Operation Management

Case Study: IKEA Leader in low price furniture

manufacturing

IKEA’s key success

What are IKEA’s competitive priorities ?• Good quality at low price.• Cheap but not Cheapo.• 30% to 50% low than competitor’s price• Price reduction of 20% in last 4 years• Corporate mantra:”Low price with meaning”.• Designs, builds and distributes what world wants to buy.

Production Design Process

Planning Phase

Concept Development

System Level Design

Design Details

Testing & Retirement

Production Ramp-Up

How it actually happens?

IKEA’s Pro new process of developing new product

1.Product & Price• Price matrix to identify holes in

company’s line up• Price range: high, medium & low• Basic styles: Sleek wood, modern,

country and young swede.• Product range & development.• Pricing strategy.

II. Finding Producers•Buys from 1800 suppliers from 55 countries•Nearby Location of IKEA.•Same products across the world; order in high volumes and avail at cheaper prices.•Emphasizes more on control and standardization of product mix.

III. Designing the product.Ikea uses internal competition to find

a design & then select a design for production.

IKEA has a pool of a staff designers & 80 freelancers and refines promising designs on what he wants to produce.

IV. Transport Invention of flat boxes to transport

furniture easily.Transport facilities gets cheaper as its

centres are located nearby ports, road & rail routes.

Global networks of distribution channels.

Distribution centres- 18 worldwide & 4 under constructions which handles 70% of total product line and rest 30% products travel directly from supplier to store.

V. Selling the productHuge furniture stores with few

services & lot of information to read about the product and more furniture to see.

Integrated places for children make shopping for families easier & restaurants selling typical swedish food convince the customer to stay longer.

Strengths of IKEA:Standardized product strategy does not

mean complete cultural insensitivity. The company is rather responding to globally emerging consumer tastes and preferences.

IKEA's global strategy, suppliers are usually located in low-cost nations, with close proximity to raw-materials and reliable access to distribution channels.

Globally integrate operations and centrally design products

Contd..Find an effective combination of low cost,

standardization, technology and quality.Strategy is to sell furniture, or rather

entire interiors of homes, to a reasonable price by exploiting economies of scale and high degree of customer created value into the products.

IKEA is using its size when dealing with subcontractors in two ways:

a)to put pressure on the subcontractors to become more and more efficient.

Contd..b) size to get good discounts from the

suppliers. This is done by placing itself as a large customer to the supplier, to get some power in price negotiations.

3.What are additional feature of the IKEA concept(beyond their design process) that contribute to creating exceptional value for the customer?

• Distribution and logistics are the lifeblood of IKEA and important pieces of the puzzle on their road to low price

• Calculating the goods requirement and make sure that deliveries are efficient

• They have obsession of making things flat.

• Many IKEA’s products are bulky therefore they pioneered the concept of flat i.e they are designed to ship disassembled, flat enough to be slipped into cargo hatch or tied down on an auto roof rack.

• Flat package is an excellent way of lowering shipping cost by maximizing the use of space.

• They declare waste as deadly sin.• They also have shifted their buying

from Europe to Far East reducing shipping time and cost.

• The company has created a global network of distribution centers which are near major ports, rail and truck routes.

• There are 18 IKEA distribution centers world wide- which handle 70% of IKEA’s total product line.

• 4 more of these distribution are under contribution

• 30% of IKEA’s product travel directly from supplier on store

4. Criteria for selecting a site for an IKEA store.

Ease of transportation.Number, size, and quality of

competition.Strong distribution channel.Availability of access routes to the

stores.

Criteria for selecting a site for an

IKEA store.Customer attraction power of the

particular store and shopping. Population and population trends

in the trading area.Market potential Analysis.

THANK YOUPresented By:

Apoorv Tripathi(10061)Nishit Doshi(10081)