Operations Management at IKEA

Executive summary

In an effort of meeting the customer values and demand in the market, companies use lots of revenue. However, due to the lack of efficient and effective operations management strategies, most companies always fall short of aligning the production in line with the product demand. The performance of the organization or company is highly influenced by the operations management. As a business function, the organization, coordination, controlling and planning of the resources in the firm required for the production of goods and services in the organization, it is the highest form of business process that results in efficiency and value adds within the organization.  The success of IKEA is an example affiliated to the efficiency of operation management. The company deals with furniture and is based in Sweden. With more than 285 stores in 36 countries, the company can be termed as a success. The mass production of the company results into reduced unit costs with a higher level of utilization of capacity. According to the belief of the company, more people should be in a position to afford their products in this regard furniture. As a result, the aim lies within the provision of price tags and then developing products within the range of the quoted price tag.  The brand image of the company lies within the ability to provide high quality products that meet the needs of their clients at an affordable price. The brand is adopted from the capacity planning, lean management and the effective organizational development.  The concept of high quality is fundamental since the organization realizes they do not need their product back. It is this realization that makes the company have a test lab to ensure that the products produced meet the standards of the local and international development.  Supplier selection has an inclusive effect on the business and as such the company has a long term relationship with the suppliers in an exchange of the company’s code and procurement policies.  Planning is critical to the success of the company and a plan and secure approach is adopted by IKEA.

1. Introduction

Controlling, supervision and design of the production process of a good or service is what encapsulates operations management. In addition to this, the field also covers the approach of redesigning business process so as they may comply with the needs of the organization in minimization of cost and meeting the demand in the market. The efficiency of business process in an effort of leveraging the resources is also covered in operation management.  The business operation must be outlined carefully in order to meet the needs of the clients at a reduced cost. To this day, the aspect of operation management covers the conversion of inputs into outputs.  Some known aspects covered in operation management are controlling cost, system analysis, productivity analysis, planning of materials, maintenance and management of factory equipment and production control (Heizer & Render, 2001). In this paper, the use of operation management in IKEA is analyzed and the principles of application. Therefore, various concepts such as six sigma and lean management and re-engineering approaches are evaluated.  Various tools in the design, capacity, processing, and organization control, core competences, customer satisfaction both internal and external and problem solving are also reviewed as they are applied in the organization in attaining a total contribution to the workforce.

Background of the company

IKEA happens to be a multinational private corporation that specializes in the retail of home furniture especially furniture’s.  Among the prominent furniture in the company are pack furniture, bathroom and kitchen items among other accessories that are readily available in the organizations global retail centers (Chopra, 2009).  It is the pioneer of flat pack design types of furniture and is acknowledged as the largest global furniture retailer. The company was formed in 1943 by Ingvar Kamprad in Sweden. With a constant increase in sales, the company has attained a global structure. According to the 2011 statistics, the company had a number of 332 retail stores that are in 38 countries. There are a variety of products that form its product portfolio that comprise of more than 12,000 products.  Therefore, the global scale of the organization entails the presence of operations management in order to guarantee the success of the organization. There are more than 1300 suppliers who form a complex network that enhance the supply of the firm’s products. There are more than 26 distribution centers for the products and more than 10,000 sub suppliers (Rask, Korsgaard & Lauring, 2010). In addition to this, there is a heavy reliance of the firm on the supply chain. There are a range of products that are supplied including raw materials to finished products.

2. Company vision

The organization aims to “create a better every day for many people”. Therefore, the firm includes a variety of services that go beyond the norm of just providing great home furnishing offer. The approach is to take social and environmental responsibility towards the customers of the firm, suppliers, producers and co-workers (IKEA, 2011).

