Lean Operation of IKEA [PDF]

Zitiervorschau

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AYE NEYIN ZAN

Using an existing company as a reference, discuss how the

company is taking advantage of the concept of the flat world for its lean operation. Most of the company started to use the Flat World concept in the 21st century .Using flat world concept, they can extend their business and there are many customers around the world. IKEA is the world largest furniture company, founded in Sweden, in 1943.It is a multinational company and there are more than 300 stores in more than 35 countries around the world. It produces ready to assemble furniture and appliances such as beds, desks, chairs, appliances and interior decorations. Besides, it supplies secondary services and sells additional goods to the customers. It also serves restaurant and bistro, food shop, baby sitting area and shuttle buses (Mangla 2008) . And then, Carpets and textiles, lighting and glassware and ceramics are also produced. A few peculiarities were introduced to serve the business models: designs of the furniture and the channels of promotion are established. When it was started it was a small company. The IKEA is popular modern architectural designs on various types of furniture products and good quality at low prices. Nowadays the IKEA is defined as the world’s biggest home products retailer. IKEA has already created owned subsidiaries. The Flat World Concept of IKEA The IKEA’s products can be bought more than 300 stores around the world. There are 12,000 products of all kinds of items. It offers a wide range of well-known designed and stylish products with affordable prices. It makes good quality products at low price. The idea of production and designs are updated. IKEA works together with over 1220 suppliers from 55 countries provide raw materials and components for the company (Vangilder 2012). Some of these are near the origin of IKEA, around The Sweden’s forest and others have their own production plants in China, Poland or Germany. Swed is a main supplier. It is a part of IKEA. IKEA also outsource IT operation with Capgemini, HCL, IBM (RIS News). “In some eyes, homesourcing and outsourcing aren't so much competing strategies as they are different manifestations of the same thing: a relentless push by corporate 2

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America to lower costs and increase efficiency, wherever that may lead” (Friedman 2005). Collaboration is one part of the flat world concept. Due to collaborate, they can accept data of another company and other competitive can also know what they do easily. If there are disadvantages with their products, they can avoid not to be in their products and it also can be solved together. Due to collaboration, IKEA works together with the NGO and

the global forest

certification organization Forest Stewardship Council (FSC). So, there are many advantages about the rain forest and wood. IKEA uses purchasing product code IWAY between suppliers to control the quality of products. IKEA always consider product development and purchases and can be sold at affordable prices. IKEA advertises on catalogs, TV advertisement, billboard. Nowadays it uses world wide web to advertise their products . It is also an effective way to the customers. It was low cost and customers can see easily the design which they're like. There are 283,859 viewers of the IKEA’s Facebook showroom video and IKEA Facebook pages has 307,664 Likes Fans.

Lean Operation use in IKEA IKEA uses lean operation concept .Lean production and lean manufacturing refer to the elimination of wastes such as delivering quality products on time and at a low cost. Minimize waste and maximum efficiency are the key indicators of high performance of IKEA’s co-workers (IKEA “Business Types”). IKEA factories are close to their suppliers to minimize transport cost. The first step, the purchase department buys raw materials for products , and then manufacturing plants produce order. After that, transport them to the distribution center. Finally, they are sold in the stores. “Coordinating this process so that everything comes together at the right time with high quality and low cost has been a continuing challenge to the final assembler firms in the auto industry” (Womack, Jones and Roos 1990: 58).

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If a customer buys the products, he or she needs to assemble the products. They are parked on flat to be easy to transport and to be less the cost. Flat-packed furniture allows more space to transport and keep down storage space. It also reduces carbon-dioxide emission. IKEA intends to offer a large amount of home furnishing items of good designs and excellent quality at a low price to be afforded everybody. The customers of IKEA are pro-sumers because they have to assemble the products themselves (Normann, 1993, 70). It also saves the customer’s money. IKEA products are displayed on the shelves and customers can pick up easily what they need. It is said Just-in-Time concept. Using the flat world concept and lean operation, IKEA can sell its products less than 30% to 50% compared with their competitors.

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2. Analyze how the company could be operating if it is not into “ flat world” thinking. IKEA that is one of the world largest furnishing company and there are many stores around the world .It collaborates many suppliers. The mission of IKEA 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” (Albarrak 2011). If the company does not apply “flat world” thinking, there might not be many stores in many countries. “Flat world” thinking allows people from any part of the world join together the economic mainstream. IKEA also cannot sell its products in low price without outsourcing because labor cost of the company will high and raw materials for products will be produced from limited resources. They cannot operate widely its own local demand. Outsourcing is an important part of good quality with low price. IKEA uses Beonic’s Traffic Insight visitor flow system to be sure how many people visit to the store and not to be short staff. If there is no this software system ,they will face many problems due to lack of manpower. IKEA uses catalogs and billboard advertisement when they start. Nowadays IKEA built own websites and advertise in them. So, they can reduce catalogs advertisements and it can save many papers. On the other hand, it is good for environmental. The cost of advertisements is also saved. IKEA application can be uploaded phone to be known new products. If the company does not use this type of advertisements, it will behind be compared with their competitors. Customers can not know their update products. Brand and customers are not also familiar. Collaboration can know what the company needs, combined with another competing company, customers, suppliers and product designers can get much better and effective results. If there is no collaboration, company cannot any information from other companies and improvement of company will be slow .The results of this problem are the competitors will lead the business in furnishing fields and the profits of the company 5

