Global Sourcing Challenges of Ikea

In: Business and Management

Submitted By hannahannah
Words 1056
Pages 5
The global sourcing challenges of IKEA
Who does not know IKEA? Famous for its design and very affordable house furniture, IKEA is the leader on its market. Founded in 1943 by Ingvar Kamprad this business grew tremendous fast that it has become the reference in term of low-cost self assemble furniture in the world.
The sourcing strategy of IKEA follows a manufacturing Code of Conduct towards its suppliers named “The IKEA Way in Purchasing Home Furnishing Products” (IWAY) . Besides this code, the strategy is rather well established especially regarding the relationships between the company and its suppliers from the economically developing countries. But the question is; are Ikea’s international procurements processes efficient? Can they be improved?
This essay will focus on Ikea’s global sourcing’s tradeoffs and will highlight the way they can be enhanced. The first part of this essay will describe the regular sourcing process of IKEA including the strategy, the second part will emphasize how the sourcing should be done to be successful and the last part will provide recommendations about the processes according to the analysis.

For a company, global sourcing is basically choosing different suppliers all around the world in order to use worldwide efficiencies and reduce costs. Global sourcing offers various advantages such as low cost materials and skilled labour, diminution of lead times, and also economical advantages like low taxes or low trade tariffs. These benefits will directly be related to the production costs and the final products. That is why global souring is an important factor in the procurement process, which should not be neglected.
Through the last twenty years IKEA’s sourcing strategy has seen many changes. One of the first improvements was a reduction in the number of suppliers. In fact, in 1990, IKEA counted 2500 suppliers; the brand has…...

Similar Documents

Global Sourcing Development at Ikea – a Case Study

...Abstract preview Global Sourcing Development at IKEA – a Case Study Paper prepared for the 25th IMP conference Jens Hultman1, Susanne Hertz1, Rhona Johnsen2, Thomas Johnsen2 1: Jönköping International Business School, P.O Box 1026, SE-551 11 SWEDEN E-mail: jens.hultman@ihh.hj.se, susanne.hertz@ihh.hj.se Tel: +46 0(36) 10 10 00 2: Audencia Nantes School of Management, 8 Route de la Joneliere, BP 31222 – 44312 Nantes Cedex 3, France. E-mail: tjohnsen@audencia.com; rjohnsen@audencia.com Tel: + 33 (0)240 37 46 25 Abstract This study explores the dynamic process of global sourcing development through a case study of the Swedish home furnishing giant IKEA and its supply network concerning the PAX wardrobe system. The paper provides a synthesis of the existing global sourcing literature by dividing this growing body of research into three major themes: globalization processes and stages, motives/drivers, and organizational design and management. Moreover, the paper integrates the global sourcing literature with the established literature on the internationalization process of firms. Comparing the existing research on global sourcing and internationalization, we propose two research questions focused on: (1) the ways in which the IKEA global sourcing and supply chain development process resembles a linear stages process, and (2) the principal drivers of the development of global sourcing within IKEA. Relating the findings of the global sourcing process in the case of IKEA, the......

Words: 11008 - Pages: 45

Ikea-the Global Retailer

...CHAPTER 6 Closing Case: IKEA – The Global Retailer IKEA may be the world’s most successful global retailer. Established by Ingvar Kamprad in Sweden in 1943 when he was just 17 years old, the home furnishing superstore has grown into a global cult brand with 230 stores in 33 countries that host 410 million shoppers a year and generates sales of €15 billion ($18 billion). Kamprad himself, who still owns the private company, is rumored to be the world’s richest man. IKEA’s target market is the global middle class who are looking for low priced but attractively designed furniture and household items. The company applies the same basic formula worldwide – open large warehouse stores festooned in the blue and yellow colors of the Swedish flag that offer 8,000 to 10,000 items from kitchen cabinets to candlesticks. Use wacky promotions to drive traffic into the stores. Configure the interior of the stores so that customers have to pass through each department to get to the checkout. Add restaurants and child care facilities so that shoppers stay as long as possible. Price the items as low as possible. Make sure that product design reflects the simple clean Swedish lines that have become IKEA’s trademark. And then watch the results – customers who enter the store planning to buy a $40 coffee table and end up spending $500 on everything from storage units to kitchen ware. IKEA aims to reduce the price of its offerings by 2-3 percent per year, which requires relentless......

