April 19 th, 2004Group B1

April 19 th, 2004Group B1 Distribution: The Secrets of Market Logistics IKEA’s Sustainable Competitive Advantage Section B- Group 1: Are Hofstad Edo Avraham Kelly Pender Mark Amritanand Robert Weiming Li Stefan Salzer

April 19 th, 2004Group B1 IKEA Timeline 1943 Selling pens, wallets, jewelry, nylon stocking s 1945 First newspaper advertisement 1951 The first catalog 1955 Designs own furniture 1956 Flat packaging Testing 1958 Opens the first IKEA store in Älmhult, Sweden 1965 Stockholm store opens; Warehouse concept born 1997 IKEA.com introduced IKEA.com introduced 2001 IKEA Rail opens IKEA Rail opens Ingvar Kamprad from Elmtaryd, Agunnaryd

April 19 th, 2004Group B1 IKEA by Numbers SwedWood Group produces ca. 10% of IKEA’s purchases Main task: focus on areas where IKEA has difficulty finding external suppliers, at a good price and with guaranteed deliveries

April 19 th, 2004Group B1 Value Network / Market Logistics Ecosystem Governmental & Tax Agencies Research Institutions Classical Supply Chain Supplier Manufacturer Distributor Consumer Raw Material Machines What is Market Logistics?

April 19 th, 2004Group B1 Market Logistics Objective The right product, at the right place, at the right time, at the least cost Market logistics can account for up to 30%-40% of product total costs Lowering Market Logistics costs directly impacts profitability

April 19 th, 2004Group B1 Market Logistics Planning 1.Factors to consider: –On-time Delivery scheduling –Careful Handling –Damaged goods replacement policy –Quick re-supply –Supplier’s willingness to meet emergency needs 2. Assess relative importance of customer’s needs 3. Evaluate competitor’s service standards 4. Set service standard and design logistics system vis-à-vis costs

April 19 th, 2004Group B1 Market Logistics Planning A. Determine target market B. Plan Demand Chain Method: Design supply chain backwards Considerations: 1.Decide company’s value proposition to customers. 2.Decide best channel design & network strategy for reaching customers (use of intermediaries) 3.Develop operational excellence in: 1.Sales forecasting 2.Warehouse management 3.Transportation management 4.Materials management 4.Implement solution using best information systems, equipment, policies, and procedures

April 19 th, 2004Group B1 Market Logistics Decisions 1. Order processing Minimize order-to-payment cycle 2. Warehousing Efficient supply to the stores Could also include assembly, packaging, etc. 3. Inventory Ensure customer service level Minimize inventory-carrying costs 4. Transportation Choose appropriate means of transportation

April 19 th, 2004Group B1 Market Logistics Cost Structure Total Market Logistics system costs are: Total freight cost Total fixed warehouse cost Total variable warehouse cost Total cost of lost sales (due to avg. delivery delay) Total market logistics system cost

April 19 th, 2004Group B1 Manufacturer to Distributor IKEA designs its merchandise and outsources manufacturing to its dedicated manufacturers Concerns: Selection of manufacturer Inventory management Consider to self-manufacture goods IKEA transports finished goods from manufacturers to IKEA’s distribution centers in flat-packaging

April 19 th, 2004Group B1 Inventory Management Inventory management Order Management Daily orders from outlets IT solution: ILS (Integrated Logistics System) Demand forecast

April 19 th, 2004Group B1 From Distribution Center to Outlet Delivery time to outlet is region-dependent Transport to outlets (“Warehouse”) is done by: 60% truck 20% train 20% boat less than 1% by air Franchise outlets (21 out of 207) are serviced from Sweden’s distribution centers After the introduction of IKEA Rail in 2001, IKEA aims to increase rail transport to 40% by 2006 Source: Johan Sandberg, Logistics Manager, Norway

April 19 th, 2004Group B1 IKEA Shopping Experience Location: C ity’s outskirts Parking, Easy access (customers & goods) Cheap rent, long operating hours Requires special transportation Design: Maze-like Stationary and Shop-&-Carry Sales force Amenities Child-Care, Exit Bistro Swedish flavors Product names in Swedish Swedish food, Sweden Shop

April 19 th, 2004Group B1 The Do-It-Yourself Concept Pickup by customer Delivery home by customer Assembly done by customer Customization if possible is done by customer

April 19 th, 2004Group B1 Outlet Alternatives Catalogs purchase (by fax or phone) Benefits: –Huge penetration –Better product exposure before outlet arrival –Used as coffee table reading Disadvantages: –Low Purchase-per-catalog ratio –Expensive – custom annual catalog in 45 editions –Postage costs Web Site purchase Benefits: –Low cost –Longer delivery time (better for IKEA) –Margins on delivery Disadvantages: –Greater ratio of replacement due to customer error

April 19 th, 2004Group B1 Summary IKEA’s Competitive Advantages Efficient Market Logistics System Emphasis on design & distribution, less on manufacturing Various means of ordering & transport Low markup, high volumes Flat-packaging Self-assembly

April 19 th, 2004Group B1 And one more thing…

April 19 th, 2004Group B1 Market Logistics Questions?...