1

IKEA Logistics Strategy NOW-2020

2

Update summary IKEA Logistics Strategy NOW-2020

This is a summary of changes to the existing IKEA Logistics Strategy, FY12-16.

DOCUMENT STRUCTURE The main document for the IKEA Logistics Strategy is aligned with the new format for all ten IKEA Group Strategies. The time perspective is extended to 2020.

CORNERSTONES, OBJECTIVES, CHANGE DRIVERS Originally, the Logistics Strategy was built around seven main development areas, with Key Logistics Projects grouped according to those areas. Since then, Growing IKEA Together 2020 and the IKEA Purchasing Strategy have been structured according to objectives and cornerstones. The Purchasing Strategy also has used changed drivers. While the vision for developing Logistics in IKEA has not fundamentally changed, the strategy is now re-structured to align with the overall IKEA direction and our close partners in Purchasing.

Under the cornerstones, change drivers are identified: key development initiatives or focus areas that will create the most movement toward the wished position in each cornerstone.

OTHER UPDATE AREAS

The IKEA Logistics Strategy launched in autumn 2011. The key messages of the strategy remain unchanged.

In the last 2 years Logistics has delivered results that have met or exceeded the goals

of the strategy. Logistics is integrated much more in all parts of the value chain, and new development initiatives have started.

Still, there have been some developments in the business that called for an update:

• Growing IKEA Together 2020 is the new base.

• The Purchasing Strategy has been launched.

• IKEA has taken a clear decision to go for e-commerce.

• There is a newly decided Multi-channel strategy.

• There is now a fully focused plan for Sales & Supply Planning.

• There is an updated IKEA Process Model, which forms the new IKEA way of working.

• There was a need to create more clarity about the Logistics foundation, development areas and Key Logistics Projects.

Key Logistics Projects are now called Logistics Development Initiatives. Some initiatives that are completed have been taken away from the strategy, and some new ones have been added. The initiatives are listed in the Appendix document, which will be updated periodically.

Delivering Excellent Results Every Day is clearly identified as the main cornerstone in Logistics, providing the foundation for any future developments across the business.

GOALS

The time perspective for the goals identified in the Logistics Strategy is now extended to 2020.

Quality and People goals are also added to the main strategy document.

3

Content Executive Summary

IKEA Logistics Strategy NOW-2020

INTRODUCTION Logistics in IKEA today Our future challenges Where we are headed

LOGISTICS STRATEGY SUMMARY WISHED POSITION

OUR APPROACH

CORNERSTONES AND CHANGE DRIVERS Cornerstone 1: Deliver excellent results every day Cornerstone 2: Growth & expansion in a multi-channel environment Cornerstone 3: People & One IKEA Logistics Cornerstone 4: Sustainability as a competitive advantage Cornerstone 5: Planning for availability and lowest total cost

GOALS Availability Total Cost Quality Sustainability People

APPENDIX I Logistics Development Initiatives Overview

Executive summary IKEA Logistics Strategy NOW-2020

The content of the entire IKEA Logistics Strategy NOW-2020 aims to contribute to IKEA’s growth and long-term profitability.

Logistics in IKEA today Logistics is a primary enabler of growth and profitability in IKEA today. More than 20,000 co-workers work in logistics at IKEA, and more than 40,000 people are involved in logistics through the extended value chain. Annual total logistics costs have been lowered by more than €650,000,000 since 2008.

Great execution, sharp planning, and a number of major initiatives have led to good results and a strong logistics foundation for future growth. But there are still many opportunities and challenges ahead.

The future and its challenges We will meet 1.5 billion customers by 2020, with a more attractive and vital range, through new channels and with more services available.

We still seek to achieve full customer perceived availability and to reduce costs even further, enabling lower prices for the many. We want to make a strong contribution in logistics to being People and Planet Positive through innovation and everyday execution.

We can do this by working with an end-to-end view on logistics, across functional borders and with clear roles and responsibilities.

OBJECTIVES

We have two main objectives to achieve: 1. Customer satisfaction every day; 2. Enable growth and long-term

profitability.

