...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...
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...Abstract preview Global Sourcing Development at IKEA – a Case Study Paper prepared for the 25th IMP conference Jens Hultman1, Susanne Hertz1, Rhona Johnsen2, Thomas Johnsen2 1: Jönköping International Business School, P.O Box 1026, SE-551 11 SWEDEN E-mail: jens.hultman@ihh.hj.se, susanne.hertz@ihh.hj.se Tel: +46 0(36) 10 10 00 2: Audencia Nantes School of Management, 8 Route de la Joneliere, BP 31222 – 44312 Nantes Cedex 3, France. E-mail: tjohnsen@audencia.com; rjohnsen@audencia.com Tel: + 33 (0)240 37 46 25 Abstract This study explores the dynamic process of global sourcing development through a case study of the Swedish home furnishing giant IKEA and its supply network concerning the PAX wardrobe system. The paper provides a synthesis of the existing global sourcing literature by dividing this growing body of research into three major themes: globalization processes and stages, motives/drivers, and organizational design and management. Moreover, the paper integrates the global sourcing literature with the established literature on the internationalization process of firms. Comparing the existing research on global sourcing and internationalization, we propose two research questions focused on: (1) the ways in which the IKEA global sourcing and supply chain development process resembles a linear stages process, and (2) the principal drivers of the development of global sourcing within IKEA. Relating the findings of the global sourcing process in the case of IKEA, the paper suggests...
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...IKEA’s Global Sourcing Challenges Professor’s Name [optional] University The stakeholders of IKEA- Stakeholders are groups or individuals (customers, employees, suppliers, communities, and shareholders or other financiers) who can affect or be affected by the successes and failures of a business. In case of IKEA, their customers who bought furniture form them in 70 nations, all the employees who work for IKEA in 70 countries all over the globe, their suppliers all over the world who supply IKEA with the raw-material as well as furnished furniture, and all those who financed the company to open its stores and make primary investments in the 70 countries, for its geographical expansion are the “real stakeholders of IKEA”. IKEA was founded in the early 1950s, but in the mid of the 1960s it became a global furniture manufacturing company. During its expansion all around the globe, Ingvar Kampard (the founder of IKEA) opened multiple stores in different countries, some of them were self-financed by him while others were assumed to be opened as the tie up between the company’s and their stockholders (for finance) in that company, especially, those who financed the company to open the chain of stores on the foreign land. Also, when some problem arises in the indigenous market when Sweden’s local large furniture retailers threatened and all the sourcing and suppliers were blocked and even small retailers were ordered not to sell IKEA’s product, under that circumstance, IKEA has to...
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...9-906-414 REV: NOVEMBER 14, 2006 CHRISTOPHER A. BARTLETT VINCENT DESSAIN ANDERS SJÖMAN IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) In May 1995, Marianne Barner faced a tough decision. After just two years with IKEA, the world’s largest furniture retailer, and less than a year into her job as business area manager for carpets, she was faced with the decision of cutting off one of the company’s major suppliers of Indian rugs. While such a move would disrupt supply and affect sales, she found the reasons to do so quite compelling. A German TV station had just broadcast an investigative report naming the supplier as one that used child labor in the production of rugs made for IKEA. What frustrated Barner was that, like all other IKEA suppliers, this large, well-regarded company had recently signed an addendum to its supply contract explicitly forbidding the use of child labor on pain of termination. Even more difficult than this short-term decision was the long-term action Barner knew IKEA must take on this issue. On one hand, she was being urged to sign up to an industry-wide response to growing concerns about the use of child labor in the Indian carpet industry. A recently formed partnership of manufacturers, importers, retailers, and Indian nongovernmental organizations (NGOs) was proposing to issue and monitor the use of “Rugmark,” a label to be put on carpets certifying that they were made without child labor. Simultaneously, Barner...
