IKEA: Supply Chain Management Case Study Analysis Assignment Answers

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CASE STUDY 1

Dell relies on a unique supply chain strategy that gathers large volumes of customer information through its direct sales model and share it with internal procurement and sales department as well as external suppliers. These close relationships allows dell to know what to supply on real time and also very quickly and precisely meet the demand, while maintaining low inventory. These relationships able to forecast accurately without filling a pipeline of finished goods.

To successfully forecast, Dell maintains a constant flow of data in two information loops .0ne between customers and the Dell sales team, and the other among sales, procurement and suppliers. This helps dell to know how well suppliers can support these forecast and also on other end, how dell sales team can effectively promote. Dell’s communication system provides a rich mix of current and historical information about supplier performance. In order to compete globally, Dell should look at efficiency and cost containment. Unlike certain companies who strictly focus on revenue increases; Dell has made use of emerging concept of outsourcing even at early stage while adding value to it through the advanced ICT. As companies seek to enhance their competitive positions in an increasingly global marketplace, they are discovering that they can cut costs and maintain quality by relying more on outside service providers for activities viewed as supplementary to their core business. Firms usually derive two main advantages by outsourcing; strategic flexibility and lower costs. Dell outsources because it enables Dell’s business model to be successful. Dell believed that their comparative advantage is in pricing, customization and rapid order fulfillment. They also realized that they can explore more advantages through supply chain management and logistics than focusing on manufacturing of components. It may be true that Dell does little more than final assembly of components into PC under such concept but the fact remains that it facilitated Dell to focus on the most critical factors in customer satisfaction and retention. Dell very correctly focused on core areas where they are good at while allowing their suppliers to do the rest in other areas of the process.

Outsourcing, in general has become one of the most important and popular strategies in an increasingly competitive marketplace. This concept has proven results for Dell considering their global success which is a prime result of development of and recommitment to the core competencies of the company. Dell was able to do this by delegating most of work to their suppliers who independently contributed their share in completing “Dell total product” for mutual benefits. Because Outsourcing allows companies to focus only on their most successful work and enjoy the benefits of allowing their outsourcing partners to do the same in whatever their core areas.

Dells, outsourcing relationships have been focused from cost savings to multidimensional partnerships that support the core business of client corporations. This type of outsourcing relationships has delivered lucrative results for Dell to engage in more and more outsourcing activities as partnerships. Therefore, Dell’s component providers are taking increasing responsibility in improving service standards. Dell is so big that the suppliers want to be associated with them badly thus they revisit their corporate strategy, information management, business investment, and internal quality initiatives to be on par with Dell’s needs.

Accordingly, in consideration of several advantages that Dell gains through purchasing most of the components from independent suppliers, it can be concluded that outsourcing allows Dell to focus on what it does best and leave their component suppliers to do the rest at their best for Dell.

ANSWER ALL THE QUESTIONS

• Explain what role procurement and sales plays in Dell unique Supply chain strategy?

• Comment how effectively different drivers of supply chain and internal procurement utilized by dell?

• Why does Dell purchase most of the components that go into its PC from independent suppliers, as opposed to making more itself? (Dell does little more than final assembly of components into PC)
• How Dell can eliminate redundancies and maximize the value of the procurement process today?

CASE STUDY 2

The IKEA Group, a Swedish company founded in 1943 with its headquarters in Denmark, is a multinational operator of a chain of stores for home furnishing and house-wares. It is the world’s largest furniture retailer, specializing in stylish but inexpensive Scandinavian designed furniture. The IKEA group owns over 2700 stores in 35 countries, with sales in 2007, £13,414.0 (million), and sales growth of 21.7%. It has 118,000 employees. It has been hugely successful since its origin in 1943 as a mail order catalogue featuring locally produced furniture.

Some of the key reasons for IKEA’s success include:

The IKEA brand is associated with simple, low cost, stylish products. The concept was furnishing products and house-wares that had wide appeal to a variety of markets and segments, both consumer and the business market exclusively. Both markets were looking for well styled, high quality furniture that reasonably priced and readily available.

Initially, IKEA did not customize its products to local markets, but kept to standardized products and operations worldwide. This standardized strategy of internationalizing minimized costs.

IKEA developed a model for the business, where it was able to keep costs low. From the customer point of view, they were able to buy low cost furniture, however they had to assemble and collect the flat-packed furniture from stores. IKEA to was able to reduce costs, as this costly part of the value chain was carried out by the customer.

IKEA had excellent international procurement. Thirty buying offices were created to source from over I ,400 suppliers worldwide, IKEA negotiated prices that were between 20-40% lower than competitors for comparable goods. IKEA was successful at i) identifying worldwide suppliers and ii) managing quality and iii) prices with suppliers, to keep margins low.

It had excellent supply chain management and utilized the latest IT infrastructure. Due to the sheer number of orders and components required by the company – IKEA developed an efficient system for ordering from suppliers, integrating them into products and delivering them to stores. This was achieved by a world network of 14 warehouses. Inventory was stored – and the IT system managed supply and demand to stores, keeping inventory costs low.

Anticipating the needs and wants of customers. IKEA was successful in product design and ensuring ranges were modern and of good quality.

Challenges and outlook for IKEA: Its expansion into the US market. It adopted an ethnocentric strategy for going international – where it had standardized products and standardized operations. This helped to keep costs low, but ignored the different tastes and preferences of the US market and the way they purchased furniture. IKEA had to change the model of operating, giving greater ownership to its US subsidiary, to become polycentric stores in the US had the ability to adapt furniture and customize to suit the local market. Costs increased as a result, but this localization approach was necessary for sales.

IKEA has looked towards emerging markets e.g. China for growth. Further adaptation to products has been necessary – including pricing strategy. Income levels of consumers is lower and stores needed to be located within the cities as car ownership is lower. IKEA has experienced greater competition from national brands.

Also checkout : IKEA Case Study Hep – Solutions & Analysis

ANSWER ALL THE QUESTIONS

1. Assume that you are a competitor of IKEA, discuss what all procurement strategies you adopt to beat the competition.
2. Discuss how the new procurement and purchase strategies will help you in business

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