price of the product
iv. Time before goal of lowered procurement is achieved
v. Budget forecast for the product after plan B has been implemented
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i. The cost of plan B will be an estimate sum of 1 million euros. This is the estimated
cost of testing the newly introduced material. The testing of IKEA products takes place
at IKEA Test Lab in Älmhult (National Geographic Channel, 2009) and the cost will
derive from here.
ii. With this plan there are some risks when looking at the quality factors of the product.
Since IKEA’s products are quality and safety tested, the new ASA plastic might
introduce an unforeseen quality threat to the product which could as a worst case
scenario be harmful to its consumer. Therefore, thorough product testing is required,
hence why the cost of the plan might be higher than expected.
iii. The final selling price will remain the same for the same reasons stated in plan A
section 4.1.1.
iv. The time for executing and implementing plan B will be six months since it would
only require to change the one material. The factor which takes the most amount of
time in this plan is the time to test the newly introduced material.
v. The budget forecast after having implemented plan B is 84.5 million euros. This is
calculated the same way as in the budget forecast for plan A save for exchanging the
investment cost for the quality testing cost of 1 million euros.
4.3 RECOMMENDATION
If IKEA were going to have to choose between the two plans presented in this report,
our research suggests going with plan A – investing in machinery. The plan looks at a
more long-term perspective than the other, since it allows an investment with a current
supplier, strengthening the already solid bond between IKEA and Gyllensvaans. per
kilo and changing the current ABS plastic to the cheaper version will help IKEA lower
the procurement also.
However, it should be stated that combining both plan A and B is a possible solution
which will have to be addressed at some point. Investing in new machinery does not
exclude the possibility of changing the ABS plastic. In fact, it would be better to do
execute simultaneously since changing the materials might need to have a certain
technology in the machines. Therefore, it would be preferable to be able to sync the
machines to suit the newly introduced ASA plastic.
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Therefore, our belief is to combine both plan A and B for the best possible chance to
be able to lower the procurement of the Billy bookcase.
5 . C O N T RO L EFFECTIVENESS CONTROL FOLLOWING THE PLANS
This section includes the effectiveness control of the chosen plan(s). Its purpose is to
give the reader an overview of how the monitoring of the implementation will look like.
5.1 CONTROL OF THE NEW MACHINERY
Two variables are measured here. The first (Q1) is the current kWh consumption
compared to the previous numbers. The equation would (roughly speaking) look like
this: current kWh < previous. This control is achieved by comparing monthly cost for
the electricity bound to the machines. The kWh ought to be lower than previous
machines’ electricity consumption since otherwise it would be a bad investment.
Research on what kind of machinery that will be introduced is therefore vitally
important.
The second variable, Q2, is the production ratio. This is achieved by measuring the
capability of the production and the time to produce each unit. This equation looks like
this instead: New production ratio > previous production (measured in time).
Therefore, it would be preferable to be able to sync the machines to suit the newly
introduced ASA plastic.
It is assumed that our supplier Gyllensvaans will be the party responsible for collecting
the data since having a successful implementation of the plan is of their concern as well.
5.2 CONTROL OF THE NEW MATERIAL
There are three variables included in the effectiveness control after having introduced
the new ASA plastic as a material in the Billy bookcase. These are the variables that
are tested at the IKEA Test Lab situated in Älmhult. (Q1) Normal field testing, which
include testing the product during everyday use for a simulated use of 10 years. In order
for the product to pass the requirements, the product has to withstand at least 10 years
of simulated usage. Therefore, the equation for the test is as follows: simulated years of
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testing > 10 years otherwise it fails to meet requirements. The second variable (Q2) is
the resistibility test which includes a simulation of sun damage, liquid damage and so
on. This is also measured in time and has to pass a simulation of 10 years of resistibility
to the factors mentioned previously. Therefore, the basic equation is the same as
variable (Q1) but is performed differently. The last variable in need of control is the lab
test (Q3) or fire test since testing the rate of fire spreading seems to be a priority. The
test is measured time and how long it will take for the fire to burn out. If the fire is
extinguished before 10 minutes the product will pass the requirement. Therefore, the
equation is as follows: extinguishing time < 10 minutes (National Geographic Channel,
2009). The tests will be performed by scientists at IKEA Test Lab in Älmhult.
