Tag: Ikea

OM in the News: Ikea Tries to Shrink

IKEA is today the world’s biggest seller of furniture, with 460 mostly franchise-operated stores spread across 62 countries that carry some 9,500 products. Its price-conscious shoppers wonder: How does a nice chair cost only $35?

IKEA grew into a furniture behemoth with a relentless focus on keeping costs low, but that goal has become more challenging, writes The Wall Street Journal (April 26, 2023). The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers’ wallets. IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board.

Designers experimented with ways to reduce IKEA’s reliance on wood to cut material and shipping costs. Lighter, less expensive plastics, they discovered, could be used instead in cabinet doors and drawers. IKEA’s wooden furniture has traditionally used veneer that is glued onto a main structure of particleboard. Particleboard is formed from compacted wood chips and sawdust, and is significantly less expensive than solid wood.

They learned that they could substitute less expensive recycled aluminum for zinc, which had doubled in price over two years to $4,371 per ton. Recycled aluminum is now going into bathroom hooks and other products. When they turned to packaging, they cut freight costs by purging flat packs of “fresh air and wasted space.”

For one of IKEA’s most popular office swivel chairs, the Flintan, smaller armrests and less steel and plastic in the back cut manufacturing costs. The new Flintan is the same size as its predecessor, but it’s much more efficient to ship after designers tweaked its components to make them fit more snugly into a flat pack. IKEA can now squeeze 6,900 Flintans into one shipping container, up from 2,750.

Designers likewise reworked the Säbövik bed, by changing the construction of its wooden frame. It was previously made of two thin layers of wood glued together. IKEA settled on a less expensive and lighter combination of solid wood, plywood and a compressed structure of wood strands and glue. The Säbövik used to come flat-packed in 3 cardboard boxes, but now fits into just 2 more compact boxes, enabling the company to cram twice as many flat-packed beds into a shipping container.

Classroom discussion questions:

  1. What is IKEA’s competitive advantage? (See  Chapters 2 and 5 in your Heizer/Render/Munson text).
  2. Is there a downside in the product redesigns such as the ones noted above?

OM in the News: The Ongoing Supply Chain Squeeze

Across the world, manufacturers of everything from cupboards to cars or computers are still grappling with a logistics crunch that has disrupted supplies of essential inputs, threatening the post-pandemic economic rebound and boosting inflation, reports The Financial Times (Sept.7, 2021). 

The demand for computer chips is oustripping supply

Furniture, the latest sector to feel the supply chain pinch, encapsulates the broader problems. Even giant companies such as Ikea have been affected. The Swedish furniture maker has said it “cannot predict” when normal supplies will resume because of a “perfect storm of issues” that includes a shortage of truck drivers.

Transport is a “nightmare” where even “a screw or small component from Asia can take 3 months”, said one French furniture exec. “We had 16 containers being shipped to the US in June and July and they still hadn’t got through by August. Lead times to the U.S. have doubled.”

Transport costs have soared. Between China and Europe, fees are 7 times higher than last year. To work round that problem, Ikea said it was diverting some supplies on to trains. “We will use rail transport from China to Europe to free up container capacity that we can use to ship more to U.S.,” the company stated. In the U.S., meanwhile, lumber supplies usually transported by truck through the southern states have been disrupted by Hurricane Ida, which created havoc on the Gulf Coast.

Nearly half of EU rubber, machinery and computer producers, and most electrical equipment makers, report supply shortages. Almost 60% of carmakers remain affected. In Germany, where car production is 30% below pre-Covid levels, Volkswagen had planned to add extra shifts to clear an order backlog. But new Asian outbreaks of the Delta variant have shut ports and semiconductor manufacturing facilities there, stymying plans. It’s a common problem throughout the sector. VW believes computer chip supplies “will remain very volatile and strained” through the third quarter of this year. But one European economist believes full normalization will not happen until 2023.

The bottom line: uncertainty remains as to how the stability of global supply chains and the handling of the coronavirus pandemic will develop, especially in China, Europe and the U.S.

Classroom discussion questions:

  1. Why is there a shortage of computer chips, and what can be done? (See Supp. 7 of your Heizer/Render/Munson text, Capacity and Constraint Management)
  2. How can companies deal with shipping backlogs?

OM in the News: IKEA’s New Product Development and “Open Sourcing”

ikea“IKEA is making it easier for people to hack its furniture,” writes The Wall Street Journal (Jan. 30, 2017). The Swedish retailer plans a 2018 roll out of its first “open source” sofa—a piece of furniture designed to be easily customized to fit a space, or change functions entirely over time. It is called Delaktig, Swedish for “being part of something.” Delaktig’s design will allow third-party designers to create complementary products that can attach to the sofa or modify its use.

