Case Study on “IKEA: Supply Chain Management

IKEA: Supply Chain Management

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16-Oct-14


Q1) Explain fully the impact on the Supply Chain of transferring all the manufacturing to factories in China and Brazil. From a Supply Chain perspective what risks do you feel are involved AND how would you recommend these are overcome?
The Application of a supply chain begins from the stages of production/ raw material and goes on to be a part of the whole process till the product is delivered to the customer. In this case, as customers themselves go and receive the package personally, this stage lasts from production to the point where the product in a storage facility ready for a pick-up from the customer. A flow of a supply Chain requires a constant communication flow along with the tasks of packaging and transportation. In the Process of a supply chain there are various steps where value is added to the product through packaging and labeling and occasionally a product gets transformed.
Whenever there is a possibility of one or more other companies stepping in to be a part of the process, it becomes necessary to develop a supply and logistics chain containing several tiers. The inclusion of tiers suggests that there are levels set between the processes. The immediately connected link I s recognized as link one which is immediately connected with the supply and then there comes level two and so on. Supply chain as a process visualizes the entire chain as a single entity in which the elements interact with each other. (Miguel & Brito, 2013)
The purpose behind a smooth supply chain is constant flow of communication and interaction related to the product to the point where it reaches complete synchronization. A continuous flow suggests that there shouldn’t be any halts in the process and no unnecessary halts caused in any way in the process. This requires cooperation between all the members of a sequence. When the production or delivery of a product receives the JIT level of clearance, it becomes a priority in the process, disrupting the flow at times but it is successful with a complete use of strategy. (Sharma, Agarwal and Garg, 2013)
In the case of IKEA, there is a facility which must be producing and transporting the goods in a local range in UAE. According to the Global Management Board, the company is doing fairly well in the sense that it produces and delivers on time and throughout the GCC countries, brand IKEA has achieved a lot of fame over being a consistent company over time.
Although, there was a mention about IKEA by the Global Management Board that there is room for improvement seen in the volume and sales division of the product and IKEA strives to develop in the areas of volume of sales there has been a recent strategy move in IKEA about the shift from U.A.E. to China and Brazil and if that strategy has been noticed that shifting to any newer place will let the volume of sales suffer due to the sheer nature of transporting and setting up a supply chain which requires a plethora of resources that have to be set up to a perfect timing in a manner that the product once under a specific process may get delivered on time due to the perfect setting of the cogs due to an underlying process of setting to perfect timing and delivery which is difficult to perceive due to the fact that it is not easy to move such a supply chain and constantly expect to have the same quality and accuracy with the work as sometimes it takes some time to figure out a perfect route or an ideal inclusion about what to do next regarding such a step.
Clearly this will affect the volume of sales of IKEA and will take some time to return to the same process where if there is an urgent order IKEA might not be able to deliver on time considering the unreliability of the new sources and even a fairly experienced manager would understand the significance of a supply chain in how that if a facility shifts their whole manufacturing process to another area then their supply chain is the most vulnerable thing to get affected in the process. (Anderson, Britt & Favre, 2014)
The boundaries can be overcome by keeping most of the staff intact in the process and rapid response to start training for the whole process as soon as possible to avoid a phase in which things don’t move forward despite the success and goodwill of the company. IKEA maybe the best in business but if there are heavy transitions like this then there will be a splash back regarding the quality delivered but it will get back to its earlier successful stage wit due efforts and time.
Q2) Provide the detailed steps required to successfully introduce the new product range through the Supply Chain. Explain how and why you would ensure “collaboration” is present in the process.
If there is an introduction of a new product in IKEA, the process which is underwent, goes like this; the item’s raw material is sourced and brought to the workshop for making the part necessary for the production of this new item. As the manufacturer IKEA is known for mass producing a product it will start to do the same regardless of demand as it has to meet a potential demand arising from a new product and only after there comes an update regarding the production process and the sales the product has made then and then only can a manufacturer modify the supply chain and prioritizing. (Lambert and Cooper, 2000)
To smoothen the process of introduction of a new product, it is vital that IKEA gets into a partnership/ collaboration with another producer then it has a lot of scope at earning a lot of profits with ease over the production. As IKEA stands behind the idea of making cost effective furniture which is preferably cheaper than the usual furniture you get by. As one of the most fruitful aspects of partnership is that it will help IKEA achieve a cost effective way to produce their new line of product then it will become a useful and significant step ahead and it will pave a way for more good things to follow and a newfound strength to tackle the issue of putting a new product in the line.
While there are barriers in creating a strategic partnership or alliance, if the partnership goes over all the right stops then the IKEA will turn over a new leaf with the newfound strategic partner.
The benefits of having collaboration also include the factor of focus on price which is a steal for IKEA as it heavily relies on price and it has become a constant factor for IKEA and is a part of their sales pitch that they provide furniture in a cheaper price than any other furniture store or franchise out there. Improved responsiveness from supply chains is facilitated by integrated processes (including joint strategy determination) and synchronisation (co-ordinated flow facilitated by transparency of information upstream and downstream). (Kampstra, Ashayeri & Gattorna, 2006)

