Ikeas Value chain

1.0 Introduction: IKEA is the acronym of the name and address of its founder Ingvar Kamparad and Elmteryd, Agunnayd. The company was founded in 1943 in Sweden and it owned by Ingvar Kampars Netherlands based charitable foundation, Ingka Holding B.V. (IKEA .com). The direction of the company is provided by its vision statement, business idea and market positioning statement. Vision statement to create a better everyday life for the many people. Market statement your partner in better living. We do our part you do yours, together we save money. Business idea is 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 (www.IKEA .com) IKEA has about 230 stores in 36 countries around world. It sell low-priced furniture including, kitchen accessories, bedrooms, living rooms, childrens rooms and bathrooms. Approximately 50% of Ikeas 9,500 products are from wood or wood fibres. (see appendix B, The Times 100) 1.1 The Primary Sector: Ikea does not produce its own raw material. It therefore works with over 1,300 suppliers in 50 countries to provide primary sector products (raw materials). Ikea ensures that a sustainable impact is made on the environment and on the lives of the people with which it operates. Ikea takes pride in designing it own products and low prices is the key factor in providing designed furniture. Ikea ensures that products meet strict requirement standards for function, efficient distribution and quality. Ikea checks the quality of materials and analyse the environmental impacts. They also monitor conditions of suppliers. (The Times) 1.0.1 The Secondary Sector: At this stage, value is added and manufacturers create products from raw materials as they move through the supply chain. Input and manufacturing process = output with added value. Most of Ikeas products are made from wood, so Ikea designs products so as to make maximum use of the smallest amount of resources, thereby saving the environment. An example will be the OGLA dining chair where Ikea saves on resources by making its legs hollow instead of solid. (www.Ikea.com).

To ensure or help manufacturers reduce the impact their activities have on the environment. Ikea employs a code of conduct called the Ikea Way at purchasing Home Furnishing Products (IWAY). This conforms to international legislation and contains minimum rules and regulations.

The IWAY encourage manufacturers and suppliers, as they add value to products, to be mindful of the following: Avoid the use of child labour Take good care of their employees Follow health and safety regulations Reduce emissions Reduce waste To recycle their waste Not to use materials from non-sustainable forests

(The Times 100) 1.0.2 The Teritiary Sector: Ikea adds value to the finished products in its stores by providing a shopping experience which is different from what its competitors provide. Each Ikea store holds up to 9,500 products lines giving consumers lots of choices. Ikea provides realistic room setting, it allows consumers to see what a product will look like in their homes. Ikea have crche and restaurants attached to their stores Ikea also provide a good and reliable home delivery service The staff are friends and well trained

Ikeas toes are build on a concept of you do half, we do half, together we are saving money an example of this is the customers assembling their furniture at home (Klavas, J. 2005 pp116-131) To gain a competitive advantage and be more sustainable in the UK, Ikea recycled more than 70% of its waste in 2006. To further reduce its impact on the environment in 2006, Ikea UK started to charge for carrier bags. This reduced the use of carrier bags by 95%. Carrier bags have since been removed from the stores since 2007.

Ikea UK provided folding bikes to its employees in 2006. To encourage them to use public transport, Ikea also provides subsidised travel tickets. (www.ikea.com)

1.2 SWOT Analysis of the furniture industry: Strengths: Ikeas strengths lies in its ability to save costs and at the same provide services and products that encourage its customers to keep doing business with them. Ikea sources its raw materials and suppliers from all over the world and chooses the cheapest suppliers. They are able to reduce costs by customers picking up, transporting and assembling their purchases. (Barthelemy. J, 2006 pp.80-85) Another key factor that has aided Ikeas success is that it is able to produce furniture that is universally attractive, so they are able to get good manufactured in global quantities at very low costs. (Solomon, 1991 p.10) Ikea also ensure that goods are packed as compactly as possible hence reducing costs from warehousing space to shipping (Solomon, B. 1991, p.12) Weaknesses: Ikea has been unable to establish a North American and American chain of suppliers. For Ikea to enjoy the success it has in Europe, in America and North America this is very important because this could possibly reduces delivery costs from suppliers to stores in and around the geographical area. Opportunities: Ikeass growth depends on the rate of increase of its customers, it is very important for Ikea to be able to market its product to as many homes and offices as possible, in America. This is an opportunity for Ikea to place more stores in news locations. (Arnold, S.J, 2002 pp. 567-8) Threats: One major factor that has aided Ikeas success is its universal appeal, as the company grows and seeks to enter more markets, it could be faced with the realisation that some markets might note embrace that appeal. Conclusion: Ikea has being able to distinguish itself from its competitor by having control over its entire supply chain from to the consumer (Klevas 118) with 230 stores in 33 countries Ikea hosts about 410 million shopper per year. In 2005 Ikea increased its turnover by 17.3% to $18.8 billion from 16.0 billion in 2004 the previous year (dircon.net)/ikea.

Bibliography
Arnold, Stephen J. (2002) Lessons Learned From the Worlds Best Retailers. International Journal of Retail & Distribution Management. Volume 30, Issue 11/12, pp.15-17

Barthelemy, Jerome. (2006) The Experimental Roots of Revolutionary Vision. MIT Sloan Management Review. Fall 2006, pp. 80-85.

Klevas, Jenny. (2005) Organization Packaging Resources at a Product-Developing Company. Journal of Physical Distribution & Logistics Management. Volume 35, Issue 2, pp. 116-131.

Solomon, Barbara. (1991) A Swedish Company Corners the Business: Worldwide. Management Review. Volume 80, Issue 4, pp. 10-13.

Appendix B

Sectors of industry and sustainable supply chains

Raw materials Primary sector Extracts or developmen ts natural resources such as timber, agriculture, oil or

Manufacturi ng Secondary sector

Makes use of extracted primary materials to build, manufacture or develop

Distribution

Retailer

Consumer

Tertiary sector Provides the services needed to meet the needs of the end users, for example through retailing, distribution, insurance and customer services

finished goods

SWOT Analysis of Ikea

Threats of new entrants It will be difficult for new entrants to grow as big as Ikea considering the current financial crisis

Power of supplier
Most of them depend on Ikea Ikea is irreplaceable is a main customer Ikea can easily switch suppliers without compromising price or quality

Strength of competition Major competitors are niche players

Power of customer Ikea is the only company of its kind

Threat of substitutes Minimum competition from substitutes