Business Operations in practice
Ikea deals in contemporary furniture built with a Scandinavian flair. Most of IKEA’s furniture are packaged and sold in boxes. The furniture are designed as flat self-assembly packs that clients just pick up from the stores and assemble them at their homes using corresponding manuals. Most furniture dealers sell complete and whole furniture that are not broken down into assembly packs. The furniture are carried to the clients’ home as whole units that cannot be disintegrated. Another major difference between how IKEA operates and their competitors is how they acquire their furniture. IKEA orders self-designed furniture from local manufacturers. They create design from the company, have the manufacturers build them and then they purchase them for sale. This allows them to achieve the goal of designing self-assembly furniture that most manufacturers focus on less.
The design of furniture as self-assembly units enables clients to pick the furniture up from IKEA outlets by themselves. They then transport the furniture to their homes where they assemble them. This eliminates the transport costs that other furniture dealers incur during the delivery of the furniture to the clients homes, making IKEA products cheaper than that of their competitors, by a significant margin. Most furniture dealers sell full furniture units, which they deliver, to customers at an additional transport fee. This makes their products cost more. IKEA also puts emphasis on well-designed showrooms in which furniture are arranged strategically. They strategically control the inflow and outflow of customers in their outlets. They do this to make clients spend more time at their warehouses when selecting furniture. This is a major difference with other furniture dealers who mostly market their products to potential clients through either catalogs or websites. Clients may then make orders of furniture that are then delivered to their homes by the retailer. IKEA on the other hand stresses on self-delivery and assembly. The client physically visits the outlet, looks at available products, selects the one they want and purchase them. They products are packed and loaded into their vehicles as boxed parts that can be assembled using screws. The client is expected to assemble the product once he arrives with it at their desired destination. This transfers more activity and responsibility of product handling to the client as compared to their competitors ‘across the world.
IKEA also have a major focus on the way their stores are designed. They have ensured that each store has an efficient and easy flow of clients, from the entry, products access, purchasing and loading. They have focused on making the client’s shopping experience as enjoyable as possible. This is in contrast of other furniture dealers who put an emphasis on marketing, sales, and delivery. This is another major feature that defines how uniquely IKEA run their business. IKEA operations have been automated in a major way, with conveyor belts that move products to the checkout points. IKEA’s focus on operations automation is another unique aspect not common to many furniture dealers.
The IKEA Group has its headquarters in Almhult, Sweden. The headquarters host the biggest franchise with other franchises spread out in the Middle East and Asia. Other stores can also be found in Netherlands and the rest of Europe. The company also collaborates with local manufacturers for raw materials and production. This business model creates a wide scale operations team that has to be efficient. Coupled with its product and store design, IKEA received a surge in customer numbers rendering their system of operations inefficient. They had to adjust many of their operation tenets with versatility not common to other retailers. This is one of their operations design scheme that they use to enhance customer experience. They take in customer reactions and suggestions to their service delivery and product design, and then follow up with improved operations and quality of service. This interactive re-examination and adjustment is also another feature unique to IKEA, though practiced by some retailers, but not to the degree that IKEA implements it.
IKEA also has its operations divided into manageable sub-sections that are audited for efficiency and performance regularly. Smooth and effective customer flow is implemented by process design. Product design handles the design and production of quality and stylish furniture. Jobs are designed in a way as to make every staff member contribute towards the success of the company. Capacity management handles fluctuations in demand of their products. Supply network management handles the distribution of the outlets, outlet set-up and sizes, while supply chain management handles the delivery of products to these outlets. Cleanliness and safety has its sub-division and inventory management handle product flow. This subdivision of operations management into sub-sections that can be independently run and audited is also a feature unique to IKEA. Many dealers run operations departments that deals with these functions as a unit. This may explain the difference in efficiency success of IKEA as compared to the other retailers.
