Question

Love it or hate it, IKEA is the most successful furniture retailer ever. 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 a store – far longer than in rival furniture retailers. IKEA’s philosophy goes back to the original business, started in the 1950s in Sweden by Ingwar 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 themselves from the warehouse (which reduced retailing costs). Both of these 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 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 point’ have staff who can help. All furniture carries a ticket with 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 pay at the checkouts, where a ramped conveyor belt moves purchases 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 partnership 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 programme ‘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 it easier to navigate;

• dropping the ban on taking trolleys out to the car parks for laoding (originallly implemented to stop vehicles being

  damaged);

• a new warehouse system to stop popular product lines running out during the day;

• more children’s play area.   

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 realised a lot of people taook offence at being herded like sheep on a 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.’

REQUIRED:

Using appropriate academic sources and supporting evidence from the case study above:

1. Identify and define any FOUR (4) strategic operations management decision areas that IKEA has relied on to innovate its operations. State the objective of each of the four decision areas identified, and for each decision area identified provide two examples of activities used by IKEA to achieve the objective.

Answer 1

Ans

Strategic Operations Management decision	Objective	Example1	Example 2
The idea of selling furniture as self-assembly flat packs	To reduce production and transport cost	The brochures containing the Do it Yourself (DIY) assembly of furnitures	Online videos of the assembly process are available product code wise on their website
The concept of 'showroom-warehouse’ , which required customers to pick the furniture up themselves from the warehouse	To reduce the cost of retailing	a new warehouse system to stop popular product lines running out during the day;	All furniture carries a ticket with code number which indicates its location in the warehouse
Designing the stores to facilitate the smooth flow of customers	To improve the shopping experience for all types of customers	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	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
IKEA relies on close partnership with its suppliers to achieve both ongoing supply efficiency and new product development	High quality and optimize sourcing cost	IKEA has sourcing professionals who visit the supplier factories to assess quality and deveop new products	IKEA gets feedback from the customers to incorporate changes in the product in very short time.