Table of content
1 Executive Summary
3 Situational Analysis
3.1 Company profile
3.2 Growth and profitability
4 Customer profile analysis
6 Process Design
6.1 Process Type
6.5 Process Design- Product Design
List of References
1 Executive Summary
According to Slack (2010) operations management is about how organisations produce goods and services. Organisation must align their processes in a way that the needs of the customers are satisfied. This requires careful planning and can, if successful, lead to a competitive advantage.
The report will show how IKEA’ operations management has made IKEA to one of the most successful furniture retailer in the world. The report is divided into four parts. The first part will analyse the current situation of IKEA regarding the company profile, profitability, culture, goals, etc. The second part will identify the main customer groups of IKEA. Based on the customer needs, the corporate performance objectives of IKEA will be presented. The third part will identify the process type of IKEA and evaluates how this type meets the corporate performance objectives of IKEA. At the end, recommendations for IKEA will be provided and a conclusion is drawn.
IKEA is the most successful furniture retailer in the world. The product line consists of well- designed furniture at low prices. During 2010 global sales as reported were 23.1 € billion. However, the success of IKEA was not achieved overnight; it took a long time and careful planning in order to offer well-designed products at low prices. IKEA designed processes and products, which meet exactly the needs of the customer. This report identifies the main customers as well as shows how IKEA responded to them in terms of designing its products and processes.
3 Situational Analysis
The situational analysis attempts to address the question ‘where is the organization now?’ The situational analysis contains a vast amount of information and, as the term indicates, is an analysis of the situation that you are facing with the proposed product or service (Hollensen, S. (2003), pp. 652).
3.1 Company profile
IKEA, founded in 1943 by Ingvar Kamprad, is acknowledged as a furniture company that operates 27 distribution centers in 16 different countries. From these distribution centers, the company delivers 280 stores with its products throughout the world. Furthermore, IKEA is a Swedish private limited liability company and has 127.000 employees in 41 different countries (IKEA Welcome Inside, 2010, pp. 26). IKEA is also well known for its modern and innovative furniture and was a pioneer in providing this furniture in flat packs, which allows IKEA to reduce transportation cost, and offering their products to their customers at low prices.
3.2 Growth andprofitability
Global sales as reported were 23.1 € billion during the financial year 2010 (21.4 € billion in 2009). The operating income in 2009 was 2.8 € billion, an increase of 4.4 % over 2008. IKEA generates 79 % of its sales in 2010 in Europe. 15 % of the sales IKEA generated in North America and only 6 % came from Asia/Australia. The main financial principles of IKEA are financial stability, independence and flexibility. As a result, most of its profits IKEA reinvest in the company in order to grow. During 2009, IKEA invested 2.1 € billion in new stores and facilities, out of 2.5 € billion the company earned in 2008. In 2010, Ikea opened 12 new stores, in seven countries. Due to this, fixed assets of IKEA will continue to increase in the future. The advantage is that the IKEA is independent from investors and can make long-term investment decisions by its own (IKEA Welcome Inside, 2010, pp. 18-26). Please see appendix to find further financial information on IKEA.
IKEA’ success is linked to its culture, which encourages all employees to share the same values such as togetherness, cost-consciousness, respect and simplicity (Jobs at IKEA, 2011). IKEA also has a high commitment to human resource practices in order to identify the employee needs, ambitions and capabilities of their employees. The products as well as the marketing strategy also reflect the culture of IKEA. The products are named after Swedish cities or famous Swedish persons. In addition, the logo of the company is blue and yellow, which are the colors of the Swedish national flag.
The main goal of IKEA is to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them (IKEA Welcome Inside, 2010, pp.7).
Without IKEA’s collaborators, IKEA would not be able to invent as well as produce its products. Today, 10,000 IKEA products are manufactured by 2000 suppliers and transported to the IKEA stores. IKEA has introduced local offices to their suppliers in order to monitor them but also to create new products in cooperation with them (IKEA Sustainability Report, 2009, pp. 18-20). IKEA also has long-time contracts with its suppliers, which avoids price fluctuations as well as built a close relationship between IKEA and its suppliers (Baraldi, 2008, pp. 99).
It is difficult to define competitors because there are no companies that are exactly similar to IKEA. Of course, the main competitors are all home furnishing companies as well as house ware retailers but they do not offer the same way IKEA offers they products. Furthermore, most of the home furnishing companies are not globally present. This means that they do not have the advantage of economic of scale and therefore most of them cannot offer their furniture at low prices as IKEA does. IKEA makes its products affordable to all customers whereas their competitors mostly will have different customer groups they are targeting.
Please see Appendix to find a Swot analysis to better understand the strengths, weaknesses as well as threats, opportunities of IKEA and a Porter five forces analysis.
4 Customer profile analysis
“The customer profile describes the characteristics of the customer who could really benefit of your product or service” (Greene, 2008, pp. 95).
