Business & Supply Chain Practices

Prepared by
Misha Ali (1081022)
 1. Identify, by applying a methodology from class, the Business Strategy of IKEA

Business strategy is the fundamental aspect for a business to envision long-term success
(Moktadir et al., 2020). The mechanism of any business must align with the business strategy
as every other factor of business such as material, labor, supply chain, and finances all revolves
around the business strategy.

IKEA has two core pillars in its business strategy which are Cost Leadership and Product
Differentiation.

The company's success lies in its competency to provide efficiently designed properly
functional products at affordable prices for their targeted audiences (Burt, Dawson, Johansson,
& Hultman, (2021). This cost leadership strategy is the core pillar that relies on the whole
operations of the company. Each aspect of the business is targeted towards efficiency.
From manufacturing processes, operations, finances, raw materials, and supply chain, each
factor is aligned with the cost leadership strategy, minimizing the costs without compromising
on quality.

Moreover, IKEA while attaining cost leadership in the market, also differentiates in terms of
the product offerings and the customer experience. The company’s wide range of offerings such
as home furniture, accessories with customizability, and innovative designs, attracts a
diversified customer group. The company’s stores are designed in such a way that they provide
an immersive shopping experience to the customers, allowing them to explore room setups and
visualize every product for their homes to the fullest (Sin, et al., 2021). This strategy of product
differentiation provides a unique edge to IKEA over its competitors in the market which also
flourishes customer loyalty and brand acceptance.

Another element of success for IKEA’s business strategy is the aspect of sustainability. It is one
of the factors that add value to the goodwill of any business in the perception of the customers.
IKEA is committed to efficiently enhancing its footprint on the environment by using quality
and sustainable materials for production, reducing its waste from the products, and promoting
efficiency in energy consumption (Alrubah, et al., 2021). By applying these sustainability
principles, IKEA has undoubtedly attracted attention and acceptance from the people who are
conscious about the environment and contributed to the community and CSR principles as well.

2. Demand: interpret the supply chain strategy and sketch the impact of demand,
delivery, and returns in your elaboration.

One of the prominent challenges that most of the company face is demand variability. Similarly
to other companies, IKEA also faces demand variability which poses significant challenges to
IKEA’s overall supply chain mechanism. The fluctuations in consumer demand for any product
can lead to imbalances in the inventory and incur extra costs (Baxter, 2020). Moreover, these
risks cannot be nullified but can only be mitigated.
Hence, to mitigate these challenges, IKEA implements efficient strategies to balance the supply
and demand equilibrium.

Inventory

Initially, IKEA efficiently forecasts the equilibrium point between the inventory optimization
and demand to analyze the customer’s changing preferences and align the inventory levels
accordingly. This analysis helps the company to minimize stockouts and avoid overstocking to
keep the company’s cash flow and expenses at the optimum level.

Capacity

Moreover, the company also focuses on flexible and efficient manufacturing and supply chain
processes to respond quickly to the ever-changing customer demand in the market. The agile
production capabilities that IKEA deploys in the production processes allow the company to
scale the production higher or lower as needed to meet the demand in the market, reducing
extra costs, overstocking, and improving responsiveness on a significant scale. Behzad, Farzad,
& Davidrajuh, (2020)

Information

While maintaining the demand and supply equilibrium, IKEA also manages to enhance its
brand loyalty and customer satisfaction by placing a strong emphasis on being customer-centric
returns management all the time (Behzad, Farzad, & Davidrajuh, 2020). The company
understands the requirements of its targeted audience and provides hassle-free return policies
which is also one of the core features of developing strong goodwill and customer loyalty in
the market for the brand.
Time

Considering the time impact on supply chain strategy, the company manages the demand and
supply equilibrium efficiently by deploying efficient forecasting strategies to analyze customer
behavior and their requirements. The supply chain mechanism is aligned with the demand and
supply requirements, which allows the company to enhance its operational capabilities and
meet the demands of the customers in the market on time as well.

Price

By forecasting the demand and supply equilibrium, a business may foresee the impact of price
on the products which might impact the choice of the customers for a product. IKEA should
implement the same strategy to analyze the impact of pricing on the products due to the aspect
of time it takes for the supply to be ready.

3. Sourcing: examine the supplier relationship involved (5 points- LO1). Involve the
uncertainties in supply and demand and distinguish how you would overcome
them.

Sourcing and Supplier relationships an essential aspect for a multinational organization to keep
the operations of the company smooth and efficient. IKEA has a global network of suppliers,
spread out in multiple countries, and often faces challenges in the supply chain such as
disruptions, ethical sourcing, quality control, timely deliveries, and more. To counter these
challenges, IKEA aims for long-term partnerships with the vendors by ensuring transparency
and efficient collaboration with the vendors (Sampath, & Harshitha, 2023). The company
works closely with the vendors to ensure ethical standards, compliance, environmental
regulations, and quality control practices. The company maintains a relationship with open
communication and mutual understanding to ensure there is no communication or other barriers
with the vendors to ensure the undisrupted network of the supply chain.
Moreover, IKEA focuses on the diversification of vendors to mitigate the risks of overreliance
on one single vendor for all the sourcing activities. By integrating multiple vendors into the
business from different regions, IKEA attracts reliance on multiple sourcing options and
balances healthy economies of scale by sourcing from the regions that provide quality labor at
optimized costs, which in return optimizes the company’s expenses and production capabilities.
Along with the geographical expansion, IKEA places a strong emphasis on sourcing practices
that are sustainable for the environment and enhance the CSR aspect of the brand to earn
customer’s goodwill and loyalty. However, even by implementing these strategies, there can
be several challenges in the supply chain of a multinational brand.

