What makes IKEA as successful as it is???
An enormous part of IKEA´s success is their inventory management strategy. Beginning with the order of raw materials, due to their in-house design department, IKEA controls the costs of the product and the needed material. By that, they can reduce the amount of different materials to a minimum and save costs due to order huge quantities on the one hand and on the other hand they cut transportation costs.
The next cost saving step is the packaging and in order that the stocking costs. Each IKEA has a warehouse, which the customer reaches directly after leaving the show-room area where all the items are displayed.
Those warehouses are another important factor for IKEA´s success. The customer takes a trolley and goes through the warehouse. Here he can purchase the items he has chosen before, those which are easy to lift and stored on floor pallets. For items which are stored in height or too heavy to move on its own, their are workers who can help. However there are less touches or movements per item than in a regular furniture delivery process. That kind of strategy is called “cost-per-touch”. That means the more people have to touch or move an items to reach its destination the more expensive it is.
Reordering management – minimum / maximum setting.
The reordering is done by the in-house logistic managers. These managers are working directly in the warehouse, not sitting somewhere else in an office. The idea is to order when the minimum amount of products on stock is reached and through that the maximum amount of products ordered at one time can be undertaken. The challenge is for sure ordering too less or too much. However the products are directly sold from the warehouse and the refillment takes place only after opening hours. At that point the coordination with the demand management (customer) is really important. The data for decision making in that process are picked from PoS data system and the warehouse management system (WMS).
In the warehouse IKEA divides high and low flow areas. The low flow area products are not in a as high demand as the high flow products. Therefore the level of automatization is less high. For the high flow items the level of automatization in storage and retrieval is higher. This strategy reduces again the cost per touch in stock management.
The sum of those strategy are part of IKEA´s success. The low operating costs, the high demand for their products and the continuous progress in supply chain management makes IKEA competitive against other furniture retailer.