Ikea Operations Management Essay

Profile: ikea IKEA is the world’s most successful mass-market retailer, selling Scandinavian-style home furnishings and other house goods in 230 stores in 33 countries and hosting 410 million shoppers per year. An acronym for founder Ingvar Kamprad and his boyhood home of Elmtaryd, Agunnaryd, IKEA began operating in Sweden in 1943 and continues its original ethos based upon cost obsession fused with design culture. No design, no matter how inspired, finds its way into the catalogue if it cannot be made affordable. With an aim of lowering prices across its entire offering by an average of 2% to 3% each year, its signature feature is the flat packed product that customers assemble at home, thus reducing transportation costs. Yet, unlike some peers, IKEA has sustainability at heart and, through an internal mantra of ‘low price but not at any price’ is a leading example of sustainable innovation and business growth.The company designs its own furniture, which is made by about 1,500 suppliers in more than 50 countries. It also sells online and by mail order with the print run for the 2006 catalogue hitting 160 million – more than the Bible, so IKEA claims. Finding the right manufacturer for the right product is a key component of the company’s success. It once contracted with ski makers – experts in bent wood – to manufacture its Poang armchairs, and has tapped makers of supermarket carts to turn out durable sofas. Simplicity, a tenet of Scandinavian design, also helps keep costs down. For example, the 50 cents Trofà © mug comes only in blue and white – the least expensive pigments. IKEA’s conservation drive extends naturally from this cost-cutting. Adding to the challenge, the suppliers and designers work to customize some Ikea products to make them sell better in local markets. That said, the global middle class, that IKEA targets, shares buying habits: The $120 Billy bookcase, $13 Lack side table, and $190 Ivar storage system are its best-sellers worldwide and average spending per customer globally is even similar: According to IKEA, the figure in Russia is $85 per store visit – exactly the same as in statistically more affluent Sweden. IKEA operates approx 25 US stores, which account for 11% of the company’s sales and Germany is its biggest market, accounting for nearly one-fifth of revenue. Sales have been growing steadily each year thanks both to expansion of its store network and the ongoing price cuts – 18 new stores were opened in 2005 and the retailer reduced prices by 3%. Such expansion has kept IKEA’s turnover rising – in 2005 by 17.3% to $18.8 billion from $16.0 billion in 2004. And, although being privately held IKEA’s profit figures are not published, conservative estimates put pretax operating profits at around $1.7 billion. IKEA maintains these profits even while it cuts prices steadily with operating margins of approximately 10% being among the best in home furnishing. To keep growing, IKEA is accelerating store rollouts in both large outlet and new high-street formats. Nineteen new large outlets are set to open worldwide in 2006, at an average cost of $66 million per store. The firm plans to boost their profile in three of its fastest-growing markets: In Russia, where it is already a huge success in Moscow, in China, where is has a strong footprint, and in the US, where the goal is to have 50 outlets by 2010. IKEA demonstrates that, when underpinned by strategic partnerships with manufacturers and suppliers, providing access to affordable contemporary design, in an exciting, yet simple format can be a winning formula. Where and when did IKEA start? What does IKEA stand for? Who founded IKEA? Find out all about the history of IKEA and the timeline of the store’s development in this article. IKEA founder, Ingvar KampradIngvar Kamprad The founder of IKEA, Ingvar Kamprad, began his business career as a young boy selling matches purchased in bulk individually for a profit to his neighbors near Agunnaryd. As his business grew, he expanded to selling fish, seeds, Christmas decorations and eventually, pencils and ball-point pens which were a new phenomenon in 1935. He was very clever in utilizing his resources – he delivered his goods by bicycle, and later used the local milk delivery vehicle to make deliveries. IKEA In 1943, with a gift from his father, Ingvar established his business, using his initials, Ingvar Kamprad, the name of the farm on which he was born, Elmtaryd and the village nearby, Agunnaryd for the acronym. At this time, he was selling everything from pens and wallets to watches and nylon stockings by going door to door and selling directly to his customers. By 1945, the first advertisements for IKEA began showing up in local newspapers and he had developed a rudimentary catalog. IKEA Catalog Locally manufactured furniture first showed up in the IKEA product range in 1947 and was received positively by its customers. It wasn’t until 1951 however that Ingvar began to focus only on furniture and discontinued all other products from the IKEA product range. The first IKEA furniture catalog was published that same year and 2 years later, in response to competition, the first furniture showroom opened in the village of Älmhult. This same competition caused other furniture stores and manufacturers to put pressure on suppliers to boycott IKEA which led to the critical decision to design their own furniture beginning in 1955. IKEA Flat Pack Furniture ikea_lovet_table.jpgIt’s difficult to overstate the importance of this turn of events. Designing furniture for their own stores allowed IKEA to focus on low prices, improve function and ultimately led to the success of the company. Around this time, an employee removed the legs of a table in order to fit it into the trunk of a car and avoid transportation damage, which began IKEA thinking about designing furniture to be flat packed. In 1956, IKEA began testing the concept of flat pack to reduce costs through reduced transportation expenses, lowered storage space requirements, decreased transportation damage and reductions in labor costs. The IKEA Lovet table, pictured left, was the first IKEA product designed as flat pack furniture. http://www.ikeafans.com/ikea/ikea-history/ikea-history.html Ingvar Kamprad The founder of IKEA, Ingvar Kamprad, began his business career as a young boy selling matches purchased in bulk individually for a profit to his neighbors near Agunnaryd. As his business grew, he expanded to selling fish, seeds, Christmas decorations and eventually, pencils and ball-point pens which were a new phenomenon in 1935. He was very clever in utilizing his resources – he delivered his goods by bicycle, and later used the local milk delivery vehicle to make deliveries. History of IKEA IKEA was founded in Älmhult, Sweden, in 1943 by Ingvar Kamprad. He founded the company at the age of 17. IKEA is an acronym incidentally similar to the Greek word ÃŽ ¿ÃŽ ¹ÃŽ ºÃŽ ¯ÃŽ ± [oikia] which means (home) and to the Finnish word oikea (correct, right), but actually was originally an abbreviation for â€Å"Ingvar Kamprad Elmtaryd Agunnaryd†. Ingvar Kamprad Elmtaryd Agunnaryd comes from the address where Ingvar Kamprad started the company IKEA initially. Originally, IKEA sold pens, wallets, picture frames, table runners, watches, jewelry and nylon stockings or practically anything Kamprad decided is a needed product on reduced price. Furniture was first added to the IKEA product range in 1948. In 1955, IKEA began to design its own furniture. The company motto is: â€Å"Affordable Solutions for Better Living.† At first, Kamprad sold his goods out of his home and by mail order. Later a store was opened in the town of Älmhult. It was also the location for the first IKEA â€Å"warehouse† store which came to serve as a model for IKEA establishments elsewhere. On March 23, 1963, the first store outside Sweden was opened in Asker, a Norwegian municipality outside Oslo. IKEA has grown step by step into the world’s largest furniture retailer. 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. Products Available IKEA’s products are used from the customers for the whole furnishing of a home. Customers may find everything they need and basically furnish their houses â€Å"from the forks to the chairs†. The products available are: * Storage furniture; * TV solutions; * Small storages; * Sofas and armchairs; * Tables and desks; * Chairs and lighting; * Decoration and mirrors; * Floors; * Textiles and rugs; * Beds and mattresses; * Cooking and eating; * Furniture care and hardware; * Kitchen cabinets and appliances; * Bathroom furniture; * Clothes storages; * Safety products;