3. Industry of operation

As indicated in the services and products offered by IKEA, it is paramount to note that the firm operates in the furniture industry. Since it is operating in a free and fair market where monopoly is not the order of the day, there is stiff competition from various firms. For example, since the organization is a global firm, other businesses that have a glbal presence are the main competitors, among which are Walmart which is a bigger corporation tcompared to IKEA (Hellström & Nilsson, 2011). The bigger the organization, the greater the economies of scale. Other competitors are Toys R Us where the company specializes in a range of children toys that are similar to those provided by IKEA. Lundin Petroleum, Natuzzi, Sears, American Woodmark, Tesco, IIva, Asda, Blue Dot and Barn Furniture are among other top tier competitors that IKEA faces.  Despite the stiff competiton that the organization facs some in the global arena and others in the regional domain, statistics indicate a good performance of the firm since its conception. The acquired revenue as of 2011 amounted to $4 billion while the sales increased from 2000 to 2010 from 9.5 billion pounds to 23.1 billion pounds (Heizer & Render, 2001).

Despite the achievements outlined above, there are several detrimental drawbacks that the company faces. The operational process are controlled and managed from the headquarters of the firm that is based in Almhult Sweden. Therefore, such an approach positions the organization from a centralized management approach. As such there some evident operational management challenges. Among them include reports from customers saying there is overcrowding in the retail stores which inherently causes more waiting and queueing time prior to purchase and processing.  There are several measures that have been implemented by the organization as a response to this frustrations. Among them include the application and establishment of customer checkouts. The checkouts are designed to cater for customers with small items in an effort of eliminating time wastage and eradicating the queuing process.

The company is also proud in increasing the number of service providers and employees to cater for the growing needs of the customers. Operations management and system principles are applied in an organization for a number of reasons. Among them include the need to enhance store arrangement, design of the retail store layout in a convenient manner to enhance a smooth flow of customers in and out of the store without causing commotion. In addition, the application of these principles enhances a style in the design of the products that is unique and conspicuous to the brand of the company (Heizer & Render, 2001). Effective design also enhances packing, employee contribution to the efficiency and effectiveness of the company. The retail stores are also strategically placed in order to enhance an efficient supply chain. Inventory management systems adoption further enhances the on shelf availability of items. Lastly, the application of quality control systems is a guarantee to the monitoring of the quality of the products produced. The application of these approaches are customers oriented in an effort of creating a loyal customer base by offering a quality customer service (Gibson, 2012)

System and operations management based principles are utilized in the organizations for several processes such as the store arrangement and layout in order to facilitate a smooth flow of customers; stylish design of products in order to enable flat packing; effective job design in order for the staff to contribute to the store effectiveness and efficiency; placing the retail stores in the right places in order to develop an effective supply chain;  guaranteeing on-shelf availability by using inventory management systems; and monitoring and measuring the quality of its products by use of effective quality control systems in order to ensure high quality service for its customers (Gibson, 2012).

4. IKEA strategies

In an effort of cementing its presence in the market in the face of competition and rivalry, there are three main strategies that the company can adopt. In the case of IKEA, these approaches are the six sigma approach, re-engineering and the lean management approach.

4.1 SIX Sigma Approach

The approach involves the application of defect elimination method (Meredith & Shafer, 2012). The approach further emphasizes on the improvement of quality as it is applied with an aim of lessening the defect levels. The methodology aims at reducing the probability of defect to achieve a 3.4% minimum for every one million opportunities. Therefore, the application of the approach is most suitable for organizations and firms that are dependent on high production levels. According to Meredith & Shafer (2010), the objective of the six sigma approach is to reduce the potential causes of errors through identification and this leads to elimination of chances of variability in the business process and manufacturing. There are quality management methods that are deployed using the six sigma method (Hellström & Nilsson, 2011). Among them include statistical calculations and probability evaluations.  A series of steps is stipulated that joins the industry process with the application principles of six sigma. Value targets including quality, profit, reduction of production cost, customer satisfaction and process time reduction are among the parameters defined in the measurement using this approach.