CORNERSTONES

Our most important logistics cornerstone is delivering excellent results every day. When we do this, IKEA is prepared for future growth. Then, there are four cornerstones on which future development is based: • Growth and expansion in a multi-channel

environment. (Change driver: E-commerce)

• People and One IKEA Logistics. (Change drivers: Simplify Logistics and Supplier logistics)

• Sustainability as a competitive advantage. (Change driver: Innovation)

• Planning for availability and lowest total cost. (Change driver: Sales & Supply Planning)

The Logistics Development Initiatives are based on these cornerstones, driving long-term development and contributing to long-term growth and profitability for IKEA.

GOALS

The main goals of the strategy come in five areas: Availability: Achieving full customer perceived availability. Cost: Reducing Total Logistics Cost by 2% each year. Quality: Improving Customer Experienced Product Quality and Cost of Poor Quality measurements, in particular by reducing handling damages in Logistics. Sustainability: Full IWAY compliance and significant reductions in transport-related C02 emissions. People: Improving overall VOICE scores, VOICE Leadership Index, closing the VOICE gap between managers and non-managers, and increasing gender diversity.

5

IKEA Logistics Strategy NOW-2020

The IKEA Logistics Strategy NOW-2020 aims to deliver to the overall IKEA objectives of growth and long-term profitability as outlined in Growing IKEA Together 2020.

Logistics in IKEA today

In IKEA, Logistics is a primary enabler of everyday success and long-term growth and profitability. We move more than 30 million cubic meters of goods from suppliers to customers each year. We use 45,000 transport routes to deliver these goods from more than 1,000 suppliers in 50 countries to more than 340 stores in 38 countries. We operate 27 distribution centers and 11 customer distribution centers in 17 different countries, and we work together with 350 carriers. The volume in our transport network is almost 50 million cubic meters each year.

More than 20,000 co-workers in IKEA are directly involved in handling, storing, planning and delivering our products. If you include suppliers, external service providers and carriers, there are more than 40,000 people directly involved in IKEA logistics. Great execution every day and sharp planning in the near and long term are necessary to make a broad product range available to more than 600 million customers around the world, with good quality at a low cost.

Logistics has contributed to IKEA’s growth in recent years with excellent performance in many functions throughout the value chain. We have achieved the highest service level in the company’s history. More than half of the goods we sell globally are shipped directly from the supplier to the store.

Annual total logistics costs have been lowered by more than €650,000,000 since 2008.

We have taken major steps to improve our Sales and Supply Planning. We have a high/low-flow distribution structure in place and delivering good results. Development projects such as Global Replenishment Planning (GRP), Store Replenishment Planning (SRP), and Store Goods Flow Mobile (SGF) have delivered modern systems solutions necessary for future growth. We have implemented higher transport equipment (high-cube containers) and improved the filling rate in all transport units. We have officially said “good-bye” to wooden pallets in our goods flow. In place of wood, we now use paper pallets and loading ledges in all our flows. This revolutionary idea will further improve filling rate and will significantly reduce handling material costs. We have created broad awareness about focus on Quality, setting the stage for future improvements.

We have a good foundation to stand on. But we still face unstable flows, and there is too much variation in our orders to suppliers. This complexity will only increase as IKEA grows, so we need to address it today. Increasing fuel prices and scarcity of transport equipment and drivers will challenge us. And still, there are so many opportunities to optimize end-to-end logistics.

In IKEA, we can take advantage of a unique opportunity: We have it all in our hands, from product development, raw materials, and suppliers all the way up to the customers home and also including the reverse flow and recycling possibilities. Let’s make use of all these opportunities as an “övertag,” or a real competitive advantage.

As we say so often in IKEA…most things remain to be done.

6

End-to-end logistics integrated in activities throughout all functions and processes

Our future challenges

Growing IKEA Together is an aggressive growth strategy that challenges our business to satisfy 1.5 billion customers by the year 2020. We will do this by offering a more vital and attractive range, offering multi-channel shopping and services, focusing on quality and sustainability, and expanding in both existing and new markets.

At the same time, market conditions will become more challenging. IKEA will face higher costs for raw materials, tough competition, and high expectations from customers, particularly around quality, sustainability, and services.

This places greater demands than ever on Logistics at IKEA. We are ready to meet the challenge, and everybody is involved!

