The IKEA concept

 Hello everyone, I am Rakesh, final year MBA student at Amrita School of Business Coimbatore. IKEA the world's largest home furnishing retailer is famous for its highly responsive supply chain, so in this week's blog, let's learn how they have achieved it.

The organization not only impresses its customers but also its competitors with its highly efficient and unique supply chain. IKEA has around 355 stores in 29 countries. 

Relationship with suppliers

In their line of work, it is very important to have a healthy and sustainable relationship with the suppliers, and they have proven to be master at it. It buys goods from more than 1,800 vendors in 50 countries and maintains supplier partnerships using 42 trading business offices across the globe. They negotiate prices with suppliers, check the material quality, and keep an eye on social and working conditions. While IKEA facilitates competition between vendors in order to ensure that it receives the best pricing and products, the organisation also makes long-standing supplier agreements by negotiating long-term contracts, thus reducing commodity prices.

Dedicated warehouses

IKEA warehouses are divided into automated fast-selling item facilities and manual slow-selling item facilities. This enables the company to reduce the cost of handling low-demand products and to ensure that high demand products flow smoothly within the IKEA supply chain.

Do-it-yourself assembly

The furniture is sold in pieces that are placed in flat, convenient containers. As a result, since the parts take up less space in vans, IKEA saves on shipping and delivery. At a lesser expense, IKEA will ship more pieces. The DIY principle also enables the company to make more economical use of the storage space and thus save money on inventory management.

Cost per touch

The customers select and retrieve the package themselves, this is actually an inventory management tactic called 'cost per touch', the lesser people touch the product the lesser the shipment cost. 

Reorder points 

Inventory replenishment management process called 'minimum/maximum setting' decides the reorder points and reorder products. These settings help the organisation nail down the ideal reorder point and avoid problems with understocking and overstocking. It keeps logistics managers aware of what is sold through direct shipping and from distribution centres, and how much inventory enters the store. In order to meet the forecast demand, they use this information to forecast sales for the next few days and order products. If the sales do not match that day's expected number, the logistics manager performs a manual stock check.