To ensure mass production with minimal defects, the six sigma approach is an ideal approach for IKEA. The goods and services produced by the organization are consistent and meet a certain level of standard that is achieved in their test labs. Therefore, it can be concluded that the approach is not only ideal for the company, it is the best option (Meredith & Shafer, 2002). The company uses the approach as a quality control and improvement tool. To be specific the organization uses the approach of defining, measuring, analyzing, improving and controlling also known as DMAIC. The approach is used as the preferred method in an attempt of facilitating the improvement process of the product. Notably, the company has undertaken a number of six sigma projects such as the recent IKEA Group and SSD Global, Inc. Lean Six Sigma Project of 15^th September 2010 (Mishra, 2009). The project was initiated with the aim of increasing the experience of customers online especially when buying and making reviews and asking for support. There are other indications showing that the organization applies the six sigma concept. For example, in the organization, individuals are classified as champions that earn yellow and green belts. The product development and improvement driven by the zeal to meet the demands of the customers, design and optimization goals are some other indications (Mishra, 2009). Lastly, the company emphasizes on short lead times that are attained through a reduced development and management life cycle of a product.

4.2 Lean operations

Infers to a form of practice in production that emphasizes on the need to attain the highest level of customer value at the expense of waste reduction. The implication is the need to meet the highest level of customer needs with the lowest amount of resources and therefore, the word lean. Any organization that applies lean operations is adept and keen on the needs of the customer value and emphasis is given to the process of production in an effort of meeting the values of the customers constantly (Meredith & Shafer, 2002). The objective lies within the need to offer a perfect customer value using the value creation process that is characterized by zero waste.  Since its operation, lean operations have been part of IKEA’s growth and expansion.  Chopra (2009) asserts that the process forms a backbones of the company’s operations and business model. The aim is to optimize the operations of the business from the acquisition of raw materials to the final delivery of the finished flat packed furniture to the users. It can be observed that the concept of lean operations appears in almost every part and process of the business operations of the company.

In the manufacturing sector, the decomposition and assembly of the product are essential in influencing the cost. Therefore, standardization in the production serves as a precursor in the decomposition. On the other hand, the assembly of standardized product parts influences the logistics in the market. The process of decomposition and assembly can be controlled to reduce the production costs and essentially the cost of the product as a whole.  The design for manufacturability (DFM) concept is applied in IKEA as the conventional principal in association with the design for logistics (DFL) (Hellström & Nilsson, 2011). Various variables for manufacturing, packaging and transport are taken into account in this approach. In addition other coexisting variables such as product functions are also inculcated which contribute to the lean product development in IKEA (Gibson, 2012). The strategy is a cost saving approach as it reduces the cost of producing the product by evaluating the different variables and market changes.  The customer service system if the organization is also an approach to lean management. The customers are engaged in the services of the firm such as the collection, transportation and assembly of the final product after purchase.  The combination of design decomposition and the cheapest suppliers and self-service approach towards customers, the organization benefits from lean management from cost savings, which result to competitive price offering to the customers (Slack, Chambers & Johnston, 2010). The result is that IKEA is able to create customer value while at the same time increasing the revenue of the firm. The management approach at the company also applies a lean model. The flat organizational structure is adopted as opposed to the hierarchical approach.

4.3 Process Re-Engineering at IKEA

The analysis and design of a firms processes is what constitutes process re-engineering. In an effort of enhancing the service offered to customers, process re-engineering is adopted as an approach to enable organization to rethink their implemented approaches.  The business operations are re-engineered with one goal in point; to enhance the customer service. In addition to this, the approach also ensures that the firm becomes competitive and reduces the costs of operation. The business operations are further fragmented when this approach is used with an aim of increasing sub units that can share the responsibilities and duties carried out by the initial higher level of business performance.  Since the establishment of IKEA, the organization has been channeling its management efforts in the transformation of operations with an aim of enhancing business operations.  A good example in the enhancement of the process of customer service is the introduction of an e-commerce website where customers make purchases and orders as well as provide feedback (Meredith & Shafer, 2002). Customers can further make inquiries that relate to the services and products offered by the firm in certain regions and also determine the most viable products to buy compared to other online retailers.  In the traditional method, the customers were expected to walk in to the retail center to make purchases or make inquiries.  The model is convenient and customer oriented as the needs of the clients are met through provision of a service online.

