How IKEA makes its supply chain sustainable?

Last week, we study the case how IKEA designs its supply chain in order to make products more competative with higher cost-benefit. We also look into how Herman Miller add sustainability into its manufacturing process. It is always irresponsible to only focus on present without considering the future. Since IKEA is one of the largest furniture retailer in the world, it has its own responsiblility to provide people a better living world, rather than simply a beautiful living room. I would like to know more about how IKEA attemped to follow the trend of helping develop a more sustainable world, by utilizing resource more efficiently, or improving it supply chain management, or promoting more environmental-friendly prodcut design? I did some research last week and I am going to talk something about IKEA's Modern Sustainable Supply Chain today.

A modern supply chain can have several components, the figure below shows how a normal supply chain in Manufacturing industry like IKEA can be seperated into different sectors. The primary sector includes raw material acquiring, the secondary sector is manufacturing, and the rest of supply chain such as Distribution and Retailer can be categoried into Tertiary sector. One goal of a sustainable supply chain is trying to organize its operation in each sector to pose a positive impact on the environment.

source:http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/introduction.html#axzz2rZOAvZii

Though IKEA doesn't own its Primary sector, it develops a very close relationship with all its raw material supplier. Price is an important factor when it chooses a supplier, but not the only one. In order to make it product environmental-friendly, IKEA has developed a set of standards to measure the quality of materials as well as the impact on the environment.

The tool IKEA used to evaluate the environment impact is called "e-Wheel", which helps IKEA to analyze the four stages of the lifetime of a product, including Resource Extraction, Production, Use, Recycle/End of Life, as well increase suppliers' understanding of sustainability. Some details are as follows:

1. Resource Extraction: Use wood more / Increase the proportion of renewable and recycled raw materials /
    As little raw material as possible should be used

2. Production: Production waste should be reused in the manufacture process / Suppliers must follow the   

    IKEA code of conduct / Strict material and chemical demands from a health perspective

3. Use: The products must be free from substances that cause allergies / Reduce Energy used when the
    material is been used

4. Recycle: Material should be able to be reclaimed and recycled as new raw materials easily

source:http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/introduction.html#axzz2rZOAvZii

Source: http://www.ikea.com/ms/en_AU/about_ikea/our_responsibility/products_and_materials/environmental_design.html

IKEA also developed code of conduct called the IKEA Way of Purchasing Home Furnishing Products (IWAY) for all material supplier and manufacturing to comply with, therefore it is easier for IKEA to keep track with the raw material quality from supplier, as well as improvment in supplier's internel effort on developing a human-friendly and sustainable resource supply process.

General sectors of IWAY includes: 

1. Start-up Requirements          2. General Condition  3. Environment Condition: Air/Noise/Water/Ground

4. Chemicals                            5. Fire Prevention       6. Hazardous and Non-Hazardous Waste 

7. Worker Health and Safety    8. Housing Facility      9. Wages, Benefits and Working Hours

10. Forced and Bonded Labor 11. Child Labor         12. Discrimination

13. Freedom of Association      14. Harassment, Abuse and Disciplinary Actions

Source:http://www.ikea.com/ms/en_US/about_ikea/pdf/SCGlobal_IWAYSTDVers4.pdf

Those suppliers who achieve the goal of eWheel and IWAY will have a volume commitments from IKEA to create long-term partnerships. By committing to buying large volumes in the next few year not only IKEA can negotiate lower prices, but also suppliers will be motivated to undertake sustainable practice with the security of having guaranteed orders.

After ensuring and human-environment-friendly process of raw material supply for supplier by either its eWheel evaluation or its code of conduct, IKEA then begin creating value from raw material by entering its manufacturing process. According to what we have learnt from the class, IKEA will design its own products based on market demand and the given amount of materials. In a environment with fixed variables, a designer's job is to maximize the effectiveness in product's functionality, and the efficiency in using resources.

In Manufacturing sector, IKEA strive to enhence its productivity with lower energy consumption and higher environmental standard. IKEA will also regularly carries out an IWAY audit in manufacuring factoriess, as visits suppliers on-site on a number of occasions to ensure that they are following the code of conduct, to build up a sustainable business activities that have positive impact both on human and environment.

Other than manufacturing process, IKEA also shows it committment in developing sustainbale environment by developing sustainable partnership with UNICEF and WWF and supporting various green practise around the world like the development of forestry plans in China

In Tertiary sector, IKEA is undertaking a leading role in innovation of sustainable logistics and retailing model. These practicew include:
1. Discrete and flatter design and compact packaging help IKEA to delivery more products in every load-carrying unit at a time, reducing both emissions and transport costs
2. Increase usage in Railway and Sea transport for national or international delivery
3. Applying low-energy light bulb to its workforce, and switched its fleet of company cars to low-emission hybrid models
4. Sets a goal in recycle 90% of materials from its waste products
5. Removed plastic carrier bags from its stores completely
6. Encourges employees commute by bike or on public transport by offering subsidised travel tickets

7. IKEA UK has provided low-energy light bulbs to its entire UK workforce and switched its fleet of company cars to low-emission hybrid models.

From all aspects we can see that IKEA have paid a lot of effort on creating a sustainable environment, and a better everyday life for the many people, by innovating the process of selecting suppliers, product manufacturing, delivery and retailing, and making better use of both raw material and energy, to reach its target on promoting a greener world.

Being a leader in global sustainable practise also creates opportunities in IKEA's future business development, such as 

1. A growing demand for greener but cheap products 

2. Reduced cost in energy/water consumption

3. In advanced comply with the stardard of global legislation in sustainable production.

4. Developed social responsibility and reputation, which help gain support from charities such as WWF

5. Being open to and building trust/long-term relationships with all stakeholders

Apart from opportunities, risks and threats may still emerge in IKEA's sustainable business plan:

1. It will affect it low-price policy that may render potential competitors enter its market

2. As a huge organization a single fault that violate its sustainability commitment may have negative impact on IKEA's brandname, while comprehensive monitoring may lead to higher operation cost

Every coin has two side, but i still believe being a responsible company that undertakes global sustainable practise is not only beneficial to the customers, or to our world, but also good for its own business.

Source:
http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/introduction.html#axzz2rZOAvZii
http://ec.europa.eu/environment/ipp/pdf/final_report.pdf