IKEAIntroduction

Founded in 1943, by Ingvar Kamprad, IKEA is now reputed to be the largest furniture retailer in the world, with outlets in 32 countries and plans to develop further.

IKEA offers 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. This is the single idea at the heart of everything IKEA does, including the way it develops and purchases products and the way they are sold in IKEA stores around the world.

IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was founded in 1943. Today it is the world's largest furniture retailer, recognised for its Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including home furniture and accessories. This wide range is available in all IKEA stores and customers can order much of the range online through IKEA's website. There are 18 stores in the UK to date, the first of which opened in Warrington in 1987. In July 2009 IKEA opened a store in Dublin too - its first in Ireland.

IKEA stores include restaurants and cafés serving typical Swedish food. They also have small food shops selling Swedish groceries, everything from the famous meatballs to jam. Stores are located worldwide. In August 2008 the IKEA group had 253 stores in 24 countries, with a further 32 stores owned and run by franchisees. It welcomed a total of 565 million visitors to the stores during the year and a further 450 million visits were made to the IKEA website. IKEA sales reached 21.2 billion Euros in 2008 showing an increase of 7%. The biggest sales countries are Germany, USA, France, UK and Sweden. In 2008 IKEA opened 21 new stores in 11 countries and expects to open around 20 more in 2009 as part of its strategy for growth.

Low prices are one of the cornerstones of the IKEA concept and help to make customers want to buy from IKEA. This low price strategy is coupled with a wide range of well designed, functional products. IKEA's products cater for every lifestyle and life stage of its customers, who come from all age groups and types of households. This is vital in times when the retail sector is depressed, as it increases IKEA's potential market.

Since it was founded IKEA has always had concern for people and the environment. The IKEA vision 'to create a better everyday life for the many people' puts this concern at the heart of the business. IKEA has responded to the public’s rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions. IKEA's concern for people and the environment encourages it to make better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment.

IKEA IN UNITED ARAB EMIRATESThe world’s largest home furniture and furnishings store. Their operations in Dubai commenced in 1991, with their first showroom located in Zabeel Road. In the year 1995 they moved to the Deira City Centre and closed in November 2005. This was to pave the way on the same month to the opening of the new four times bigger IKEA store at Dubai Festival City.In March 2001, IKEA opened a new store in Marina Mall, Abu Dhabi. Marina Mall overlooks the Abu Dhabi Marina, and is one of the most prestigious shopping malls in Abu Dhabi.The owner of IKEA in United Arab Emirates are Al-Futtaim Trading (Private) Limited (Al-Futtaim).

IKEA Concept The IKEA vision is "To create a better everyday life for the many people."The business idea 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."The market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money."

The IKEA Stores IKEA stores sell the IKEA product range in room settings and self-service areas and inspire customers with ideas, hints and tips for smart new home furnishing solutions. To keep prices low, the stores buy and transport products in bulk. They’re also located in less expensive areas of their market area. IKEA customers help to keep prices low by picking their furniture up at their store’s warehouse, transporting it home and assembling it themselves.There are 202 IKEA stores in 32 countries. Of these, 180 stores belong to the IKEA Group. The remaining 22 stores are owned and run by franchisees outside the IKEA Group. By August 2005 IKEA will have opened further stores: 2 in Belgium, 1 in Czech Republic, 3 in France, 3 in Germany, 2 in Italy, 1 in Netherlands, 2 in Spain, 1 in Sweden, 1 in United Kingdom and 3 in USA.

The IKEA marketing mix

The IKEA marketing mix consists of different areas of focus:

The IKEA product range is the starting point. All other marketing communication is used to amplify the product range.

the store is the primary medium for presenting and communicating the range, it's low price and the IKEA concept.

Distribution - IKEA has 27 distribution centres in 16 countries. These centres supply goods to IKEA stores, and they ensure that the route from supplier to customer is as direct, cost-effective and environmentally friendly as possible.

Efficient distribution plays a key role in the work of creating the low price the IKEA catalogue is the main marketing tool with around 70% of the annual

marketing budget being spent on this alone. It is produced in 38 different editions, in 17 languages. 110 million catalogues were circulated last year the IKEA advertising, PR and other types of communication are complements to the IKEA range. The store and catalogue are used to spearhead the penetration of the target market.

The aims of the organization include: To keep costs low and assist customers; Products should combine good quality, durability and be functional; Profit should be used to build and expand; Simple solutions should be found to product and company problems; A keen understanding of the company’s cost base must be maintained and

good results achieved with careful investment.

IKEA has also made a public commitment to be socially responsible through the following objectives:

To only use materials from appropriate, sustainable sources; To use the minimum of raw materials and energy; To reduce waste and emission levels in all production for IKEA; To treat all employees including subcontractors and suppliers with respect

and social concern - the use of child labour is not acceptable to IKEA.

