Operations Management: IKEA - Case Study Example

Operations Management: Case Study of IKEA Seminar This report is about a case study of IKEA which is the largest furniture retailer in the world. It is well known for its contemporary architectural designs for different categories of furniture and appliances and its work in interior design that is usually associated with a simplicity, which is eco-friendly. The report introduces the concept of micro and macro operations as well as outlining performance objectives. It also covers the company’ seasonality, and discuss the issue of innovative low cost strategy and store design and how to overcome it. Finally it gives a conclusion on the issues of operations management on a wider scope. Table of Contents Abstract 2 Introduction 3 Literature Review 3 Concepts of Macro and Micro Operations 3 5 operational performance objectives 5 Results and Discussion 6 Importance of the Performance Objectives to IKEA and Ashley Furniture 6 Seasonality and Demand Variation that IKEA Experience 7 Ways in which IKEA’s innovative low cost strategy and store design could lead to poor customer service levels and How to overcome them 8 Conclusion 9 Introduction Operations management deals with the day to day operations and has a wide scope as it touches almost all the departments in an organization. Operations management deals with the inputs or resources and manages the resources so as to achieve the desired outputs. Operations managers have to have an in-depth understanding of both macro and micro-operations involved in the production process. Production of furniture involves sourcing for raw materials which majorly include timber. This is the business of IKEA. The operations management personnel have to ensure that operations are carried out efficiently and effectively, minimizing the costs so that the operations can make business sense. This will definitely involve carrying out analysis of the processes so as to identify KPIs that will assist in control. The approach used by operations managers is in most cases determined by the nature of the business they are in and the scope. IKEA is a worldwide group of companies and its operations management strategy has to adequately cover all its businesses (Dahlvig, 2012). Literature Review Concepts of Macro and Micro Operations Micro operations are processes that cannot be divided up into smaller processes and operations. Their outputs are either used as raw materials for other processes or are consumed by the customer. Macro operations on the other hand are processes that can be split up into smaller processes and operations. Macro operations area all made up of several micro operations (Mahadevan, 2010).  The operation function is very essential for IKEA since it enables the production of good and services, which are the main reasons why it existsThe three micro-operations that are in IKEA are marketing and sales, product and services development, and operations. Marketing is beneficial to IKEA in many ways such as development of creativity based-products, innovation in service development and manufacturing, response of customers to next-generation product, design-intensive innovation and market entry of platform-owner (Mahadevan, 2010). The other operation is the development of products and services. This operation is responsible for creating modified and new services, which is very essential for IKEA as it helps in generating future requests from customers for more services. They believe that investing in their development is not only an option but also a crucial part of profitability and growth. Lastly, the operation function is important for IKEA as it is accountable for fulfilling the requests of clients or customers through the delivery and production of products and services (Berger, 2011).  An example of an operational problems that the company might encounter is market management and the management of operating procedures(Slack, Chambers & Johnston, 2010). Such solutions include; marking in-store short cuts for customers visiting one specific area, new warehouse system to stop popular product lines running out especially during the day; expressing checkout tills for clients carrying bags and redesigning car parks for clients. 5 operational performance objectives One of IKEA`s competitors is Ashley furniture, which also specializes in selling home designs of similar quality and design. Ashley furniture business success strategies include low added value, low prices, focused differentiation and differentiation without price premium (Dahlvig, 2012).  The five operational performance objectives are cost, speed, quality, dependability and flexibility. Quality can also refer to the durability of the product, the ease with which it is serviced as well as the degree to which clients believe it will meet the needs and requirement. With good product quality, cots is often saved, there is increased dependability and increase in the speed of response (Kaydos, 2010).  Speed performance objective refers to the level at which companies need to produce sales quotes and how often or rapidly the company will succeed in delivering its products. Externally, speed helps to give response quickly to clients. Internally, it has much to do with cost reduction through reducing risks and inventories (Heizer & Render, 2011).  Dependability of performance objectives means producing and delivering products on time. An organization also measures dependability by the ability of the product to function as expected and designed so as to consistently perform over a sensible amount of time (Mahadevan, 2010).  Flexibility objective of performance is very essential in all companies. In this case, flexibility means being able to change the operations as business environment dictates. This aspect of performance objective requires companies to adapt new operations to enable them meet changing production volumes and delivery schedules (Heizer & Render, 2011). Cost refers to the difference in unit cost caused by changes in manufacturers produce volume and the variability of the produced products. Cost has a direct relationship with production level. A change in costs will have a consequent effect on the organization’s finance. (Kaydos, 2010).  