Value Chain analysis-IKEA

IKEA
IKEA EFFECT
- In 2018, Hyderabad experienced a massive traffic jam due to an unexpected reason –
the opening of a furniture store.
- This furniture store wasn't just any store; it was IKEA, the world's largest furniture
seller.
- People were stuck in traffic for hours, turning a 20-minute commute into a four-hour
ordeal.
- IKEA is a Swedish furniture company with 445 stores worldwide, employing over
2.17 lakh workers and generating $40 billion in revenue.
- IKEA's success lies in the principle that labor leads to love.
- Mothers in the 1950s rejected instant cake mix, even though it saved time and effort,
as it felt like an insult to their efforts.
- General Mills overcame this by introducing hurdles to make cake baking seem like
more work, which resulted in the product's success.
- IKEA adopted a similar concept. Instead of selling fully assembled furniture, they
sold furniture in pieces for customers to assemble themselves.
- This DIY approach made customers value their furniture more, and it revolutionized
IKEA's supply chain.
- IKEA's flat-packed furniture maximized volume occupancy in trucks and allowed
customers to transport items in their cars.
- This efficiency enabled IKEA to offer premium furniture at low costs, creating an
extraordinary sense of value.
- Applying the "IKEA effect" to your startup involves designing tasks that aren't too
easy, require customer effort, and can be successfully completed.
- Customer engagement is key to creating an extraordinary brand.
- Perceived value is directly related to customer engagement and can differentiate an
ordinary company from an extraordinary one.
Remember, labor can lead to love, even in the world of furniture shopping!
PRIMARY
- IKEA's Inbound Logistics Overview: - Long-Term Supplier Relationships:
- Critical in IKEA's value chain. - Average supplier relationship spans 11
- Manages 1,220 suppliers across 55 years.
countries. - Ensures trust and reliability.
- Proximity to Suppliers for Oversight:

INBOUND - Value Creation in Inbound Logistics:**
- 31 trading service offices in 26
countries. LOGISTIC - These factors drive value creation in
IKEA's inbound logistics.
- Facilitates oversight, innovation,
price negotiation, and quality control. S.
- Economies of Scale Advantage:
- Reduces costs in inbound logistics.
- Enables efficient procurement
operations.
- Flat Pack DIY Assembly Principle:

- Cuts packaging costs.
- Streamlines inbound logistics. 1980 1990 2000 2005 2010 2015 2020
- IKEA Operations Overview: - IKEA Industry and Product
- Divisions: Franchise, Property, Development:
Finance. - IKEA Industry: major global
- Decentralized strategy empowers furniture producer.
regional managers.
- Production Units and Franchise

OPERATIONS - 40 units in 10 countries.
- Value Source in Operations:

Agreements: - Key value: Cost efficiency.
- 40 furniture production units - Manufacturing in Eastern Europe
(mainly Europe). and China reduces labor costs.
- 2 component factories. - Advanced tech enhances operational
- Franchise stores in 30 countries. efficiency.
- Franchisees and Ingka Group:

- 11 franchisees (50+ markets).
- Ingka Group runs 367 stores (30
markets, 158,500 employees).
1980
1990 2000 2005 2010 2015 2020
- IKEA Outbound Logistics Overview: - Online purchases enjoy free delivery.
- Involves warehousing and distribution
OUTBOUND
of products from 422 stores in 50 - Direct-to-Customer Delivery:
markets to end-users. - Key value source: Direct delivery
- Operates 28 distribution centers and without intermediaries.
LOGISTICS
11 customer distribution centers in 16 - Efficiency is improved through the use
countries. of flat packs, which save space.
- Utilizes rail and sea transport when
- Customer Transportation Costs: feasible, reducing reliance on vehicles.
- Customers bear the costs of - Implements fuel-saving techniques in
transporting goods from IKEA stores. transportation.
- Two delivery services offered:
- Parcel delivery for items up to 25 kg
(around USD 12)
- Truck delivery for purchases exceeding
25 kg (starting from approximately USD
50).
.
1980 1990
2000 2005 2010 2015 2020
MARKETING
- Integrated Marketing and Sales: - Shift to Product Focus:
- IKEA employs print and media - Transitioned from room-based to
ads, promotions, events, PR, and product-centric marketing in 2018.
direct marketing.
& SALES IKEA's strategy involves diverse
- Multichannel Retailing: promotional methods, multichannel
- Utilizes stores, catalogues, retailing, and a move towards product-
website, and app. focused marketing.
- Historically, relied heavily on
catalogues (discontinued in 2022
due to declining demand).
1980 1990 2000

2005 2010 2015 2020
- Customer Service Techniques: - Customer Service Concern Case:
- Online and telephone support. - Bernard Marr's open letter in 2014.
SERVICE
- Refunds and exchanges. - Issues included late delivery, wrong
- Feedback encouragement. parts, communication problems.
- Social media debates damaged brand
- Efficient Missing Parts Resolution: image.
- Quick replacement part requests.
- Parts mailed to customers. - Tied to cost-cutting under cost
leadership strategy.
- Challenges in Customer Service:
- Reputation not known for excellence.
1980 1990 2000 2005

2010 2015 2020
SUPPORT
- Technology:
- Human Resource Management - Digital technology is integral to IKEA's
(HRM): strategy, enhancing cost-effectiveness and
- IKEA values its 211,000 employees, referred operational efficiency.
to as co-workers. - Digitalization efforts target production,
- Focus on employee efficiency and supply chain, sales, and marketing
satisfaction has grown. challenges.
- Investment in strategic HR management is - Investments are made in digitalization
crucial as the company's growth relies on to improve manufacturing capabilities and
employee growth. adapt to changing customer needs.
- Programs are developed to attract, retain, and - Automation and data-driven
provide career advancement opportunities for manufacturing initiatives are accelerated
employees. for improved operational efficiency, cost-
effectiveness, and product quality.
- Digitalization enhances workplace
ergonomics for employees.
- Creates an end-to-end supply chain for
better traceability and circularity.
1980 1990 2000 2005 2010
2015 2020
- Infrastructure: - Procurement:
- IKEA's business segments include - IKEA sources products from over
franchises, range & suppliers, and IKEA 1,800 suppliers in 50+ countries.
industry. - Procurement and logistics functions
- Torbjörn Lööf serves as the CEO of Inter are organized into eight business units,
IKEA Group. including IKEA Components, Regional
- A supervisory board oversees Inter IKEA Supply Teams, Purchasing
Group BV. Development, and more.
- Business management is conducted both - IKEA strategically places trading
functionally and regionally, with each offices near its suppliers, fostering
function having its own leader. long-term strategic partnerships.
- Martin Van Dam holds the position of - Integrated logistics enhances the
CFO of Inter IKEA Group B.V. cost-effectiveness and efficiency of the
procurement process.
1980 1990 2000 2005 2010 2015

2020

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IKEA

- Proximity to Suppliers for Oversight:

- Flat Pack DIY Assembly Principle:

- Production Units and Franchise

- Value Source in Operations:

- Franchisees and Ingka Group:

1980 1990 2000

1980 1990 2000 2005

1980 1990 2000 2005 2010 2015

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