I have come to the conclusion that they are very excited on meeting a high standard of quality and to produce long lasting products, which are very durable. I can also see that enthusiastic to keep with trends in fashion and to make sure they're at the cutting edge of design and technology.

Judging from IKEA's aims and objectives, I have gathered that they are devoted on:Looking after their customers by doing things right the first time, ensuring that they find it easy to shop, seek help or complain, regularly monitoring and seeking customer feedback on the businesses performance, understanding what customers want and what they expect of IKEA.

IKEA have proven to the public that they can, and do look after their existing customers well, also while trying to accommodate for new

customers. Shopping at IKEA is very different to shopping at some of their competitors' stores in the way that IKEA choose to stand back and wait for the customer to come to them with any problems or what they would like to purchase. This has obviously proven to be a well thought through idea, as it appears to be working well. By looking at the Ikea website you can tell that IKEA are interested in maintaining a good relationship between themselves and the customers.

Problems with IKEA: IKEA was successful with a different model of the value chain, but they had many problems associated with multinational companies.

Strong corporate culture is too much for subsidiaries. The Swedes culture is an informal management style with pragmatic problem solving and consensus based decision-making as part of IKEA’s everyday practice. This ends up causing a rift for international companies like IKEA because this approach might not be what the local managers are used to doing.Examples:In Germany, this approach to management was seen as ridiculous because the Germans were very disciplined and precise. For example, the Germans would take informal suggestions as actual reality and over-due simple tasks.In France, the people were used to formal rules and strong hierarchy, so the informality of the Swedes made the French managers feel like they could do whatever they wanted, and most of the time work was not one of the choices.

Transnational strategy faults were clearly seen in the United States. IKEA was very good at picking the right suppliers and the sales outlets were positioned well in areas that were low cost, but the research and development was only done in Sweden. Examples:Americans would purchase flower vases in the retail outlets mistaking them for drinking glasses.Americans slept in king size beds and the IKEA beds were five inches narrower.

Management and Human resource issues were prevalent also in the United States. IKEA would hire managers who value job security, enrichment and long vacations, but many managers in the United States did not want this. They wanted to pursue career advancement rather than a five-week trip to the Bahamas. This would all stem back to the Swedish approach to the work environment. Examples: One American manager is quoted in saying, “A lot of people have left IKEA because they can’t move up fast enough here.” Another young manager said, “Our management needs to be much more professional in managing human resources. We need to bring new people into the organization, and reward individual accountability for results.”

External factors changed because baby boomers had become middle aged and their desires changed. One result was fewer new homes were being built. The competition was also adapting to IKEA’s supply strategy and making furniture better for lower prices. This put direct pressure on IKEA’s sourcing advantages.

Too large of a multinational was another problem facing IKEA. The product range grew from 10,000 to 14,000 items causing long production runs, and a lot of the new managers were not versed well on IKEA culture. This caused the subordinates to begin to act according to their own management practices and it opened a rift with policies from the home company.

The Problem: IKEA was successful with implementing their long-term strategy of cost leadership and product differentiation, but they were too Swedish for their own good. When the company became a large multinational they started to experience poor human resource development, and lack of communication with subsidiaries, which gave their competition the time needed to began to mock their distribution processes and product development.

Alternatives:Gut the current centralized management strategy that is Swedish centralized. Reorganize the management through a more international matrix type structure.

Do not pursue the United States market because it is too difficult to compete in, and stick with Europe and more development in Asia.

Make the company management flatter by giving subsidiaries more freedom to respond to local needs, and develop possible strategic alliances and joint ventures to increase market reach and brand recognition.

Recommendation: Make the company management flatter by giving subsidiaries more freedom to respond to local needs, and develop possible strategic alliances and joint ventures to increase market reach and brand recognition.

Rationale for the Recommendation: The recommendation for a flatter management style with more freedom to subsidiaries is a necessity. The founder Ingvar Kamprad has the right ideas about IKEA losing its way and a need to get to the basics, but that includes changing the role of subsidiaries.

Firms within high power distance countries have a strong concern with hierarchy. With high uncertainty avoidance the firms tend to have management systems and processes that make organizations and employees dependable and predictable.

The informal method of management and lack of risk assessment was not accepted in France, and not appreciated in Germany and the United States. This led to problems with subordinates understanding their roles, and lack of production efficiency. The larger IKEA became the more this type of management became a problem. The Swedish managers used an organizational standard of adhocracy, while the Germans were used to a professional bureaucracy, the French used to a full bureaucracy, and the Americans a mix of all three.

