2nd Visit - IKEA

IKEA Site Visit

Introduction

IKEA is a Swedish company and home supplies retailer which has many stores around the world. The products of IKEA are mainly flat -pack furniture, accessories, bathroom and kitchen supplies. IKEA is currently the world's largest furniture retailer which aims to create modest sales price of self-assembly furniture. IKEA provides many services including home delivery, assembly, wall mounting, merchandise pick-up and so on.

The visit

Kwai Chung warehouse is a new warehouse, which opened in May 2011 and aimed to provide a faster and long-term delivery. The warehouse manager, Simon first introduced the basic information of the warehouse to us in a conference room. Such as the inbound and outbound logistics, different types of distribution processes and operational management. Then, we divided into groups and followed a staff to have a site visit. Our group followed Simon who explained the operation in Chinese. After the site visit, we backed to the room and contributed a Q&A session. All of us prepared some questions about the warehouse operation. It is nice to have Simon and other staff to be our guide.

 

 

 

Question 1

How do you do the demand forecasting and manage the supply in order to have a stable supply and prevent stock out?

In order to prevent stock out, IKEA uses the weekly sales data to predict the sales force. Since the scale of forecast is small, IKEA can estimate the demand of each stock accurately even in different season. Suitable amount of stocks can be delivered to the stores according to the demand forecasting.

In the aspect of replenishment, the lead-time of stocks is short. The manager can response to the actual demand quickly even there is a stock out and take the correspond actions to maintain the normal operation of the stores.

Question 2

As most of your customer order deliveries are outsource, how would you ensure their quality of service, such as on time delivery customers services?

The performance of the outsourcing companies is different from others. In order to ensure the delivery performance, IKEA will rank the contractors by measuring their marks in different aspects including customer complaint, on-time delivery and replacement order. It is a concrete index for IKEA to know which contractor is doing better and which one is doing worse.

Also, IKEA has set up a reward and penalty system, which is used to encourage the contractor having good performance and punish the contractor, which is not doing so.

Question 3

What are the reasons behind IKEA to add the catering service at each store?

The catering service is a kind of blue box culture. In other countries, IKEA is a blue box, which has little restaurants nearby. By having this kind of catering services, customers can have their lunch and dinner inside the store and discuss their furniture combination at the same time.

Besides, there will be a kid corner, which is another thoughtful service considering the customers will come shopping with their kids. All of these catering services help IKEA to build a positive image and provide an all-rounded service.

Question 4

What are the competitive advantages of IKEA Hong Kong over your local competitors like Pricerite in terms of warehouse management?

The manager has pointed out there are two main competitive advantages of IKEA, including delivery processes and inventory.

Based on the information of the warehouse delivery management, the lead-time of stock is short because they have warehouse in Hong Kong. Compare with other competitors, which set up their warehouse in Shenzhen, they can response to the demand quickly. Also, the distribution center has gross area about 32000m², it can handle high inbound volume. The stock supply can be more stable by having this center.

Besides, the inventory range items of IKEA are much more than the other competitors. They have more than 10000 items including seasonal inventory and selling in a low price. This diversification helps IKEA to attract more customers and gain higher market share.

Question 5

What are the current practices in your warehouse related to the company’s sustainability strategy?

In order to protect the environment and be sustainable, IKEA has three main strategies in the warehouse.

First, the damaged or the problematic inventories will be screened to see whether it can be fixed or not. If it can be fixed, it will be put back to the store after repair. Besides, IKEA will donate these problematic inventories to some non-government organization. If the damaged stock cannot be fixed, the non-damaged part will be used as a spare for the production of other similar stock.

Question 6

At your distribution center, what are the meaning of the high flow and low flow in the supply chain?

High flow means the products with high turnover rate while low flow means the products with low turnover rate. Some regular products like chairs and commodities will be the examples of high flow. Some seasonal products and special products are the example of low flow.

Question 7

Which part of operations in the warehouse is the most costly? How do you reduce the operational cost without affecting the efficiency?

