How it has managed to establish close coordination across the globe
Discuss about the Global and Worldwide Supply Chain Management.
Ahi and Searcy (2013) have stated that throughout every phase of the product’s life cycle, worldwide supply chain management experts makes sure that the consumers get the products and services they require and desire in cost effective way from across town or around the globe. Therefore, it can be stated that the global supply chain management professionals play significant and significant role to the winning functioning of the business, healthcare, non-profit organizations and the administrations. From the research works of the market researchers, it can be said that a supply chain refers to the compilation of steps that a corporation takes in order to convert raw material apparatus into the final manufactured goods that is transported to the consumers. Generally, supply chain management has five major steps like planning, making, sourcing, delivering and returning. Therefore, it can be stated that every stage of this specific procedure takes into account professional abilities that are highly significant to accomplishment, from marketing and logistics to data organization and warehousing (Ashby et al. 2012).
In this particular research work, IKEA has been selected to analyze some aspects of global supply chain management. This particular research work would try to shed light on how the company manages to establish close coordination in different parts of the globe. Apart from that, it would discuss that how distinctive research and development investments have assisted the company to enhance their revenues form effective supply chain management. From the company profile, it can be seen that the IKES concept starts from providing an enormous variety of home furnishing products that are easily affordable at a reasonable price. It can be stated that this approach can be achieved by combining several functions that are- sustainability along with quality, design and value of their product. However, it is required to mention that the IKEA concept exists in their design, sourcing, packing as well as distributing through their business model to satisfy the need of their customers. The primary goal of this international corporation has always been to offer a better life at home to every individual (Christopher 2016).
In IKEA, it is a well-known fact that home is more about just the furniture. From the company profile, it can be seen that IKEA always strives to discover ever cheaper labor in the ever cheaper markets. Apart from that, it can be stated that IKEA tends to manage to maintain as well as increase their wide variety of suppliers by creating local offices that monitor the products, but most importantly foster competition and keep the entire production costs low. The article named “IKEA builds on success in Jiangsu” and this explains how IKEA is opening a manufacturing facility in China as a major important part of their strategic plan to quickly expand their supply chain in the Asian market. The marketing and the management team of IKEA has identified that it is highly important for IKEA to expand in the Chinese market for the future of the company’s supply chain, especially with regards to their strategy to maintain quality products at comparatively lower prices (Dauvergne and Lister 2012).
Apart from that, it can be stated that IKEA has built new factories closer together in China that has allows for the optimization of the value chain with regards to the manufacturing and selling of the products of IKEA. In order to gain an important market share, the company has taken a decision to rapidly expand their supply chain into the Asian market and this strategic. The company has planned to reach a point where the local and the global competitors would imitate their strategies from production to distribution just to gain a strong market position in the Asian market (Brandenburg et al. 2014).
Figure 1: Five stages of sourcing
(Source: Fernie and Sparks 2014)
From the market research, it can be seen that each IKEA store is huge and is designed in such a way that it has more than 9500 products. Therefore, it is always one common question that comes to the mind that how does IKEA offer low price for their high quality furniture while always keep their stock enough to satisfy the current needs of their customers. It can be stated that the IKEA has 298 stores in almost 37 countries and is considered as globe’s largest home furnishing retailers. Market research says that the company has ranked 41 among the world’s most valuable brands on Forbes’ list. Most importantly, the company gained a profit of 35.5 billion in the year 2014from their sales (Green et al. 2012).
From the research work of Hultman et al. (2012), it can be said that the supply chain of IKEA is operational in all major regions of the globe and has a global spread with both sales and purchasing. Among all the markets, IKEA has found the East Asian market as one of the most potential marketplaces and thus have expanded their business in this region over the last few years. Therefore, it has been understood that IKEA has managed to successfully establish close coordination across the globe and the result of this coordination is 1084 suppliers in 53 countries. 14,500 out of the 139,000 employees in IKEA, works in purchasing distribution, wholesale and other supply chain management related areas (ikea.com 2016).