The way to address these cultural problems is to change the organizational structure and become flatter with the use of joint ventures and alliances. They will not only help increase your market potential, but they will aid your subsidiaries in developing more of a feel for the local markets and competition.

Implementation: These ideas are drastic changes to a company that was begun on the premise of Swedish culture and business ideals. IKEA became extremely successful without changing the model of their business plan over many years. There must be a team of consultants who are made up of many different cultures to assess the situation. They need to do a study of the different cultural roles of the subsidiaries, the possibility of strategic alliances, and the new flatter structure of worldwide management. After a year, this study should conclude the appropriate specific moves needed to adjust the Swedish model to work in this new era of globalization.

IKEA has the right value chain model, good relationships with their suppliers, a strong customer base, and great company values. These positives need to be worked in with the cultural specific, and alliance driven world to keep IKEA ahead. If this is implemented correctly IKEA will become the world’s leading supplier of build-it-yourself furniture in the near future.

SWOT analysis

IKEA's goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues.

IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a project or business venture.

Strengths and weaknesses are internal aspects. This means that they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organisation. Opportunities and threats are external factors. This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the internet.

A business can create opportunities and counter threats by making the most of its strengths and addressing its weaknesses. For example, one of IKEA's key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition, it develops its product plans to increase its use of waste or recycled materials.

One particular table, the NORDEN table, uses knotty birch wood. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the knots part of its design feature.

OGLA chairs are made using wood waste from saw mills and LACK tables use a 'sandwich' of stiff card between wood sheets to reduce the amount of solid wood needed.

Strengths

Strengths could include a company's specialist marketing expertise or its location. They are any aspect of the business that adds value to its product or service. IKEA's strengths include:

a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide

its vision – 'to create a better everyday life for many people' a strong concept – based on offering a wide range of well designed, functional

products at low prices a 'democratic design' – reaching an ideal balance between function, quality, design

and price. IKEA's 'Cost Consciousness' means that low prices are taken into account when each product is designed from the outset.

These strengths contribute to IKEA being able to attract and retain its customers.

One way IKEA measures its strengths is the use of Key Performance Indicators (KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by setting targets and monitoring progress towards these. An example of one of IKEA's KPIs is the percentage of suppliers that are currently IWAY approved. The IWAY is the IKEA Way of Purchasing Home Furnishing Products. This guideline defines the social and environmental requirements IKEA expects of its suppliers.

IKEA has strengths right through its production processes:

Increasing use of renewable materials – IKEA improved its overall use from 71% in 2007 to 75% in 2009.

'Smarter' use of raw materials – IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009.

Volume commitments – IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. By committing to buying large volumes over a number of years IKEA can negotiate lower prices. This also benefits the suppliers because they enjoy the greater security of having guaranteed orders.

Economies of scale – for instance, bulk buying at cheaper unit costs. Sourcing materials close to the supply chain to reduce transport costs. Delivering products directly from the supplier to IKEA stores. This slashes handling

costs, reduces road miles and lowers the carbon footprint. Using new technologies – for example, IKEA's OGLA chair has been in its range

since 1980. The chair has changed through the years to reduce the amount of raw materials needed.

Opportunities

A business uses its strengths to take advantage of the opportunities that arise. IKEA believes that its environmentally focused business conduct will result in good returns even in a price sensitive market. As the company states:

'There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products, aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products.'

Some of the opportunities that IKEA takes advantage of through its sustainability agenda are:

a growing demand for greener products a growing demand for low priced products. Trends in the current financial

climate may result in consumers trading down from more expensive stores demand for reduced water usage and lower carbon footprints.

IKEA has a number of areas of focus to its work with sustainability, each of which it supports in various ways:

1. Solutions for a sustainable life at home – IKEA gives online tips and ideas for this.

2. Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater treatment and programmes to reduce its use of water.

3. Reducing carbon footprint. IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015.

4. Developing social responsibility. IKEA's policy includes support for charities such as the World Wildlife Fund, UNICEF and Save the Children.

5. Being open with all its stakeholders. This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEA's image.

Weaknesses and threats

Weaknesses

IKEA has to acknowledge its weaknesses in order to improve and manage them. This can play a key role in helping it to set objectives and develop new strategies. IKEA's weaknesses may include:

The size and scale of its global business. This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA's supply chain, affecting consumer views of IKEA's products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements.

The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices.

IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example 'People and the Environment') and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.

Threats

If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from:

social trends – such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products

market forces – more competitors entering the low price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete with these

economic factors – the recession slows down consumer spending and disposable income reduces.

IKEA addresses these issues in many ways. It manages weaknesses and threats to create a positive outcome.

