IKEA Case Q1-4 :)

Q1a) Give a brief summary of IKEA’s history and development.

Q1b) What is sustainability?

Sustainability is everything we need for our survival and well-being depends wither directly or indirectly on our natural environment. It is about  creating and maintaining the conditions under which humans and nature can exist in productive harmony to support present & future generations. It refers to the need to develop the sustainable models necessary for both the human race and planet Earth to survive.

Sustainability is a balancing act. The United Nation’s 1987 Report of the World Commission on Environment and Development: Our Common Future noted that sustainable development meets the needs of the present without compromising the well-being of future generations.

The concept continues to expand in scope. In 2000, the Earth Charter broadened the definition of sustainability to include the idea of a global society “founded on respect for nature, universal human rights, economic justice, and a culture of peace.”

Q1c) What is “People & Planet Positive”?

It is IKEA’s strategy that aims to transform all the aspects of the value chain. Through this strategy, environmental impacts could be reduced and improve labor conditions within its supply chains. It can also improve efficiency in production and logistics by developing programs to ensure the products can be reused or recycled.

The strategy is designed to be an integrated part of the Ikea Group long-term growth direction and builds on the Company’s long history of working with sustainability by outlining a new set of goals and actions for delivery up to 2020.

People & Planet Positive has three key focus areas:

• Inspiring and enabling millions of people to live a more sustainable life at home, offering products and solutions that help customers to save money by using less energy and water and reducing waste. Examples include: converting all lighting to LED that last for 20 years and use up to 85% less electricity; offering the most energy efficient home appliances on the market at the lowest price; creating low price, functional and easy to use solutions for sorting and minimising waste and using less water at home.
• Becoming energy and resource independent, which includes producing as much renewable energy as is consumed in Ikea Group stores and buildings, building on the €1.5 billion allocated to wind and solar projects. It also includes improving the energy efficiency in Ikea Group operations by at least 20% and encouraging suppliers to do the same. Continuously developing the Ikea range, making products more sustainable by ensuring all main home furnishing materials, including packaging, are renewable, recyclable or recycled.
• Taking the lead in creating a better life for the people and communities, which includes supporting the development of good places to work throughout the Ikea Group supply chain – encouraging suppliers to not only focus on compliance but also shared values. It also includes going beyond the immediate reach of the supply chain and helping to support human rights.

3 Focus Areas 

Q1d) Why did IKEA launch the sustainability project?

According to IKEA’s Sustainability report 2012, one of the biggest challenges in the 21st century is how to tackle the expected shortage of resources and climate change, while providing a good quality of life for people around the world. Their new sustainability strategy, People & Planet Positive, builds on their many years of working with environmental and social issues and explains how they will play our part in meeting those challenges. To meet future customer needs and address the higher price of raw materials and energy, while driving down emissions and maintaining our low prices, they need to transform our business. Simply working towards being less bad will not get them where we need to be – they need transformational change – which means changing old ways and embracing the new, being bold, innovative and committed to taking action. Our strong values of togetherness and enthusiasm, a constant desire for renewal and our commitment to make our goals a reality will support us in taking the many steps, both large and small

Q2a) How does IKEA’s sustainability strategy align with its business model?

IKEA’s Business model

-IKEA’s business is to provide better products at lower price. They aim to double their revenue by 2020. They had expanded to emerging markets like India and launched a new selling platform – e-commerce. They strike to improve and expand existing stores. They have general product with additional locally adapted products. The transportation and assembly costs are low as they sell unassembled flat packaging which helps reduce costs. They also maintain high quality products by using IWAY standards and FSC-certified wood.

Sustainability Strategy (PPP)

People & Planet Positive has three key focus areas:

• Inspiring and enabling millions of people to live a more sustainable life at home, offering products and solutions that help customers to save money by using less energy and water and reducing waste. Examples include: converting all lighting to LED that last for 20 years and use up to 85% less electricity; offering the most energy efficient home appliances on the market at the lowest price; creating low price, functional and easy to use solutions for sorting and minimising waste and using less water at home.
• Becoming energy and resource independent, which includes producig as much renewable energy as is consumed in Ikea Group stores and buildings, building on the €1.5 billion allocated to wind and solar projects. It also includes improving the energy efficiency in Ikea Group operations by at least 20% and encouraging suppliers to do the same. Continuously developing the Ikea range, making products more sustainable by ensuring all main home furnishing materials, including packaging, are renewable, recyclable or recycled.
• Taking the lead in creating a better life for the people and communities, which includes supporting the development of good places to work throughout the Ikea Group supply chain – encouraging suppliers to not only focus on compliance but also shared values. It also includes going beyond the immediate reach of the supply chain and helping to support human rights.

Alignment

We can see that IKEA’s sustainability strategy has aligned with their business models in several ways. First, they emphasise on sustainability and energy concerned. They invested in wind mills, solar panels and biomass which are renewable energy that could use less resources while saving cost. Second, they implemented FSC forest standards in order to become sustainable while maintaining a high standard product level.  Third, they set up IWAY minimum standards for working conditions and environmental protection.

Q2b) How do you feel about the progress of IKEA Group has made implementing the plan?