IKEA product design, manufacture, and delivery are designed in such a way as to produce affordable furniture for their markets. This furniture is also easy to deliver to clients homes. They target clients who need stylish furniture at a lower cost. Their target niche is unique. While many retailers focus on product quality, sales, and marketing, IKEA also factors in the abilities of their clients and market stratification. This is another aspect that has made IKEA the biggest furniture retailer in the world due to their sales volumes, besides their unique product, operations and service design (“The Economist”, 2011).
IKEA focuses on physical visits by clients. For instance, in China, most of their stores are located in suburban areas. Some Ikea potential customers may not be willing to commute to the physical locations of the outlets. This may send them to visit competitors who are located in convenient areas. For instance, the Taiwanese company Hola is known to acquire spaces in popular shopping malls. It then benefits from the high number regular mall visitors. Therefore, emphasis on purchasing physical locations where clients can visit may cost IKEA a significant amount of clients (Olivier, 2013).
The proliferation of online shopping malls also puts IKEA’s business model at risk. While they build physical stores and warehouses, more people are visiting e-commerce website to search for products. Coupled with product design piracy and imitation, IKEA could lose many of its clients to online shopping malls that can deliver their type of products to clients’ homes. A popular online mall, TMall is an example of IKEA’s competitor that can deliver IKEA style furniture to clients at affordable prices. This is why IKEA has to consider diversifying its business model. They should also explore other growing sales channels like e-commerce, while maintaining their other commerce models.
Another problem that IKEA’s model may be associated with is operational costs. The subdivision of operational sections into smaller units for efficiency, automation of processes in their warehouses, purchase of physical land and construction of stores and outlets are just some of the means by which they lose more money. Most competitors go to already established malls and rent space from where they conduct their sales. While IKEA’s sales volumes may be enough to produce sufficient profits, growth in competition and shifts in market expectations have to be considered. A firm of IKEA’s size also provides challenges in operations and logistics management. The spread of franchises allover he world presents it with common problems of running business units. It becomes challenging to get franchises to combine and work together seamlessly. The franchises are located in different parts of the world, where different rules, cultures and norms are prevalent. This requires diverse management teams that may at times become difficult to interface.
Establishing and running franchises is also expensive. Separate physical departments may be needed. Variance in internal and external variables like culture, religion, government regulations, and the general business environment may require that franchises be set up in different ways in different locations. Balancing efficiency and cost when maintaining the franchises can pose a challenge to the main company. It is also time consuming to set up and run franchises. Considering the intensity of operations at IKEA’s warehouses, the designs and operations, multiple franchises distributed geographically can pose a major challenge in their management and integration. Technology and communication tools have to be set up in all departments of all franchises. Evaluation of individual departments’ functionality has to be conducted before repeating the same process with another franchise. If policies are formulated for multiple outlets that have been opened at the same time, incase the policies fail, a significant amount of time has to be spent redesigning and replacing these policies, which exposes the company to risks like losses and operational failures.
While IKEA seeks to expand to other areas in the world like North America and India, they should consider factors like emerging trends in the business environment. Such trends may include e-commerce and communication strategies. It also has to consider the differences in business environment that are brought about by variances in cultures, religions, customs, and economic circumstances. While, for instance they may want to target clients who need affordable furniture, purchasing land and constructing franchise outlets in suburban areas of Chinese and Indian cities sends a different signal to potential clients. While suburban sections of these areas may look like regular locations in relation to Sweden, in Asia, it sends a signal that the target market is the suburban elite. IKEA should consider taking up different models and forms to ward off this perception. They can do this by taking up Taiwan’s Hola’s business model of renting space in big downtown malls, where necessary.
Olivier, Winter. “Ikea and Its Competition in China – Marketing China.” Marketing China. 19 Apr. 2013. Web. 7 May 2015.
“The Secret of IKEA’s Success.” The Economist. The Economist Newspaper, 26 Feb. 2011. Web. 7 May 2015.