Social trends: IKEA is building online help to guide customers to a more sustainable life. Here it can focus on home improvement in the slowing housing market. It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Staff are trained on sustainability, both on what IKEA is doing and how they can take responsibility to become sustainable for themselves.

Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This puts up high barriers to entry for smaller companies entering the market.

Economic factors: IKEA's low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. IKEA's pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. The company must ensure that it is always recognised as having the lowest prices on the market in the future. Communication plays an important role here.

Following are the main departments in IKEA organization

1. Finance and accounts

2. Marketing and Sales

3. Human resource and administration

4. Technical / Operations

VALUE CHAIN ANALYSIS OF IKEA

IKEA has quickly evolved from a local Swedish home furnishing manufacturer into the largest home furnishing company in the world; partly by convincing their customer to perform the transport and assembly processes of the furniture manufacturing value chain. They have executed their strategy by building a worldwide sourcing network of high quality global manufacturers to support their growth.

IKEA Modified Value Chain Ikea's role in the value chain is to mobilize suppliers and customer to help themfurther add value to the system. Customers are clearly informed in the catalogs ofwhat the firm's business systems provides, and what they are expected to add tothe final process.In order to furnish the customer with good quality products at a low cost, the firmmust be able to find suppliers that can deliver high quality items at low cost perunit. The headquarters provides carefully selected suppliers with technicalassistance, leased equipment and the necessary skills needed to produce highquality items.This long-term supplier relationship does not only produce superior products, but also add internal value to the suppliers . In addition, this value-chain modification differentiates Ikea from its competition.

IKEA’s supply chain is global with sales in more than 250 own stores in 24countries and 32 external franchisees in 16 countries. The stores are suppliedthrough 31 distribution centres, or directly from the 1,350 suppliers in more than50 countries. IKEA’s supply chain consequently has a global spread with bothsales and purchasing in all major regions of the world. IKEAs growth has beentremendous and sales are still growing. Currently IKEA plans to open 10-20new stores every year with a goal to double sales within the coming five year.Considering the pace of growth in sales, the many stores and warehouses, andthe fact that some business areas change up to 30% of its assortment every year,supply chain planning is a real challenge. The supply chain needs tight controland high levels of visibility to keep costs down and avoid obsolete inventoryand/or stock outs.91The IKEA supply chain is mainly make-to-stock (MTS) and only a few productsare made to customer orders. Consequently, the entire supply chain is heavilydependent on forecasts. The regions and the stores have traditionally had astrong power and a high degree of local freedom in terms of planning andplacing replenishment requests. This has led to a fragmented supply chainplanning with local optimization and a lot of manual intervention with plansthroughout the supply chain. Furthermore, due to frequent shortage situations

some regions have purposely overestimated demand to ensure delivery, which inturn has led to imbalance in terms of demand coverage. Hence, some marketshave suffered from stock outs during long periods, whereas other markets haveended up with obsolete inventories. Forecasting has been done on a regionallevel with approximately 120 users striving for different goals and usingdifferent methods. Part of the explanation to this is that IKEA has lacked acommon and structured tactical planning of demand and replenishment. In termsof capacity planning, all different parts of the supply chain (stores, warehouses,regions, etc.) tried to optimize its own part of the supply chain, leading to a setof imbalanced supply plans with a low and unstable total throughput with longreplenishment times for the supply chain as a whole.The above mentioned situation led to a number of problems with direct impacton performance in a number of ways. First of all, the supply chain had afunctional orientation with limited transparency, leading to a reactive behaviourwith fluctuating goods availability (sometimes stock out situation andsometimes over stock). IKEA has also used extensive manual work in itsplanning processes and the planning was based on fragmented and unreliableplanning information. Hence, there was a lack of trust between different parts ofthe supply chain, which even further have enhanced the bullwhip effects in theIKEA supply chain. Other problems related to the supply chain performance wasdifficulties to get enough attention of data maintenance, the lack of properfollow-up tools to monitor forecast deviations, hard to change mindsets amongusers, no synchronization of order and stock data, to name but a few.To overcome the difficult situation, IKEA initiated a program (cluster ofprojects) aiming to taking better control of its supply chain, and enhanceperformance in terms of delivery service and costs. A new global planningconcept was developed and is currently being implemented. Its cornerstones aremutually integrated planning processes, a centralized planning organization,focus on data quality and use of advanced software support. The purpose of thisarticle is to outline IKEA’s global supply chain planning concept and describethe roles of the planning organization, data quality, software support and projectand change management in the concept and its implementation.92The article is structured as follows. First, the basics of supply chain planningprocesses, centralized planning functions and supply chain planning software isoutlined. Then IKEA’s planning concept is described followed by a discussionabout the roles of the planning organization, data quality, software support andproject and change management in the concept and its implementation.

