Ikea - Logistic and Supply Chain Management

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Firstly, the primary sector (raw materials). This sector involves the development or extract natural resources such as timber, agriculture, oil or minerals. IKEA designs its own products in Sweden. Low price is one of the main factors that IKEA considers while producing home furnishings. At the design stage, IKEA checks that products meet strict requirements for function, efficient distribution, quality and impact on the environment. Sources raw materials from over 1,300 suppliers in 50 countries and uses a number of trading service offices across the world. They negotiate prices with suppliers, check the quality of materials, analyze the environmental impacts that occur and also keep an eye on social and working conditions of suppliers.

Secondly, the secondary sector (manufacturing). In this sector, manufacturers within the secondary sector creates IKEA products from raw materials. As products move through the supply chain, the process of value-added takes place. IKEA designs many of its products so that the smallest amount of resources can make the best products.

Thirdly, the tertiary sector (distribution to retailer). In the tertiary sector, distribution services functions as the wholesaler for IKEA and securing local storage capacity for stores. IKEA works in various ways not only to rationalize and simplify distribution, but also to minimize the impact this part of the business has on the environment & also to be efficient and can maximize space utilization. The secret is to calculate as exactly as possible how many products will be needed to satisfy demand. This eliminates any unnecessary costs for production and warehousing. For instance, IKEA packaging their products and the way products are packed into vehicles can have a big impact on the efficiency of transport, because the more products they can fit into a container, the fewer journeys they need to make. The fewer journeys they make, the lower distribution costs and CO2 emissions. Afterwards, products are shipped from suppliers to distribution centers, where they are unloaded, stored in racking, and then re-loaded onto road transport vehicles when ordered by stores. The fundamental goal is to handle goods as efficiently as possible. In some cases, goods are shipped directly from suppliers to stores, or held on the dock of a distribution center for just a short time before being shipped out again. This emphasis on efficiency helps IKEA achieve affordable prices for their store customers.

On the other hand, IKEA’s retail stores add value to manufactured goods by providing a form of shopping different to the usual high-street experience. These meet the needs of consumers in a number of different ways such as each IKEA store is large and holds more than 9,500 products giving lots of choice. Within each store, there are a number of realistic room settings that enable customers to see what the products would look like in their own homes.

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