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).

Questions: Total 20 Marks

1. Analyze IKEA's business model.

Suppose there is a linear association between crime rate and percentage of high school graduates.

a) State the full and reduced model

b)Obtain SSE(F), SSE(R), df(F), fd(R), test statistics F for the general linear test and decision rule.

crime rate, high school grad %

  8487    74
   8179    82
   8362    81
   8220    81
   6246    87
   9100    66
   6561    68
   5873    81
   7993    74
   7932    82
   6491    75
   6816    82
   9639    78
   4595    84
   5037    82
   4427    79
   6226    78
  10768    73
   8335    77
  12311    65
  10104    77
  10503    76
   7562    79
   8593    79
   7133    78
  10205    84
  14016    78
   5959    81
   3764    89
   4297    85
   7562    77
   4844    74
   5777    80
   3599    84
   3219    88
  11187    75
   2105    77
   6650    78
  11371    61
   4517    91
   7348    83
   5696    77
   4995    85
   9248    70
   6860    88
   9776    80
   4280    82
  11154    82
   3442    82
   9674    70
   7309    64
   4530    79
   4017    83
   7122    77
   5689    76
   6109    80
   3343    84
   5029    82
   4330    81
   5425    74
   8769    81
   6880    76
   6538    78
   6521    78
   9423    79
   9697    83
   3805    79
   3134    83
   3433    81
   2979    84
   6836    64
   5804    67
   7986    75
  10994    73
  11322    77
   8937    64
   8807    75
  11087    80
  10355    83
   7858    85
   3632    91
   8040    88
   6981    83
   7582    76

Van Hatten Consolidated has three operating divisions: DeMent Publishing Division, Ankiel Security Division, and Depp Advisory Division. Each division maintains its own accounting system but follows IFRS.

(a)

For each division’s revenue arrangements, identify the separate performance obligations, briefly explain the allocation of the transaction process to each performance obligation, and indicate when the performance obligations are satisfied.

​Recently, fixed mortgage rates have been at historical lows due to the housing slowdown. The data table linked below shows the​ 30-year fixed average mortgage rate for the month of December every year between 1987 and 2010. Use these data to complete parts a through e below.

Year   Rate_(%)
1987   10.76
1988   10.82
1989   9.87
1990   9.63
1991   8.55
1992   8.24
1993   7.06
1994   7.49
1995   7.02
1996   7.2
1997   6.67
1998   6.39
1999   7.53
2000   7.57
2001   6.52
2002   6.34
2003   6.49
2004   6.29
2005   6.64
2006   6.48
2007   6.29
2008   5.44
2009   5.22
2010   5.01

    k=1   k=1   k=2   k=2   k=3   k=3
n   d L   d U   d L   d U   d L   d U
15   1.08   1.36   0.95   1.54   0.82   1.75
16   1.10   1.37   0.98   1.54   0.86   1.73
17   1.13   1.38   1.02   1.54   0.90   1.71
18   1.16   1.39   1.05   1.53   0.93   1.69
19   1.18   1.40   1.08   1.53   0.97   1.68
20   1.20   1.41   1.10   1.54   1.00   1.68
21   1.22   1.42   1.13   1.54   1.03   1.67
22   1.24   1.43   1.15   1.54   1.05   1.66
23   1.26   1.44   1.17   1.54   1.08   1.66
24   1.27   1.45   1.19   1.55   1.10   1.66
25   1.29   1.45   1.21   1.55   1.12   1.66

a. Forecast the average December mortgage rate in 2011 using a trend projection.

​(Round to two decimal places as​ needed.)

b. Calculate the MAD for this forecast.

​(Round to two decimal places as​ needed.)

c. Determine the Durbin-Watson statistic.

​(Round to two decimal places as​ needed.)

d. Identify the critical values.

dL=

dU=

​(Round to two decimal places as​ needed.)

Most successful businesses today actively develop loyal customers who buy their brands again and again. After all, getting current customers to buy more is much easier than constantly seeking new customers. In business, it’s called the 80/20 rule—80% of your business revenues come from the most loyal 20% of your customers.

Think of three brands that you buy on a regular basis. Why do you stick to these products? How could another company dislodge you? Discuss. [approximately 200 words]

A debt of $7000 due today is to be settled by three equal payments due 3 months from now, 15 months from now, and 27 months from now. What is the size of the equal payments at 11% compounded annually?

JetAirways flight from Philadelphia to Boston has 350 seats. The high fare on the flight is $1000 and the restricted/low fare is $500. There is ample demand for the low fare class but high fare demand is uncertain. Demand for the high fare is normally distributed with mean 150 and standard deviation of 45. Further, the customers buy low fare tickets well in advance of high fare customers.

1. What is the expected revenue (in thousands) from high fare passengers when a booking limit of 200 is selected for the low fare tickets?

2. The JetAirways Customers’ Bill of rights states that “Customers who are involuntarily denied boarding shall receive $750 in addition to a ticket refund.” The RM department notices that the number of no-shows is normally distributed with a mean of 7.5 and standard deviation of 3. What is the maximum number of reservations in excess of plane capacity that the airline should accept?

**Please show work

Problem I: Suppose you are the manager of Speedy Oil Change which claims that it will change the oil in customers’ cars in less than 30 minutes on average. Further suppose that several complaints have been filed from customers stating that their oil change took longer than 30 minutes. Upper-level management at Speedy Oil Change headquarters has requested that you investigate the complaints. To begin your investigation, you randomly audit 36 oil changes performed by Speedy Oil Change and record the time each customer waited for the oil change. The number of minutes to complete each of the 36 oil changes is reported below.

(data similar to http://org.elon.edu/econ/sac/Descriptive.htm)

In the questions below, you will test if the mean is significantly less than 30 minutes at a significance level of 0.01.

6. Using the confidence interval you created, calculate the range of values that answers the question “how much less than 30 minutes is our mean oil change?”

7. What other factors might you need to consider in order to address the customer complaints?

On October 1, 2020, Isshita Karim established an interior decorating business, Isshita Designs. During the month, John completed the following transactions related to the business:

Oct.       1

.           Isshita transferred cash from a personal bank account to an account to be used for the business, $15,000.

              4.      Paid rent for the month of October, $1,100.

            10.      Purchased a used truck for $7,500, paying 1,500 cash and signing a note payable for the remainder.

            12.      Received $300 in advance for jobs to be performed in November.

13.      Purchased equipment on account, $3,100.

            14.      Purchased supplies for cash, $719.

            15.      Paid annual premiums for property and casualty insurance, $600.

            15.      Received cash for job completed, $1,950.

            21.      Paid creditor a portion of the amount owed for equipment purchased on October 13, $1,500.

            24.      Recorded jobs completed on account and sent invoices to customers, $2,500.

            26.      Received an invoice for truck expenses, to be paid in November, $175.

            27.      Paid utilities bills, $140.

            27.      Paid miscellaneous expenses, $90.

            29.      Received cash from customers on account, 1,700.

            30.      Paid wages to employees, $900.

            31.      Withdrew cash for personal use, $200.

Isshita Designs

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