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...9-906-415 REV: NOVEMBER 14, 2006 CHRISTOPHER A. BARTLETT VINCENT DESSAIN ANDERS SJÖMAN IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (B) After more than a decade spent struggling with the issue of child labor, Marianne Barner felt good about how IKEA had responded. But occasionally, she found herself wondering whether the progress the global furniture retailer had made was real and durable. Just as it had in the mid-1990s, in 2005 the company could still find itself on the defensive in dealing with the issue. Even more troubling to Barner was that after 10 years of working to prevent child labor among IKEA’s suppliers— introducing a clear code of conduct, developing internal controls and third-party audits, training its suppliers, supporting their corrective actions, and instituting stiff sanctions against offenders—the company was still finding cases of child labor in its supply chain. The latest issue had been drawn to Barner’s attention by Kaisa Mattson, the head of IKEA’s compliance office in south Asia. Like Barner herself a decade before, Mattson was facing the decision of whether to terminate a relationship with a long-standing major supplier. This one, however, had violated not one but several items in IKEA’s detailed code of conduct, known as “The IKEA Way on Purchasing Products”—or IWAY for short. Venkat Industries was a textile mill with over 10,000 workers, and a recent audit had shown that it had stopped using the water treatment plant it had...
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...S ustainable sourcing and procurement Sourcing and procurement as driving forces for sustainable business b y Helen van Hoeven, Lean & Green Foreword President Obama recently said that there are only two kinds of car companies: those that sell hybrid cars and those that will sell hybrid cars in the near future. The same is true for sustainability in supply chains. There are companies that source and sell more sustainable products and there are those that will do so in the near future. With a world soon populated by nine billion people and over two billion new middle-class citizens, traditional sourcing and selling will simply be a no. You are either on the pathway to sustainable development or you are out of business. The challenge of sustainability is reshaping the relation ship between business and society. Industry needs to better manage natural resources and significantly lower its global ecological footprint. And companies need to engage much better with suppliers and workers in the emerging and developing economies. The mission of the Dutch Sustainable Trade Initiative (IDH) is to upscale and accelerate the mainstreaming of sustainability in international commodity chains. IDH joins the forces of business, non-governmental organisations, labour unions and governments. We bring diverse stakeholders together in focused and result-oriented sectoral coalitions that implement ambitious improvement programmes. These programmes tackle social, ecological and economical bottlenecks...
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...IKEA The Impact of Globalisation Definition of Globalisation Globalisation is the process by which organisations or businesses start operations on an international scale by committing facilities and resources in foreign countries. The International Monetary Fund, (IMF) continues to believe that this will lead to global convergence through aspects of trade and transactions, capital and investment movements, migration and the movement of people and dissemination of knowledge. Mission Statement - “to create a better everyday life for the many”. Focus Areas & Goals:- Children: IKEA believe that children are the most important people in the world. By supporting their local communities, they hope to assist in children to achieve their fullest potential through development and learning. IKEA has experience in this area and can make a difference. Environment: “Low Price, but not at any price”. IKEA aim to have a positive impact on the local environment and how their business may impact upon it. Their store effectiveness, is measured on how environmentally responsible they are. (IKEA.com (2012). About IKEA, The IKEA Way) Introduction Ingvar Kamprad was born in 1926 on a farm called Elmtaryd, in the small Swedish village of Agunnaryd. At the young age of just 5, he was already showing that he was to become a successful entrepreneur by selling matches to his parent’s friends and neighbours and within two years was selling further afield by travelling to other villages on...
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...Case study : How IKEA adapted its strategies to expand & become profitable in China Executive Summary: IKEA is known globally for its low prices and innovatively designed furniture. In China, however, it faced peculiar problems. Its low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs. This case study analyses how IKEA adapted its strategies to expand and become profitable in China. It also assesses some lessons the company learnt in China that might be useful in India, where it plans to open its first store by 2014 and 25 stores in 10 to 15 years. Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943. He began by selling pens, wallets and watches by going door to door to his customers. When he started selling his low-priced furniture, his rivals did everything to stop him. Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. What did IKEA do? It innovated to stay in business. It learnt how to design its own furniture, bought raw material from suppliers in Poland, and created its own exhibitions. Today, IKEA is the world's largest furniture retail chain and has more than 300 stores globally. In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs...
