Welcome to Some Background… • IKEA is a privately held international home products retailer – Trust members are unknown to the world • Founded by Ingvar Kamprad in Presented by: Sweden in 1943 Andrea Penton Benjamin Pohl • “To create a better everyday life for James Marentette the many people.” Jeff Berkowitz Nick Marquette Hussein Saab Some Background… Some Background… • IKEA has 278 stores worldwide • IKEA stands for: – Employs over 128,000 worldwide • IKEA currently has 35 stores in the I = Ingvar (First name) United States K = Kamprad (Last name) • IKEA has 13 stores in Canada E = Elmtaryd (City) • IKEA will be opening two more stores A = Agunnaryd (County) in the USA in the next few months in Tampa, FL and Charlotte, NC Some Background… The Competition • Started business - originally IKEA Home Furnishings: Furniture: sold pens, wallets, jewelry • Wal-Mart • Wal-Mart • Furniture was added in 1948 • Art Van • Target • 1955 IKEA started designing their • Gardner White • Home Goods own furniture • Target • Bed Bath & Beyond • All furniture is made specifically for • K-Mart • Williams Sonoma IKEA • La-Z-Boy • Buy Buy Baby *Once a month – competitor comparison shopping 1
How a product comes to be Manufacturing Process • Design Process: – Article is chosen (Sofa) • Design – Sofa will cost no more than X amount – All in house – Discuss how this can be accomplished – Designed in Sweden • Research and Development – Needs to be “flat packed” – Redesign product to meet price criteria • Design Objective: – Manufacture – Low/Affordable price • Adjust design based on raw material availability – Test it to make sure the design works how it is supposed to Sourcing Example of Supplier Choice by Capabilities • Products are built all over the world IKEA’s Poang Chair Manufacturer also – Countries include: manufactures ski’s • Poland, Iran, Viet Nam, Sweden, United States – How are suppliers chosen: • Capabilities & Location to markets Suppliers Suppliers • Suppliers do not design • Some suppliers produce solely for IKEA – Only influence is if raw materials are not available for proposed design (substitute – IKEA will finance 0% loans to improve pine for ash) facilities that do not comply with their standards – IKEA does this because: • More control over product and facility layout • Investing in themselves • Products incur 52 lines of cost before they make it to your cart! 2
Suppliers IKEA Swedwood • Made in IKEA’s Swedwood facilities • IKEA outsources all production – U.S. facility just opened in Virginia except for a few of the top selling • Makes Expedit and Lack series (big products volume) Quality Delft • Ensure all products for US sale comply with California standards • All products are stamped with quality – (California standards are highest guarantee standards in USA to comply with) • All products tested in Delft • In Delft products are tested to ensure • First product’s off of production line they can be assembled based on are sent to Delft for rigorous quality directions and tools it says are testing necessary • Endurance testing • Passes Delft – Sale of products begin What if it fails? Coming to America • Try to isolate the problem • Nothing is flown to USA – All products arrive in containers via ship • Do not allow any sale of already • Arrive in one of four ports made products until problem can be • West Coast: solved – Tacoma, Washington • Work to solve problem in a timely • East Coast: and cost efficient manner – Baltimore, Maryland – New York, New York – Savannah, Georgia 3
From the Port to the DC The DC’s • IKEA has six U.S. DC’s and two in • All products go through Customs Canada – Some take longer than others: – Each DC supplies 10-15 stores • Textiles from Asia – Stores are supplied by 3 DC’s – E.g. Persian Rugs from Iran – One for “high flow” (Top 1500 products) • Once out of customs… • High volume products shipped on full – Containers are put on nearest and most pallets/slides efficient or responsive mode of – One for “low flow” transportation to a DC • Low volume products shipped “plock” – One for “CDO” or Special Orders • 30% of products to IKEA Canton go • Very low volume products sent directly to a from Port to Store – 3-6% is saved by store based on customer order (1.8% of store skipping DC’s sales are here) DC Organization Getting it to the store • IKEA does NOT own its own • Definition of high and low flow transportation