IKEA's Cost Efficient Supply Chain

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Case Details:

Case Code : OPER084
Case Length : 14 Pages
Period : 1990-2009
Organization : IKEA
Pub Date : 2009
Teaching Note :Not Available
Countries : US, Europe
Industry : Furniture Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Assembled furniture is expensive to transport and store because you end up paying for a lot of air. By flat packing unassembled furniture and getting customers to pick their own products in store, Ikea dramatically reduced its transportation and warehousing costs and passed the savings to their customers" ¹

- Carter McNabb, Partner, GRA², November 2008.

Introduction

On January 01, 2009, Modern Material Handling announced that IKEA Group³ (IKEA), world's largest furniture retailer⁴, had won the Modern's Productivity Achievement Award⁵ for the Warehousing/Distribution segment for the year 2008-09.

Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective.

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1] Jasmine Smith, "Achieving Supply Chain Efficiency," Inside Retailing, November 17, 2008.
2] GRA is an Australia based supply chain consulting company founded in 1997.
3] Inter IKEA Systems BV located in the Netherlands is the owner and franchisor of IKEA concept. The IKEA concept focuses on the company's commitment to product design, customer values and solutions. According to the company, "IKEA concept: At the IKEA store you pick up what you want, take it home and put it together yourself. You do a little work so you don't have to pay someone else to do it for you. And we design our products so they can be made at a low price and then constantly work to push this price even lower."
4] Based on the revenues.
5] Modern Material Handling (MMH) honors companies with Modern's Productivity Achievement Awards every year for making outstanding strides in material handling and related information systems. For the year 2008-09, awards were presented for Manufacturing, Warehousing/ Distribution, and Modern Thinker segments.

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