Where we are headed

In the past we have improved our logistics performance by function, with great performance and leadership in individual organizations within IKEA. In the future, we will lead all logistics activities in processes with the end-to-end value chain in mind. This is not just about any single functional organization: everyone can be involved. There are opportunities all across the value chain to integrate logistics more fully and achieve full customer perceived availability, increased efficiency, and lower cost. We can simplify our approach, work across functional borders, and assign our people clearer roles and responsibilities.

We will align with IKEA Purchasing, starting with improving our suppliers’ logistics capabilities and preparing them to take over many important logistics tasks. We will be better at synchronizing our sales plans with suppliers’ production capacities, to avoid shortages, overstocks and unpredictable order flows.

We will contribute to People and Planet Positive through innovative approaches to handling and transportation of our goods, in terms of equipment, tools, ways of working, filling rates, network optimization, and more.

We have a lot to do, many development initiatives to pursue and many improvements to make.

As we look forward, it is most important to remember that delivering excellent results every day is ALWAYS the first priority. When it comes to making products available, delivering top quality and meeting cost goals, we must continue to deliver what we promise, even as we explore changes to meet future challenges.

There is much to accomplish to enable IKEA’s long-term growth. Let us celebrate the great work that has been done so far, at the same time looking ahead to a glorious future!

7

WISHED POSITION

Logistics for growth enabling IKEA to be the leader in life at home and long-term profitability

OUR APPROACH

Delivering excellent results every day always comes first in our business. It is our most important cornerstone.

Then, we look at areas for long-term growth and development, which we deliver through our Logistics Development Initiatives.

Only by working together, involving all functions and organizations, we will reach the objectives for IKEA: Everybody is involved!

CORNERSTONES

Cornerstone 1: Deliver excellent results every day We deliver excellent results every day and keep our promise. This means delivering products with everyday quality, available when customers want them in the store and at home, distributed under good conditions at lowest possible total costs.

In delivering excellent results every day, we support the growth of IKEA. By offering a logistics platform that can scale up in a smart way, we are always prepared for future growth.

Everyday excellence is our foundation. Without everyday excellence, there is no point in working with longer-term development initiatives. In simple words, we can say it is our “bread and butter.”

8

Availability for customer satisfaction Logistics takes the lead in fulfilling the most important customer promise: having the goods and services available at all times. No matter how well we plan, though, we will always encounter deviations and unforeseen happenings. Therefore it is crucial to have cross-functional cooperation, a problem-solving attitude, and a high sense of urgency to satisfy the customer’s expectations.

Everyday quality Our customers tell us that we still have a big potential to offer better products. We never push bad quality further in the supply chain, we act immediately when seeing damages, and we cooperate to find solutions together at the root of the problem.

Total lowest costs Each function and unit has to deliver its promise: the decided cost goals. When setting the goals it is crucial to have a holistic view of IKEA logistics and a total cost approach. This helps us to reach the best possible result, from raw material to customer. We need to lead towards the best total result.

Health and safety We care about people. We secure safe and healthy working conditions for the handling and storage of goods from supplier to customer. Health is also strongly connected to organizational productivity and effectiveness, co-worker satisfaction, and co-worker retention. We actively secure the right preconditions for a healthy workplace.

We never compromise on safety – both for our customers and our colleagues. We have a proactive approach to ensuring safety, and in critical situations we act immediately. This often requires more than just meeting basic standards. We apply world-class safety standards in all parts of our business every day.

Sustainability We care for our planet, our neighbours, and our assets. Everybody can contribute every day. We utilize transport capacity to the maximum by further increasing filling rates. We turn waste into resources and invest in renewable energy in our operations.

Reduction of damaged goods, scrapping, and losses are also part of being a more sustainable business.

Cornerstone 2: Growth & expansion in a multi-channel environment

IKEA will grow through expansion in existing stores and new store formats. We will reach more customers in new markets with a more relevant and complete offer, with high-quality products and services at the lowest possible cost.

We will enable a high-quality IKEA experience across all channels, including the store, the Web, mobile devices, built on synergies to deliver lower total cost and never subsidize on our cash and carry customers. This will improve the offer to existing customers, and also help to attract new customers.

We will develop and implement a scalable, multi-channel distribution network to enable this growth.

