IKEA Supply Chain Management

Using the case study “IKEA: Building a Sustainable Supply Chain”, provide two examples of sustainable activities.

IKEA is not willing to sacrifice its principles. ‘Low price but Not at any price’ is what IKEA says. This means it wants its business to be sustainable.

IKEA supplies goods and services to individuals in a way that has an overall beneficial effect on People and the environment.

Example of sustainable activities:

  1. Quality check of Raw material including analyse of environmental impacts along the supply chain through the e-wheel, a tool that analyses this impact at four stages of product flow :
    • a. Resource extraction (IKEA checks that resource is extracted in a sustainable way)
    • b. Production (waste should be avoided, reuse of waste encouraged)
    • c. Use (no allergies due to chemicals, use environmentally friendly energy when finished good uses energy)
    • d. Recycling/end-of-life: Maximum of products is possible to be recycled.
  2. Around 50% of IKEA products are made of wood or wood fibbers.
  3. IKEA also tends to minimize the use of resources :
    • a. Use recycled plastic
    • b. Products made according to the transportation mode size, meaning optimization of loads.
    • c. Use less resources for material production as possible (ex : hollow legs for a chair)
  4. Communication and training on responsible forest management,
  5. Development of forestry land in China
  6. In 2006 IKEA UK recycled more than 70% of its waste products. Its goal is to recycle 90% of materials.
  7. To reduce environmental impact, in 2006 IKEA UK started to charge for carrier bags. This reduced the use of carrier bags by 95%. In June 2007 IKEA UK removed carrier bags from its stores completely.
  8. In December 2006 IKEA UK gave a brand-new folding bike to each of its 9,000 employees. It also gave subsidised travel tickets to encourage them to travel to and from work on public transport.
  9. IKEA UK has provided low-energy light bulbs to its entire UK workforce and switched its fleet of company cars to low-emission hybrid models.

Explain how each sector of IKEA industry is linked together within a supply chain.

Supply chain management (SCM) is a key strategic factor for increasing organizational effectiveness and for better realization of organizational goals such as enhanced competitiveness, better customer care and increased profitability.

Today, most of the enterprises of a supply chain operate independently. For example, marketing, distribution, production planning, manufacturing, and the purchasing organizations have their own objectives and these objectives are often conflicting. This way of functioning prevents the enterprises from providing the right products to the right customers at the right time. All these organizations are individually efficient enterprises, but they lack coordination to produce required end results.

IKEA aims to be a responsible organization. It sells low-price home furnishing products around the world. These include furniture and accessories for kitchens, bedrooms, living rooms, bathrooms and children's rooms. IKEA now has stores in 36 countries around the world. It has come a long way in its 60 years of business. The direction for the organization is provided by its vision. This acts as a guide for everybody within and outside the organization about what IKEA wants to achieve. IKEA's vision is 'To create a better everyday life for the many people.' To meet its vision IKEA provides many well-designed, functional products for the home. It prices its products low so that as many people as possible can afford to buy them. However, in creating low prices IKEA is not willing to sacrifice its principles. 'Low price but not at any price' is what IKEA says. This means it wants its business to be sustainable. IKEA supplies goods and services to individuals in a way that has an overall beneficial effect on people and the environment. Customers all over the world have responded positively to IKEA's approach. This is evident in its increasing sales. In 2006 IKEA had a group turnover of nearly 18 billion Euros. IKEA could promote programs like tree plantation, save the environment or other related CSR (Corporate Social Responsibility) activities. Such activities will not only be a good initiative for a furniture company toward making the planet earth a better living place for people, but at the same time it will also help enhancing the brand name IKEA as well as the brand value of IKEA, which is an intangible asset of any corporation. Moreover, IKEA could go for more eco-friendly technology for producing its products which will also go along with its low cost business level strategy as well.

As it is about all about operating in International Markets, and International Business, we do not know which strategy will best suit such multinational companies that is we do not know whether a Global standardization, or Internationalization, Transnational, or Localization, which international strategy is going to work in which corner of the world.

Describe how IKEA influences all elements of its supply chain to adopt sustainable practices.

The E-Wheel tool is a powerful communication vector with partners, especially suppliers of raw materials and manufacturers. It results in better acknowledgment, responsibility and sensitivity on their side.

IKEA created a code of conduct called IWAY (Way of Purchasing Home Furnishing Products.), which includes rules and guidelines that helps partners to reduce environmental impacts; this code influences Ikeas partners to:

  • a. Follow national and international laws
  • b. Not use child labour
  • c. Not use woods and glues from non sustainable forests
  • d. Reduce waste and emissions
  • e. Contribute to recycling
  • f. Follow health and safety requirements
  • g. Care for the environment
  • h. Take care of their employees
IKEA is auditing its partners regularly to check if IWAY is respected IKEA formed a partnership with:
  • UNICEF to prevent child labour in India, and therefore support its suppliers in managing this aim
  • WWF to promote sustainable use of natural resources, and therefore supports also suppliers in managing sustainable use of resources

Evaluate and discuss the effect that IKEA’s sustainable practices are likely to have upon the furnishing industry over the longer term.

All IKEA suppliers are to follow the IWAY code of conduct, meaning they apply it also when supplying other customers than IKEA. Therefore these sustainable activities have a positive impact on other entities, linked to IKEA suppliers own supply chain. This is kind of bullwhipped effect along the several supply chains.

Another effect is due to IKEA’s powerful situation on its market. IKEA is one of the leaders in furnishing industry in quite all countries in which it does business, therefore, it influences its competitors: Because customers are keener on buying at IKEA thanks to its sustainable activities, competitors are influenced to do so. Therefore over the long term, the whole furnishing chain should be sensitive to sustainable practices.

(Remarks: Not only thanks to IKEA, also because trend is nowadays the sustainable development and people are more and more responsible thanks to politics and media)