Due to low prices as well as the wide range of different modern furniture products, IKEA is attracting many different customers. One characteristic among all customers is the “Do IT Yourself” culture which in particular means that IKEA is providing the components of furniture and the customers put them together by themselves. Nevertheless, you can divide them into three groups: Families, students and singles.
For parents with children it is difficult to buy furniture calmly. They always must take care of their children or find someone to take care of them in order to leave them at home. Furthermore, families with a lot of children must keep track of their expenditures. They are more likely looking for offers or furniture at low prices than for instance persons with high income. In conclusion, you can define two primary needs: the need for low prices and the need for taking care of their children while they are buying furniture. To meet the needs of families IKEA has created a family friendly environment. In all IKEA stores childcare facilities exists. In the so-called Smaland parents are able to leave their children while they are buying furniture. Smaland is equipped with baby change rooms, WC for kids, playing areas, as well as a cinema playing movies for children. Furthermore, IKEA provides free baby food as well as nappies. Caregivers will assure that the parents can buy furniture without worrying about their children. In addition, all IKEA stores have a restaurant that offers inexpensive food for the whole family (Edvardsson & Enquist, 2008, pp. 57). Families also can apply for the IKEA family membership. The membership provides families all different kinds of product offers as well as help families with low income to finance their furniture. All members get each year a present for the children at their birthday (IKEA Family, 2010). Overall, if children go rather to IKEA instead to an adventure park the question if IKEA meets the needs of families can be answer by you.
Students have limited financial capabilities to furnish their homes. For most of them it is the first own home and they are looking for furniture at low prices. The furniture does not have to necessary last a long time but still should be modern. In addition, furniture must be functional. Students do not look, for instance, for a multi-functional wardrobe with automatic drawers rather more for a less expensive wardrobe that does the same job. Both needs low prices as well as functional furniture IKEA satisfies.
Singles with low-income, who buy furniture at IKEA, are not looking for luxurious status symbols. Compared to high-income singles who attach more importance to brand names to show their environment that they have achieved something in their life, singles with low- income singles are looking more for well-designed, functional home furnishing products at low prices. IKEA satisfies both needs in offering modern furniture as well as at low prices.
Just for completeness, it should be mentioned that because of the financial crisis that has affected low-income as well as high income groups in a financial negative way, IKEA has attract more customers in recent years. Especially high-income groups tend to buy furniture from IKEA more than in previous years in order to save money. As you can see from the financial statement in the appendix, IKEA could increase its sales during the economic recession due to this.
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In conclusion, you can see that all customer groups have the same primary need, the need for low prices. They would not consider buying expensive products. Nevertheless, all groups have a secondary need that which is the key reason why they are buying products from IKEA.
5 Corporate objectives
According to Slack (2010) there are five basic performance objectives that applies to all types of companies: Quality, speed, dependability, flexibility and cost. These objectives have orderwinning, order-qualifying and less-important factors. “Order-winning factors are those things which directly and significantly contribute to winning business. They are regarded by customers as key reasons for purchasing the product” (Slack, 2010, pp. 69). Simplified, it is what a company does in order to make customers buy their products and not from their competitors. According to Slack (2010) raising performance in an order-winning factor, will results in gaining more market share or a better overall performance. Order-Qualifying factors are “those aspects of competitiveness where the operation’s performance has to be above a particular level just to be considered by the customer” (Slack, 2010, pp. 69). Products must Alexander Berger - Operations Management fulfill minimum requirements in order to be considered by the customer. If the products are below the minimum requirements, the company will not sell their products and eventually will be not competitive in their business environment. Moreover, less important factors are such factors which are “neither order-winning nor order-qualifying and do not influence customers in a significant way” (Slack, 2010, pp. 69).
“Quality is a major influence on customer satisfaction or dissatisfaction” (Slack, 2010, pp. 40). Quality for IKEA means that their products are functional as well as safe to use. The quality of IKEA’s products is subject to the international standard ISO 17 025. Due to this, IKEA has established TEST Laboratories. Here, products are tested in order to meet the customers’ demands not only in terms of design, function and price, but also with regard to safety, stability and durability (IKEA Right Quality, 2010). According to the Slogan, “It is our customers that we want to come back- not our products!” (IKEA Right Quality, 2010), IKEA tests products not only during the development stage but also takes samples from products that are already in one of IKEA’ stores. Quality in this case is an order-qualifying factor for IKEA because if the safety and function is not guaranteed customer would not consider to buy one of IKEA’ products. Nevertheless, you also can see quality under a different aspect. The customers of IKEA have to go all the way through the store before they can pay for the products (Please see appendix to find an IKEA store map). Therefore, IKEA needs to present their products within the stores in an attractive and appropriate way. In addition, referring to families IKEA takes care of their children while they are shopping. This additional service leads to more quality in shopping for the families as well as to customer satisfaction. In this case, quality is an order-winning factor for IKEA.