Words: 805 - Pages: 4

Case 8-2 Ikea’s Global Sourcing Challenge

...Case 8-2 IKEA’s Global Sourcing Challenge. 1. How should Marianne Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program? I suggest Marianne Barner to refuse to appear on the upcoming broadcast of the German Video Program. Every coin has two sides. Accepting this invitation is the opportunity for IKEA to quickly response the child labor issue in public media. In this way, IKEA could assure that they will be more aware of social responsibility and potential upcoming social issues in the future. However, the German Video Program won’t allow the company to preview the video and that the program clearly “planned to take a confrontational and aggressive approach aimed directly at IKEA”. If they go to the invitation with no preparation of what kinds of issue and questions could probably be faced with, it might potentially mislead by the videos or questions they answered in the show. Therefore, Marianne Barner should politely refuse the invitation and respond the video when they have a chance to review and verify the truth in the video. While, in the meantime, IKEA have time to investigate the truth and assign more policies to against child labor issue for their suppliers. 2. What actions should she take regarding the IKEA supply contract with Rangan Exports? IKEA should sent out the investigation term to figure out the truth whether the Rangan Exports failed in compliance with the......

Words: 831 - Pages: 4

Case Study: the Global Sourcing

...Case Study: The Global Sourcing Wire Harness Decision Calvin Smith Westwood College Professor Rivers MGMT 350 2/8/15 The Global Sourcing Wire Harness Decision 1. Quote 1 Original Wire Quote: Unit price = $30 * Packing costs = $.75 per unit * Tooling = $6,000 onetime fixed charge * Freight cost = $5.20 per hundred pounds Yearly Unit Cost = ((monthly demand*12) * (unit cost + packaging cost)) + tooling charge Yearly Unit Cost = ((60000)*(30+.75)) + 6000 Yearly Unit Cost = (60000*30.75) + 6000 = $1,851,000 Yearly Unit Cost = $1,851,000 Unit Cost = Yearly Unit Cost / Yearly Demand Unit Cost = $1,851,000 / 60,000 Unit Cost = $30.85 Yearly Freight Cost = # of units * unit weight * freight cost Yearly Freight Cost = 60,000 * 10 * .0520 Yearly Freight Cost = $31,200 Unit Freight Cost = $31,200/60,000 = .52 Total Unit Cost = Unit Cost + Freight Cost Total Unit Cost = $30.85 + $0.52 Total Unit Cost = $31.87 2. Quote 2 2. Happy Lucky Assemblies Quote: * Unit Price = $19.50 * Shipping Lead Time = Eight Weeks * Tooling: $3,000 Yearly Unit Cost = ((monthly demand*12) * (unit cost + packaging cost)) + tooling charge Yearly Unit Cost = ((60000)*($19.50+.00)) + 3,000 Yearly Unit Cost = (60000*19.50) + 3000 Yearly Unit Cost = $1,173,000 Unit Cost = Yearly Unit Cost / Yearly Demand Unit Cost = $1,173,000 / 60,000 Unit Cost = $19.55 Monthly Freight Cost = $41,366 Unit Freight Cost = $41,366/5000 =......

Words: 377 - Pages: 2

Global Sourcing

...now. The co-founder is actually Michael Marks and later joined by Thomas Spencer in 1894 to create Marks & Spencer. The main product which produced by Marks & Spencer is clothing line and then expand to food industries. Marks & Spencer are successful because of they know how to apply the sourcing strategies within their supplier around the world. There are two types of strategies implemented by Marks & Spencer, combination of in-house and third party manufacturing for food s line and third party contracting or sourcing for clothing section. Tesco is the choice from us to compete with Marks &Spencer; Tesco had their own sourcing strategy to compete with their rival within the same industries line such as group food sourcing (GSF) and regional supply base making the right product at affordable pricing. Tesco do developed its own brand which is cheaper in price and better qualities control. The last sourcing Strategies is Sourcing global, which they have contract with the supplier around the world. The sourcing strategy for Marks and Spencer has disadvantages and advantages which affect the company performance. Lastly, we recommended enhancement in their sourcing strategy by comply with China supplier in Clothing line or green field investment in China. Company Background (Mark & Spencer) The years of Marks & Spencer established was in 1958, and it has since become an icon of quality and style. At the beginning, Marks & Spencer were trading......