Jonsson et al. (2013) have said that Research and Development department is one of the common departments in most of the large corporation, especially in case of the global companies. IKEA as well is no more exception in this regards and this is significant for those companies that work with newer products as well as technologies that are subjected to the important shifts. Following this, IKEA uses up to 20% of their annual revenue in their R&D proceedings as tax deductions according to the legislations of the federal government (Guang Shi et al. 2012). It can be opined that the primary reason for using the Research and Development is to uncover cost-effective manufacturing methods for most of the large scale industries so that the cost of manufacturing a product can be reduced. The highly skilled consultants of IKEA support with accurate R&D assistance that is necessary to advance new technologies and as a result they can bring new products to the market and enhance the quality of their products for their customers throughout the globe (Maull, Geraldi and Johnston 2012).
From the company profile, it can be stated that the R&D services of IKEA include the following services like technical consulting, project contracts and staffing. Under technical consulting, the professionals provide IKEA proper research assistance to the customers. Under the project contracts, they focus on handling some or all stages of the Research and Development procedure through a statement of work. Besides these two, under staffing, the responsible team focuses on augmenting in-house Research and Development teams with specialized skills or the additional talent. It can be stated that the pros-investment in the research work would give IKEA some better ideas as well as guidelines for the present trends in business, behaviour and the requirements of the entire target market. Thus, it would provide some superior customer value. However, it is required to mention here that the Research and Development programs are highly expensive that it could affect the price rates of the manufactured and delivered products into the market (Misra 2016).
At the time of discussing about IKEA, it is required to mention that the R&D team of this global giant organization has suggested merging with some other respectable local companies. The professionals have suggested that merging with the local companies are helpful for the further expansion of the business, as this strengthens its financial capability and can easily penetrate into the market place. At the time of expanding the business in the East Asian market, the company has merged with some of the local companies. This is because of the fact that knowledge as well as experience of the local companies would associate with the marketing operations of IKEA and can attain a portion of their profit for their betterment (Ghadge, Dani and Kalawsky 2012). However, it is required to mention that IKEA benefits from many internal Economies of scale and their economy comprises of the followings.
- “Technical economies of scale”
- “Marketing economies of scale”
- “Financial economies of scale”
- “Risk bearing economies of scale”
- “Managerial economies of scale” (Monczka et al. 2015)
From the market research work, it has been found that IKEA have lowered their average compared to the last few years by manipulating the approaches made in their technical economies of scales and set them as an example of one of the prominent examples of this is through increased specialization (Ross 2013).
From the market reports, it can be seen that presently, the European manufacturers generally purchased the majority of the IKEA products. However, it is required to mention that the largest single country for purchasing is China. The top five purchaser countries of IKEA products are as follows:
- China (18% approx)
- Poland (12% approx)
- Sweden (9%)
- Italy (7% approx)
- Germany (6% approx) (Sarkis 2012)
However, it is required to mention that in spite of this huge success, the company certainly faces some severe risks in their supply chain management and this differs from one country to another. In this part, discussion would be made on external supply chain risks and external supply chain risks, as the company faces risks from both these sectors (Seuring and Gold 2012).
Seuring (2013) has stated that due to some upstream or downstream in the entire supply chain, the concerned organization is facing some external risks can be driven by some events either. These risks can be categorized in five major types of the external risks.
- The first one is the demand risks caused by unpredictable end customer demand or misunderstood consumer’s requirements
- The second one is the supply risks. This the interruptions caused by overall flow of the product in the raw materials or parts, within the supply chain of IKEA
- The next one is environmental risks and the company is engaged in this sector. This risk is not directly related with the supply chain and is usually associated to the social, economic, governmental and climate factors taking into account from the threat of terrorism (Stadtler 2015)
- Apart from these risks, the next one is business risks this is caused by the factors like the stability of supplier’s financial or management or sale and purchase of the suppliers organizations
- The last risk under external supply chain risks is physical plan risks and this is caused by the condition of a regulatory compliance along with the supplier’s physical facility (Tayur, Ganeshan and Magazine, 2012)
It can be seen that the company sometimes suffer from demand risks and supply risks. IKEA is present in different parts of the globe and thus they suffer from business risks as well. Apart from that, it is required to mention that IKEA suffers mostly from the environmental risks and these risks are related the economic, social and the governmental factors. It is easily understood that these factors hamper the business growth of IKEA mostly and thus the responsible team focuses on this part sincerely all the time (Walker and Jones 2012).