Enterprise resource planning (ERP) systems are implemented in IKEA which is indicative of enhanced process re-engineering.  The company is always engaging in new ways to improve its performance and effectiveness and efficiency. The Lawson Opportunity Analyzer is applied by IKEA in order to recognize key parameters and critical business process and enhance in the formulation of strategic goals and objectives.  Development in technology is also another area that the company specializes in to improve the quality of products.  Quality and price are the main focus of technology. In addition, function and design, health and environment and development phase are also key elements of focus.  Several techniques of forecasting are applied including the Delphi technique (Meredith & Shafer, 2002).  In this approach, a group of experts is responsible for the forecast as they respond to a set of questionnaires.

5. Forecasting

Planning for the future is essential towards the success of an organization. There are key areas of forecasting that are applied in a business. Some approaches of forecasting are based on the subjective criteria while others are based on measurable and historic quantitative data.  The historic data forecasting augurs well with outside parties especially investors in the assets of the company. It is through forecasting that the future of the company becomes known and whether to invest in the shares of an organization. The forward prospects of an organization are determined through the approach of forecasting and the firm can may key decisions on whether to expand or hold (Hellström & Nilsson, 2011).   There are a range of opinions that are compiled from the experts and an evaluation leads to providing a conclusion.  In the case of IKEA, this method is rarely applied as the organization is customer oriented and the needs of the customers are the ones applied.

Time series forecasting is a quantitative approach that has been the background of forecasting for IKEA. Since its conception, decisions on development and expansion are based on the former performance of the company. In this regard, the company relies on the previous data and performance to determine its future performance. A good example is the expansion and the need to adopt a supplier. During the adoption of suppliers for IKEA, several parameters were evaluated over time. For example, the consistency of the supplier in delivering according to the specification was a key parameter in choosing the people to inculcate in the supply chain of the company (Wei & Zou, 2007).  IKEA is famous for the utilization of time series forecasting approach. The idea behind the use of this method is based on the products that the company offers. As opposed to some products, the company deals with unseasonal products; furniture.

6. Product and service design

The aim of the company as previously indicated in the mission summary is to have everyday life at home. The objective is to have the needs of the people and their dreams as the main source of inspiration in design process of the product. Many people should have the ability to afford their products irrespective of the design (Hultman, Johnsen, Johnsen & Hertz, 2012). Therefore, it is essential to note that the design involves the provision of price tags first.  According to the company’s developer and public relations manager June and Marston respectively “we start with the price when we design a product and then the customer needs” (Terdiman D, 2008). One of the tasks of the planning manager is product planning. The approach involves product strategy, the production and inventory strategies are also applied for the finished goods. There are generally two types of the plan for the company which include the modified product strategy and the typical product intention.

When the levels of customization are high, the products and operational managers modified the product policy to meet the low manufacturing cost and inculcated the needs of the customers.  According to the production statistics of the company, the organization is producing 10,000 variants of products. Mass production is utilized to reduce the cost of production. The different variants that are evident in the process do not affect the basic production process.  Therefore the volume becomes high with a low and narrow effective variety. The ISO certification is an approach that ensures that the needs of the customers are met according to the international standards (Jae-Woong Byun, 2011). In addition to this, the application of the six sigma model and the lean management approaches ensures that low costs are maintained as the organization strives to increase its output and meet the needs of the customers.

7. The core competencies and competitiveness of IKEA

There exist a number of core competencies for IKEA.  Among this competencies are flat packaging, pricing, diverse functionality and excellent customer service coupled with high quality standards. The organization leverages a low cost business model that gives it a competitive advantage. The firm is therefore, in a position to offer the flat packaged furniture in a relatively low price compared to its competitors.

8. Location, planning and layout

The commercial success of a retail store depends on the location. Strategic location is key to the success of the business if it deals with warehousing. A retail store or a warehouse is pivotal to acquire an ideal location (Jae-Woong Byun, 2011). IKEA in this regard has a high emphasis on the location in an effort of giving convenience to the customers. A majority of the customers for the business are young adults living in the city. Therefore, convenience is key to attracting a high number of buyers.  To tap into this high number of customers, the stores are strategically placed in the center pf the city for convenience. The heart of the city is easily accessible using loads and hence the company strategically places its stores in this locations.  Environmental conservation is key to the success of the company (Hellström & Nilsson, 2011). Therefore, since the aim is to reach a huge number of clients, it becomes inherently essential to attain strategically position the stores in accessible roads using public roads. There are people who do not own cars and the organization takes this into consideration during the position of the stores.