First, they have increasing trend of forests certified  to FSC standards. In 2011, it was only 149 million hactares, but in 2013, it has already increased to 187 million hectares.

Second, they kept a trend of increasing the percentage of using FSC-certified wood and recycled wood. Their target is using 50% of FSC-certified wood in 2017 and 100% in 2020. They reached 32.4% in 2013.

Third, they developed renewable energy like wind farms, biomass and solar panels using $21 million.

Q3a)   Which option(s) should IKEA Group pursue to address IKEA’s Wood Supply Chain sustainability? Explain.

Q3b)    What has the highest leverage for IKEA?

Before having a decision that which option is the best, we are going to analyze the pros and cons of each option. Then, we can compare them in order to find out which option is the most appropriate.
Firstly, the option 1 is let IKEA to own more forests. If IKEA has owned more forest land, it had three benefits. The first one is it could help IKEA Group secure access to more FSC-certified wood in the future. The second is it allowed the company to diversify procurements away from China’s costly wood market for the logging of birch and pine. The last one is to help IKEA Group to close monitor every step of the supply of wood from Russia to China. However, at the same time, owing more forests would cause high fixed costs of lease holds, divert management attention to leasing and managing timberland, make IKEA became a wood trader and make residual material is hard to sell.

The second option is to drive higher procurement targets and standards for IKEA Group to purchase the wood. It targets to use more FSC- certified and recycled wood and to increase the availability of such materials. This option can help IKEA to improve forest governance and production efficiency, show a responsible forest management and transparent trade. But this option has a downside, it relies too much on suppliers and takes long time to achieve the targets and standards.

Using more particleboard in production is the third option. Particleboard was made of wood particles or fibers bound with glue, often topped with wood veneer a thin layer of solid wood. Using more particleboard in the product brings several benefits. First, it is more efficient as the yield from log to lumber is a lot higher for particleboard More particleboard than solid wood from one log of wood, so that it can reduce the global amount of wood. Second, the product produced by particleboard is lighter to transport, so that trucks can be filled up to 30% more efficiency. The last one is the economic benefits, it is 20% cheaper to use particleboard for production rather than solid wood. Of course, this option has some disadvantages. Some consumers perceived solid wood to be worth more than particleboard, and there were limited demand for particleboard in China and India markets.

Last but not least, the fourth option is to use more recycled wood. IKEA may increase the share of recycled wood from 4% in 2013 to 10% in 2020. The only one advantage for this cheaper is recycled wood in some countries such as France and Germany is cheaper than virgin particleboard. In the contrast, it needs a heavy investment to adapt IKEA’s board manufacturing plants to accept recycled wood. Furthermore, only board plants located near urban areas could be used for recycled wood in order to minimize the cost of collecting recycled wood from individuals. Also, since some regions where there was no incentive to collect wood for recycling, it has caused troublesome on the availability of the recycled wood.

After analyzing both sides of all options, our group decided that option 3 is the most suitable one for helping IKEA to achieve wood supply chain sustainability. Although there are some drawbacks, we believed that customers will have a higher incentive to purchase environment-friendly products with cheaper price.

Q4)   How would you assess IKEA Group’s People and Planet Positive sustainability plan?

Hints:

• Is the plan likely to help the company transform its business? Why or why not?

• Are the plan’s targets too limited, appropriate, or too ambitious? Explain.

IKEA Group’s People and Planet Positive sustainability plan has three focus areas, which are 1) A more sustainable life at home for consumers,2) Resource and energy independence for the company and 3) A better life for people and the communities touched by IKEA.

We believe that the plan is not too ambitious because it is a long term goal for the company to grow. Base on the three focus areas, to reach the ultimate goal several milestones have been created along the years to reach the goal. It will transform all aspects of the company’s value chain, including design, select sustainably sourced materials, improve labor conditions and efficiency in production and logistics

For the resource and energy independence. IKEA Group sourced 100% of wood, paper and cardboard from more sustainable sources, and it is Investing in some renewable energy sources. It shows that IKEA Group is having actions to protect the environment and maintain sustainability.

Lastly, for the third focus area, which is better life for people and communities. We think that some actions are concrete and some are not, for example, take a lead in contributing to a better life for people and communities impacted by our business is not concrete enough. But maintain and secure 100% IWAY approval of all suppliers, develop and implement a transparent and reliable system for the responsible recruitment of migrant workers are more of the concrete actions.

Reflection:

Sustainability is to create and maintain the conditions under which humans and nature can exist in productive harmony to support present and future generations. IKEA Group, a world-wide company which provide a wide range variety of products from ready-to-assemble furniture to home accessories, has developed a Planet, People and Positive sustainability plan to maintain business and protect environment at the same time. We think that the plan is not too ambitious because it is a long term goal for the company to grow, and we hope that IKEA Group can continue developing its plan to maintain sustainability.

Reference:

1. http://www.ikea.com/ms/en_US/this-is-ikea/people-and-planet/

2. http://www.theclimategroup.org/what-we-do/news-and-blogs/ikea-group-unveils-new-sustainability-strategy/

http://www.sustainabilitydegrees.com/what-is-sustainability/