Ikea Supply Chain: Sustainability

This week, we read about Ikea's "sexy" price tags and the way they are developed. First a product matrix is used to identify missing products, then a price-point is determined, a design is made, and a supplier is selected. Often times products don't become a whole until their parts are purchased in a store (i.e. a chair and it's cushion, etc). However, this article did not mention sustainable initiatives within the supply chain, which is a core concern of the company as evidenced by this case.


Ikea uses an "e-wheel" to assess the environmental impact of their products by identifying what stage of life the resources for a particular product may be in. For instance, some products require raw materials like wood, while others may be shards of fabric used for rugs, recycled plastics, etc. Additionally, Ikea holds it's suppliers to an environmental code of conduct called "IWAY". IWAY complies with international regulations and implements minimum environmental regulations for all suppliers who work with Ikea.

Internally, Ikea designs it's products to use as little materials as possible. Thus chair legs are often  hollow and tables are often filled with a honeycomb texture instead of being completely wood. Additionally, Ikea has created partnerships with several organizations including UNICEF (in an effort to prevent child labor) and the World Wildlife Fund (to promote sustainable forestry and procurement).

In the end, Ikea's supply chain is more sustainable than what meets the eye. Sustainability starts with raw material procurement, supplier standards, internal design, and shipping (as mentioned in the course reading).


Does Ikeas' sustainable supply chain change who their potential customers are? What about its sustainable design, which some consumers may regard as low quality (hollow legs, tables, etc.)? Is Ikea doing enough to promote sustainability as one of it's core concepts to the public?


Case/Article link: http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/introduction.html#axzz2dw7usjj9

Image taken from http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/the-primary-sector.html#axzz2dw7usjj9

IKEA’s intelligent packaging implies LEGO’s bricks

I still remember the first day I walked into an IKEA store in Singapore 4 years ago. It looked like a massive warehouse with an area of exhibition and another area of giant shelves with tons of tidy arranged boxes. What amazed me the most was how IKEA transformed all the eye-catching, complicated-and-beautiful-looking furniture into sturdy rectangular boxes. At that time, I already figured some reasons of IKEA’s decision to break down its product into smaller, easy-carrying packages. The reasons should have been easy enough for a 19-years-old-boy to understand, for example, the purpose was to assist customer to bring the boxes home, even carry them in a bus or put it nicely in a car. It was easy to carry home so it must have been easy to stock and display. That’s how I was thinking when I first purchased my studying table, which had been broken down into 3 boxes (one for the surface and the other two for the legs). I was able to carry all of them on the train during peak hours without any complaint about occupying too many spaces.

After the discussion in the class of Supply Chain Management yesterday, I have found out there are a lot of more reasons IKEA does it that way. Tim Zak, the lecturer, pointed out a few advantages of breaking down a product into flat packages:

1. To maximize the use of space inside shipping containers. 
2. It would lead to the excellent way to reduce the shipping cost while IKEA could transport more items in a single trip. (Based on “How Ikea Design Its Sexy Price Tags” by Lisa Margonelli, the shipping cost could be reduced by 60%, which is a significant savings)
   
   
   
   
   Flat packaging maximize the use of space inside a container 
3. To gain efficiency in the distribution network. IKEA has 28 distribution centers and 11 customer distribution centers in 16 countries. Anyone who manages transportation, for instance, will identify with the point Collins (a journalist from The New Yorker) makes about IKEA’s famously dense, no-waste packaging: “The company’s goal is to design products that can be packed as tightly as possible, minimizing damage and maximizing profit as they are transported over the oceans. Its motto: ‘We hate air.’” 
4. To cut cost because IKEA does not need to assemble all the products. It lets the customers do it by themselves. 
5. Most interestingly, I also discovered by myself that broken-down packaging enables IKEA to outsource globally and resourcefully. For example, based on Christopher Sciacca’s story, when he bought his table and chair from IKEA, he found out that the shelves were from Russia, the computer desk from Poland (pictured below), the chairs from Thailand, the screws from China, and the carpet from India.
   
   
   “The point is, just like in outsourcing and services delivery, you go to where the talent and skills can be found or to complete my analogy you can get the best natural resources. And IKEA seems to have a very good understanding of that, because if they didn't they would be shipping everything out of China and Sweden, which would have a serious impact on quality and cost.”
   (by Christopher Sciacca, from <http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html> )

In conclusion, The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Gaining efficiency and cutting cost in supply chain play an important role in IKEA’s low price strategy. Imagine each package of an IKEA’s product like a brick of the LEGO’s toy, when it joins each other to build beautiful furniture.

 

By Phong Nguyen

Source:  

<http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html>

<http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html>

<http://www.joc.com/packaging-ikeas-supply-chain>