IKEA uses outsourcing as one of their delivery methods. However, the quality cannot be guaranteed and incurred high operation cost. In order to save cost, IKEA will handle the logistic processes like demolition cabinet by internal staff during low season. By doing so, it can provide more opportunities for the internal staff and lower the operational cost as well.

Question 8

As we all know that rental price in Hong Kong is high, how do you maintain low inventory level?

The rental price in Hong Kong is too high that IKEA is not able to rent one more warehouse. The manager has to manage the inventory level accurately and lower it at the right time. In this way, the warehouse can be arranged in the warehouse as many as possible.

In order to lower the inventory level, manager said that Shenzhen is a good option to set up their warehouse because of its geographic proximity to Hong Kong. The lead-time is still short even the inventories are stored in the Shenzhen warehouse. As the rental cost in Shenzhen is low, it can help IKEA to lower the operational cost.

Question 9

How do you trace and track the product items during the inbound logistics and the outbound logistics?

The inbound logistic includes putaway and internal stock replenishment. The outbound logistic includes home delivery picking and store replenishment picking.

For inbound logistic, IKEA uses Enterprise resources planning system to record the inventory management. Product planning, manufacturing or service delivery, marketing and sales, shipping and payment can be recorded by using EPR. Therefore, IKEA can trace and track their inventories systemically.

For outbound logistics, IKEA can trace and track the inventories by communicating with the outsourcing contractor. There should be a mature tracking system to check where is the stock now.

Question 10

IKEA is producing products that can be recycled and reused. Does IKEA collect back these products from the customers? If yes, how does the reverse logistics of IKEA work?

Similar to IKEA’s sustainability strategy, IKEA will collect back the problematic products to the warehouse and check whether it can be fixed, resold or donated. The non-damaged part of the stock can be used as the spare part to produce another product.

Reflection

In IKEA, the warehouse manager has to control the product logistic in order to save cost and have a better inventory management. By investing capital, labor and knowledge, IKEA warehouse needs to deliver inventories to different parties without delay and error. Also, IKEA recruits many labors to operate the logistic and distribution processes, including inbound and outbound delivery. Manager needs to apply his logistic knowledge to develop different strategies on how to better arrange the product position and delivery schedule. It is a systematic management since it involves the coordination between workers, customers and management teams.

When you visit the IKEA store, you only need to order and tell the staff what is your preferable delivery schedule. However, the delivery process is complicated and includes much professional knowledge. For example, how to manage the inventories in order to have no late delivery and error. How to deal with outsource logistic companies in order to lower the cases of complaint. Some specific terms like loading bay, container prioritization replenishment logic, and buddy system are also the back that we cannot see from the store. It is a big challenge to have a well-planned delivery schedule.

I think the most learnable skill is the attitude of the manager. He is the one who work as this position for the longest period. Actually he is a nice person who will not wear suit when he is working in the warehouse. He always smile when he talk to the workers. Therefore, he can maintain a good relationship with the workers who has high turnover rate recently. I understand employees are the most valuable assets of the company because they are not easily replaced.

After the site visit, I found that the distribution center is as important as the product design.

1st Visit - CPSL

Have an introduction of the Air Cargo industry first  This video is taken in CPSL.
>>> http://www.bilibili.com/video/av2421324/  屢見奇工 第10集 – 爭分奪秒

About Cathay Pacific Service Limited….

Company Overview

Cathay Pacific Services Limited (‘CPSL’) is a wholly-owned subsidiary of Cathay Pacific Airways. CPSL operates the latest air cargo facility in Hong Kong – Cathay Pacific Cargo Terminal (‘CPCT’), serving airlines operating at Hong Kong International Airport.

CPCT is a HK$5.9 billion infrastructure Terminal with a designed annual throughput of 2.6 million tonnes, increasing Hong Kong’s air cargo capacity by 50 percent to 7.4 million tonnes per year. CPSL provide best-in-class services with dedication and flexibility, sustaining the competitiveness of Hong Kong as the logistics hub of choice in Asia.