2. FRAME OF REFERENCES2.1 Supply chain planning processesPlanning is conducted on different time horizons and levels of detail. In practicalterms, the problem of different time perspectives and the level of detail requiredare dealt with by planning material flows and production successively in ahierarchical structure of planning processes. For long-term planning, asomewhat lower precision and detail levels may be acceptable, while short-termplanning demands a high precision and level of detail. The planning structureoften used in manufacturing companies contains four planning processes; salesand operations planning, master planning, materials planning, and execution andcontrol of material flows. Forecasts and customer orders are important inputinformation to the planning processes. Figure 1 illustrates the relationshipsbetween the four basic planning processes.Sales & operationsplanningMaster planningMaterials planningExecution & controlForecastingOrder fulfillmentStrategic/ Demand managementLong-termTactical/Mid termOperational/Short term

Figure 1: Relationships between basic planning processes.Several of the planning processes consequently have mutual relationships. Froma supply chain perspective, there are also relationships between differentfunctional and organizational planning processes. For example, the forecastingprocess may integrate individual forecasts from several markets and products,the sales and operations planning and master planning processes may involveseveral production and distribution sites, the materials planning may integrateseveral warehouses, for example by the use of distribution requirementsplanning. However, these decisions are often distributed among a multiplenumber of independent decision-makers along the supply chain which leads toincongruence and imbalances on a global perspective (Pibernik and Sucky,932007). Hence, companies typically look for ways to control these imbalances,e.g. through coordination and/or centralization of planning responsibility.2.2 Centralizing planning functionsGlobal supply chains are often discussed and analysed based on two majoraspects; the configuration and the coordination of the network. It has beenestablished that vertically focused networks striving for low cost productiontypically should establish a centralised planning organisation (Rudberg, 2004).

This is due to the fact that vertically focused organisations operating on a globalscale normally have sales, productions and distribution facilities spread aroundthe globe. Under such configurations a centrally coordinated planningorganisation facilitates cost efficient material movements, replenishment andorder handling. Consequently, theory suggests that a vertically focused networkrequires a relatively high level of coordination, and therefore relatively highdegree of centralisation of the manufacturing management. The corporate staffmust play a much more active role in making the vertically focused organisationwork and theory furthermore suggests that centralised management offers bettercost-effectiveness due to better coordination, possibilities of higher utilisation,and avoidance of duplication of activities (Rudberg, 2004).The performance of a supply chain as a whole is to a large extent determined bythe way the different planning processes are coordinated and synchronized(Pibernik and Sucky, 2007). Supply chains coordinated on a central basis willlead to better results in terms of, e.g., overall costs, compared to supply chainswith decentralised management (Rudberg, 2004; Pibernick and Sucky, 2007).To facilitate the smooth coordination based on centralizing the planningfunctions, companies typically develop common policies regardingmanufacturing structure, but also in terms of common (standardized) workingmethods (Rudberg and West, 2008). Such common working methods alsofacilitate the introduction of standardised software support, which is necessaryto support decision-making in global supply chains.2.3 Software supportWhen it comes to coordinating a vertically focused but dispersed supply chain,information and communication technologies can be of great help. Advancedplanning systems (APS) have been put forward as tools adopted to aid thecomplex web of decisions that have to be made in a global network. APS isdesigned to deal with multiple sites and also to include various supply chaindecisions in one central planning engine. Hence, stock replenishment,distribution, production and sourcing decisions can be balanced in a centralizedfunction in order to avoid bullwhip effects and also to strive for the optimal useof resources throughout the supply chain (Stadtler & Kilger, 2005). Combined94with point-of-sales (POS), stock level, in-transit, current work load, and capacityinformation, APS can excel supply chain planning in the following ways;• Establish integrated supply chain planning processes since it addressesactivities throughout the supply chain.• Handle vast amounts of data at reasonable run times, and the possibility torun multiple scenarios and “what-if”-analyses before a central plan isestablished.• Present results in an easy-to-understand environment throughvisualisation of KPIs, stock and load levels, and so forth; hence increasing

the understanding of the effects that the decisions will have on the supplychain performance.• A higher degree of automation of planning, which leaves more time forthe decision-maker to analyse the supply chain and the actual decisionmakinginstead of using the time to find a feasible plan.Since APS used in supply chains have to deal with multi-site environments andis based on a standardised planning process with a high degree of automation,the quality of input data (both master data and transaction data) is even moreimportant than in other types of planning systems. Hence, the organisation has toput a lot of effort into safeguarding that planning data is of high quality.In terms of planning, information is normally distinguished from data, whereinformation is the content and meaning of the data. Information quality is ageneric term and has several different dimensions. Normally, distinctions aremade between the extent to which information is valid, reliable, up-to-date,complete and straightforward to understand and use (e.g. Jonsson andGustavsson, 2008). APS requires high data quality to work properly, and in suchcases provides the possibility to provide information of good quality to thedecision-makers which thereby can make better informed decisions.