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...IKEA’s Global Sourcing Challenge IKEA, one of the world’s largest specialized furniture retailers, has been presented with a large issue within their operations. In 1995, a German TV station released an investigative report which exposed one of the suppliers for IKEA rugs for exploiting child labor in their factory. A recent addendum was signed by all IKEA suppliers which forbid the use of child labor (Bartlett & Sjoman, p. 1, 2006), so this incident has called the company to make an action based on the accusations at hand. The amount of turnover that is accounted from Indian rugs for IKEA is small on the full scale, and made the company question whether or not the product line was worth the profit potential. The following will be an analysis of the history of IKEA’s manufacturing, external forces related to the presented issue, rising issues, and recommendations for the company’s future moves. History of IKEA’s Manufacturing Though IKEA is one of the largest brands in the furniture industry, the company has been involved with some environmental issues related to their manufacturing. In the 1980s, IKEA’s products were subject to investigation as they were observed to emit more than allowed levels of formaldehyde (Bartlett & Sjoman, p. 5, 2006). The issue occurred from suppliers buying materials from sub suppliers, which resulted in the product not passing the regulations placed by legislation. The company began to change the way they worked with their suppliers...
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...directly at IKEA and one of its suppliers. The best defense is to take this opportunity to fight back. • Since IKEA already signed agreement on not using child labor, they can’t ignore the challenge this program may bring. • IKEA has gained some positive accomplishments to the child labor issue and took actions to eradicate child labor. It is a good chance to further publicize their efforts. • Marianne should prepare herself well by analyzing the situation of that year (May 1995) before going to the program; Rangan Exports should be investigated by both independent 3rd party auditors and IKEA before the program. • It is the opportunity to communicate with the public regarding Ikea’s long-term strategy with accurate milestones to prevent child labor, in response to their social responsibility. • If Marianne is not outspoken, an eloquent person from the senior management who is familiar with IKEA’s child labor issue and company’s stand should go to the program. 2. Should IKEA continue to deal with Rangan Exports? • No. Rangan Exports apparently violated the contractual commitment it had made not to use child labor. Legally speaking, IKEA should terminate the contact right away. • In 1994 after the Pakistan child labor issue, IKEA already had a clause to all supply contracts, stating that if the supplier employed children under legal working age, the contract would be cancelled (a “black-and-white” clause). • By halting the contract with Rangan Exports, IKEA sends a clear...
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...“IKEA – A Long March to the Far East” Global Strategic Marketing Case Study Table of Contents 1 Introduction to the case 2 2 Critically and systematically analyse the global strategic advantages of IKEA 3 2.1 Branding , designer appeal 3 2.2 Critical mass, low cost, low price 3 2.3 Quality, green credentials 3 2.4 Global appeal, local sensitivity 3 3 What were the key challenges that IKEA faced in a) China and b) Japan? 4 3.1 Key challenges faced by IKEA in China 4 3.1.1 Cultural 4 3.1.2 Structural 4 3.2 Key challenges faced by IKEA in Japan 4 4 Critically discuss the marketing strategies used to address the challenges the company faced in China and in other markets. 6 4.1 China 6 4.2 Other markets 7 5 Discuss and justify what IKEA’s marketing strategies should be in the future in these two markets. 8 5.1 China 8 5.2 Japan 8 6 Conclusions 9 7 Bibliography 10 1 Introduction to the case From humble origins in the woods of Sweden in 1926, IKEA has developed into a major retail experience in 41 countries / territories around the world, with a current turnover of €23.1 Billion (IKEA, 2010). This case study explores the establishment and development of IKEA’s retail ventures in China and Japan – its first moves outside westernised countries and its first significant retail activity in Asia, despite substantial sourcing activity in the region, and discusses how IKEA might continue its market development...
