Operations Management of IKEA

Background of the Company

The corporation of IKEA was founded in 1943 by Ingvar Camprad in Sweden. IKEA is a leading corporation in the field of furniture production. Its success is considered to be the result of the constructive approach, significant strategy, and efficient corporate performance. IKEA’s philosophy is built on the concept of showroom practice. The business idea incorporated by IKEA in the course of business activity is as follows, “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” (International Supply Chain Management, n.d.). Moreover, IKEA stores are well-known for the wide variety of services and facilities targeted at provision as maximum comfort for the customers. For instance, the system includes convenient parking, facilities for children, cafes and even a mini cinema. (Slack, Chambers, & Johnston, 2010, p.3). Hence, the IKEA’s concern for the customers may be regarded as a key to their tremendous success.

Industry in which the Company Competes

IKEA is apparently a leader in the industry of furniture production. The company is famous for showrooms, which feature the furnishing products, which are characterized by exclusive design and affordable prices. The level of rivalry is significant as far as such corporations as Tesco, Wallmart, ASDA, etc. enter the industry on similar terms and with similar advantages such as sufficient market presence, low pricing policy, the significant range of products, well-managed supply chain, and perspectives for further development.

The strategy of the Company

The strategic management of IKEA is considered to be constructive and efficient. It is relevant to dwell on its specific aspects and peculiarities.

Actually, there are three leadership strategies, which a company can incorporate in its business performance. They are low price strategy, differentiation strategy, and responsiveness strategy. The low price strategy is very effective as far as it means that the company supplies goods and/or services on lower prices (or with bonus programs) in comparison with the rivals’ offers. It is targeted to win the bigger market share in the industry. This policy will be efficient and sustainable only in case the offered goods and/or services are of the appropriate quality and satisfy the customers’ demands.

The differentiation strategy is a multidimensional phenomenon. It is targeted to provide a distinct or even unique product that will be offered to the customers. Actually, “Superior value is created because the product is of higher quality, is technically superior in some way, comes with superior service, or has a special appeal in some perceived way” (Bordes, 2009, p. 9). The responsiveness strategy predetermines timely delivery of goods or the timely provision of service.

IKEA follows two of the aforementioned strategies: the low price strategy and the differentiation one. The low price strategy is successfully implemented in order to supply the customers with the furniture items, which are affordable and at the same time of high quality. It is the key aspect of IKEA’s efficiency and feasibility.

The implementation of the differentiation strategy is conducted by the corporation on several levels. The key dimensions of the differentiation strategy concerns are service and variety. IKEA provides excellent service which involves polite and sincere attitude of the personnel to the customers and guests; high level of competence; diversity within the entertaining area (e.g. cafes, playing ground for the children, cinema) as well as in terms of facilities targeted at provision of maximum convenience and comfort for every customer (Berger, 2011). The showroom practice is another significant aspect of excellent service provision. IKEA presents the furniture in the showrooms, which provide an insight how the selected products will fit into the customers’ homes. It is a unique and constructive approach that was used by Kamprad in the 1950s.

The dimension of variety is also a significant factor in the pyramid of IKEA’s success. The company offers exclusively designed, nice looking, and perfectly fitting the domestic space furniture items. The choice is diverse and the furniture items are designed in all the styles a whimsical customer may desire.

Operational Areas

Operational areas in operations management comprise seven crucial dimensions. The first operational area includes product and service design; costs, quality, liability; and environmental issues. This area may be regarded as an outer-oriented dimension of corporate performance presentation, its essence, and impact on the surrounding world. A vivid example of the first operational area from the perspective of IKEA is showrooms as the product design and presentation technique, and alignment between low price policy and good quality of the furniture items the company offers to the customers. The second operational area deals with capacity cost, structure, and flexibility. This operational area is oriented on the inner organization of the operations management within the corporation. IKEA demonstrates the high level of flexibility in terms of both product design and overall corporate policy provided this level of flexibility does not interfere with IKEA’s corporate values, philosophy, and culture (Lu, 2014).

The third operational area involves such constituent elements as process selection and layout costs; flexibility, skills needed, and capacity. The dimension is directly connected with the scope of potential the company has on the given stage of development. The vivid example of the skill level needed is the list of requirements placed for qualification and competence levels of the entry staff on the current stage of development of the company. The fourth operational area is constituted from work design, quality of work life, employee safety, and productivity. This dimension outlines the key aspects of the corporate structure and organization within which the course of business activity is conducted. Employee safety and productivity at IKEA are both at the excellent level as well as the quality of work life. The company is concerned not only about the comfort and convenience of the customers but also about high quality working environment and decent working conditions. Therefore, the level of productivity is also significantly high.

The location costs and visibility constitute the fifth operational area. This area is sufficiently connected with the public image of the company within the industry. The image of IKEA is regarded as the one of the evident leader in the industry of furniture production on the global scale. The sixth operational area may be comprehended as the quality ability of the corporation to meet or exceed customer expectations. This dimension is very important as far as it presupposes interaction with the customers’ audience, taking into consideration their opinions, preferences, and needs as the primary concern. IKEA demonstrates profound concern in the customers’ opinion and attitude as well as preferences and actual needs. This conclusion may be made based on its mission statement and corporate values as well as its corporate performance. The seventh operational area of operations management includes inventory costs and shortages.