3. IKEA’S PLANNING PROCESSES3.1 The supply chainIKEA is one of the leading home furnishing companies in the world. With itsvision to ”create a better everyday life for the many people”, the company hasreached annual sales of close to €20 billion (FY 2007) and has close to 120,000employees. IKEA has more than 522 million visitors per year in its stores allover the world. In addition to the visitors in the stores, some 450 million visitorsare tracked entering the IKEA website. IKEA’s main marketing channel is itscatalogue that is distributed world-wide in 191 million copies (in 56 differenteditions and 27 different languages) displaying some of IKEA’s 9,500 sellingarticles. IKEA’s growth has been tremendous and sales are still growing.95IKEA’s supply chain is global with sales world wide. The stores, which aredivided into three geographical areas, are supplied through 31 distributionscentres, which in turn are supplied by some 1,350 suppliers in more than 50countries. In terms of supply (purchasing), Europe stands for 69% (Poland beingthe largest purchasing area with 16% of total purchasing), followed by Asia with28 % (China 22%), and North America with 3%. The majority of sales is inEurope (82%) with Germany as the top selling country (16%), whereas NorthAmerica accounts for 15% of sales (USA 10%). Asia and Australia togetheraccount only for 3% of total IKEA sales.

3.2 Overview of the planning conceptAs a first step in developing the new planning concept, IKEA centralised allforecasting activities and need calculations to control stock levels andreplenishment throughout the whole supply chain (see Figure 2).Operational/short-termStrategic/long-termTactical/mid-termSuppliersIKEAIKEA of Sweden Distribution services Retail5c.Storeplanning5b.Warehouseplanning4. SuppliercapacityplanningProductionplanning3.Need planning(DRP)1.Sales planning(GM, BA, IoS)MarketintelligenceIn-stockIn-stockExecutionIn-transitDelivery schedule 5a.TransportplanningReplenishmentorders2. Forecasting(Demandplanning)

Figure 2: IKEA’s global supply chain planning concept and planning processes.The new global planning process starts with the corporate sales planning (1)which sets the frames for the tactical demand planning activities (2) at the 12business areas. The forecasts are thereafter input to the global need planningprocess (3), which in turn drives the supplier capacity planning process (4) andthe planning of the distribution supply chain (transport, warehouse, and storeplanning; 5a-c). In the following, the sub-processes in IKEA’s centralised globalsupply chain planning process are described into more detail. Note that thisarticle does not cover the operational distribution supply chain, i.e. transport,warehouse and store planning (5a-c). The global planning process is owned by acentral function at IKEA of Sweden (IoS), where decisions concerning the96number of articles, purchasing, suppliers, distribution, store coordination, and soforth, are made. As such, IoS is the centre of all planning activities in the newplanning process.3.3 Sales planningThe sales planning starts with the overall sales forecast made by the corporate

management (Group Management, GM) at IKEA. The forecast is made on anaggregate level in terms of total sales volumes in monetary units for IKEA intotal. It expresses the expected sales increase in percentages. The forecast isrelated to the strategic business plan, involving business cycle and marketintelligence issues, and includes the remaining part of the current fiscal year plusfive years into the future. The corporate sales plan is updated three times peryear. At the other end of the sales planning process, Demand Planners at IoSprovide forecasts for each of the 12 business areas in terms of sales volumestaking into account the business areas’ (BA) growth plans and ambitions for thefuture.The responsibility for merging the two gross forecasts lies within IoS, whereDemand Planners explode the corporate management sales plan into BA salesand compare the two forecasts. When any differences between the two forecastsare reconciled the forecast is broken down into sales frames per regions (aregion is a group of countries), and further down into sales frames per productarea. These frames are thereafter compared to the forecasts provided at thetactical demand planning level. The sales plan and the frames are reviewed threetimes per year, and the forecasts have to be adapted to the frames also threetimes per year. If there is a difference between the forecast and the frame, theDemand Planners should adjust the forecast accordingly. One alternative is toadjust the forecast in a specific country. If this is not appropriate, the forecast isproportionally adjusted in all countries.3.4 Demand planningSome 32 Demand Planners are active in the tactical demand planning process,each responsible for forecasting a certain part of the assortment. The tacticalforecast resides with IoS and is done on a rolling 84 weeks planning horizon onstore level, with new historical sales data loaded once a week (see Figure 3). Theoperational forecast is a manual forecast (for the most of the time –replenishment needs in the stores) registered by the respective sales unit (i.e.store) for the coming three weeks, whereas a tactical forecast (based on saleshistory) is used for weeks four to 84. The operational forecast and the tacticalforecast are combined to create a final forecast for each article on the selling unitlevel (i.e. the store level). Thereafter the forecasts on store levels are aggregated,reconciled, and compared with the sales frames on the retail forecast group level(i.e. normally country level) and on the distribution services region level97(several countries), cf. Figure 3. A Retail Forecast Group (RFG) consists of oneto several stores located geographically close to each other. In Europe, a Retail