The move is a further embrace of a long inspired online community of “hackers” who share ideas for how to modify IKEA products. They have fashioned wall hangers from IKEA’s wooden bed slats, turned dressers into desks and raised IKEA beds using its kitchen cabinets and drawers.

IKEA didn’t encourage the tinkering, but nor did it actively discourage the trend. A niche industry has now grown up making everything from sofa covers to decorative table legs fitted just for IKEA’s particularly shaped furniture. Sweden-based Bemz AB, for instance, makes covers for IKEA sofas, footstools, headboards and armchairs. They can sell for more than the furniture itself. Prettypegs AB makes decorative furniture legs for IKEA beds, tables and stools.

IKEA said Delaktig was inspired by Apple, which helped create today’s app universe by allowing developers to create them for the iPhone. The company is also taking a page from the car industry, building a common, resilient platform upon which to create different models.

Classroom discussion questions:

  1. How would you describe IKEA’s product strategy (see Chapter 5)?
  2. What are the advantages and disadvantages of open sourcing?

OM in the News: It’s Ikea’s World

At Ikea’s distribution center in Älmhult, Sweden, pallets are stacked and retrieved through a fully automated process.
At Ikea’s distribution center in Älmhult, Sweden, pallets are stacked and retrieved through a fully automated process.

In a stunning global expansion, the Swedish home furnishings giant has been quietly planting its blue and yellow flag in places you’d never expect. “Pay attention, Wal-Mart:” writes Fortune (April 6, 2015),  “You could learn a few things.” Ikea, it seems, is a genius at selling Ikea—flat packing, transporting, and reassembling its quirky Swedish styling all across the planet. The furniture and furnishings brand is in more countries than Wal-Mart, Carrefour, and Toys “R” Us.

In an industry where the product is often passed down from generation to generation, Ikea has shaken up the paradigm. It kept its prices down with an obsessive focus on costs. It might skip an extra coating of lacquer on the underside of a table that people never see or use. The company has also stripped out as much labor as possible from the system, pushing tasks that were once done by traditional retailers onto the customer. Flat packed furniture made it easier for customers to take purchases with them, cutting out the expense of stocking and delivery. (Ikea figured out flat packing in 1956, when a designer took the legs off a Lövet table to get it in his trunk.) The magic of flat packing allows goods to be jammed into shipping containers without wasting any space. Wasted space means wasted money and is also environmentally unfriendly. “I hate air,” says Ikea’s head of packaging.

The firm’s success, in large part, is based on improving its product design. As much as it has doubled down on market research and logistics, Ikea has been relentless in its focus on design. Ikea comes up with some 2,000 new products every year. Products under development go through rapid prototyping in the pattern shop to provide a sense of what they will actually look like in the flesh. During Fortune’s visit, one of the four 3-D printers was outputting a toilet brush. If air is the enemy in shipping, it is the ally in design. “The more air in our products, the better,” says Ikea.

Classroom discussion questions:

1. What operations strategies are key to Ikea’s success?

2. How pleased are students who have had to assemble the products themselves?

Teaching Tip: Ethical Issues Facing Ikea and Darden

The Ethical Dilemmas in each chapter in our OM text are a popular teaching feature–perhaps driven by AACSB’s desire to integrate ethics into business courses. The Dilemmas range from Nike shoes made abroad by 10-year olds (Ch.1) to pigs locked in tiny stalls their whole lives (Ch.7) to selling ineffective ERP software (Ch.14). In these exercises, students are forced to address the unpleasant tradeoffs faced by operations managers every day. Here are two more current topics to consider.

The first involves Darden Restaurants’ (Olive Garden, Red Lobster, Longhorn brands) approach to Obamacare. Under the new health care law, companies with 50 or more workers could be hit with fines if they do not provide basic coverage for full-time workers and their dependents. Darden, which operates more than 2,000 restaurants in the U.S. and Canada, employs about 180,000 people. The Wall Street Journal (Sept.26,2012) reports that Darden is using the new health law to cut the hours of  full-time hourly workers to under 29.5 hours, thus redefining them as part-timers (while its CEO drew $11.5 million in compensation in 2011– equivalent to 585 workers’ salaries).

The second item for your class is the Swedish firm Ikea’s revelation that it manufactured furniture parts 25-30 years ago using forced prison laborers in the former East Germany. The Wall Street Journal (Nov.19,2012) writes: “Alexander Arnold, 51, claimed to have been forced to make office chair legs while detained in Naumburg during the early 1980s. He described how forced laborers who didn’t meet a stringent production quota were confined to a dark cellar. Those who refuse to work, he added, were bound by their feet and hands to a bed for days at a time.”  Ikea’s admission is expected to fuel demands by victims for compensation and a debate over which present-day Western companies may have also benefited from forced labor behind the Iron Curtain.

Discussion questions:

1. Ask your students to take positions justifying and opposed to Darden’s cost-saving measure.

2. What is Ikea’s responsibility at this point?