Words: 4197 - Pages: 17

Ikea's Global Sourcing Challenge - Indian Rugs

...9-906-414 REV: NOVEMBER 14, 2006 CHRISTOPHER A. BARTLETT VINCENT DESSAIN ANDERS SJÖMAN IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) In May 1995, Marianne Barner faced a tough decision. After just two years with IKEA, the world’s largest furniture retailer, and less than a year into her job as business area manager for carpets, she was faced with the decision of cutting off one of the company’s major suppliers of Indian rugs. While such a move would disrupt supply and affect sales, she found the reasons to do so quite compelling. A German TV station had just broadcast an investigative report naming the supplier as one that used child labor in the production of rugs made for IKEA. What frustrated Barner was that, like all other IKEA suppliers, this large, well-regarded company had recently signed an addendum to its supply contract explicitly forbidding the use of child labor on pain of termination. Even more difficult than this short-term decision was the long-term action Barner knew IKEA must take on this issue. On one hand, she was being urged to sign up to an industry-wide response to growing concerns about the use of child labor in the Indian carpet industry. A recently formed partnership of manufacturers, importers, retailers, and Indian nongovernmental organizations (NGOs) was proposing to issue and monitor the use of “Rugmark,” a label to be put on carpets certifying that they were made without child labor. Simultaneously,......

Words: 6420 - Pages: 26

Global Sourcing

...Global Sourcing What are some of the risks of buying overseas that one can avoid by buying from domestic sources? Some risks of buying overseas that can be avoided through buying from domestic sources include: Conducting business with immature suppliers causes risk as you do not have the same relationship and history with them that you do with suppliers you have worked with for years. You are unable to have regular ‘in person’ meetings and make assumptions that can taint your potential to have a great relationship. Unreliable delivery is also a risk which can be avoided (or reduced) by procuring from domestic sources. When a supplier is closer, or domestic, your timelines are shorter and more predictable. Quality can be a risk as you might not get the same quality you expected or ordered. It is more difficult to return and/or exchange the product. There is risk with foreign currency due to the fluctuations in the rate of foreign currency Transaction costs and the other costs related to communication and monitoring the network of suppliers, intermediaries and logistic providers can be reduced by buying domestically. 2. Purchase contracts issued by Barbara’s firm provide for the goods to be produced, shipped, and received within five months of the date the contract is issued. Should the monetary amounts specified in the contract be in U.S. dollars or in the currency of the nation where the manufacturer is located? Why? When your business transacts in......

Words: 1115 - Pages: 5

Ikea Global Sourcing Challenge

...Background: IKEA was founded by Ingvar Kamprad who embedded his strongly held values and beliefs in IKEA’s culture. IKEA was created out of Kamprad’s family kitchen selling goods such as fountain pens, cigarette lighters and binders that later turned into a catalog business operations selling furniture. In developing IKEA’s furniture retailing business model, Kamprad was confronted with a cartel of furniture manufacturers that kept prices high by controlling the Swedish industry. This issue later became the vision of the company “creating a better life for the many people”. IKEA also introduced their key feature of self-assembled furniture where customers bought furniture in flat packages and put them together at home. This was known as the “knockdown” concept that allowed IKEA to save on transportation and storage costs. Conflict with the cartel of furniture manufacturers in Sweden forced IKEA to source materials from abroad. To maintain IKEA’s quality and delivery, IKEA taught their processes and provided machinery to their suppliers in Poland. After expanding their suppliers globally, IKEA created a general procurement principle that that stated IKEA should develop close ties by supporting its suppliers with a long-term relationship. By the mid-1990s IKEA worked with 2,300 suppliers in 70 countries. IKEA has 24 trading service offices in 19 countries that monitor production, test new product ideas, negotiate prices, and check quality. Since 1980’s IKEA has been looked......