Other than this, other store locations are found on the on the communities surrounded by shopping centers and malls such as upcoming gated communities. Other strategic positions include but are not limited to apartments and condominium surroundings (Wei & Zou, 2007). The stores have a wide area of coverage as consideration is given to the packaging and the loading area in order to accommodate huge trucks that carry the products. As such the organization maintains an environmental friendly usage of the surrounding and eliminates commotion and traffic jams. The warehouse comprise of showrooms and warehouses in the same building. A smooth flow from the parking, walking to the store, making the order, order picking and loading the goods as well as payments are integrated in a seamless manner within the location of the store (Hultman, Johnsen, Johnsen & Hertz, 2012). In an effort of enhancing the location and enticing the customers to stay for longer as they either purchase or pay visit to the store, a number of facilities are included. Among them include a play area for children that is monitored and supervised, a baby room as well as parent’s rooms. Others include entertainment areas such as small cinemas. There are also restaurants and cafes that people relax in as they either wait for their order processing and packaging or while taking a tour of the organization.     

9. Quality

The mission of the organization is particularly clear. As previously stipulated, the company aims at producing high quality products that are affordable to the highest majority. To achieve this, there are several methods that are applied in the organization as was previously discussed. Among them include the use of the six sigma model approach where the product is design and synthesized with an aim of producing huge amounts of products without defect. When the products are defected, it clearly shows lack of enthusiasm and commitment of the organization to the needs of the clients (Hultman, Johnsen, Johnsen & Hertz, 2012). On the contrary, IKEA sets a good example for a company to be emulated as it strives to meet the needs of its clients through inculcating the available resources to achieve this effect. The application of the six sigma model has ensured that the company has a laboratory to test its goods and products to ensure that they meet the required specifications. The various products are tested on the local and international level to ensure that quality is attained.

The company is striving to acquire the latest technology to ensure that the products it releases in the market are not only of high quality but also in line with the emerging trends and concepts in the market. In doing so, there are some added cost that the company incurs such as research costs to determine the most effective tools to adopt in the production of its goods and services (Heizer & Render, 2001). A good example is the 2010 acquisition of the ERPs systems that was to integrate all the departments in the organization. Prior to its acquisition, research was carried out and this increased the costs for the firm. The operations of the company revolves under a given philosophy. In this philosophy, the company believes in doing their part and leaving the other part to the customer who leverages low costs in doing their bit.

 A new website design was provided in 2007 that rolled in 24 countries worldwide. In the new model of the website, the emphasis was on the quality of the organizational products as the furnishing products knowledge with the customers. The approach was a counter attack to the competitors whose emphasis was on the delivery of basic data on the promotions and the products price.  The quality of the products offered by the company is evident and as such, the organization approach of sharing production data was to ensure that the people are guaranteed of high quality of what they buy (Heizer & Render, 2001). Cheap innovation and style are a core complement of the products underlying level of quality. The design and development slogan and philosophy are made with the aim of increasing the quality of the company products and communicated through digital offering.

The application of inspection ensures that quality is maintained in accordance with the provided policy and regulations of the firm. Inspection is particularly important in the production process to ensure that all the principles and rules are carried out and implemented accordingly. In this aspect, IKEA excels as it does not only implement the approach of inspection, but also applies testing to guarantee that the produced items are compliant with the needs of the customers, the organization policies and the international standards (Hultman, Johnsen, Johnsen & Hertz, 2012). It is paramount to note that the application of inspection and testing is in line with the company’s strategy and need to provide high quality products at an affordable price.

10.An evaluation of the application of operational management concepts in IKEA

The discussion provided in this paper extrapolates the need of the company to effectively and efficiently provide services and products to its customers. Business operations are the driving force towards the success of the organization. The model used aims at integrating management concepts to attain a low cost of production and ensure that the firm makes the highest level of profit within the bounds of the mission statement which aims at delivering the quality products that is affordable to the highest number of people (Arrigo, 2005). It emerges that IKEA is a good example of a multinational organization that applies effective operations management. 

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