Better products at lower cost We want our customers to say “It’s fun and easy to buy from IKEA. I know I’ll find good quality home furnishings at great value for my money.” To achieve this, we will create a breakthrough in supply quality by taking all possible learning from quality issues and using it as an opportunity to improve. We will reverse the trend of accepting “almost” quality as “good enough.” We will create a culture in which all co-workers actively ensure that damaged products or packages never reach our customer. This will contribute to the perception of higher quality, a necessary factor for growth.

A wider, more inspiring and beautiful offer We want more customers in all different markets to say, “At IKEA there is always something for me.” Life at home is not the same in all markets. To be relevant for the many people, we must offer a range that can meet local needs. To achieve this, we need balanced and efficient supply for all parts that make up the range in each market: Core, market preferred, and market

9

specific products. We also must secure the fulfilment of a market-relevant service offer.

A more vital IKEA We will work with a commercial plan with a common vitality calendar for positioning, growth and visitation. Logistics will enable a more vital IKEA with sharp launches, significantly improved activity handling and increased speed to market through new ways of replenishing sales channels. We will secure efficient execution through simplicity.

A more accessible IKEA We will offer the customer simple and easy ways to interact and shop using all sales channels. We will adapt our supply chain to support multi-channel retailing, to secure the lowest possible total cost for the services we promise to customers. To meet customer expectations, we will have a flexible and scalable distribution network, utilizing stores and central units to provide full availability at lowest possible cost. The new multichannel distribution network will support growth in going units, our expansion in new stores and markets and our ambitions with E-commerce.

Change driver: E-commerce

Cornerstone 3: People & One IKEA Logistics People & one IKEA Logistics is about how we work together with common goals to achieve exceptional customer value. It is about how we perform at our best at all times, every day. Everybody in our value chain, end to end, is involved and contributes to the logistic agenda.

Simple and efficient organization We will be quick, lean, and simple in both in our decision making and in execution to enable future growth. This means a simple and efficient organisation with a shorter distance between customer and suppliers. All logistics tasks will be performed with a clear assignment and responsibility, where all understand how they contribute.

We will be an empowered organisation where the business needs set the agenda for allocation of resources, regardless of function or location.

People make us better To become an attractive employer and a great place to work, we will define clear roles and responsibilities and offer great development opportunities for the many co-workers. We want our leaders to be focused on business and people, accountable for developing critical competencies and delivering succession for growth.

We will always offer a safe and healthy work environment and we will never compromise on setting this as one of our highest priorities. We want IKEA to become “best in class” and a role model that other companies will benchmark against. We grow together with our suppliers We will take a long-term view on our relationships with suppliers, allowing us to optimize logistics in the whole value chain.

Developing our suppliers’ logistics capabilities will allow higher volumes of products and services at lower costs as well as higher efficiency and better availability. Suppliers will be able react quickly and accurately to customer needs. IKEA’s high performing suppliers will take full responsibility for logistics performance, based on shared business plans, common goals, and a total cost approach.

We believe that working with suppliers in developing the full IKEA logistics agenda is essential for long-term success.

Change drivers: Simplify Logistics, Supplier logistics

Cornerstone 4: Sustainability as a competitive advantage

Sustainability at IKEA means working toward environmental, economical, and social well-being for today and tomorrow. People & Planet Positive outlines how sustainability will drive innovation, shape our investments, and transform our business in the coming years. In logistics, sustainability is core to the way we work, because it means creating cost-efficient and resource-efficient solutions.

10

Sustainable business practices will increase resource efficiency in everything we do. By resources we mean oil, water, wood, and other key raw materials. Using fewer resources means less impact on the environment and lower average costs.

Using sustainability as a competitive advantage means being at the forefront of change, working with partners and other organisations to improve and to develop new solutions. It means active leadership in implementing new technologies and ways of working, and identifying areas where IKEA can drive logistics innovation. IWAY Being People and Planet Positive means taking environmental and social responsibility. We do this by securing IWAY approval at all our external partners and support them to implement relevant requirements among sub-suppliers. Our internal units shall fulfil IWAY and serve as good examples for others.

Decreasing CO2 emissions By the end of 2020, IKEA will have reduced transport-related carbon emissions per cubic meter of goods by 30%. This means optimizing the design of our supply chain network, optimizing flows, and using innovative transport equipment. For example, by 2020, ten major cities will use electric or non-fossil fuel vehicles for home deliveries to customers.