If IKEA is able to break the occasional barriers of challenges of introducing a new product and maintain a successful healthy partnership, it will come out of this event as an even more successful and a dynamic company.

3) Would you expect the Demand profile for the existing and new products to react? Explain in your report the characteristics of both “push” and “pull” and how the two processes are best managed.

The demand profile of the new products relies on the amount of demand it generates in the market annd even other than that it depends on the demand stategies it falls under. A push strategy relies on the demand of the product rather than the supply of the product. Seasonal products fall under the category of having a push demand strategy. These kinds of plans allow them to make their own strategy to meet their requirements and it also gives them the time to find a place to store their product.
A pull strategy basically relies on factors other than demand and the factor of demand stays constant and is coherent with the Just in time inventory management system that attempts to decrease te stock at hand And under this specific strategy is convenient when products enter the supply chain when the customer’s demand justifies the release of the new product. Pull strategy will affect the demand profile in a positive way. (Small Business – Chron.com, 2014)
The demand profiles of old products depend on their overall success and the demand of the new product which has been introduced I the market. The demand profile of the new product is bound to rise in the initial weeks as in the furniture business a unique variety and the age of the product will help prove that the demand profile initially goes up the follow the trail of demand. (Loucka, 2011)
Q-4) Inventory Data is critical in any Supply Chain. Explain how and from where you would recover such information and what practical use it would be for future planning?
Inventory data can be called a bloodline of the business dealing in product sales or a chain of shop or any seller whatsoever. The inventory data contains the details of the stock which hasn’t yet been sold and it helps people forms strategies about sales and analyze the demand of products individually over time. Inventory data is capable of giving minute useful details about the preferences of the people which is to be taken into account. It helps the production department figure out which product to focus on for production. Investment in inventory should neither be excessive nor inadequate but it should be just right. Maintaining an optimum level of inventory is the supreme purpose of inventory management. Inventory management helps in the maintenance of smooth production and sales operations. A proper inventory system is advised to for a firm to avoid losses and damages.
If and inventory is regularly checked from time to time then issues can be spotted days before the problem may arise. Efficient maintenance of inventory data will help the owner reduce the warehouse costs and will find a way to use his resources in the most optimum way possible. And it has a very practical use for the future to spot any issues and to help notice that which product might catch up in demand at what point of time. (Croom, Romano & Giannakis, 2000)
For Recovering the inventory data of a company, it is needed to determine the recovery point objective and recovery time objective for various different areas of business and put them all together in a an effective data protection plan to avoid losing or getting back the inventory data. Another option would be to back up the existent data regularly to avoid data loss. Inventory data is a very handy tool for day to day processes and is referred to all the time before ordering for any goods and tracking it is essential for daily activities which help in sorting and managing the goods at hand. Any business which has the concept of goods utilizes inventory data for their supply chain processes.
Inventory data is one of the most critical of things in a supply chain as supply chain cannot be managed without inventory data with many practical uses to explore and utilize. (Kampstra, Ashayeri and Gattorna, 2006)

