The Operations Management Strategy of IKEA - Coursework Example

? Global Company Environment & Strategy How the operations management strategy and issues changes during the life cycle of products/services offered by IKEA: In its early beginning in 1943, operations management strategy is simple and confined to the local operation. There were few employees to manage, few customers to take care of, and few products to design and sell. IKEA built its core competency in its design and introduced the flat packages for unassembled furniture and other home products effectively lowering the price of products making them affordable to as many people as possible, and thereby shaping its mission and vision that is, “to create a better everyday life for the many people by offering wide range of functional home furnishing products at prices so low that as many people as possible will be able to afford them.” IKEA’s original Swedish design gained wide acceptance. Soon, true to its mission and vision, IKEA opened its first oversea store in Norway, followed by many other stores and distribution centres in many parts of Europe and the United States. Thus in 1990 onwards, IKEA embarked on a global operations strategy and put up more stores in UAE, China and other parts of Asia, Australia and even Russia. Today, IKEA pioneered the global market and successfully positioned the IKEA brand in more than 40 countries in Europe, North America, Asia and Australia with more than 300 stores and more than 12,000 products in its product range. IKEA also introduced innovations in its stores by putting up IKEA restaurants and groceries to cater to the needs of its growing customers. All of this growth would not be possible without implementing strategic and global operations management that transcends national boundaries. IKEA’s management must introduce novel innovations, rapid product development and design, manage international facilities and warehouses, supply chain, human resources, customers, communications and many other operational areas to sustain growth, develop its core competencies, and safeguard its competitive advantage and critical success factors. Organizational changes also took place to ensure control, protect the interest of international stakeholders, and ensure growth and profit to support investing activities and corporate social responsibilities throughout the globe. Operations management took responsibility in protecting the environment by changing the way they do things in IKEA and by using environment friendly materials. IKEA also took care of the less privileged children in the world by generously donating and partnering with UNICEF welfare programs. 2. Compare and contrast the critical success factors (CSF) that helped IKEA to be competitive. Briefly outline how “Activity mapping technique” helps IKEA link competitive advantage, core competence, CSF and supporting activities. The major contributor to the success of IKEA is low price differentiation of its Swedish furniture that is globally appealing. While contemporary companies are focused on specialty design, IKEA keeps their design simple, light and functional, produced at the least cost without sacrificing quality. IKEA mass-produced for the worldwide market while its competitor mostly produced on demand. While IKEA’s competitors shipped and delivered bulky preassembled products, the company innovated by selling unassembled products on “where is as is basis”, thus bringing down price without sacrificing quality. The results are “flat packages” and lowered transportation and storage cost. Another critical success factor is the way IKEA managed its supply chain. Instead of directly managing product quality and investing on costly plant, property and equipment, IKEA delegated the responsibility by partnering with more than 1,200 suppliers in 55 countries. This offers more flexibility and keeps their headquarter focus on transnational operational strategies, allows more resources for research and design, marketing and advertising campaigns, and even more resources for community social responsibilities. IKEA’s mission and vision is strongly adhered throughout the organization and shared by all stakeholders, suppliers, and workers anywhere in the globe. This well-defined purpose dictates IKEA’s direction. By constantly finding ways to live up to their mission and vision, IKEA went way ahead of its competitors and claimed the global territory. This gives IKEA competitive advantage. IKEA perfectly identifies their core competence in product design, and marketing mix. This is evident in the company’s statement “we do our part” referring to their commitment to simple and light design, that fits-all transnational consumers while keeping the Swedish style, simple and functional. IKEA knew exactly how to market their products to every home. “Activity Mapping Technique” greatly helped IKEA in identifying the set of activities that will realise their mission and vision of delivering low-priced furniture to the masses, and carry out activities that will showcase their core competencies and safeguard their critical success factors. Activities that resulted in low-priced quality products, while showcasing competitive advantage and safeguarding critical success factors are the following: 1. Selling unassembled products on “where is as is” basis. 2. Setting up plants in countries where production cost is low like in China. 3. Investing in its own wood supplier in Swedwood Group to ensure quality materials and protection of natural resources. 4. Outsourcing production to quality partner suppliers worldwide. 5. Facilities are located outside the city where big spaces of land can be purchase at lower cost and where traffic is not congested. The following activities contribute to the development of their core competencies in product design: 6. Confining design in the company headquarters in Sweden in collaboration with transnational stakeholders. 7. Invest resources for product research and design. Activities geared towards building strong customer relations and customer sales: 8. Building strong communication link by investing in interactive voice response technology for its customer service centres and in multi-media, self-service platforms to improve efficiency by automating transactions whenever possible and by implementing customer care programs in the store or showroom level. 9. Allowing customers to touch and feel the products on display and visualise how their purchases would fit their own homes by providing for ample space with many showrooms in their warehouses and shopping facilities. 10. Investing in publication and print media outlet for the production of millions of attractive catalogues and IKE room magazines which are mailed out to more than 150,000 IKEA Home Card Holders in UK and to stores worldwide. 11. Investing in aggressive marketing mix in different television and other media outlets throughout the globe. 12. Parents can drop off their children in play areas with park themes so they can freely look around showrooms. 13. Offering other amenities and services for a “one-roof has it all” and a fulfilling shopping experience by putting up IKEA restaurants and groceries in most stores and facilities. 14. IKEA stores open up early in the morning and closes late in the evening to accommodate more customers. Activities that strengthen global growth: 15. Maintaining strong working relationship with local and international stakeholders through strong communication link using modern communications technology. 