I recommended a few changes to IKEA’s logistics for greener practices. Scholars view packaging forms as a strategic choice that can be driven by customer orientation, technology or logistics orientation (Hellström, Nilsson, 2011 and Coles & Beharrell, 1990). A first part will present the implications of this improvement on the SC’s capability then its impact on the business.
This innovation profited the SC in many ways. Optimising packaging leads to efficiency, lower costs, facilitate handling and quality management as well as emit less carbon (Twede, 1992). It is efficient as it increases the maximal truck loads minimising air (Jonsson and Mathiasen, 2004). Due to a smaller volume of the furniture, a fuller truckload of flat-packaged and stackable goods can carry more than one of an assembled furniture, consequently using less transportation. As Rohter (2008) discusses, shipping costs have rose, and fuller loads are key to enhance a SC capability. The efficiency capability can also be found in that aspect of the SC. Inventories are more efficient as it is easier to find products and their storing requires little space – for the same items with a flat-packaging (Verghese & Lewis 2007)
ECR Europe (1997) claimed that a more efficient size and shape of pallets for fast-moving consumer goods in European grocery supply chains could cut logistics costs by the equivalent of 1.2 per cent of sales revenue. This type of savings is similar in IKEA’s case too.
IKEA has sold its flat-packaged products since 1950. The significance of the innovation has been the driver, facilitating handling for customers and workers, As IKEA incorporated the end-customer into the SC it needed to adapt to customers’ boot volume by selling ready-to-build and flat items. It decreases the chance of damaging furniture enhancing quality and lowering costs. This is aligned to the corporate mind-set, focused on customers (Jonsson and Mathiasen, 2004)
IKEA fits up to 18 bookshelves onto a forklift, as the bookshelves are stackable and secured. The same principle can be applied to trucks or cargos resulting in lower costs and less carbon footprint, aligning it with IKEA’s view of being a sustainable retailer and eliminates waste (Bowersox et al., 2002). Literature argues that innovation has costly research, thus, is often used for high-end products (Slack et al, 2010). However, developing capabilities to enhance a company’s competitive advantage is crucial in the long-run, making innovation necessary (Zhang, 2016). In the example of IKEA bringing customers in its SC, it lowered manufacturing and transportation costs, making the innovation a profitable one.
The capability of innovation that led IKEA to implement flat packaging has impact the whole organisation. IKEA eliminates the cost of assembling furniture as it is done after the sale by the customer. A more profitable SC enabled the retailer to keep high margins that are particularly useful when the environment changes. In fact, events such as Brexit are likely to lead to higher importation costs, hence, the importance of cutting other costs while keeping up with sustainability goals (the Guardian, 2018). The company does not trade its values for a lower cost. This packaging optimisation is relevant since e-commerce is a high-growth segment for the brand. This capability is mature as it has moved from being managed to now being on the optimisation stage where the focus is on process improvement (Zhang, 2017).
It is also essential to note that IKEA had to adapt to trends to provide more service to its customers. Flat-packaging is very beneficial to the company but prevents some clients from buying in shops. Consequently, IKEA developed its operational activities by offering delivery and a furniture-building service. This shows the SC capability of innovation.
Overall, IKEA’s SC capability of innovation has been demonstrated through the corporation’s ability to create flat-packaging inducing a modification in the whole SC. It fulfilled the company’s vision of being sustainable, lower waste and “To create a better everyday life for the many people” (IKEA.com, 2018).
The author will recommend some improvements that can be made to the SC to keep enhancing it and sustain the company’s competitive advantage.
Since IKEA’s SC is lean, the production is decided according to forecast. By assuming future sales patterns will resemble past ones, it can lead to unsold or out-of-stock products. Making the SC more agile, flexible to demand would lead to less waste, a core value of the business and higher profit. While it can be argued, this is costly and mostly used for high-price low volume products, in the case of IKEA’s standardised products, the cost of developing the capability of flexibility should be economically viable. IKEA’s lead time, time between the order and the delivery, is shorter than for most companies thanks to the standardisation of products. Postponement techniques have been beneficial to IKEA, a kitchen’s drawers can be manufactured and the design or paint added later according to sales’ patterns (Lee, 2004). Because much of the catalogue is standardised, enhancing the flexibility of the SC making it more agile would be relatively cheap. IKEA would be able to decrease their stock and re-order level making inventory control more accurate. Other companies as Zara, whom also sell high volume and low cost products have highly benefited from it, making it a strong competitive advantage in the market (Zhelyazkov, 2011). This can cause bottlenecks, thus, a balance is required when dealing with the production. This would allow the whole SC to be more responsive in case of unpredicted events such as natural disaster, technical issues. As operations are “responsible for fulfilling customer requests”, it is important the SC creates value by ensuring clients are not disappointed by an out-of-stock product (Slack et al, 2010).
IKEA SC capabilities defined as resources, coordination and learning endowed the capability of innovation, to sustain a competitive advantage over its competitors. This has been done in many way, including the one discussed above, using flat packaging. This process innovation improved every aspect of a packaging, protecting the product, enhancing efficiency and facilitating handling as well as being financially and environmentally beneficial. The innovation has benefited other aspects of the organisation such as aligning the company’s values to its actions and creating value. It has served the brand image and the innovative capability meant IKEA was able to adapt to changing clients’ expectations as developing e-commerce and enhancing service operations. Nevertheless, some improvements were recommended in IKEA’s SC. The author suggested adding flexibility to the SC using agile theory. Capabilities are intertwined, by enhancing the SC flexibility, all other capabilities will improve.
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