Forecast Group normally corresponds to a country. The Retail Forecast Groupsare usually grouped and served by a fewer number of Distribution Servicesregions, in Europe for example, there are six such regions. The market input onthe two upper levels concerns every country’s activity plan (for examplecampaigns) and estimated price changes on product level. IKEA encourages theindividual countries and stores to have local campaigns and activities. Butcountry specific activity plans must be decided at least six months in advance.Activities on store level can be planned on shorter notice.Demand Planners review the forecast on the regional level each week in order toidentify those products for which the forecast deviates considerably from actualsales. In case that sales deviate considerably from forecasted figures, theDemand Planner looks for the reason and adjusts the sales figures or forecastmodel accordingly.FC on regionlevelFC on retailunit levelFC on sellingunit levelMarketinputMarketinput Need calculationStatisticalforecastAggregatesales historyAggregatesales historyReconcileforecastReconcileforecastOperationalforecastSales frames

Tactical demand planning

Figure 3: The tactical demand planning process.3.5 Need planningThe need planning process follows traditional distribution requirements planning(DRP) principles (see Figure 4). The stores provide a forecast for each article forthe coming three weeks (after the product lead-time), whereas weeks 4-84 arethe responsibility of the Demand Planner. The forecasts are netted againstcurrent stock levels and safety stock requirements at the stores, and also nettedagainst goods in transit. Thereafter the stores net requirements are aggregatedinto distribution centres (DCs) and also here netted against DC stock levels andgoods in transit to replenish the DCs. Each DC Group is thereafter aggregatedand the calculated forecasted demand for the coming 84 weeks is established, ofwhich the coming 26-52 weeks are communicated to the suppliers (depending98on the quality of the plans). Volumes are divided between suppliers based on a

so-called Supplier Matrix that determines the split of volumes between differentsuppliers (see Figure 4). One DC SKU could for example be sourced from twoor three predetermined suppliers.The Need Planner is the person responsible for the need calculations, and alsotakes care of the exceptions messages that might occur. Examples of exceptionmessages that the Need Planner must resolve are stock exceptions (low, high,stock-out, etc.), transport exceptions (late-in-transit), and supplier exceptions(capacity, commitment, etc.).Store 1Store 2Store 3Store 4DC 1DC 2Sup 1Sup 2- stock- in-transits+/- safety stockStore forecasts- stock- in-transits+/- safety stockArticle 1DC Group ForecastDC Group

60%40%Article 2Article nAggregated total IKEA needCapCom

Figure 4: The need calculation process (simplified example).3.6 Supplier capacity planningThe need calculation is used to plan capacity requirements at the suppliers. Inthe general agreements between IKEA and its suppliers, IKEA often commits toprovide a certain volume to a supplier. This is to make the supplier willing toinvest in plants and equipment to produce the desired products. Furthermore, thesupplier communicates a capacity limit to IKEA up to which the supplier canguarantee delivery of volumes. The supplier capacity planning at IoS includesload leveling between weeks to always fulfill the committed volumes (whichalso includes shifting volumes between different suppliers), and also to staywithin the capacity limits (see Figure 4). This could be conducted by a loadleveling function in the planning system or manually by the supply planners.99

4. IKEA’S PLANNING PROCESS ENABLERSIn order to realize the new global supply chain planning concept, it has beenpossible to identify four main enablers for the implementation; planningorganisation, data quality, software support and project and change