depends on store – IKEA outsources to multiple third parties – Each store is serviced by multiple trucking companies – Allows for flexibility based on seasonal demand • No idle trucks – Too expensive for IKEA to operate Why Outsource Transportation Time to get to a store Cost & efficiency • 2-10 months from corporate ordering Insurance is serviced by 3 rd party to getting to a customer cart Maintenance (upkeep) • 2 weeks from port to port Fluctuations in demand can still be • 5 days lead time for IKEA Canton to transported timely to the store receive orders from DC (enough trucks that can absorb – 3 days to prepare for shipment demand shifts) – 2 days to arrive at store Intermodal transit network for international deliveries 4
How trucks are aggregated NO travel across USA! • TOO EXPENSIVE! • “NO AIR” in trucks • IKEA will rarely receive products that – Each truck has 60-70 cubic meters come in from Tacoma • Most trucks hit 66 cubic meters • IKEA has multiple suppliers for each – Truck Load shipments (TL) product so East Coast stores receive • Not all products coming in are products from factories in Virginia or palletized – some must be palletized Western/Eastern Europe What happens when a Truck Unique Pallets! Doesn’t Show? • There is a level of safety stock – about 10% of sales • Proprietary matrix used to estimate buffer stock The “IKEA” Pallet The “EURO” Pallet What happens when a Truck How a Store is Born Does Show? • Household income in proposed community must be more than • 75% of products that are received are $50,000 “door to floor” or JIT • Then, store must be located near a – Corporate goal is 70% major interstate • Part of competitive advantage is – Consumer buying habits are more lowering handling costs important • Stores are located near urban areas but NOT in them – Tax savings for business and employees 5
Then we have a store! DC location secondary • DC locations are more fixed and adjust to location of stores – Should another DC be necessary – it is an after thought after a store is built – Proposed DC in Cincinnati, OH IKEA SINGAPORE IKEA Range Product Demand • Four different “types” of products • Demand forecasts are based on a similar store in a similar market – Scandinavian – Light woods – Used since demand would be unknown for • Very popular in Europe a new store – Modern – bold and square – Not a perfect system • Very popular in Urban living – Country – American traditional • Canton opened – carried large volumes of the wrong items • Very popular here – Young Swede – Iconic IKEA • Popular with younger people Demand for new Products Changes in Demand • Use a focus group and test products in • Two sales a year (Winter and select stores to estimate worldwide demand Summer) to move discontinued • Not always a good system “dogs” and overstocks – Sometimes you may get stuck with a lot of • NO BUYBACKS to DC’s extra stock on a dog – Canton thought a duster would be popular – now they have over 10,000 of them… 6
Manual Store Ordering Push/Pull Boundaries • Pull for special orders made by • Does happen – but most is done customers through proprietary computer system • Push is initiated by forecasted demand to a supplier – Managers manual orders must go through in store logistics first for approval – Products are pushed to DC’s – This is to avoid over ordering • From a DC – Stores pull products • Push from DC only for overstocked/discontinued products – Received on slowest days at stores Managing Products Avoiding the Bullwhip • Many stages are set up to avoid the • 10 Departments – Each has a bullwhip effect: “Shopkeeper” – Logistics manager MUST approve a • Store carries approximately 10,000 “jump” in ordering products – Computer spits out a report of order – Average of 1,000 for each shopkeeper requests that are “unusual” – allows Logs to manage 1-2 days to cancel order • In-store logistics SUPPORTS – DC can question and hold overly large shopkeepers in regards to ordering shipments and inventory – Supplier can question unusual orders and hold production Mistakes Happen… Avoiding the bullwhip…still The “Brattby Duster” slipped by and now the store is stuck with too many • Information Sharing: they cannot sell… – Email and Memo are HEAVILY used for communication – Phone calls are less reliable in getting a hold of people – Email and Memo are QUICK and EFFICIENT 7
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