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may decrease. The relationship between employers and employees also important because close business corporations and suppliers has positive effects on service level and satisfaction of customers. If there is no training and no leader to manage, the capable of solving the problems will fail. Business strategy combines with three dimensions such as economic, social and environmental. An integrated supply network towards the big success.

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Discuss how the company produces Significant Resource

Productivity

Improvements

through

Important

Environmental

Improvement and Sustainability Implications. IKEA aims to create a better life for everybody. It is how IKEA can help to create a better world ant to take care the environment, the resources of the earth and each other. To successfully that aim, IKEA tries to design from recycled, renewable and reused materials. It uses renewable materials for flat packaging. It uses waste from one manufacturing process is applied to the production items, if they are possible. IKEA recycles large amount of materials such as cardboard, paper, plastics, wood metal and glass. The fundamental rule of providing environmental rule and regulation of The Natural Step (TNS) is making use in IKEA in 1990. By developing TNS, IKEA makes many changes to its products, services, suppliers relation, operations and transportation as well as educational materials (The Natural Step). “The lean management system consists of the discipline, daily practices, and tools you need to establish and maintain a persistent, intensive focus on process. It is the process focus that sustains and extends lean implementations. Little by little, almost unnoticeably, lean culture grows from these practices as they become habitual” (Mann 2005).

IKEA desires to accomplish environmental conservation achievements by concentrating in forces of implementation on functional movements that effect on processing, content or way of materials. Implementation affords of structural changes, the company can decrease the risk in the investment of materials and lessen the necessary of energy to communicate individual supplies. IKEA’s environmental action plan for 1993-96 covered six major implementation areas: using the E1 standard for all IKEA products in all stores, using ultraviolet (UV) hardened and water-based lacquers to clear solvents and the process of optimizing transports to decrease exhaust emissions. Besides, social and environmental coordinators from IKEA stores and distribution centers are attended sustainability related training and review and manage working condition, safety wastes and energy conservation. 7

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For all market sales of IKEA furnitures, the German formaldehyde necessary has been applied since 1986. “Formaldehyde occurs in IKEA products as a binder in wood-based materials such as particleboard, bentwood and plywood. It also occurs in adhesives and lacquers, and in textile materials as a component in finishing treatments” (the Natural Step). So, IKEA uses minimum amount of formaldehyde. IKEA removes using polyvinyl chloride (PVC) and replaces in wallpapers, home textiles, shower curtains, lampshades, and furniture. Ultraviolet (UV) hardened and water based lacquers are used instead of acid curing lacquers. The IKEA OGLA chair is made by the use of 100% recycled pre-consumer plastic waste. Air inflatable furniture products such as sofa are introduced by using raw materials for forming and stuffing. It makes about 15% of transportation weight and volume is decreased than a conventional sofa ( Heidi Owens). Wood is the important raw materials for IKEA. Two-thirds of its products use wood. IKEA seeks to produce their products only from sustainable replanting forest that take care for the environmental impacts. IKEA works together with WWF and Forest Stewardship Council (FSC). The requirements of demand use in IKEA’s product must be known origin of timber and legality. IKEA is a member of the Global Forest & Trade Network (GFTN). In 1998, the IKEA group started to apply the Sow a Seed Foundation to rehabilitate rainforests destroyed by logging and forest fires. And then, the IKEA Group works for continuing the project, conservation and insure replanting Toal hectares of 18,500 offshore rainforest. This project is set up together with three groups of big regulators including Malaysian Forestry Company, The Forestry Organization Yayasan Sabah and The Swedish University of Agricultural Sciences. Over 8000 hectares of inhabitant trees have replanted in the forest since the IKEA organization implements Sow a Seed Project. They have been planted over 1 million trees. 700 US dollars cost for one hectare of rainforest to rehabilitate. The result of this plantation becomes larger over 60 to 70 percentage after three years. More than 150 workers provide full facilities while they involve in the project. 8

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To be more effective in catalogue plantation IKEA cooperates with Green peace since 1992. Nowadays, it prints more than 80 million of catalogues for IKEA by using the pulp from farmed wood without using non-chlorine bleached paper. Besides, IKEA catalogue issues once a year. All of IKEA stores accept old catalogues back for recycling and use 20% post customer recycled paper. IKEA invested Euro 200 million for PV installations to reduce use of electricity and cut down carbon dioxide and other pollutions.And then, Euro 270 million was also provided in wind farms for renewable energies. The company focuses on wind and solar power for developing the long-term achievement of applying 100% renewable energy. Now, the energy use in IKEA stores is gotten from renewable sources of electricity. IKEA does promotion of collecting points for customers when they return wastes like electrical and electronic equipments, batteries, low energy bulbs and packing paper for recycling All IKEA stores improve 4% of additional energy efficiency produces development among the stores. During FY11, Euro 6.2 million is saved that demonstrates how sustainable development can force powerful business gains (IKEA).