Services

CPSL serves 3 types of customers, which are airlines, forwarders & truckers and walk-in customers. They provide services like cargo and mails, cargo documentation, trucking services and freighter ramp services.

Cargo and mails handling

Cathay Pacific Cargo Terminal (CPCT) has advanced handling systems and facilities to process mail and cargo of all types and sizes. They have in place a list of Service Level Agreements (SLAs) guaranteeing the highest level of service for their customers. For general cargo, they receive import cargo. They provide careful cargo breakdown services, and all shipments carried by passenger flights and freighters are ready for collection in three hours and five hours, respectively. The first batch of shipment is usually transported to the assigned truck dock within 15 minutes of the consignees’ arrival.  They also handle export cargo handling with speed and accuracy. To maximise efficiency, CPSL has a designated floor for pre-packed export cargo. Bulk export cargo is accepted and checked for safety by the module offices. One of the key features at CPCT is an enhanced transhipment capability. There is a dedicated zone adjacent to the ground floor airside for the handling of transhipments, typically within five hours of cargo arrival at their terminal. For special cargo, CPCT is equipped with world-class facilities to handle special cargo. This includes perishables, high value cargo, temperature-sensitive goods, livestock, horses, odd-sized cargo, dangerous and radioactive goods, as well as mini-shipments.

Cargo documentation

CPSL provides a full span of documentation handling services: we prepare air waybills, forward applicable copies of manifests and air waybills to airlines, notify consignees or agents about shipment statuses and collect fees, as appropriate.

Freighter ramp services

We have a specialised freighter ramp services team providing total solutions for our airline customers. Our services include aircraft loading and unloading, load control, flight operations, and other operations as necessary.

Trucking services

CPSL provides bonded trucking services connecting Hong Kong to key cities in Southern China.

1. What is the maximum time that a cargo can stay within your terminal and warehouse in order to wait for the transshipment or delivery to be considered as JIT? How would you handle the unstable situation, such as delays at the air transport?

In CPSL, usually the customer arrives earlier than the cargo. The customers have information about when will the plane arrive to Hong Hong. As soon as the cargo is off the plane, it will directly be transferred to the customer from the warehouse. This situation especially applied to the fresh cargo like fresh fruit, seafood, meat and animals. In terms of delay shipments, the airlines hold full responsible for it. They will arrange another flight soon after the delayed flight. CPSL is under the instruction of the airlines.

2. What aspect in your material handling system gives you a competitive advantage over your competitors (e.g. HACTL)? Do you think it is sustainable? 

Both companies’ material handling systems kept the cargo information and inventory in an very accurate level. But CPSL’s material handling system is an more advanced version which can handle cargo in an Just-in-Time practice. Moreover, they are using different servers for the systems. Since CPSL’s material handling system is more advanced and with  higher version, it has a faster response rate and better storage quality .

3. How can Cathy Pacific management deal with complaint raised by cockpit crew regarding aviation risk due to the increased workload and fatigue? What measures had been done in terms of various regards, such as staffing, manpower mobilization, operations, etc.

The airline said it was determined to tackle issues raised by the pilots. It also said the airline’s general manager of flying was leading a working group to improve rostering patterns, and investigate and propose solutions to the problem of fatigue. The airline said it had a fatigue risk management system, with the support of the pilots’ union, to manage fatigue-related issues.

4. How do you compete with other logistics company like DHL, SF and FedEx?

In fact, DHL, SF and FedEx are not CPSL’s competitors, but they are their clients which are logistics companies and freight forwarders who need to ship cargo overseas by air or ocean. If they need to ship by air, they need to make a booking through the airline and reserve plane space for their goods.

5. How do you expand your business if the third runway project successfully launched?

After the third runway project has been successfully launched, CPSL will encounter a higher volume of air cargo and it may need to care of the labor workload and productivity.

6. As we know that your company built a new air cargo terminal in 2008, what is your future plan for the extension of growth?