Overreliance: This problem can be solved by expanding globally. It’s efficient to create a
network of vendors globally, to find an optimum balance between time, economies of scale,
cost efficiency, and production capabilities.

Visibility & Transparency: My advice to IKEA would be to manage an ERP that provides
business intelligence capabilities to analyze all the vendors and their performance towards the
business to analyze every vendor efficiently.

Risk Management: Risks are associated with every vendor, however, it’s the strategic
approach that mitigates these risks efficiently.

Production Disruptions: To resolve any problem with production, IKEA can deploy agile
production capabilities depending on the supply and demand equilibrium in the market to
satisfy the customers and maintain the balance between stockings of the products.
 4. Strategic Fit: argue, based on the above, where you would put IKEA in the
strategic fit figure. Defend why that is and why you think they reach a strategic fit
or not.

First off, IKEA fits effectively inside the strategic fit figure thanks to its emphasis on cost
leadership, product differentiation, and sustainability which makes it a viable choice for being
the strategic fit. IKEA's cost leadership strategy and its steadfast commitment to offering
reasonably priced, quality-designed products allow the company to stay ahead of the
competition in the market (Ding, Liu, & Xu, 2021). Moreover, by responding to a diverse
customer base, their ever-changing demand, and creating brand loyalty, IKEA's emphasis on
product differentiation through creative designs, customizable options, and a distinctive
shopping experience strengthens its strategic fit.

IKEA reduces costs and increases operational efficiency by using economies of scale,
efficiently managing logistics, and optimizing production and supply chain processes.
These strategies have previously helped the company maintain its cost leadership position and
shall continue to do so in the future as well, as they fit with the company’s offering and target
audience (Spinoglio, 2020). IKEA's emphasis on sustainability also fits with its differentiation
strategy, as the company attracts environmentally conscious customers and sets itself apart
from the competition in the market through its eco-friendly programs and ethical sourcing
methods, which helps create goodwill for the company and maintain customer loyalty.

Considering the aspect of IKEA being a strategic fit, it can be observed that the alignment of
IKEA's supply chain strategy with its business goals is what defines the company's overall
strategic fit and allows it to generate value for stakeholders, customers, and society. IKEA
maintains its competitive edge, promotes long-term success, and maintains relevance in a
constantly changing market environment by incorporating cost leadership, product
differentiation, and sustainability into its supply chain operations. Consequently, it can be
argued that IKEA achieves a strategic fit because of its careful matching of its supply chain
strategy with its overall corporate goals and objectives.

5. Network design; examine how the described network design impacts the supply
chain efficiency and interpret the responsiveness of IKEA.

The network design of the supply chain management is divided into 3 strategic timelines –
Long-term, Mid-term, and short-term.
The supplier’s element takes care of the production planning and execution phase. The central
planning phase is the element where the business equilibrium is analyzed efficiently. The team
analyses the balance between demand and supply by gaining market intelligence parameters
such as Inventory from the retail stores, customer preferences, and first-hand information about
the customer’s preferences in the market. By linking the intelligence to the supply and demand
practices, IKEA finds out the equilibrium between supply and demand, and hence the
company’s operational capabilities are aligned towards efficient management of material
planning and order execution.

IKEA follows the SCOR Process Hierarchy for supply chain management practices.

Plan: To minimize stockouts and excess inventory, IKEA emphasizes forecasting demand and
managing inventory to match production with customer needs.

Source: To reduce risks and guarantee a steady supply of materials, IKEA places a high priority
on responsible procurement and supplier relationships. It does this by diversifying its supplier
base.

Make: IKEA strongly emphasizes environmentally friendly and productive manufacturing

Return: To preserve customer satisfaction and reduce supply chain interruptions, IKEA
streamlines reverse logistics procedures to enable easy returns and exchanges of products.

6. Judge, based on the above, how IKEA maximizes the supply chain surplus to
create continuity and argue how IKEA could head for a sustainable future.

Efficiency in Operations: To cut expenses and waste, IKEA concentrates on streamlining its
manufacturing, sourcing, and logistics procedures throughout its supply chain. IKEA
increases supply chain surplus and operational efficiency by utilizing automation, technology,
and economies of scale.
IKEA places a high priority on innovation and continuous enhancement throughout its supply
chain, utilizing cutting-edge tools, materials, and procedures to boost productivity and
sustainability. IKEA ensures its ongoing relevance and competitive advantages by
committing to research and development to stay ahead of consumer preferences and market
trends.

Initiatives related to the Circular Economy: IKEA is progressively adopting the concepts of
the circular economy intending to reduce waste and maximize resource efficiency. The business
looks for creative ways to recycle, reuse, and repurpose materials to prolong product lifetimes
and lessen their negative effects on the environment. IKEA can improve its supply chain and
build a more sustainable future by adopting circular economy practices.

Conclusion

In summary, IKEA prioritizes efficiency, cooperation, creativity, and sustainability to maximize

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