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4 Discuss how Lean Thinking and the Flat World brings powerful financial Incentives to Resource Conservation and pollution Prevention Improvement to the company. “Taiichi Ohno’s Seven Wastes are not only relevant for business and profits,but also has an impact on our environment” (Abilla) The major financial rule of the IKEA company makes sure financial stability , flexibility and independence. Using flat world concert and eliminating wastes of lean operation, the profit of IKEA gets increase year by year. IKEA is always trying to reinvest its profit in new projects, new IKEA branches, warehouses, retail shops and manufacturing plants and also utilizes the base for future advance and sustainable benefit. It concentrates on reducing selling prices and lower relative cost. Being cost awareness is part of the IKEA DNA and it can control uncertain economic climates. Although the cost of raw materials is high, average 2% to 3% can be reduced the lower price in a year. According to FY11, IKEA lowered prices by 2.6% .IKEA expanded 7 new stores than its original. It costs amount of 1.4 billion . In advance, it invested Euro 0.3 billion in industry group. To reduce electricity cost and carbon footprint, Euro 40 billion was invested in the solar system and renewable installations in new-open stores. IKEA supplied the amounted of Euro 4.4 billion the purpose to increase improved stock availability to customers. In some big countries such as Russia, China and Poland IKEA market improved by 6.9 percent, the total amount of Euro 24.7 billion. For FY11, the total sale amount was 25.2 billion. As a result of increased purchase prices, the gross margin reduced to 44.2%. Operating costs including one-off items decreased slightly. Due to lower interest expense, financial net improved. Net income increased 10.3% amount of Euro 2.97 billion. The effective tax rate for FY11 is higher than FY10. Euro 781 million was paid for corporate income taxes and property tax was Euro 155 million in FY11.Total equity amount was Euro 25.4 billion (IKEA). IKEA reduces many wastes and minimize carbon dioxide emissions by applying lean operation. Nowadays, climate changes due to carbon emission. It towards to higher temperature, new wind patterns, melting glacier, rising sea levels and worsening drought 10

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in some regions and heavier rain in others. IKEA also tries to reduce carbon emissions and to become a low carbon society. To be low carbon emissions, it needs many actions such as how to manufacture the products and how to control heat, cold and light of the building. IKEA supplies the Joint Business Declaration, an EU business call for 30 % greenhouse gas emissions reduced by 2020 that is founded by The Climate Group, University of Cambridge Program for Sustainability and WWF Climate Savers. IKEA collaborates government, NGOs and other company to be improved low carbon society and invests more in renewable energy for IKEA buildings. IKEA aims to get 100% energy from renewable sources. In 2011, 51% of energy use were from renewable sources. IKEA expects 70% to 80% of renewable energy will be used by 2015.To be great potential in the plentiful energy source, photovoltaic (solar) panels are installed 40 units in Germany, Canada, Spain and so and they have planned to install 84 units to the advance. IKEA is always looking for the most customer friendly design and how to save unnecessary wastes. By re-designing the EKTORP sofa to flat-pack, it’s size was 50% smaller than before. It reduced significantly 75% of carbon dioxide emissions from transporting for sofa. It was not only cut down transportation and storage cost easily to carry for the customer but also easy to carry for the customer. It saved Euro 100 from the price tag ( Economist newspaper 2011). IKEA supply chain helps to fit more products into each truck and container for reducing the number of transports and reducing carbon dioxide. They use paper pallets and recycled plastic loading ledges for shipments from suppliers to IKEA distribution centers and stores in Europe and all transport in Asia. IKEA packaging specialists and product developers make possible designs to fit modern trucks and containers rather than the fixed wood pallet sizes in a safe and effective manner. The products are packed with recyclable paper pallets and loading ledges to be compact and light weight that allow more goods in each load. Nearly 60% of products is transported by sea with High-Cube (HC) containers with standard height of 2.7 meters that is 12 % larger than traditional Dry-van (dv) containers. By using higher trailers and containers globally suitable, it can contribute to keeping carbon dioxide increases from lower than the overall IKEA sales

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growth. It also will save 100,000 loads less per year, equal to 58,000 tonnes of carbon emission.

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