Words: 1480 - Pages: 6

Ikea's Global Sourcing Challenge

...IKEA’s Global Sourcing Challenge IKEA, one of the world’s largest specialized furniture retailers, has been presented with a large issue within their operations. In 1995, a German TV station released an investigative report which exposed one of the suppliers for IKEA rugs for exploiting child labor in their factory. A recent addendum was signed by all IKEA suppliers which forbid the use of child labor (Bartlett & Sjoman, p. 1, 2006), so this incident has called the company to make an action based on the accusations at hand. The amount of turnover that is accounted from Indian rugs for IKEA is small on the full scale, and made the company question whether or not the product line was worth the profit potential. The following will be an analysis of the history of IKEA’s manufacturing, external forces related to the presented issue, rising issues, and recommendations for the company’s future moves. History of IKEA’s Manufacturing Though IKEA is one of the largest brands in the furniture industry, the company has been involved with some environmental issues related to their manufacturing. In the 1980s, IKEA’s products were subject to investigation as they were observed to emit more than allowed levels of formaldehyde (Bartlett & Sjoman, p. 5, 2006). The issue occurred from suppliers buying materials from sub suppliers, which resulted in the product not passing the regulations placed by legislation. The company began to change the way they worked with their suppliers...

Words: 1231 - Pages: 5

Ikea - Expanding Global

...IKEA: Expanding globally Introduction……………………………………………………………………………….3 1. A learning organization: understanding the culture of learning and innovation….3 2.1 General concept of learning organization……………………………………3 2.2 IKEA – a learning organization in various market:………………………….4 2. IKEA’s internationalization strategy ……………………………………………..6 3.3 Internationalization strategy from 1974 onwards ……………………………6 3.4 From the perspective of internationalization theories: ………………………7 3. Issued considered in international market research and opportunity analysis: ….9 3.1The Japanese and Chinese market: ……………………………………………9 3.2 The Brazilian market: ………………………………………………………..9 4. IKEA’s entry mode strategy: …………………………………………………...12 5.5 Subsidiaries………………………………………………………………….13 5.6 Franchising………………………………………………………………….13 Summary Introduction Globalization is now playing an important role in the growth of economies across the world. The rapid growth of its process has led to social, economic, technical, cultural and ecological interdependence among nations. It also provides new and potentially profitable markets, increases firms’ competitiveness, facilitates access to new product ideas, manufacturing innovations. Thanks to its numerous advantages, the world is moving closer together and a great deal of organizations has great opportunities to expand their market to foreign ones. IKEA, the world’s largest furniture retailer, did......

Words: 4016 - Pages: 17

Global Challenges in It

...Global Issue | Challenge (Yes or No) | Why is it a challenge | Cultural challenges |  YES | Different countries vary * Tastes * Gestures * Treatment of people * Ethical issuesThis difference can significantly affect individuals and organizations involved in global trade. | Language challenges |  YES | * International parties must agree on common language * Data not transmittable internationally because information must be translated; computers still cannot accurately translate on the fly * English considered de facto international language * Many countries require accounting systems to be in the local language | Time and distance challenges |  YES | * Crafting policies that work for employees, customers, and IS for all time zones * Time stamping | Infrastructure challenges |  YES |  High-quality electricity and water might not be available in certain parts of the world. * Telephone services * Internet connections * skilled employeesmight be expensive or not readily available. | Currency challenges |  YES | The value of different currencies can vary significantly over time, making international trade more difficult and complex | Product and service challenges |  YES | Traditional products that are physical or tangible, such as a car or bicycle, can be difficult to deliver to the global market. However, electronic products (e-products) and electronic services (e-services) can be delivered to customers electronically, over the phone,......

Words: 409 - Pages: 2

Human Rights and Global Sourcing

...After a few years of IKEA undergoing speculation of unreliable suppliers in countries such as India, Pakistan, and Nepal whom used child labor freely throughout their practices, Ikea’s business area manager of carpets, Marianne Barner, was faced with a dilemma that she was quickly forced to overcome, change, and improve. In 1995, a well-known German TV reporter broadcasted an ongoing investigation report naming a main supplier of Ikea used child labor in their work place. Although this supplier claimed to recently sign an agreement in their IKEA contract forbidding the use of child labor or else termination, recent video and still-photographs have proved otherwise. In a whirl-wind of events, Barner was forced to look into alternatives to help save the reputation and image of IKEA as well as maintaining a profit. Three of these alternatives that Barner juggled that were stated within the case included: 1. Sign up to an industry wide response to growing concerns of child labor in India – monitoring manufacturers, importers, and retailers to use the new label of RUGMARK: a label on carpets that states they were made without the use of child labor. 2. Barner started conversing with the Swedish “Save the Children” organization who urged Ikea to respond to this situation in “the best interest of these children,” whatever that change may be. 3. Cut the use of these companies within India to lessen the loss of a profit for the company IKEA. Before......

