IKEA’s inventory management strategy

IKEA as the world’s largest home furnishing retailer has 298 stores in 37 countries. It ranks Number 41 on Forbes’ esteemed World’s Most Valuable Brands list, and took in 35.5 billion in sales in 2013. And this is among others based on its unique and efficient supply chain and inventory management. But what does this mean concretely?

The challenge:

  • Each store holds more than 9500 products in stock
  • The items shown at the IKEA catalog will be stocked for 1 year at a guaranteed price
  • More than 1,800 suppliers in 50 countries, 42 trading service offices to manage supplier relationships

The solution:

  • Sustainable long-term relationships with suppliers ensure quality and low costs
  • All different functions within IKEA work closely together to support the value proposition and guarantee efficiency
  • Products are designed especially for realization of efficient distribution, transportation and warehousing through fewer materials for furniture (–> lower weight –> less fuel and manpower) and efficient packaging (–> less space needed, more room to stock additional items for order fulfilment)
  • Combined retail and warehouse processes: Showroom floor to look and search for products and floor pallet location to obtain products (whereas the lower floors of shelves are for taking and the upper shelves which are impossible to reach for customers are used as reserve racks. Inventory is then let down to the lower slots at night to refill the upper shelves for customers)
  • Cost-per-touch inventory tactic (“the more hands touch the product, the more costs are associated with it”): Every time the product is shipped, moved, and loaded, it costs money. The fewer times someone moves or touches the item, the fewer costs are associated with it –> Customers retrieve furniture and take it home by themselves (IKEA doesn’t have to pay for that) and no staff is needed –> “touches” and money saved
  • In-store logistics personnel to handle inventory management through e.g. monitoring deliveries, checking delivery notices, sorting and separating goods –>  ensuring an efficient flow of goods within IKEA stores
  • Minimum / Maximum settings” as IKEA’s special inventory replenishment management process to minimize ordering too less or too much products:

Minimum settings: The min. amount of products available before reordering.
Maximum settings: The max. amount of a particular product to order at one time.       –> Based on Point of Sales data, inventory and shipping data sales forecasts for the next days possible –> basis for order

  • Separate High-Flow & Low-Flow Warehouse Facilities: automatic storage and retrieval systems in its high-flow warehouses (focused on the 20% of Stock keeping units (SKUs) that account for 80% of the volume) to minimize costs-per-touch. Manual processes in the low-flow facilities where products with lower demands are stocked.

IKEA’s stock management, order fulfillment and supply chain system is one of the basic points of its success. IKEA also sets trends to move away from traditional and out-dated supply chain management and to use creative and better-suited solutions instead to handle inventory. And they will keep improving their supply chain efficiency.

 

To get some impressions there is a nice video you can watch:

https://www.youtube.com/watch?v=11AehTPD-Vg

 

 

https://www.tradegecko.com/blog/ikeas-inventory-management-strategy-ikea

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s