The IKEA’s success

Five or six days ago, a friend of mine sent me a very interesting video which talks about Burger King, McDonalds, IKEA, etc. Though certainly the criticism is directed to the last one. At the end of this post, I’ll put the video, but firstly I would like to talk a bit about IKEA which has a successful career, although we have to assemble our purchase.

IKEA was founded in 1943, in Sweden. IKEA focused on offering a wide range of good quality, stylish, well-designed, and functional furniture at a low cost so that more people could afford it. IKEA kept cost reduction at the center of any decision making. It made efforts to improve its internal supply chain processes like packaging, warehousing, and transportation which contributed to its cost cutting objective.

IKEA’s supply chain management became the key factor for the success of the company. As a result IKEA managed its costs better than its competitors ans could offer products at 30% lower costs. Nowadays, we can say that IKEA is expanded around the world, by the year 1990, it had 89 stores in 21 countries, and it was operating 260 stores in 36 countries in 2008.

The Flat Pack

IKEA’s most differentiating factor is its flat packaging system which had significantly improved its operational efficacy. Assembled furniture is expensive to transport and store because you have to pay for a lot of air. By flat packing unassembled furniture and getting customers to pick their own products in store, IKEA drastically reduce its transportation and warehousing costs and can pass the savings to their customers (30% lower costs). Furthermore, this company doesn’t offer free home delivery as other furniture retailers do.

As IKEA was selling at very low costs, the competitors forced their suppliers to boycott IKEA. That led IKEA to design and engineer its furniture. The flat packing success started in 1955 when one of IKEA’s co-workers decided to remove the legs of a table so that he could fit in his car and minimize any damage in his transit. That idea allowed IKEA to test the flat packing in 1956, then it realized that flat packing could bring down the costs of transportation and storage drastically.

This happening also allowed minimizing the types of pallets used to store the products, so IKEA started focusing on designing functional furniture that could be disassembled and transported to its stores.

Now, I’d like to share with you the video mentioned above.

Another curious thing about IKEA are its stores, in particular their design. When you go to an IKEA store, they give you pencils and papers at the entrance to list down product details like item code and respective aisle number in the store’s warehouse. The store layout is designed in such way that customers have to pass through all of its products so that even a customer who enter with a planned shopping list would check out other products which he/she didn’t really want. Furthermore, customers have to pick the products displayed in the showroom in the form of disassembled flat packs. Customers are provided with flat trolleys for carrying their goods from the warehouse and in addition, there are some loading zones at the store’s exit where you could bring your vehicle and load the merchandise yourself, what a deal!