16. Creating a culture centred on IKEA’s mission and vision, through training, education, empowerment and collaboration. 17. Continuous strategic planning and tight transnational partnership. 18. More investing activities for stores and distribution centres wherever possible. 3. Briefly outline the impact of globalization of the world market and explain with examples of how IKEA responds to global competitiveness using international / global operations strategies. Globalization opens the door to international trade and this brings about strategic challenges to firms. Many companies welcome this global opportunity by realigning and reinventing strategies to gain competitive advantage in the global market through operational efficiency, flexibility, and innovation. Globalization changes the way firms conduct business. Some firms gained advantage by exploring new international market, by extending their operational activities in another country where cost efficiency is higher, or by investing into new business opportunities utilising the rich resources of another country. Competition also becomes global and highly dynamic. Companies or nations that fail to actively work on global strategies and capture opportunities suffer economic loss. Some nations simply ended up as consumers of the global products while some become active players and global suppliers. Business organisations endowed with adequate resources and economic drivers have better global potential. Nations with rich manpower, capital, and natural resources also gained comparative advantage than other nations by strategically managing these resources to attract foreign investors. IKEA welcomed globalization by becoming the first furniture company to ship out products to offshore customers in different countries. IKEA capitalized on its differentiation and low cost strategies to gain competitive advantage. Finished furniture products are unassembled and packed “flat” for shipping to destination countries or customers. This distribution strategy reduced shipping or transportation cost because the packaging size is significantly reduced and more furniture or products can be loaded or transported in one container. The reduced packaging sizes for the unassembled finished products also lowered the cost spent on packaging materials or boxes, and storage cost because smaller packages occupy less space. IKEA maintained low cost efficiency by exploiting economical resources offered in other countries. The company took advantage of the lower cost of labour, land, and materials in China by investing on a manufacturing centre in China. IKEA China manufactured most of IKEA products. This allows mass production at the lower cost. IKEA also saved on cost by partnering with quality suppliers all over the world, 1,220 well-chosen suppliers in 55 countries. Each supplier specialises on particular designs or products for better quality. Another strategy is franchising. IKEA franchises are sold in areas where IKEA store or distribution centre is to be put up. This strategy allows IKEA to get a preview of the market potential and opportunities of a given territory. IKEA products are designed to fit all markets. The functional and simple design is globally marketable. Each ready-to-assemble package contained easy to follow guide or instructions on how to assemble the furniture or product, written in the language best understood by the customer. IKEA embarked on an aggressive global marketing or advertising campaign in a bid to reach out to target markets around the globe and to keep close contact with existing customers. The company invest on publications, print, and on line media to actively support its global presence. IKEA’s colourful catalogue is produced in 38 editions, printed in 17 languages for 28 different countries; 110 million copies were aggressively circulated throughout the globe. IKEA’s online presence and internet marketing strategies also strengthened its global competitive advantage. The company invested in interactive voice response technology for its customer service centres and in multi-media, self-service platforms to improve efficiency by automating transactions whenever possible. 4. Critical assessment of IKEA’s growth strategy and the impact of this internally on operational management functions: IKEA’s growth strategy is largely on differentiation and low cost efficiencies. Product differentiation is realised by selling “fit-all market functional” designs and unassembled finished products or furniture on “as-is” basis. Customers or end consumers save on cost by assuming part of the transaction which is the “assembly” and the “delivery” phase. Product Design is centralized in its headquarters in Sweden but actual production is not only in Sweden but partly in Europe and China, and more from suppliers all over the world. This set-up offers less opportunity for collaborative design and interaction between the people involved in the actual production of the products. The actual workers have no input on the design. Operational management needs to invest time and real effort to ensure that workers understand design specifications and come up with quality product as specified in the design. IKEA is more dependent on suppliers for the production, and these suppliers are scattered all over the world. The fuel crisis posed a threat to cost efficiencies in transportation. Maintaining quality supply chain logistics maybe costly over the span of time as fuel prices continually increased. It is a great challenge for IKEA operations to always maintain a healthy working relationship with transnational suppliers and to make sure that these suppliers worked exclusively for their orders to assure steady supply of stocks. It is also very critical to IKEA’s management to ensure that these suppliers lived the IKEA culture of quality, not compromising quality with low cost materials and poor quality of labour IKEA’s value proposition in selling unassembled products may not work for some emerging markets, where customers are oriented on the hassle-free buying experience. This will affect IKEA’s growth if management will not venture into ways to improve customer buying experience particular on the delivery of products directly to customer’s place. The main business of IKEA is distribution and retailing. At the moment IKEA is outsourcing its logistics. Transportation and logistics is a crucial element of the IKEA business and makes a good future investment. Venturing into transportation and logistics will help IKEA manage and control distribution logistics for better quality service. Low price strategy will effectively capture the target market when quality is not sacrificed, when there is real value for money. Transnational location of suppliers, stores and distribution centres calls for higher international collaboration and this makes the function of operations management highly challenging and demanding. It is reported that Europe accounts for more than 80% of IKEA’s sale. This should prompt IKEA to take all measures to sustain the demand of this market and explore growth factors in other emerging markets to protect IKEA’s profitability in cases of unfavourable economic and social changes in its biggest market. An aggressive internet marketing campaign can help IKEA increase its market share among e-consumers. References: 1. http://www.ikea.com Read More