IKEA

IKEA’s Global Sourcing Challenge :

Indian Rugs and Child Labour (A)

Presented by : Ernima SukmasariEmail : ernimasukmasari@gmail.comBlog : nimprot2012.wordpress.com

Business Format’s History

3

 The IKEA story begins with the founder Ingvar Kamprad Elmtaryd Agunnaryd and a dream to provide people with necessary goods.  He began selling various items via mail order as IKEA in 1943. 

In 1948 IKEA started to sell furniture and the company as we know it today started to take shape. 

In 1951 IKEA published their first catalogue to draw a picture for customers as to how the products would look in their homes. 

This was followed by IKEA beginning to design their own furniture in 1995 and opening the first store in 1958.  The store was in Stockholm but not in the traditional down town area but instead in the suburbs where ample customer parking and more floor space allowed IKEA to display their products in a new style. 

By 1956 IKEA had started using the “flat pack” technique, selling furniture in flat boxes with assembly required by the customer, and began sourcing furniture outside of Sweden. 

4

5

External ConditionPost war

Cartel industry policy in Swedish - high price

6

Vision

Creating a better life for the many people

7

Cost Advantage

Knock down

8

Saving transport

Minimize storage cost

Lower price

Sales Performance

1953 1953 - 1955SEK 3 million SEK 6 million

9

Rivalry and looking abroadCartels in Sweden pressured manufactures not

to sell to IKEA.

10

IKEA unable to meet demand by local supply

1961, Look abroad – Polland - for new sources. IKEA brought its know how, taught its process, provide machinery to the new suppliers

International ExpansionFurniture dealer

IKEA’s ambassador in all units as role models.

11

Porters Diamond

12

By the mid-1990s, IKEA was the world's largest specialized furniture retailer. Sales for the IKEA Group for the financial year ending August 1994 to taled SEK 35 billion (about $4.5 billion). In the previous year, more than 116 million people had visited one of the 98 IKEA stores in 17 countries, most of them drawn there by the company’s product catalog, which was printed yearly in 72 million copies in 34 languages. The privately held company did not report profit levels, but one estimate put its net margin at 8.4% in 1994, yielding a net profit of SEK 2.9 billion (about $375 million).

After decades of seeking new sources, in the mid-1990s IKEA worked with almost 2,300 suppliers in 70 countries, sourcing a range of around 11,200 products. Its relationship with its suppliers was dominated by commercial issues, and its 24 trading service offices in 19 countries primarily monitored production, tested new product ideas, negotiated prices, and checked quality.

13

Source ContractsOur objective is to develop long term business

partners, said a senior purchasing manager ---page 745

We commit to doing all we can to keep them competitive – as long as they remain equally committed to us.

Loans to its suppliers at reasonable rate

14

Porter’s Value Chain15

Unusual way to get lower costWe do not buy products from our supplier, but

we buy unused production capacity.

16

Store Growth1954 1964 1974 1984 1994

Number of stores

0 2 9 52 114

17

Franchise strategy

1986, Kamprad stepped down, Anders Moberg (Kamprad’s personal assistant)- took over as President and CEO of IKEA

18

Environmental problem issue1980s, some IKEA products emitted more

formaldehyde than was allowed by legislation.

Watery eyes, headaches, a burning sensation in the throat and difficulty breathing

The case was widely publicized -- IKEA’s sale dropped 20% in Denmark

Suppliers bought from sub suppliers, who in turn bought the binding materials from glue manufacturers.

19

Environmental issuesGerman, deadly poisoned bookshelves

publicized.

20

IKEA stopped the production and sales of Billy bookcase worlwide and corrected the problem

IKEA’s lost of sale $ 6 to $ 7 million

Issue encountered IKEA established a forestry policy based on Green peace and WWF,

Forest Stewardship Council

Not accept any timber, veneer, plywood or layer glued wood from intact natural forests or from forests with a high conservation value.

IKEA appointed forest manager to carry out random check of wood suppliers around the world.

Free recycled paper in its catalogs

Projects on global censervation with WWF

Funded a global forest watch program

21

Social Issues Swedish television documentary showed children in Pakistan working at

weaving looms, include IKEA’s carpet and rugs.

IKEA sent a legal team to Geneva - ILO convention 138, adopted by the ILO in 1973 and ratified by 120 countries for the abolition of labor by children under 15 or the age of sompulsory schooling in that country.

India, Pakistan, Nepal were not signatories of convention

IKEA appointed third party agent to monitor child labor practices - Scandinavian company

IKEA educated themselves in India, Pakistan meet unions, politicians,activists, NGO, UN organization and carpet export organization

Used Rugmark label --->free of children labor

22

Key success factor IKEA Clear vision

Business core value committed

Economic scale

Core competence : designing and marketing - innovation product

Compliance with government policies

Strategic alliances with related supporting industries ( WWF, ILO, etc)

Balance score card - manage econoomic and non economic factors

23

24