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...Ikea Strategy in China I. Ikea strategy in China II. Comparison Supor, ASD and Ikea (regarding to cookware) Sources I. Ikea in China IKEA has been in the Chinese market for more than 10 years. Ikea is used to be perceived as having low prices, this also one of the competitive cornerstones of the whole concept of Ikea. But this is not the case in China: here the perception is a fairly exclusive western retailer, a store for the higher middle class. The company realized this and started targeting the young middle class population, which are between 25 and 35 who have relatively higher incomes than the average and a higher education than the average. They are often more open to a Westernized lifestyle, and in most instances. Targeting this segment helped IKEA project itself as an inspirational western brand. This was a huge change in strategy, as IKEA was targeting the mass market in other parts of the world. Chinese see Ikea products as innovative and not traditional. Square tables are for example not traditional (round tables are tradition) and many of the colours used are not traditional to the Chinese. The Chinese Ikea stores have a special set of tea cups for the Chinese...
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...Case Study of IKEA’s Global Sourcing Challenge In 1995, IKEA met a problem that its main supplier, Indian rugs, used the child labor to produce products, although they had signed an attachment of the contract to ban employing child labor. In addition, a German documentary maker was about to broadcast the problem of child labor on German television and also invited an employee from IKEA to have a live discussion in the TV program. Marianne Barner, the leader of IKEA, must find a great solution to this serious issue to both save her business and the corporation’s brand image. In this issue, IKEA was not the one who produced products, so they might not realize the use of child labor in the process of production. In addition, child labor did not attract lots of attention from the society at that time, so they did not pay attention to the use of child labor when they were finding their suppliers. However, they sold terminal products so they were to blame. As a result, Marianne had to make several decisions, respectively about whether IKEA should accept the invitation to join the TV program, how to deal with the broken contract with Rangan Exports, how to deal with the child labor on the long term and whether IKEA should use Rugmark. To address this problem and make these decisions, IKEA has four choices. One is that IKEA could utilize its own relationship with its suppliers to solve the issue. The second choice for IKEA is to invite Rugmark Foundation on its behalf to monitor the...
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...CHAIN MANAGEMENT TERM PAPER ON IKEA’S SOURCING, DISTRIBUTION STRATEGY AND ITS GREEN SUPPLY CHAIN MANAGEMENT BY: SUBMITTED TO: KANIKA MURARKA Dr. P R S SARMA 1226113122 MBA-IB IIIrd TRIMESTER INTRODUCTION IKEA Group (IKEA) is a global retailer of Scandinavian designed furniture and accessories founded in Sweden in 1943. It has operations in 44 countries across Europe, North America, Asia and Australia and is headquartered in Delft, Netherlands. It employs 13000 people and sells 9500 home furnishing products in 298 retail stores worldwide. IKEA recorded revenues of $36101.5 million during the financial year ended in August 2012, an increase of 9.8% over 2011. IKEA offers a range of furniture for living rooms, bedrooms, kitchens and children’s rooms. Its emphasis on providing home furnishing products at low prices has been the main reason for the widespread customer acceptance of its products which, in turn, has facilitated its growth in various geographies. The company designs, manufactures, transports, sells and assembles its merchandise to minimize cost at each level. To help keep prices low, the group ensures that production equipment and raw materials are used efficiently. Customer involvement also contributes to low prices. IKEA relies on customers to choose, collect, transport...
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...Stirling FK9 4LA, Scotland, UK Department of Business Administration, Lund University, P.O. Box 7080, SE-220 07 Lund, Sweden c Department of Communication Studies, Lund University, Campus Helsingborg, PO Box 882, SE-251 08 Helsingborg, Sweden b a r t i c l e in fo Available online 29 September 2010 Keywords: IKEA Retail internationalisation Retail marketing mix Standardisation Sweden the UK China abstract IKEA is often cited as an example of a ‘global’ retailer which pursues a similar ‘standardized’ approach in every market. This paper systematically assesses the degree of standardisation (and adaptation) of four commonly identified retail marketing mix activities – merchandise, location and store format, the selling and service environment, and market communication – within three countries. These countries – Sweden, the UK and China – represent different cultural settings and are markets in which IKEA has been operating for different lengths of time. The data upon which the comparison is based was generated from personal interviews, in-country consumer research, company documentation and third party commentaries. The conclusions drawn suggest that whilst IKEA operates a standardized concept, degrees of adaptation can be observed in customer facing elements, and in the supporting ‘back office’ processes which support these elements. These adaptations arise from differences in consumer cultures and the length of...
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