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April 19th , 2004 Group B1

Distribution:
The Secrets of Market Logistics
IKEA’s Sustainable Competitive Advantage

Section B- Group 1:
Are Hofstad
Edo Avraham
Kelly Pender
Mark Amritanand
Robert Weiming Li
Stefan Salzer

April 19th , 2004 Group B1


IKEA Timeline
Ingvar Kamprad from
Elmtaryd, Agunnaryd IKEA.com
introduced
2001
Designs own
Stockholm
furniture store opens;
Warehouse 1997
concept born
First
newspaper
advertisement Flat
packaging IKEA Rail
The first Testing opens
Selling
catalog
pens,
wallets, 1965
jewelry,
nylon
stockings
1958
1956
1955
1951
1945 Opens the first
IKEA store in
1943 Älmhult, Sweden

April 19th , 2004 Group B1


IKEA by Numbers

2003
Visitors to ou
SwedWood Group produces ca. 10% of IKEA’s purchases

Range of art
Main task: focus on areas where IKEA has difficulty finding external
suppliers, at a good price and with guaranteed deliveries

April 19th , 2004 Group B1


What is Market Logistics?
Value Network / Market Logistics Ecosystem
Governmental & Tax Agencies
Raw Material

Classical Supply Chain

Manufacturer

Consumer
Distributor
Supplier
Raw Material

Machines

Research Institutions

April 19th , 2004 Group B1


Market Logistics Objective
The right product,
at the right place,
at the right time,
at the least cost

• Market logistics can account for up to 30%-40% of


product total costs
• Lowering Market Logistics costs directly impacts profitability

April 19th , 2004 Group B1


Market Logistics Planning
1. Factors to consider:
– On-time Delivery scheduling
– Careful Handling
– Damaged goods replacement policy
– Quick re-supply
– Supplier’s willingness to meet emergency needs
2. Assess relative importance of customer’s
needs
3. Evaluate competitor’s service standards
4. Set service standard and design logistics
system vis-à-vis costs

April 19th , 2004 Group B1


Market Logistics Planning
A. Determine target market
B. Plan Demand Chain
Method: Design supply chain backwards
Considerations:
1. Decide company’s value proposition to customers.
2. Decide best channel design & network strategy for reaching
customers (use of intermediaries)
3. Develop operational excellence in:
1. Sales forecasting
2. Warehouse management
3. Transportation management
4. Materials management
4. Implement solution using best information systems,
equipment, policies, and procedures

April 19th , 2004 Group B1


Market Logistics Decisions
1. Order processing
Minimize order-to-payment cycle
2. Warehousing
Efficient supply to the stores
Could also include assembly, packaging, etc.
3. Inventory
Ensure customer service level
Minimize inventory-carrying costs
4. Transportation
Choose appropriate means of transportation

April 19th , 2004 Group B1


Market Logistics Cost Structure
Total Market Logistics system costs are:
Total freight cost
Total fixed warehouse cost
Total variable warehouse cost
Total cost of lost sales (due to avg. delivery delay)
Total market logistics system cost

April 19th , 2004 Group B1


Manufacturer to Distributor
IKEA designs its merchandise and outsources
manufacturing to its dedicated manufacturers

Concerns:
• Selection of manufacturer
• Inventory management
• Consider to self-manufacture goods

IKEA transports finished goods from


manufacturers to IKEA’s distribution
centers in flat-packaging

April 19th , 2004 Group B1


Inventory Management

Inventory management
• Order Management
Daily orders from outlets
• IT solution: ILS (Integrated Logistics
System)
• Demand forecast

April 19th , 2004 Group B1


From Distribution Center to Outlet
Delivery time to outlet is region-dependent
Transport to outlets (“Warehouse”) is done by:
• 60% truck
• 20% train
• 20% boat
• less than 1% by air
Franchise outlets (21 out of 207) are serviced from
Sweden’s distribution centers
After the introduction of IKEA Rail in 2001, IKEA aims
to increase rail transport to 40% by 2006
Source: Johan Sandberg, Logistics Manager, Norway

April 19th , 2004 Group B1


IKEA Shopping Experience
Location: City’s outskirts
Parking, Easy access (customers & goods)
Cheap rent, long operating hours
Requires special transportation
Design: Maze-like
Stationary and Shop-&-Carry
Sales force
Amenities Child-Care, Exit Bistro
Swedish flavors
Product names in Swedish
Swedish food, Sweden Shop
April 19th , 2004 Group B1
The Do-It-Yourself Concept
• Pickup by customer
• Delivery home by customer
• Assembly done by customer
• Customization if possible is done by customer

April 19th , 2004 Group B1


Outlet Alternatives
Catalogs purchase (by fax or phone)
• Benefits:
– Huge penetration
– Better product exposure before outlet arrival
– Used as coffee table reading
• Disadvantages:
– Low Purchase-per-catalog ratio
– Expensive – custom annual catalog in 45 editions
– Postage costs

Web Site purchase


• Benefits:
– Low cost
– Longer delivery time (better for IKEA)
– Margins on delivery
• Disadvantages:
– Greater ratio of replacement due to customer error

April 19th , 2004 Group B1


Summary
IKEA’s Competitive Advantages
• Efficient Market Logistics System
• Emphasis on design & distribution, less on
manufacturing
• Various means of ordering & transport
• Low markup, high volumes
• Flat-packaging
• Self-assembly

April 19th , 2004 Group B1


And one more thing…

April 19th , 2004 Group B1


Market Logistics

Questions?...

April 19th , 2004 Group B1