5 Performance Objectives and their external effects Results and Discussion Importance of the Performance Objectives to IKEA and Ashley Furniture Performance objectives are important for the two companies as they add to day-to-day accountabilities, they help in aligning the core values and leadership competencies, they and set the accomplishment period within the period of evaluation. Performance objectives should be designed to allow employees to further and stretch their development (Nieuwenhuizen, Rossouw & Badenhorst, 2008). Polar diagram to show the importance of performance objectives The differences in the overall business for the two companies is present in the case whereby Ashley furniture focuses on giving lower prices than it can be found in any other furniture production company. Its business strategies are also geared at differentiation without price premium meaning that competition is not only based on price but also competition on perceived benefits. Ashley furniture is also focused on product differentiation using their unique qualities without any substitution to achieve premium. The success strategies of IKEA on the hand are based on an intimate comprehension of the relative significance customers’ position in varied experiences, which enables it to make well defined trade-offs about what to offer its customers (Nieuwenhuizen, Rossouw & Badenhorst, 2008). Seasonality and Demand Variation that IKEA Experience As far as the demand variation for IKEA is concerned, public holidays and weekends are busier compared to working days, thus variation is comparatively high, Predictability gives tem opportunity to prepare for the different seasons. IKEA reconciles supply with demand utilizing strategies in terms of capacity in that it ensures that is mass production results to higher production rate with reduce per unit cost which is well higher utilization in capacity. In terms of chasing demand, the company believes in building the brand name that originates from effective development of products and systems (Dahlvig, 2012). The company employs the chase demand strategy to help in planning attempts that tries to match output and supply with fluctuating customer demand. They do so through employing low storage costs and high abilities to respond to the needs of the clients. During high periods, the company increases production and hires additional workers. In terms of demand management, IKEA applies planning methodology which it uses to forecast and manage the products and services demand. It entails the proactive work management initiatives with constraints to the business (Dahlvig, 2012). Ways in which IKEA’s innovative low cost strategy and store design could lead to poor customer service levels and How to overcome them The customer contact for IKEA is very poor due to innovative low cost strategy and store design. Consider this, in many case, clients are responsible for choosing the type of furniture they require, figure out of that particular furniture will fit in their house space, fill in forms when special furniture are delivered to them and serve themselves to smaller items in trolleys. The service is also poor in that customers have to enter warehouses and select out from the shelves that larger items which are cartooned, take the goods to checkout points and finally transport them to their own car. (Martinez & Hobbi, 2008). First they should allocate more resources in order to enable themselves understand how customers feels and know what drives them to experience the feeling that drives them to buy or return a product. Secondly, they should understand the needs of the customers, look for ways to satisfy them and make sure they turn those satisfied clients into committed users of their products. Lastly, the company should train their employees on customer service so that they can handle all customers in a friendly manner (Zemke & Woods, 2009).  Conclusion The overall success of IKEA`s operational management is mainly caused by the effective control and analyses of each aspect of the company. The Company is aware of the global market, knows what is trending in the market today and understands the value of their capital which makes IKEA to believe on high product value and low cost. IKEA employs a very effective system of development and considers the use of e-commerce in order to ensure that they approach maximum customers across the world. The main success factor for the company is its pricing tag which is set before any production. References Berger, A. (2011). Operations Management: IKEA. München: GRIN Verlag GmbH. Bryson, J. R., Clark, J., Vanchan, V., & Edward Elgar Publishing. (2015). Handbook of manufacturing industries in the world economy. Cheltenham: Edward Elgar Pub. Ltd. Dahlvig, A. (2012). The IKEA edge: Building global growth and social good at the worlds most iconic home store. New York: McGraw-Hill. Heizer, J. H., & Render, B. (2011). Operations management. Upper Saddle River, N.J: Prentice Hall. Kaydos, W. J. (2010). Operational performance measurement: Increasing total productivity. Boca Raton, Fla: St. Lucie Press. Mahadevan, B. (2010). Operations management: Theory and practice. Upper Saddle River: Pearson Martinez, M., & Hobbi, B. (2008). Building a customer service culture. Charlotte, N.C. : Information Age Pub Nieuwenhuizen, C., Rossouw, D., & Badenhorst, J. A. (2008). Business management: A contemporary approach. Cape Town, South Africa: Juta. Slack, N., Chambers, S., & Johnston, R. (2010). Operations management. Harlow, England: Financial Times Prentice Hall. Zemke, R., & Woods, J. A. (2009). Best practices in customer service. Amherst, Mass: HRD Press. Read More