management, which all are described below.4.1 Planning organizationThe organizational design and function is a key for IKEA to carry out its globalplanning concept in a standardized way world wide. The supply chain planningresponsibility has been centralized to IoS, and two specialized planningpositions (Demand Planner and Need Planner) were developed to take theresponsibility of the main processes in the global planning concept. There areabout 32 Demand Planners and their role is to secure that the sales planning istranslated into a sales forecast on article level with a global responsibility. Theresponsibility includes the global sales forecast accuracy, involvement in thesales planning process, product range changes and development of the salesforecast methodology.The approximately 70 Need Planners focus on securing that the need planningcontinuously is matching the capacity planning with a global responsibility.Need Planners are responsible for service levels and stock levels in stores andDCs, the global need planning process, balancing the global need and capacityper supplier/category/material, actions on capacity exceptions, supply planaccuracy, and so forth. The more long term planning issues, such as checkingand securing supplier capacity, involve the strategic purchasing and tradingbusiness support organizations.The establishment of the two centralized planner positions is important forcreating necessary specialist competence in demand and need planning, but alsofor making it cost efficient and practically possible to carry out the planningprocesses in a standardized way, world wide. Despite of the centralized planningorganization there have been some problems implementing the new globalplanning concept and working methods, partly because of insufficient end-usertraining and support, insufficient knowledge and involvement by linemanagement and that the planning software are not the main applications forsome organizations.4.2 Data qualityThe importance of improved data quality was early identified as an importantcornerstone in order to make the global planning concept successful. Severaldata quality problems have been eliminated but IKEA still has some issues to100deal with in order to further improve the planning and supply chainperformances. The most severe ones are discussed in the following.Insufficient maintenance of lead time data gave wrong input to need calculationand caused stock out problems in stores. Process improvement was difficultbecause of incompatible data capture and lead time measurements throughoutthe supply chain. As a response to these problems, a new lead time concept thatassigns clear responsibilities to different actors was implemented. Furthermore,

a work group was established with members across the supply chain deciding onworking methods and lead time issues and a web-based application (based on adata warehouse solution) was created to visualize lead times and exceptions onmissing lead time data.There were also some problems with in-transit and stock data synchronization,which sometimes resulted in double-counting of stocks. Status updates of intransitdata were not always available throughout the supply chain. This resultedin incorrect need calculations and delayed order generation which may result instock out risks. Also the master data quality was sometimes of insufficientquality, for example, due to an incorrect updating process.In summary, incorrect data figures resulting in poor planning accuracy, maydecrease the trust in the plans and also result in extra manual work. Extramanual work may also lead to more manual intervention with plans, which iscounter productive to the main ideas with the common working methodsconcept. As it is now, the supply plan accuracy is still quite low, mainly becauseof low forecast accuracy of new products, manual intervention with plans, andthat everyone doesn’t follow the established working methods. Also, the projectis still in process, wherefore the concept so far only has been implemented forparts of the supply chain (mainly for suppliers to DCs and partly for DCs tostore).4.3 Software supportIKEA has an old and wild grown patchwork of systems and applications, and itis difficult to change any of them. But to facilitate the new planning conceptAPS software from JDA was implemented to support most of the planningprocess in Figure 2. The JDA Networks Demand module was implemented tosupport the forecasting processes. The software, in combination withorganizational changes, made it possible to reduce the number of forecastersfrom 120 to around 30, and at the same time the average forecast accuracyincreased from 60 % to 80 %. The JDA Fulfillment was implemented to supportthe 70 Need Planners in the need calculation and supplier capacity planningprocess. It also support other roles in IKEA’s planning organization with101accurate and up-to date information net requirements, stock levels, safety stockcalculations, and replenishment needs.In summary, the demand and fulfillment software supported the forecasting andthe need calculation with functionality to carry out frequent quantitativeforecasting, distribution requirements planning, aggregating and disaggregatingforecasts, but also with a user friendly interface allowing for customizedvisualization, report generation and exception based working methods.4.4 Project and change managementIKEA has over time struggled with achieving consistent result from its

implementation efforts. Although several projects have resulted in successfulimplementations, the opposite has also occurred leaving the organization withsome co-workers not fully adapted to new working methods and tools. TheChange Process has not been sufficiently recognized and the affected coworkershave from time to time been brought in to the change process too late,and left on their own too early by the implementing projects.Part of the recent change efforts, the change process has been taken seriously. AFour-Step model has been defined clearly recognizing the need to createawareness in the first step, create interest in what is coming in the second step,making users try out the solution in the third step and finally adopt the changesin the fourth and last step.The experience thus far is that the receiving organizations truly appreciate theimplementation approach and the result is very good. An approach like thisrequires that a staff of resources skilled in Communication and Learning areactively supporting the rollout resources. This might at first glance be perceivedas an extra cost, but the true belief is that making things right from the startsaves money at the end.

5. CONCLUDING REMARKSImplementation of the global planning concept has lead to several improvementsin IKEA’s supply chain, such as reduced stock levels and improved servicelevels. Figure 5 illustrates characteristics of and main differences between theold and new planning concepts.102Old planning concept• Functional orientation• Limited transparency• Reactive behaviour• Extensive manual work• Unreliable planning information• Lack of trust• Fluctuating goods availability• Over stockNew planning concept• One integrated planning process providingreliable planning information• A common ”working-together environment”creating supply chain visibility• Working methods and tools to detect anddeal with problems at an early stage• A coordinated and ”balanced” Supply Chain