Question

Assignment specification — Case Study :IKEA Operations Management

IKEA is the one of the most successful furniture retailer globally. With 276 stores in 36 countries, they have managed to develop their own special way of selling furniture. Their stores’ layout means customers often spend two hours in the store – far longer than in rival furniture retailers. IKEA’s philosophy goes back to the original business, started in the 1950s in Sweden by Ingvar Kamprad. He built a showroom on the outskirts of Stockholm where land was cheap and simply displayed suppliers’ furniture as it would be in a domestic setting. Increasing sales soon allowed IKEA to start ordering its own self-designed products from local manufacturers. But it was innovation in its operations that dramatically reduced its selling costs. These included the idea of selling furniture as self-assembly flat packs, which reduced production and transport costs, and its ‘showroom-warehouse’ concept, which required customers to pick the furniture up them-selves from the warehouse (which reduced retailing costs). Both operating principles are still the basis of IKEA’s retail operations process today.

Stores are designed to facilitate the smooth flow of customers, from parking, moving through the store itself, to ordering and picking up goods. At the entrance to each store large notice boards provide advice to shoppers. For young children, there is a supervised children’s play area, a small cinema, and a parent and baby room so parents can leave their children in the supervised play area for a time. Parents are recalled via the loudspeaker system if the child has any problems. IKEA ‘allow customers to make up their minds in their own time’ but ‘information points’ have staff who can help. All furniture carries a ticket with a code number which indicates its location in the warehouse. (For larger items customers go to the information desks for assistance.) There is also an area where smaller items are displayed, and can be picked directly. Customers then pass through the warehouse where they pick up the items viewed in the showroom. Finally, customers pay at the checkouts, where a ramped conveyor belt moves purchases up to the checkout staff. The exit area has service points, and a loading area that allows customers to bring their cars from the car park and load their purchases. Behind the public face of IKEA’s huge stores is a complex worldwide network of suppliers, 1,300 direct suppliers, about 10,000 sub-suppliers, and wholesale and transport operations, including 26 distribution centres. This supply network is vitally important to IKEA. From purchasing raw materials, right through to finished products arriving in its

customers’ homes, IKEA relies on close partnerships with its suppliers to achieve both ongoing supply efficiency and new product development. However, IKEA closely controls all supply and development activities from IKEA’s hometown of Älmhult in Sweden. But success brings its own problems and some customers became increasingly frustrated with overcrowding and long waiting times. In response IKEA launched a programe ‘designing out’ the bottlenecks. The changes included:

• clearly marked in-store short cuts allowing those customers who just want to visit one area to avoid having to go through all the preceding areas;
• express checkout tills for customers with a bag only rather than a trolley;
• extra ‘help staff ’ at key points to help customers;
• redesign of the car parks, making them easier to navigate
• dropping the ban on taking trolleys out to the car parks for loading (originally implemented to stop vehicles being damaged);
• a new warehouse system to stop popular product lines running out during the day;
• more children’s play areas.

IKEA spokeswoman Nicki Craddock said: ‘We know people love our products but hate our shopping experience. We are being told that by customers every day, so we can’t afford not to make changes. We realized a lot of people took offence at being herded like sheep on the long route around stores. Now if you know what you are looking for and just want to get in, grab it and get out, you can.’ Operations management is a vital part of IKEA’s success IKEA shows how important operations management is for its own success and the success of any type of organization.

Of course, IKEA understands its market and its customers. But, just as important, it knows that the way it manages the network of operations that design, produce and deliver its products and services must be right for its market. No organization can survive in the long term if it cannot supply its customers effectively. And this is essentially what operations management is about – designing, producing and delivering products and services that satisfy market requirements. For any business, it is a vitally important activity. Consider just some of the activities that IKEA’s operations managers are involved in:

‑ Arranging the store’s layout to give a smooth and effective flow of customers (called process design).

‑ Designing stylish products that can be flat-packed efficiently (called product design).

‑ Making sure that all staff can contribute to the company’s success (called job design).

‑ Locating stores of an appropriate size in the most effective place (called supply network design).

‑ Arranging for the delivery of products to stores (called supply chain management).

‑ Coping with fluctuations in demand (called capacity management).

‑ Maintaining cleanliness and safety of storage areas (called failure prevention).

‑ Avoiding running out of products for sale (called inventory management).

‑ Monitoring and enhancing quality of service to customers (called quality management).

‑ Continually examining and improving operations practice (called operations improvement).

And these activities are only a small part of IKEA’s total operations management effort. But they do give an indication, first of how operations management should contribute to the business’s success, and second, what would happen if IKEA’s operations managers failed to be effective in carrying out any of its activities. Yet, although the relative importance of these activities will vary between different organizations, operations managers in all organizations will be making the same type of decision (even if what they decide is different).

Question:

1. What do you identify as the ‘operations function’ within IKEA? How is this different from the ‘sales function’?

what is the operational function used in IKEA? and what is the difference between the operation fucntion and sales function within the company?

Answer 1

Any organization has these Departments i.e. Sales & Operations irrespective of their domain. Generally Sales Department focus on company's short term goals i.e. Target achievements based on the predetermined Targets and Operations Department focus on the overall delivery of the product since its inception, in other way Sales is subpart of the Operations.

In this example it can be seen that the Operation functions of IKEA is thorough and well defined. It focus on its functions rigorously by focusing on the following points-

• Cost- Optimization of the Cost through various initiatives and R&D, introducing new strategies like Warehousing like Store, Flat pack products for easy and bulk Manufacturing.
• Quality- Monitoring and ensuring quality parameters
• Time- From production to delivery of the products through introducing self assembly flat packs
• Scope- From defining the store's layout to the emerging technologies to deliver the product though coping with fluctuations in the market.
• Human Resources- Developing a team which focuses at the ease of customer's shopping and satisfaction and also introducing additional help staffs to help customers.
• Communications- Introducing technologies as well as Signage to save customers time and by giving a being home kind of experience by detailed involvement.
• Resource- From production to supply every part of the functions are being monitored and tracked for better experience.
• Procurement- Connecting its Suppliers, Distributors and inhouse teams so that it never outrun its stocks
• Stakeholders- Managing all the Stakeholders from Customer, Employees, Suppliers, Manufacturers effectively.

Where as Operation function deals with the overall operations the Sales function deals with specially sale related activities like followings

• Developing Sales plan and strategies
• Provide detailed and accurate sales forecasting and tracking the same.
• Monitoring customer and competitors to provide feedback to the company for further process.
• Keeping sales team highly motivated so that they can engage themselves with the customer for better customer satisfaction.
• Keeping and Providing input of the stock of the inventory for timely procurement and supply.
• Work with different teams for high efficiency and developing new service offerings.