6 . C O N C L U S I O N REPORT CONCLUSION FOR THE IKEA GROUP
How can the IKEA group create a reality of the opportunity of lowering
the procurement cost on the Billy bookcase in order to increase the
profit made from the product?
The two plans mentioned in the report gave three possibilities to achieve the goal of
lowering procurement cost to increase profit. Plan (A) where IKEA invest in new
machinery for their supplier Gyllensvaans Möbler, AB to decrease kWh consumption
and increase production ratio. The second plan (B) was to change the ABS to ASA
plastic which is cheaper in kilo price. The third option, which we recommended, was
to combine the two plans if possible in order to reach the best possible outcome for
potential profit. If combining the plan is not possible for the IKEA group, we
recommend to invest in plan A since it is a more long-term commitment with an already
strong supplier relationship. In both plans, dividing the increased profit of 2 € per unit
(which is saved from a lowered procurement cost on the Billy bookcase) is necessary
as it works as an incentive for Gyllensvaans to approve of the plans. This is because
investing in new machinery would mean that Gyllensvaans would have to pay as well.
Changing the material might also come with an additional cost. Therefore, dividing the
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increased profit (1 € per unit to IKEA and 1 € per unit to Gyllensvaans) would be a
gesture showing good faith in each other.
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8 . A P P E N D I X
APPENDIX LIST 1 - 6
This appendix contains a lot of the work which is referred to through-out the report. Its
content is here to complement the power point presentation, so that it is made easier for
the reader to follow and understand the content of this report without having to look at
the power point presentation.
1. PRODUCT DESCRIPTION
The following details are important to describe the product that we have chosen to work
with. It is interesting to gain perspective of the Billy bookcase and using that
information to come to a purchasing conclusion.
- PACKAGE MEASUREMENT AND WEIGHT
Packages: 1
Article Number: 802.638.32
Width: 38 cm
Height: 6 cm
Length: 108 cm
Weight: 11.4 kg
Quantity 1
- ASSEMBLED SIZE
Depth: 28 cm
Height: 106 cm
Width: 40 cm
Max. load/shelf: 14 kg
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- BILLY B. PRICES IN
EU (€):
France 18
Germany 19
Austria 24,99
Spain 19,99
Italy 19,95
Holland 24,95
2. COMPANY HIERARCHY (IKEA)
- PRODUCT DESCRIPTION
Basematerial: Particleboard, Foil, ABS
plastic
Side panel: Particleboard, Foil, Melamine
foil, ABS plastic
Plinth front: Particleboard, Foil
Back: Fibreboard, Foil, Paint
(IKEA, 2014)
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IKEA seems to work with a hybrid approach. That means managing only the global
processes that can deliver the benefits of the centralized approach, while leaving the
local parts of quality management that deliver the benefits of a decentralized approach.
In this hierarchy we had located our audience that belong to the IKEA Group
management team, whose name is Leif Hultman, and where is our team the Ikea
purchasing unit (IKEA, 2014).
3. GEOGRAPHY – AREA OF IMPORTANCE
This image shows a map of Sweden including the locations relevant to our case.
1. Älmhult. Is the place where the first IKEA store opened and is the store that we
have chosen to work with
2. Kättilstorp. Gyllensvaans Möbler AB
3. Hultsfred. IKEA Industry Hultsfred AB
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4. PSTO
- Policies, Strategic, Tactical and Operations
4.1 SUPPLIER POLICIES OF IKEA
- Gyllensvaans has been delivering furnitures to IKEA since 1952.
- The IKEA group aims to achieve long-term partnerships with their supplier.
- Partnerships are about identifying potential and executing business
improvements together.
- Business improvements are executed using resources from both IKEA and the
suppliers.
