The global sourcing challenges of IKEA
Who does not know IKEA? Famous for its design and very affordable house furniture, IKEA is the leader on its market. Founded in 1943 by Ingvar Kamprad this business grew tremendous fast that it has become the reference in term of low-cost self assemble furniture in the world.
The sourcing strategy of IKEA follows a manufacturing Code of Conduct towards its suppliers named “The IKEA Way in Purchasing Home Furnishing Products” (IWAY) . Besides this code, the strategy is rather well established especially regarding the relationships between the company and its suppliers from the economically developing countries. But the question is; are Ikea’s international procurements processes efficient? Can they be improved?
This essay will focus on Ikea’s global sourcing’s tradeoffs and will highlight the way they can be enhanced. The first part of this essay will describe the regular sourcing process of IKEA including the strategy, the second part will emphasize how the sourcing should be done to be successful and the last part will provide recommendations about the processes according to the analysis.

For a company, global sourcing is basically choosing different suppliers all around the world in order to use worldwide efficiencies and reduce costs. Global sourcing offers various advantages such as low cost materials and skilled labour, diminution of lead times, and also economical advantages like low taxes or low trade tariffs. These benefits will directly be related to the production costs and the final products. That is why global souring is an important factor in the procurement process, which should not be neglected.
Through the last twenty years IKEA’s sourcing strategy has seen many changes. One of the first improvements was a reduction in the number of suppliers. In fact, in 1990, IKEA counted 2500 suppliers; the brand has now officially 1,300 suppliers divided into 53 countries which remains a high amount in comparison to its competitors; for instance BoConcept, a Danish furniture retailer only deals with a limited number of suppliers. The high proportion of suppliers is obviously one of IKEA advantages regarding low costs products. However it is well known that having a large amount of suppliers will not make the control easier and it is actually a real danger.
The brand created the industrial subsidiary Swedwood which has become its official wood supplier, and that is one of the best ideas and opportunities IKEA had, being independent and being able to fully control one of its suppliers by creating it. Globally, Swedwood supplies between 80 to 90% of all IKEA’s demand for board-on-frame furniture and manufactures 10% of all the articles. Conversely, Swedwood is not very famous in the eye of the consumers as it can cause massive deforestation.
When dealing with its suppliers, IKEA is following a certain code of conduct, called IWAY. This agreement sets standards which have to be respected to “ensure that high social and environmental standards would be maintained throughout the company as well as within those entities with which IKEA has business relations.” Unfortunately, this contract is not always respected. A recent affair in China has revealed that IKEA was not very honest with its Chinese suppliers and threatened them to stop dealing with their industry even if they were buying their production for lower than the Chinese market value - Knowing that the Chinese prices are already very low. This need for low cost product is driving IKEA in the wrong direction, neglecting quality is not the solution especially nowadays with the anti “made in China” mentality people tend to have.
This IWAY contract is definitely not respected, as other investigations have proved IKEA wrong. Some countries where IKEA purchases its products do not follow the legislation to control the working conditions. As a result, Child labour and other human rights are violated in the sourcing process. The main issue is a lack of control from IKEA on its sourcing activities. Unfortunately, this can absolutely affect the consumer view of the Swedish retailer’s products.
Another challenge that IKEA is facing are local restrictions in India . In fact, the Indian government is willing to protect local businesses against giant retailers such as IKEA. That is why; the government asked IKEA to buy 30% of what they sell from small or medium local vendors.
But the real question is how IKEA should drive its sourcing strategy to make to best out of it?
The first step, if the strategy is to sell relatively cheap products, is to source in a country where the labour costs are low, but it is important to make sure a minimum quality is present and establish controls at every stage of the process, in order to avoid illegal business or work situations. The second step is to have a very close relationship with the suppliers and what is important is to be able to communicate with each other. Without a good communication, the trade cannot be perfectly efficient. The third step is to make business with people who can be trusted. And finally, the last step is to source in a country where laws are established and corruption is not too present.
To summarize, IKEA’s sourcing strategy is usually said to meet the IWAY standards but apparently this agreement has revealed some weaknesses especially with its suppliers from the developing countries. The lack of control, communication, a large amount of suppliers and a bad image of the company regarding child labour and non respect of work conditions can all lead to bankruptcy. Fortunately IKEA is already well established and people are quite enthusiastic regarding the company and tend to close their eyes because of the cheap prices but the day someone will bring a new concept of home furniture which will be low cost and respect the legislation, it is possible that IKEA will have a hard time following the trend and meeting the demand if its image remains the same. Consequently in order to keep its stable position on the market, IKEA should have good relationships with its suppliers, talk the same language to avoid mistakes, always control if its suppliers respect the legislation and control the quality of the work by sending inspectors to visit the factories, be aware of the consequences of the production plants on the environment and provide a long term relationships with the subcontractors.