We will also develop and adapt our approach to packaging and handling materials to maximize space and reduce CO2 emissions. The implementation of paper pallets and loading ledges in the whole value chain is a revolutionary example that supports this direction.

Develop logistics in the resource chain We will secure reverse logistics to turn waste into resources. This means that selected raw materials from packaging and products will be returned to IKEA and its suppliers from customers, to will be re-used as raw materials for new products and packaging. We call this the “resource chain,” and an efficient and effective logistical setup is core for making it happen.

Change Driver: Innovation

Cornerstone 5: Planning for availability and lowest total cost

In order to satisfy customers, we must always have products available. Low costs allow us to offer the lowest price on the market, a key factor in attracting the many people. Full customer perceived availability at lowest cost is a major contributor to the goals in Growing IKEA Together 2020.

We will create the conditions to provide customers with product availability information at all times. We will secure that customers are able to find the products that they want to buy.

We will work together across functional units to secure that our sales plans are aligned with our production capacities. This will bring balance between sales and supply, helping to drive sales and helping to avoid unnecessary costs at suppliers and in our logistics operations.

We will develop an approach to plan and optimize supply, finding the most cost efficient solutions contributing to lowest total cost for IKEA.

Design for Logistics Flat packages for furniture were a revolution 50-60 years ago. It has been our base for highly efficient distribution all the way from supplier to customer. This leading position we want to keep. In the design phase of the product development process, logistic aspects will be considered. How can we secure high filling rate in our trucks? How can we support an efficient handling of the packed products for our customers and through the whole value chain? These are questions to be addressed at an early stage of every product. Development and implementation of optimal packaging and unit load solutions will support commerciality, filling rate in transport, handling efficiency in DCs and stores, and help to secure the quality of our products.

11

Full customer perceived availability We want our customers to say, “At IKEA, the products and services are easy to find, buy, and they are available when I want.” To be able to achieve this, we will understand and measure availability as the customer perceives it. We will use this knowledge to make major improvements in customer perceived availability, and to provide customers with accurate and easy-to-access information.

Balanced sales and supply An end-to-end planning approach will secure that our plans for sales and production capacities are continuously aligned in all time perspectives: long-term, mid-term, and short-term. Close monitoring will secure that deviations can be projected well in advance. Acting on deviations will secure the best overall customer experience and IKEA result. This requires clear decision structures, responsibilities, and ownership. We will make use of a push flow in the execution. At lowest total cost To enable the lowest total cost we will, in close cooperation between Purchasing and Logistics, create efficient supply with a stable order flow to our suppliers. We will secure relevant and accurate information flow end to end. Our tools and ways of working will be focused on always finding the most cost efficient distribution method and balancing inventory from a total cost perspective. Change Driver: Sales & Supply Planning, Customer perceived availability

12

Goals 1. Availability 100% Customer perceived availability (KPIs to be defined) 100% accurate and easy to access stock information Until new goal is ready: S1>99, S2>98, S3>97, S4>95. Every day, every market 2. Total Cost Total cost better than -2% per year is the overall goal. Total logistics cost better than -2% per year (EUR/m3)1

Main contributing factors, total cost: o transport distance and lean

network o transport equipment utilization /

Filling rate o inventory management o direct supply share o accurate sales & supply planning o operational productivity in DC,

CDC’s and stores

3. Quality

CEPQ Yearly Improvement

>6%

COPQ Yearly Improvement

>6%

Handling Damages – Yearly Improvement

-12%*

*FY12 level: 250 mEUR

1 Currency neutral

4. Sustainability Reduce CO2 emissions in transportation by 30% from FY12-20 relative per m3

• 100% IWAY-approved suppliers, carriers, third-party operators every year

• 100% IWAY approved Customer Delivery Transport from FY15 onward

5. People

• Voice >725 • Voice Leadership Index >75 • Voice gap managers/non-managers

<80 • Gender diversity in management

teams 50/50

13

APPENDIX 1: LOGISTICS DEVELOPMENT INITIATIVES

This appendix includes all Logistics Development Initiatives that have started as of September 2013.