Assignment specification — Case Study :IKEA OperationsManagement
IKEA is the one of the most successful furniture retailerglobally. With 276 stores in 36 countries, they have managed todevelop their own special way of selling furniture. Their stores’layout means customers often spend two hours in the store – farlonger than in rival furniture retailers. IKEA’s philosophy goesback to the original business, started in the 1950s in Sweden byIngvar Kamprad. He built a showroom on the outskirts of Stockholmwhere land was cheap and simply displayed suppliers’ furniture asit would be in a domestic setting. Increasing sales soon allowedIKEA to start ordering its own self-designed products from localmanufacturers. But it was innovation in its operations thatdramatically reduced its selling costs. These included the idea ofselling furniture as self-assembly flat packs, which reducedproduction and transport costs, and its ‘showroom-warehouse’concept, which required customers to pick the furniture upthem-selves from the warehouse (which reduced retailing costs).Both operating principles are still the basis of IKEA’s retailoperations process today.
Stores are designed to facilitate the smooth flow of customers,from parking, moving through the store itself, to ordering andpicking up goods. At the entrance to each store large notice boardsprovide advice to shoppers. For young children, there is asupervised children’s play area, a small cinema, and a parent andbaby room so parents can leave their children in the supervisedplay area for a time. Parents are recalled via the loudspeakersystem if the child has any problems. IKEA ‘allow customers to makeup their minds in their own time’ but ‘information points’ havestaff who can help. All furniture carries a ticket with a codenumber which indicates its location in the warehouse. (For largeritems customers go to the information desks for assistance.) Thereis also an area where smaller items are displayed, and can bepicked directly. Customers then pass through the warehouse wherethey pick up the items viewed in the showroom. Finally, customerspay at the checkouts, where a ramped conveyor belt moves purchasesup to the checkout staff. The exit area has service points, and aloading area that allows customers to bring their cars from the carpark and load their purchases. Behind the public face of IKEA’shuge stores is a complex worldwide network of suppliers, 1,300direct suppliers, about 10,000 sub-suppliers, and wholesale andtransport operations, including 26 distribution centres. Thissupply network is vitally important to IKEA. From purchasing rawmaterials, right through to finished products arriving in its
customers’ homes, IKEA relies on close partnerships with itssuppliers to achieve both ongoing supply efficiency and new productdevelopment. However, IKEA closely controls all supply anddevelopment activities from IKEA’s hometown of Älmhult in Sweden.But success brings its own problems and some customers becameincreasingly frustrated with overcrowding and long waiting times.In response IKEA launched a programe ‘designing out’ thebottlenecks. The changes included:
- clearly marked in-store short cuts allowing those customers whojust want to visit one area to avoid having to go through all thepreceding areas;
- express checkout tills for customers with a bag only ratherthan a trolley;
- extra ‘help staff ’ at key points to help customers;
- redesign of the car parks, making them easier to navigate
- dropping the ban on taking trolleys out to the car parks forloading (originally implemented to stop vehicles beingdamaged);
- a new warehouse system to stop popular product lines runningout during the day;
- more children’s play areas.
IKEA spokeswoman Nicki Craddock said: ‘We know people love ourproducts but hate our shopping experience. We are being told thatby customers every day, so we can’t afford not to make changes. Werealized a lot of people took offence at being herded like sheep onthe long route around stores. Now if you know what you are lookingfor and just want to get in, grab it and get out, you can.’Operations management is a vital part of IKEA’s success IKEA showshow important operations management is for its own success and thesuccess of any type of organization.
Of course, IKEA understands its market and its customers. But,just as important, it knows that the way it manages the network ofoperations that design, produce and deliver its products andservices must be right for its market. No organization can survivein the long term if it cannot supply its customers effectively. Andthis is essentially what operations management is about –designing, producing and delivering products and services thatsatisfy market requirements. For any business, it is a vitallyimportant activity. Consider just some of the activities thatIKEA’s operations managers are involved in:
? Arranging the store’s layout to give a smooth and effectiveflow of customers (called process design).
? Designing stylish products that can be flat-packed efficiently(called product design).
? Making sure that all staff can contribute to the company’ssuccess (called job design).
? Locating stores of an appropriate size in the most effectiveplace (called supply network design).
? Arranging for the delivery of products to stores (calledsupply chain management).
? Coping with fluctuations in demand (called capacitymanagement).
? Maintaining cleanliness and safety of storage areas (calledfailure prevention).
? Avoiding running out of products for sale (called inventorymanagement).
? Monitoring and enhancing quality of service to customers(called quality management).
? Continually examining and improving operations practice(called operations improvement).
And these activities are only a small part of IKEA’s totaloperations management effort. But they do give an indication, firstof how operations management should contribute to the business’ssuccess, and second, what would happen if IKEA’s operationsmanagers failed to be effective in carrying out any of itsactivities. Yet, although the relative importance of theseactivities will vary between different organizations, operationsmanagers in all organizations will be making the same type ofdecision (even if what they decide is different).
Question:
- What do you identify as the ‘operations function’ within IKEA?How is this different from the ‘sales function’?
what is the operational function used in IKEA? and what is thedifference between the operation fucntion and sales function withinthe company?