Forecasting

According to Dugic and Zaulich, the phenomenon of forecasting business activity of the company implies planning “its resources and its capacity to be able to meet the customer demand in the best possible way. Forecasting has also daily impacts on different levels within a company, levels such as strategic, operational and tactical” (2011, p. 10).

There are two basic approaches to the course of forecasting: qualitative and quantitative approaches. The qualitative approach identifies the potential and/or expected customers’ demand by means of soft data. It primarily relies upon perception, opinion, and judgment. Actually, this kind of data is impossible to quantify. In addition, it pays significant attention to human factors and attitudes. The quantitative approach incorporates hard data for the course of forecasting. It may involve the projection of historically relevant and factual data, or incorporate causal variables to provide a forecast.

The forecasting approach currently used by the corporation of IKEA unites the advantages and excellent beneficial opportunities of both kinds: quantitative and qualitative. Dugic and Zaulich (2011) conclude that the corporation uses two major types of techniques in order to provide maximum efficiency of the forecasting process. “The forecast are based on historical data, seasonality from previous sales and combined with a moving average. The demand planners make daily inputs and adjustments about demand and forecast to SRS to increase forecast accuracy” Dugic and Zaulich (2011, p. 34). IKEA uses lessons of the previous corporate performance in order to improve the future and anticipates the perception and judgments to the new products the introduction of which is planned to be conducted four times per year.

The forecasting process has three levels: global, national and regional (or local). Moreover, it is essential to underline that the traditional forecasting course IKEA conducts includes two crucial stages: a strategic plan for the next five years that is targeted to determine the expected and targeted sales (the plan includes data concerning every product offered by IKEA) and “the information that is being received from Service Office (SO)” (Dugic and Zaulich, 2011, p. 27).

Product and Service Design

The product and service design is a crucial factor of IKEA’s success. It is targeted to attract the customers’ attention, persuade them that it is the perfect embodiment of their wishes, needs and preferences, and motivate their desire to make an instant purchase. Product design involves diverse dimensions, such as color choice, shape, and style of the furniture item, the way and the place how and where the item is located in the showroom, the way the light is organized, the overall organization of the showroom, and so on. IKEA incorporates numerous product designs techniques of different types in order to make the business activity efficient and the customers satisfied. Product lifecycle, according to IKEA’s philosophy, predetermines constant improvement and adjustment at every stage of the life cycle. The evidence of such an approach determined by IKEA is the so-called Never Ending List that is published at IKEA’s official website.

Moreover, it is essential that the corporation manages its product design according to their key strategies, i.e. low price and differentiation strategic approaches. Furthermore, the company uses the effects of guessing and unexpectedness to contribute to the product design and presentation. For instance, the showrooms’ plan in the store has been developed in such a way that every curve leaves the customers to guess how else IKEA can surprise and amaze them. Two other aspects tend to take into consideration maximum comfort for customers as the key corporate concern and tendency to turn the customers into corporate stakeholders. IKEA is always striving to provide convenience for every single customer ranging from children playing ground to flat packed furniture delivery. The company is often referred to as Lego for the adults. It means that it is interesting, amazing, and at the same time simple, pleasant, and incredible. Moreover, IKEA is always striving to perform mutually beneficial cooperation. Hence, the company provides the customers with an excellent opportunity to participate (partially) in the process of “building’ (or, to be more precise, assembling) every piece of furniture under the brand of IKEA.

The company considers the effects of legal considerations under the terms of the responsibility of the manufacturer in case of any kind of damage or injury caused by a faulty furniture item and by insurance policy guaranteed by the company to IKEA Family members. Ethical considerations are always followed by IKEA as far as quality and convenience are key issues of concern for the company. Therefore, the furniture items are constantly improved in order to be of appropriate high quality and align with the customers’ expectations and needs. Moreover, IKEA considers the phenomenon of sustainability to be an essential part of the corporate roots. The company is committed to its People & Planet Positive strategy. The strategy is directly connected with the process of becoming resource and energy independent. Moreover, IKEA actively invests in such areas as solar and wind energy production.

Capacity

The notion of capacity should be regarded as the upper limit the company can achieve if conditions, circumstances, and needs are properly, timely and constructively fulfilled. Capacity needs include the following crucial constituent elements: facilities and equipment; sufficient space; and highly qualified personnel. Actually, IKEA has all the aforementioned components. Furthermore, the company always strives to perfection, which means the process of constant improvement and adjustment on every stage of manufacturing the furniture goods. Hence, the capacity level of IKEA is significant and strong. Moreover, the company also contributes to the management of its capacity by means of innovative technologies implementation and creative approach to the course of production and presentation of the products. Furthermore, it is relevant to underline the special approach toward capacity and efficiency management demonstrated by IKEA, “IKEA buys production capacity rather than product quantities. In other words, they order 10,000 hours of production from their suppliers rather than 10,000 bookcases” (International Supply Chain Management, n.d.). Hence, the company optimizes its production course and strengthens capacity level significantly.