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Value chain: IKEA
Value chain: Gyllensvaans möbler
AB
Value chain: Ikea Industry Hultsfred AB
4.1.1 VALUE CHAINS
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4.1.2 TOWS-TABLE OF IKEA
The TOWS analysis helps to identify strategic alternatives. For the following threats,
opportunities, weaknesses and strengths that appear in the table below, we determined
the opportunity that can be leveraged:
“Increase profits by lowering procurement cost”
This opportunity is determined by the circumstances in which it is Ikea product Billy
bookcase.
4.2 STRATEGIC
The strategic triangle: Make or Buy?
Product portfolio
Supplier porfolio (for Gyllensvaans Möbler, AB)
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4.2.1 THE STRATEGIC TRIANGLE
Our strategy will be to buy the product and keeping the relationship with our supplier since to
Gyllensvaans was one of the first companies that was commissioned to make BILLY for IKEA
(Gyllensvaans Möbler, AB, 2014).
With this Long-term relationship with Gyllensvaans we manage to receive a lower price, more
reliable service and improved support.
4.2.2 THE PRODUCT PORTFOLIO
PERMFORMANCE BASED PARTNERSHIP - Invest for growth. The Billy bookcase,
began in 1979, no one in their wildest dreams could have imagined what a success it
would be. Since then, the world’s most versatile bookcase has moved into the homes
of millions of people (IKEA, 2009).
We decide to go for PLAN A includes IKEA investing in the machinery that
Gyllensvaans own and use to produce the Billy bookcase. The intention of the
investment is to update the machinery in order to improve the production and save cost,
both for IKEA but also for Gyllensvaans. We want to be strategic with our products,
we seek the performance based on partnership to keep buying from our main supplier
for the production of the bookcase to be able to lower our procurement and create more
dividends for IKEA. In the Purchasing product portfolio the purchasing’s impact on
financial result of the performance based on partnership the risk is higher but there are
more dividends and better financial results to be achieved.
4.2.3 THE SUPPLIER PORTFOLIO
Gyllensvaans Möbler is a family-owned company situated in the small town of
Kättilstorp, just outside Falköping in southern Sweden. The company was established
in 1946 by Nils Gyllensvaan and now employs about 250 people. Gyllensvaans’ main
production area is bookcases, including IKEA’s world famous “BILLY”. The company
manufacturers 170,000 bookcases every week for distribution all over the world.
(Gyllensvaans Möbler, AB, 2014).
The purchasing from our supplier impact on the financial result, we decide to have a
strategic, exploit balance or diversity, which balance and gives an equal partnership
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plus mutual commitment between Gyllensvaans Möbler and IKEA, this also means,
invest in new machinery for their supplier Gyllensvaans Möbler, AB to decrease kWh
consumption and increase production ratio.
5. TACTICAL
Specification
Selecting supplier
Contracting
5.1 SPECIFICATION
CRITERIA Gyllensvaans möbler AB
Approach to the environment Sesam’s excellence
Lower energy costs
Producction of a Billy bookcase 3-5 seconds New bookcase every three seconds
Supplier selection IKEA Industry Hultsfred AB. Hultsfred
A considerable number of employees > 150 About 250 people employees
Specialization in production of bookcase Gyllensvaans’ main production area is
bookcases
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5.2 SELECTING SUPPLIER &
CONTRACTING
IKEA has a long-term relationship with Gyllensvaans Möbler, AB and the plans stated
in this report do not require IKEA to select a different supplier, since the current
supplier fulfill all the criterias of the specification IKEA demands.
Therefore, contracts will continue to be relevant between IKEA and its supplier.
However, arrangements have to be made in order for the plans to be implementet and
contracts concerning the implementations and agreements made are needed.
6. OPERATIONS
Expediting: the same quantity of units ordered, as figured in the situational assessment, will remain at 765.000 units / month.
Quality control with the supplier Gyllensvaans will continue as per usual.
25
R E F E R E N C E S REFERENCE LIST
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Gyllensvaans Möbler, AB. 2014.
http://www.gyllensvaan.se/
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IKEA. 2009. Billy turns 30.
http://www.ikea.com/ms/en_CA/img/pdf/Billy_Anniv_en.pdf
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IKEA. 2010. The IKEA concept.
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