Production as a part of

value chain

Case study

Accounting and profitability

Projects and investing

Production as a part of value chain

Production processes and production control

Production systems and organizations

Creating value

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

Supply chain management: IKEA

Kuva: https://www.process.st/ikea-supply-chain/

Business idea

“To offer a wide range of well-designed, functional home furnishing

products at prices so low that as many people as possible will be able to

afford them”

- Business idea of IKEA

IKEA.com. Vision & Busines idea. [Viitattu 1.8.2019]. Saatavissa: https://www.ikea.com/gb/en/this-is-ikea/about-us/vision-and-business-idea-pub9cd02291

• A total of 433 department stores worldwide in 2019

• Majority in Europe

• Next biggest regions are North America and

Asia

• In addition, the company has several

distribution centers, that deliver products to

department stores and customers

IKEA’s department stores and distribution

centers

IKEA. (2018). Number of stores of the IKEA Group worldwide in 2019, by region. Statista. Statista Inc. [Viitattu: 8.10.2021]. Saatavissa:

https://www.statista.com/statistics/241821/number-of-stores-of-the-ikea-group-worldwide-by-region/

IKEA’s strategy

• Global expansion and profit maximization

• Providing quality products at cheap prices

• A wide range of products

• Avoiding waste and mistakes in operations

Implementing the strategy requires effective supply chain management

Sandybayev A. (2017). Strategic Supply Chain Management Implementation: Case Study of IKEA. Noble International Journal of Business and Management

Research, Vol. 1, No. 1, pp. 5-9, 2017. ISSN: 2520-4521

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

Supply chain structure

1. Raw materials go from raw material suppliers

to product manufacturers

2. Finished products are shipped to department

stores or distribution centers

3. Customers either buy products from

department stores or get them home delivered

Kuva: https://mpk732t12016clusterb.wordpress.com/2016/05/15/marketing-strategy-in-distribution-and-logistics-ikea/

= Vendor Managed

Inventory

1.

2.

3.

Supply chain structure

• The supply chain can be divided into different

stages according to suppliers and customers

• The products consist of many different parts

• Suppliers in 55 countries

= Vendor Managed

Inventory

2. stage suppliers 1. Stage suppliers

IKEA

1. Stage customers

IKEA.com, Facts & Figures [Viitattu 6.8.2019]. Saatavissa: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/

Supply chain structure

Supply chain management

• Right to products

• Resale under the full control of IKEA

• Holdings in suppliers

• The ability to influence suppliers’ decisions

• Cooperation agreements with suppliers

• Ensuring availability of raw materials and products

• Effective communication (lesser bullwhip-effect)

• Centralization of operation planning

• Long-term planning of operations

• Implementation of ERP system(Enterprise Resource Planning)

Jonsson, P., Rudberg, M., Holmberg, S. (2013). Centralised supply chain planning at IKEA. Supply Chain Management: An international journal, Vol. 18. pp. 337-350.

ISSN: 1359-8546

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

Demand forecasting

• IKEA has over 9500 different products

• Accurate demand forecasts are essential

• Use of “Make-to-Stock” method is mandatory

• IKEA utilizes sales statistics, seasonal information, and algorithms to forecast

demand

• The impact of market changes must be considered in advance

• Advertising, price changes and new products also affect product-specific demand

• Algorithms automate demand forecasting and find correlations between demand

influencing variables

Dugic M., Zaulich D. (2011). Forecasting System at IKEA Jönköping. Master thesis within International Logistics and Supply Chain Management. Jönköping International

Business School

Demand forecasting

• Estimates are based on data collected by regional service centers

• Top-Down ja Bottom-Up –methods

• Forecasts are corrected using a moving average

• Demand forecasts can be passed on upstream of the supply chain

• “One set of numbers” - principle

Inventory management

• Demand forecasts help minimize over-storage

• Accurate demand forecasts are important because it may take up to 8 weeks for

products to be in storage

• If the products run out of stock, sales will be lost

• At the same time, excessive storage should be avoided

• Availability of certain products is more important for sales and customer

experience

• For example, IKEA's best-selling product is the BILLY bookshelf

• IKEA’s supply chain

• Business idea and strategy

• Structure and management of a supply chain

• Demand forecasting and inventory

management

In this exercise:

• Supply chain integration

Supply chain integration

• IKEA's supply chain can be considered partially vertically integrated

• Ikea does resale and storage

• Collaboration agreements and partial ownership of suppliers

• IKEA has contact with end-customers and is able to gather information about

customer requirements

• Information can be passed on to suppliers

• Customer feedback can be used to make changes in products

• The result is better customer quality

Assignment 4:

Production as a part of value-chain1. Focus of own operations and procurement(1-2 pages)

• What parts of production and other operations would you do yourself and what would you outsource and why?

- Examine the implementation of production, particularly through core competence and cost.

• How should you procure outsourced services and production parts, as well as the necessary raw materials and equipment for your own production?

• What are the segments of your supply chain?

2. Demand assessment (2 pages)

• What kind of fluctuation in demand is expected?

• How do you make production and the supply chain such that it can withstand fluctuations in demand?

• Estimate quarterly demand for the first two years and yearly for years 3 and 4

- How will demand develop over time?

-Consider the reliability of your demand forecast

Assignment 4:

Production as a part of value-chain

• Return the assignment as a PDF to MyCourses

• The weekly assignment must be returned on Sunday the 17th of October at 18.00

• Include your names and student numbers in the submission!!

• Remember to give feedback:

1. How long did it take to do the assignment?

2. What new did you learn?

3. What should be developed in this exercise?

4. General comments on the course so far?

• Next week we will discuss projects and investing