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.