Waters and Rinsler (2014) have stated that the internal risks of the organizations for providing better opportunities for mitigating those risks, as they are within the control of the business. The most common internal risks faced by IKEA are as follows:
- Manufacturing risks in IKEA are caused by disruptions of the internal procedures
- IKEA face some business risks as well, as these take place by the modifications in key personnel, management, reporting structures as well as the business procedures
- The company has expanded its presence in more than 37 countries of the globe and thus it can be easily said that sometimes IKEA suffers from effective planning and inadequate assessment and this results in ineffective management
- IKEA suffers from contingency risks and mitigation and this is caused by not putting contingencies in place when something goes wrong (Wisner, Tan and Leong 2014)
Therefore, it is easily understood that this global organization suffers from both the internal and the external supply chain risks in their business operations.
Walker and Jones (2012) have stated that technology for the business tends to increase the business efficiency with technology. In the present day’s world, the companies are required to plan their technologies in such a way, so that the companies can survive in this technology. Communication, packaging, data security, manufacturing, decision making, quality control and human resource management to improve customer service can be used in a business, technology. For gaining competitive advantage, the company relies on social media largely to grow their business overseas for obtaining marketing success. From the company profile, it can be said that the globe’s largest home furnishing retailer organization that is IKEA was the early adopters of the digital mode of marketing. Most importantly, the company has represented the core of the retailer’s marketing strategy by maximum use of the social media clubbed with its digital catalogue.
From the company’s report, it can be seen that the retailer’s annual expenditure have constituted a substantial share by effective advertising and marketing strategy. In this case, TV has been the most dominant mode of campaigning in the traditional days while in recent times the internet marketing takes the limelight away. After doing market research, it can be said that IKEA’s digital strategy of marketing has remained unique and uniform with almost 345 operational stores across the globe and with the extensive use of social media with separate country pages for the respective target markets they are heading towards more success. The marketing team of IKEA has shed increasing stress on the digital catalogue applications that can easily available in Google play and the Apple Store and easily downloaded on their smart devices. From the company profile, it can be said that the latest catalogue application that this furniture giant has launched in the year 2014 has near about 59 editions (Monczka et al. 2015).
Facebook: From the Facebook page of IKEA, it has been seen that there are a minimum of 1.5 lakh fans of IKEA in almost every country.
Twitter: This organization has separate Twitter feeds at their nation specific twitter pages. From the Twitter account, it can be found that IKEA itself has 2, 22,000 followers in UK alone and in Canada, the number is 6, 66,000.
Pinterest: Pinterest is one of the common platforms for those organizations that operate in retail sector and IKEA is present in this social media platform easily.
Google+: It has been seen that the USA page of IKEA has recently entered on January, 2014. However, compared to other social network sites, here the company has the lowest number of followers and soon the number is going to reach a huge amount.
Outdoor Campaigns: Besides all these social media presence, the company finds outdoor promotions highly useful as well. The reports have stated that IKEA’s online presence has made 70% contribution to the overall marketing and the remaining 30% is the use of out of home campaigns. In Paris, for out of home promotion, the company to add interaction to the 3D panel, IKEA positioned two actors for standing on the board pretending to execute everyday some bathroom activities like bathing and shaving. The time selected for this promotion is at the peal commuting time that is in the morning and at the evening. Therefore, it can be stated that the marketing team of IKEA is well aware of the advantages of different modes of marketing campaigns. Besides this outdoor campaign, the company has arranged indoor garden in London and these campaigns are all about to let people know about the products of IKEA who are not present in any kind of social media sites.
Conclusion
After going through the entire research paper, it can be seen that IKEA is one of the leading international organizations and the success of this business has depended on supply chain management. From the market research, it has been found that at the initial stages of the taking entry into the foreign market, IKEA used to go through a phase of the trial and error phase and after successfully passing through this stage, the company was successful to hit the bull’s eyes. For example, it can be stated that at the time of taking entry into the USA market, the company transformed its traditional moose and advertising slogan because the previous was foretelling a erroneous image of the merchant.
Reference List
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