Words: 2288 - Pages: 10

Mro Sourcing Goes Global

...MRO Sourcing goes global Tammy Johnson Project Procurement Management: INF336 Professor Lori Deere April 09, 2012 MRO Sourcing goes global The three practices that I found to talk about from this article are; make and buy, outsourcing, and subcontracting. The best way that I could describe these steps and practices that in the company that I work are to improve using the make and buy practice. The first thing that is some of the materials and things that have there at the scooter store, like other power chairs and scooters parts to fix another scooter or power chair and then only buy new stuff when it is absolutely necessary. Most of the power wheel chairs and scooters have a lot of similar parts therefore we should not buy new parts every time we should make some of the old parts fit other chairs. Outsourcing according to the textbook “when they decide to buy something they had been making in-house previously. The outsourcing that comes to mind for the company that I am currently employed is the same thing that I spoke of in the weekly discussion. That outsourcing is the payroll being done by an outside source that is a certified public accountant (CPA) does and not anybody that works right in the company with all of us. Then nobody has to worry about friends taking care of their friend and messing over somebody else with their time and their payroll. The subcontracting that I found in the article is sort of like power wheel chairs and......

Words: 357 - Pages: 2

Global Sourcing

...Global Production and Sourcing. Introduction: For this project I will be looking into the specific requirements TU at Sainsbury’s require around specific product types. I will be looking into Sainsbury’s TU toddler boy’s jersey wear. Researching into two countries of origin I will be looking into what management conditions, technological and economic issues that surround the choice from where Sainsbury’s choose to and how they are sourced and manufactured. Sainsbury’s was founded in England, London in 1869 by John James Sainsbury, and grew rapidly during the Victorian era. Sainsbury’s grew to become the largest grocery retailer in 1922, pioneered self-service retailing in the UK, and had its peak of success during the 1980s. However in 1995 Tesco overtook Sainsbury’s to become the market leader, and Asda became the second largest in 2003, putting Sainsbury’s into third place. (Museum of London. Unknown. The Sainsbury’s archive [Online] 22.03.2012) Sainsbury’s launched its TU fashion range in 2004, and is now housed in over 300 stores nationwide. Over the past six years, the retailer has seen its share of the £9.9bn value fashion market more than treble.  The TU clothing range remains the UK’s seventh largest clothing brand by volume, TU kidswear however has gone from seventh place in 2011 to the UK’s sixth largest in 2012. (Drappers online, 2012, Sainsbury’s expected to reveal further gains in clothing market share. [Online] 22.03.2012) The Sainsbury’s TU......

Words: 5637 - Pages: 23

Mro Sourcing Goes Global

...MRO sourcing goes global Harold Montilla Instructor Lori Deere INF 336 Project Procurement Management May 14, 2012 MRO sourcing goes global It is critical for any organization or business to seriously analyze and implement maintenance, repair and operations (MRO) goods and services that will help the company achieve it organizational goals. Johnson, Leenders, & Flynn (2010) explain "Identifying and streamlining key business processes to reduce costs, grow revenues, and manage assets represents an opportunity in most organizations" (p. 77). This is important when applying the concept to maintenance, repair and operations (MRO) goods and services for any company or organization . Scott Singer (as cited in Avery, 2009) tells us "You want a superior unit price, a fair and reasonable mark up and a fulfillment model that provides the service you need" (line 3). With the advent of the globalization of world markets, companies have been forced to transform their strategic plan to accommodate these new emerging markets and competitors around the globe. This has forced companies to direct their efforts to create a strategic plan for taking care of their maintenance, repair and operations (MRO) goods and services associated to the sourcing strategy. In efforts to alleviate much of the challenges to maintenance, repair and operations (MRO) goods and services of The Department of Defense (DoD), the Defense Logistic Agency (DLA) was created to serve as a government......

Words: 808 - Pages: 4

The Bold Type S01-S02 1080p WEB-DL DD5 1 H 264-NTb | Germany's next Topmodel | Sorry For Your Loss