It may be to find out more possible airlines or freight forwarders for cooperation and maintain a best-in-class service with high KPI.

7. Since the CP’s terminal operates 24 hours per day, what information system deploys in handling cargo management?

The Cathay Pacific Cargo Terminal incorporates innovative features and advanced technology systems to ensure efficiency, reliability and visibility, setting new benchmarks for the industry.The fully-automated Materials Handling System (MHS) is the backbone of CPCT, ensuring efficient cargo movement and activities across the seven-storey air cargo terminal. The installation of an Uninterrupted Power Supply ensures 99.9% system reliability; and specially designed routing logic enables system availability under all circumstances.

8. Does CP have any sustainable development in order to reduce cost and achieve the environmental protection in the supply chain?  If yes, what are they?

Sustainability is one of the core management philosophies at CPSL. They have embedded best practices into every aspect of the operations, from the design of the Cathay Pacific Cargo Terminal to daily operational procedures, to achieve high environmental standards.

CPCT is the first air cargo terminal which has installed the chilled-ceiling air-conditioning system, reducing up to 40% of energy consumption. In addition, They have implemented various measures to ensure sustainability across the Terminal:

• High performance cladding is used at the exterior of CPCT to minimise damage and the need for replacement.

• Energy is re-generated by the movement of the Materials Handling System.

• The emitted heat from the air-conditioning system is recycled for the hot water supply.

• Where possible, waste separation is handled at source.

• Electric vehicles are used to support green airport operations.

Their policies provide us a robust framework to manage the environmental, social and economic risks and opportunities of their business decision.

9. Can you explain what ‘Just-in-Time’ operational concept is? What are the benefits for the stakeholders?

In a traditional practice, when their airline customers arrive the terminal, if there is no transit flight, the cargo needs to stay a lot period of time waiting for airline’s customer to pick up. But since CPSL is practicing just-in-time, when there is an import cargo, it can be transit to another flight within several hours if needed. This is attributed to Cathay Pacific’s advanced and developed system and diversified airplane types. Moreover, some freight forwarders or agencies can access to an computer system which is linked up to CPSL’s system that discloses the update cargo information, therefore when they need to pick up cargo in CPSL, they do not need to register on-site but the progress is simplified by the computer system and they can check the status of the cargo in the computer system and make use of time in a better way. This shortened the dwell time of the cargo in the warehouse.

10. What are the future development plans/ new technology for your cargo operations?

For instance, CPCT has adopted a new initiative of electronic airway bill with EVA airline. They also deployed the latest generation of handled device ‘Bluebird’ across CPCT. This upgrade allow real-time tracking with the most accurate shipment information. They also rolled out a new IT initiative to migrate the internal platform to Google. The move creates a more flexible and accessible platform across the company, facilitating resources utilization and improves productivity.

Guided Tour

We had an introduction of CPSL and gone through the entire building by looking into its 1:100 model.



The gates where trucks enter the warehouses for picking up cargo - JIT operations.


The entire view of CPSL terminal

Import/Export area where cargo are loaded and unloaded.

The heart of the terminal - Material handling system that stored information of every pallet and bulk

No Men Zone  - Automated Operations


There clients - They also have offices in CPSL terminal

Livestock Storage - for animals





Reflection:
After the visit to CPSL, we found that their material handling systems are very impressive. These systems are the heart of CPSL and their whole business is depending on these systems. To facilitate streamline operations, they do not limit the access of the system database to only  themselves, but they also allow their clients - airlines and forwarders to access the information, therefore the status of the cargo are visible to them and enables JIT operations. Moreover, there are also diversified kinds of cargo including fresh products, live animals and explosives, and CPSL do have different operations procedures and warehouses to handle various kinds of cargo.
Reference:
http://www.scmp.com/news/hong-kong/economy/article/1860798/cathay-pledges-tackle-issues-pilot-fatigue
http://www.scmp.com/news/hong-kong/economy/article/1860798/cathay-pledges-tackle-issues-pilot-fatigue