Ikea’s business idea

Ikea’s business idea is to offer wide range of home furniture’s with modern design with good functioning at a good value for money. Since the Swedish company has been founded in 1943, they have gone through a remarkable success story by applying their core competencies appropriately in their supply chain. The buyers working within Ikea’s cooperation choose suppliers from all over the world, which meet IKEA criteria’s low price and high quality. IKEA buys their raw materials in bulk on a global scale to provide all the countries with the same product range.

Through the economy of scale the material is bought very cheap and therefore the end product can be sold to a reasonable price. Hence the core competence of 2nd tier procurement is the low cost yet good quality material. Ikea’s distribution objective is all about keeping the process as convenient as possible. As the Ikea product is furniture that is not putted together yet, Ikea has token the opportunity to pack their goods in the most efficient way, in regards of using space.

Therefore the overall transportation from central distribution to retailer or central distribution to customer’s home or even retailer to customer’s home can be accomplished more effectively, as a greater amount of products can be carried. Furthermore it gives the customer the alternative not having to rely on curriers delivering the orders, but being able to independently pick up their desired product by using their “normal” sized car.

This is a highly rated convenience factor, which differentiates Ikea from many other companies. “Distribution goes through all three business functions and is a very important piece of the puzzle for IKEA’s strive for low prices. IKEA has one of their trademarks within distribution with their invention of flat packages. An efficient supply chain from supplier to end customer is necessary to provide secure lead times, efficient handling and competitive prices.

Since the focus of this thesis will be in the area of distribution this will be covered in more depth than other parts of the pipeline” (B. Larsson and O. Qviberg, 2004) Moreover local stores distribute the whole range of IKEA products and they have globally chosen their layout to be extremely spacious, to be able to demonstrate their customers ideas how the furniture could be integrated into their homes.

This is another way to ease to buying procedure of the customers, as less imaginative power is required. In addition to the local retailers, Ikea also offers a home delivery on most of their products, to once again decrease the effort that should be made. As IKEA aims strongly for customer’s satisfaction, they have established several assistance measures such as on their homepage, hotline and in-store staff. These are all tools to support the customers as well as to create an enhanced positive perception.

As Ikea’s core competence is their low- cost yet good quality products combined with the provisioning of a convenient and proficient service, the company has adapted their whole supply chain to be able to deliver their strength appropriately and tap their full potential. As customer needs are constantly changing, markets are getting more difficult to predict and consequently hitting the target group’s desires become more challenging as well. Organisations have to respond to their changing environment while maintaining a focus on a long term idea of integrating core competencies into the supply chain.

Possessing core competencies are no longer enough to obtain a competitive advantage, in fact only the adequate implementation of the core competencies into the supply chain will be able to make a company sustainably competitive and bring out the maximum gaining’s of time and cost. The similarity of the core competencies from the selected companies is clearly recognisable and has been purposely chosen to be able to point out that even though these four companies are operating in completely different markets, the needs of the customer are nowadays strongly time orientated.

Through the ever growing pressure in our time and society, people are struggling to cope with all their duties, therefore companies are forced to adapt their distribution and service to these strongly needed requirements. As the four companies were able to recognise these demands, they have enhanced their supply chain accordingly and consequently they are enjoying a great success.