IKEA’s Operations Management

朱欣童

【Abstract】This report is focus on how the famous successful company from Sweden， IKEA， carries out its operation management. Its main purpose includes a brief overview of the IKEA， the importance of operations management to IKEA， specific details of five performance objectives in respects of cost， quality， flexibility， dependability and speed and 4Vs， which are short for volume， variety， visibility and variation in demand used by the IKEA. This report also provides relevant theories and some authentic data to support the arguments above， which can help readers to overview the achievements of IKEA accurately. IKEA is one of the worlds largest furniture retail companies which designs manufactures and sells ready-to-assemble furniture. It was founded in Sweden in 1943 and developed at a rapid pace. The concept of IKEA is offering a wide range of well-designed and functional home furnishing products with low-price， so that customers are able to afford them. This report is based on the IKEAs current operations management and describes how it is used in the IKEA.

【Key words】performance objectives；operations management；4Vs

1 The importance of Operations Management

With the development of the economy， furniture industry is becoming increasingly competitive. Most furniture retailers seek to create a sustainable competitive advantage and IKEA is no exception. In order to provide lower price， better products and services， the operations management， which is defined as the management of processes that convert inputsinto outputs （in the form of goods and services）， plays a significant role in the organization. Stevenson （2009） points out that operations management is responsible for managing the core of what the organization does. As a large furniture retailer， IKEA has its own operation processes which include research and development， engineering， materials， production， plant management， purchasing， storage， shipping and receiving. Most of the revenue generated and cost incurred is determined by operations， and the successes and failures of IKEA are decided by whether managing the operations efficiently or not. In practice， operations management in IKEA deals with the design， operation， and improvement of the systems that create and deliver a whole companys primary products and services. A successful operations management can ensure and sustain efficiency and effectiveness in IKEA with the help of analyzing quantitative data， planning production， controlling inventory， budgeting， scheduling and so on. As its stated， the IKEA had lowered it prices by an average of two to three percent over the decade to 2010 due to the cost control， operation details and continuous product development. Therefore， having good understanding of operations management is necessary to satisfy customers demands. In a word， facing the huge tasks of improving profitability， increasing revenue， developing the competitiveness of the company and continue its further global expansion， IKEA should focus on perfecting the operations management.

2 Five performance objectives

There are five performance objectives in IKEAs operations management. They are cost， quality， flexibility， dependability and speed.

2.1 Cost -- low cost operations

The cost is defined as the ability to provide a service or produce a product at the lowest possible to satisfy the customers external and internal demands as well as retain profits for the organization. According to IKEAs concept， offering a wide range of home furnishing products at low prices can make it possible for most people to afford them， which contribute to helping more people have more comfortable home life. IKEA has an effective production system， which is used to adjust the cost of material and manufacturing as well as the costs of inventory， staffing and retail， making IKEAs products costs lower than other companies. As a result， customers can buy what they want in IKEA with lower prices.

2.2 Quality

Quality is defined as the ability to provide products and services that meet customers expectations. Few customers will willingly acquire low-quality products and services. The ability to provide outstanding quality can bring a obvious competitive advantage.IKEA attaches attention on providing higher quality products with relatively lower prices. Firstly， choosing the suppliers of materials and production process is governed by the technical specification for the product issued by IKEA. IKEA also has an elaborate quality policy that constrains production quality. Besides， there is an every day quality warranty which states the conditions respectively for its corresponding warranty， providing customers higher transparency of its quality and higher public confidence in its reputation.

2.3 Flexibility

Flexibility is the ability to change operations to suit customers needs， which can be explained in specific as the ability to change the production volume， the ability to change the time cost to produce， the ability to change the different products or services and the ability to innovate new products and services. IKEA provides customers a wide range of products to choose from which vary from home to office and furniture to accessories. The varieties in IKEA are continuously being increased and updated， sometimes introduced with new concept. The global sourcing strategy makes IKEA more responsive to different groups of customers needs. In addition， its mentionable that IKEA offers some services， such as childcare， self-service restaurant， wheelchairs and electric elevator， to satisfy different kinds of customers in its stores. The flexibility brings IKEA a competitive advantage to response rapidly and flexibly to achieve the satisfaction of customers with variable demands at anytime.