It is also significant to mention that IKEA is targeted at control improvement over all the elements of the supply chain in order to provide more efficient performance and improve the competitive position of the company on the global scale. “A new global planning concept was developed and is currently being implemented. Its cornerstones are mutually integrated planning processes, a centralized planning organization, a focus on data quality and use of advanced software support” (“International Supply Chain Management”, n.d.).

Actually, the company has sufficient capacity on the current stage of development. However, the current leading position should be supported by permanent development as far as IKEA has numerous serious competitors with high-level capacity, which are ready to overcome her in the corporate race as soon as IKEA makes any mistake or demonstrates the flaw. Capacity management is performed in significant alignment with its key strategies (low price and differentiation ones). This tendency contributes to the overall productivity and profitability of the company. IKEA incorporates a leading type of capacity as far as the company usually anticipates the future demand change or increase, and builds its capacity according to these anticipations.

Furthermore, it is relevant to discuss long-term and short-term capacity planning processes. The long-term capacity planning concerns the crucial corporate production facilities and global targets. For instance, when IKEA targets to enter a new country’s market, it may be regarded as a long-term capacity planning. The short-term capacity planning usually concerns resource balance, schedule issues, and other less significant aspects of the corporate performance. For example, a short-term capacity planning will be appropriate when the company decides that the third shift is necessary or the quantity of executive managers is insufficient and needs additional training or improvement both in qualitative and quantitative aspects of the personnel competence and amount. Hence, the difference is in the level of significance and the scale of the issue.

Location

The corporation of IKEA originates from Sweden. In fact, the company functions in the diversity of countries in the current course of time. Therefore, it is relevant to discuss the country of its origin, Sweden, in terms of the corporate location and its significance. Sweden is famous worldwide due to its excellent quality production, supreme quality of service, consistency, and relevance of the process of corporate performance. Actually, IKEA may be absolutely aligned with the aforementioned aspects taking into consideration its actual corporate performance, efficiency, and corporate culture with its significant values. Furthermore, the People & Planet Positive strategy targeted at efficient and consistent provision of sustainability aligns with the number one concerns often demonstrated by Sweden. Hence, the country of origin of IKEA is a symbolic and quite advantageous location for the company. It contributes to IKEA’s leading image on the global scale and supports its key strategies.

Process Selection and Facility Layout

The notion of process selection is connected with the identification of the type of organization of the production course. Its key constituent elements include facilities, work design, and layout. The type of processing IKEA tends to follow is considered to be the repetitive one (assembly processing). Its key characteristics (which align with the case of IKEA corporate performance) are as follows: low price strategy, high volume, and excellent efficiency level. However, there are also certain disadvantages in terms of IKEA production organization, the high cost of downtime, whereas the aspect of flexibility appears to be significantly high and constructive.

The phenomenon of facilities layout is connected with the configuration of the process of necessary or desired changes in the scope of facilities design, improvement, and adjustment, or development of new facilities line. There four key types of facility layout: product layout, process layout, fixed position layout, and combination layout. IKEA apparently adheres to the combination layout as its corporate performance vividly demonstrates.

Hence, the process type and facilities layout that IKEA incorporates are managed according to the key corporate strategies (low price and differentiation).

Quality

The notion of quality predetermines the level toward which a product meets or exceeds the expectations and needs of the customers. The dimensions of the product quality are as follows: performance, serviceability, aesthetics, perceived quality, special features, durability, conformance, and the level of product reliability. IKEA produces the furniture items of high quality at affordable prices. Its quality is especially highly evaluated within such relevant dimensions as conformance, reliability, aesthetics, and special features. Moreover, the company is targeted at permanent quality improvement course. The company claims that every stage of the production process is strictly and thoroughly controlled in order to present the customers with the furniture they really deserve.

The recommendations concerning quality aspect for IKEA will be as follows. It is recommended to introduce an exclusive luxurious line of furniture for the upper class of the customers’ audience with no flat-packing and no affordable prices, but with expensive details, exclusive design and impressive splendid style in order to attract more customers and provide a contrast to a standard image of the company. Moreover, it is recommended to pay more attention and incorporate more actively innovations in the course of production as well as in the course of the presentation of the furniture items.

The company is primarily following the direction of its key strategies, but in case of recommendations implementation, the low price strategy may need partial reconsideration.

Conclusions

Thus, the operations management of IKEA is apparently a significant, constructive, consistent, and efficient. Its strategic management, strict quality control, the permanent course of development, improvement, and adjustment, creative and extraordinary approaches, as well as the constant incorporation of innovations and advanced technologies into the course of corporate performance contribute to its efficiency and leading position. Moreover, such special aspects of IKEA’s activity as sustainability, profound concern for the customers’ comfort and convenience, affordable prices, and diversity of the offered furniture items are also considered to play the particular role in the fact that IKEA is one of the best in the furniture industry on the global scale.