From Value Chain to Value Constellation

IKEA: The Wealth of Realising New Ideas

By now, the key elements of IKEA’s winning business formula are well-known: simple, high quality, Scandinavian design, global sourcing of components, knock-down furniture kits that customers transport and assemble themselves, huge suburban stores with plenty of parking and amenities like coffee shops, restaurants, even day-care facilities. A portion of what IKEA saves on low-cost components, efficient warehousing, and customer selling service it passes on to customers in the form of lower prices,   anywhere from 25% to 50% below those of its competitors.

But to focus on IKEA’s low costs and low prices is to miss the true significance of the supply chain’s business innovation. IKEA is able to keep costs and prices down because it has systematically redefined the roles, relationships, and organizational practices of the furniture business. The result is an integrated supply chain that invents value by matching the various capabilities of participants more efficiently and effectively than was ever the case in the past.

Customer Management

The company offers customers something more than just low prices. It offers a brand new division of labor that looks something like this; if customers agree to take on certain key tasks traditionally done by manufacturers and retailers — the assembly of products and their delivery to customers’ homes then IKEA promises to deliver well-designed products at substantially lower prices.

Every aspect of the IKEA business system is carefully designed to make it easy for customers to take on this new role. For example, IKEA prints more than 45 million catalogs every year in 10 different languages. Though each catalog features only 30% to 40% of the company’s roughly 10,000 products, every copy becomes a “script”, explaining the roles reach actor performs in the company’s business system.

So too with the company’s stores. Free strollers, supervised child care, and playgrounds are available for children, as well as wheelchairs for the disabled and elderly. There are cafés and restaurants so customers can get a quick bite to eat. The goal is to make IKEA not just a furniture store but a family outing destination.

At the front door, customers are supplied with catalogs, tape measures pens and note-paper to help customers make choices without the aid of salespeople. Products are grouped together to offer not just chairs and tables but designs for living. In addition, each item carries simple readable labels with the name and price of the product, the dimensions,  materials, and colors in which it is available,  instructions for care, and the location in the shop where it can be ordered and picked up. After payment, customers place their packages in carts to take them to their cars. If the package won’t fit, IKEA will even lend or sell at cost an automobile roof rack.

IKEA wants its customers to understand that their role is not to consume value but to create it. IKEA offers families more than co-produced furniture, it offers co-produced improvements in family living —   everything from interior design to safety information and equipment, insurance, and shopping as a  form of entertainment.

To call these services amenities is to underestimate their central significance to IKEA’s strategic intent: to understand how customers can create their own value and to create a business system that allows them to do it better. IKEA’s goal is not to relieve customers of doing certain tasks but to mobilize them to do easily certain things they have never done before. Put another way, IKEA invents value by enabling customers’ own value-creating activities. As one company brochure puts it, “Wealth is the ability to realize your ideas.”

To mobilize its customers to create value, IKEA must similarly mobilize its 1,800 suppliers, located in more than 50 countries around the world. In order to keep its side of the work-sharing bargain, IKEA must find suppliers that can offer both low costs and good quality. It takes enormous care to find and evaluate potential suppliers and to prepare them to play their role in the IKEA business system. Thirty buying offices around the world seek out candidates. Then designers in the centralized design office at IKEA’s operational headquarters in Älmhult, Sweden, who work two to three years ahead of the current product, decide which suppliers will provide which parts.

Assignment:

Study the attached business case*, and write a case study report addressing, but not limited to, the following 2 components:

1. Study the business case autonomously, and critically analyze the following:
   • Develop and articulate a general “conceptual model” for the supply chain, which best represents the case’s predominant supply chain strategy, supply chain structure, and/or supply chain operations if applicable to the case.
   • Rigorously explain, or argue if necessary, why the conceptual model is an appropriate representation of the supply chain management practices described in the case.
   • By selecting and reviewing some recent (within last 15 years) literature (journal articles preferably) on similar topics, provide adequate literature support on why such a conceptual model is the most convincing fit to the case in question.
2. From the supply chain’s strategy, process, and/or operations perspective if applicable:
   • Critically identify some most prominent supply chain management approaches presented or indicated in the case.
   • Rigorously analyze these supply chain management approaches with respect to the underlying theoretical basis, strategic fitness, and/or operational feasibility wherever applicable to the case.
   • By reviewing recent (within last 15 years) literature (journal articles preferably) on similar topics, further, evaluate the effectiveness and implication of these managerial approaches.

Requirement:

1. It is an essential requirement that the ASSIGNMENT must review and cite 6 or more journal articles in total wherever appropriate.
2. Citations and references are recommended to be in Harvard Style.