Q-5) Detail the Logistics process for moving Goods from the manufacturing source to the inventory warehouse in Jebel Ali. Show that you have compared the various modes of transport and make a recommendation that will consider Cost, Speed and Flexibility. Consider multimodal transport, security, safety of the transportation, all processes and the potential complications.
From the factories of china and brazil will depart from there in trucks with containers of huge capacity and according to the distance to the port it will be decided whether it will be taken by a train or not. Once leaving the ports, and arriving on Jebel Ali Port, the containers will be taken to the main IKEA warehouse and from there; the products will be transported to their respective shops through trucks or container vehicles. The modes of transport involved in the process are standard but after diving into specifications, major changes can be made to the choices for the vehicles and transport modes used to transport the product.
Transportation plays a major role in logistics by converting resources into useful goods for the ultimate consumer. It consist of all the functions and sub functions that are use to minimize cost and maximize service. The chain of transport begins after the goods are delivered to the port. After that, a person handling logistics will take charge of the package after showing valid proof of the ownership of the package. Then he will call the IKEA warehouse so they can confirm about receiving the shipment. The person handling the logistics will transport the goods though a truck or number of trucks depending on the size of the package and will pay toll taxes on the way. While all of this is happening the transport can be tracked through GPS by the company. When the goods are delivered to the warehouse, the first part of logistics is completed. In the second stage, when the goods are required by the individual shops, they have their own mode of transportation for taking a load of goods from the main warehouse to the individual shops. As they are transporting furniture they mostly use closed trucks as they are big in size and a closed truck would be safe for the furniture. Trucks as road transport will be faster for the city roads and if they use smaller vehicle they might have to make more number of rounds which doesn’t seem flexible. If the transportation stops in between due to any reason the vehicle will be able to get tracked by GPS systems. Proper paperwork is necessary to make sure the people working in logistics don’t have a problem taking ownership of the goods. In order to save logistic costs, integrating resources with another company will be helpful in cutting costs from the logistics department. While the goods are being delivered, logistics department also offers services like Efficient Consumer Response and Quick Response and such other techniques to provide better services to the customers. Using specialized services is always an option for a quick delivery.
References
Anderson, D., Britt, F. and Favre, D. (2014). The Seven Principles of Supply Chain Management. Supply Chain Management Review.
Croom, S., Romano, P. and Giannakis, M. (2000). Supply chain management: an analytical framework for critical literature review. European journal of purchasing \& supply management, 6(1), pp.67–83.
Kampstra, R., Ashayeri, J. and Gattorna, J. (2006). Realities of supply chain collaboration.International Journal of Logistics Management, The, 17(3), pp.312–330.
Lambert, D. and Cooper, M. (2000). Issues in supply chain management. Industrial marketing management, 29(1), pp.65–83.
Loucka, L. (2011). Demand Profile – Lean Sigma Supply Chain by Resource Systems Group. [online] Lean Sigma Supply Chain by Resource Systems Group. Available at: http://www.resourcesystemsconsulting.com/demand-profile/ [Accessed 16 Oct. 2014].
Miguel, P. and Brito, L. (2013). Supply Chain Management measurement and its influence on Operational Performance. Journal of Operations and Supply Chain Management, 4(2), pp.56–70.
Sharma, A., Agarwal, A. and Garg, D. (2013). Quality management in supply chains: The literature review. International Journal of Quality Research, 6(3), pp.193–206.
Small Business – Chron.com, (2014). Push vs. Pull Supply Chain Strategy. [online] Available at: http://smallbusiness.chron.com/push-vs-pull-supply-chain-strategy-77452.html [Accessed 16 Oct. 2014].

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March 7, 2018

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