2.4 Dependability

The operation of IKEA succeeds in achieving dependability advantage to the company by doing things in time. Dependability， which is defined as doing things on time， keeping the delivery promises that customers have made. Firstly， IKEA has its predictable opening hours that give dependability to the customers. Secondly， customers are not only fully informed of how and when they will get the products they have chosen to purchase but also made aware of how long it will take to arrive.

2.5 Speed

Jones and Robinson （2012） defined speed as the ability to provide products or services with as short time delay as possible between order process and delivery process. IKEA aims at doing things fast. Firstly， the unique layout with yellow and blue is very obvious， which can make customers find the location quickly. In addition， the spacious store and unobstructed corridor contribute to smooth and effective flow of customers. There are about 10，000 of the 14，000 items in stock in the most effective locations that immediately allow availability of goods. Some facilities， such as steeply ramped conveyor belt， can relieve stagnation and help customers finish their purchase within a very short time.

However， There are still some potential trade-offs in IKEA. While attracting the group of customers in middle class， IKEA will lose attractiveness to the high-class customers. High-class always care about the uniqueness and fashionable design but not the prices.

3 The 4Vs in IKEA

The 4Vs， which comprise volume， variety， visibility and variation in demand are a means by which process designs can be considered and help identify different ‘process types.

3.1 Volume

The volume of IKEA is high. The official IKEA website- inter IKEA System B.V illustrates that there are 338 stores in 38 countries. Workers amount in IKEA is 154，000. With the global expansion， IKEA is taking up more and more market shares. IKEA production volumes were 33% higher than a year ago. The works in IKEA， including manufacturing， selling and so on are with repeatability， high specialization， systemization， capital intensives and low unit cost. Everything about the design of IKEAs operations encourages high volume of throughput.

3.2 Variety

The variety of IKEA is relatively high. A wide range of products is provided by IKEA for customers to choose from. The products vary from home facilities to office furniture， such as sofas， shelves， fans and some small accessories such as glasses， pendulum clock which are tightly associated with customers daily lives. However， in order to achieve low unit cost， the products categories in IKEA are routine and not be refreshed very quickly. Some old products that designed several years ago are still displayed in the stores. IKEA contribute more on the low price so that spend almost no time on products innovation， which is believed an existing weak point.

3.3 Variation in Demand

The variation in Demand of IKEA is not stable but predictable. It has high utilization and low unit costs. Variation occurs on weekends and public holidays. Generally， Stores are much busier on weekends and holidays than working week days. So the demand is predictable. According to the predictability， IKEA can range their staffs well and provide better services when the situation arises.

3.4 Visibility

The visibility in IKEA is high. The effective operations management in delivery and checking out provide short waiting tolerance. The workers in IKEA have good customer contact skills. They can provide helpful advice and good service rapidly when customers need help. Staffs can provide advice to customers when they are choosing which types of products they require. They can also give their recommendations to help customers order special furniture that has to be delivered and filled in order forms. Besides， Staffs also need to enter the warehouse area and pick out large products from the warehouse when customers want to purchase them. But in many cases， the interactions between customers and staffs can only take place in the process of payment.

4 Conclusion

From what have been discussed above， IKEAs operation management is effective， successful and distinctive. It has unique mode of establishment， innovative concept， facilities， effective global distribution network， self-assembly flat-pack distribution methods and thoughtful services which satisfy all kinds of customers. IKEA is aimed to develop methods of production in high effectiveness. IKEA has products with low cost but high quality， high flexibility of services， dependability， quick speed and comfortable shopping environment， which get together to attract more and more customers from all classes， provide obvious competitive advantages in the fierce furniture industry competition and the development of the enterprise enjoys a boost.

References：

[1]Jones， P. & Robinson， P.（2012）， Operations Managemtn， Oxford University Press， Oxford.

[2]Stevenson， W. J. （2009）， Operations Management， 10th ed， McGraw-Hill， New York.