A Background of IKEA

IKEA has its foundations into the furniture business. It is the biggest furniture retailing

organization on the planet. The vital situating of IKEA is solid in the market. The offers of IKEA

are not the same as its opponents, yet in addition clear and straightforward. The center

suggestion of IKEA rotates around offering tasteful and refined goods at the most minimal of

costs with the goal that more individuals can profit by improved moderateness. IKEA is

established by Ingvar Kamprad. The organization began as a farmland that sold furnishings, yet

additionally pens and socks. Kamprad named the organization utilizing his initials and the initials

of his town and homestead (Ayrad, 2010). In 2013, the overall gain of IKEA was accounted for

at 3.3 billion, which denotes a development of 3.1% from 2012. IKEA has developed essentially

in the USA, Russia and China. The organization works in more than 42 nations with more than

345 stores. As per Drew and Smith (1995), the essential point of IKEA is to enter into littler

markets. IKEA has its starting points in Samaland, and its whole culture spins around the

corporate qualities. Since Samaland is situated in the South of Sweden, individuals found in the

territory are inventive and dedicated, yet in addition incredibly frugal. As per the Hofstede social

system, the way of life in Sweden denotes a collectivist society with low power separation.

Furthermore, there are low factors of manliness in the Swedish culture. IKEA is reckless with

community. At the end of the day, IKEA has the sort of qualities that is probably going to be

esteemed by any family-situated association that has a high respect for family esteems. IKEA is

somewhat exacting with its qualities. On the off chance that there is anyone among the

candidates who neglects to satisfy the estimations of the organization, they won't have the option

to clear the enlistment and determination process.

Purchasing managers and supply chain managers tend to find global sourcing as one of the most

tough strategic difficulties to ever encounter in their career. Corporations and enterprises wish to

achieve economies of scale by cutting down on the average costs. However, reduction of costs is

not an easy task to accomplish. Companies are increasingly pressurized to achieve lower costs by

cutting down on the average costs which have caused them to shift from domestic sourcing to

global sourcing. In other words, corporations, under certain conditions and circumstances, prefer

sourcing from suppliers based in low cost countries instead of sourcing from the local or

domestic suppliers.

Economic recession in the present world does not attest to the reversal of domestic sourcing to

global sourcing. In fact, there is a high likelihood that companies will be further pressurized to

switch to global sourcing. Unfortunately, many firms underestimate the benefits derived from

global sourcing and they continue to encounter challenges and difficulties in their way. The

process of global sourcing can be very complex particularly because the suppliers based in low

cost countries tend to charge prices that seldom translate into lower ownership costs (Steinle &

Schiele, 2008).

In contrast to global sourcing, local or domestic sourcing is the activity or process of procuring

goods manufactured within the home country. In other words, a company or corporation is likely

to contract for products and services that are manufactured or delivered within the borders of the

country in which the headquarters of the company or corporation are established. A heated

discussion “Buy American” attaches great significance to the process of domestic sourcing. In

fact, many major countries of the world have initiated protectionist debates in favor of domestic

sourcing.
 Methodology

The purpose of this study is exploratory; thus, the entire research has been designed following

the qualitative research methods (Johnston, Leach & Liu, 1999; Yin, 1994). However,

quantitative studies tend to be rather common given that the research is now more focused on the

development of sourcing mechanisms and management of the supply chain (Halldorsson &

Arlbjorn, 2005). This research focuses on a particular case study and is, in no way, general.

Therefore, the qualitative research methods have been applied. Within the field of supply chain

management and sourcing, there is a high need of case study research (Ellram, 1996).

The present case study of IKEA provides valuable insight into the historical, as well as the

present events that led to the development of supply chain process and global sourcing at IKEA.

IKEA mainly sources its products and sources from a global platform, instead of relying on

domestic suppliers. All the data presenting the procurement strategy and supply chain

management at IKEA have been collected throughout 2007 and 2010. The analysis of all the data

has been performed in overlap. Data collection and analysis performed in overlap is a considered

a common and normal practice to analyze the qualitative data.

Supply Chain Management at IKEA

The Supply Chain Management System received by IKEA works on a worldwide space. The

Global Supply Chain Management System of IKEA empowers re-appropriating and connecting

with the generation of its products on the seaward in a focal locale (Jonsson, et al., 2013).

Thusly, IKEA can procure the best of preferences. The without a moment to spare methodology

of global sourcing is surrendered by the IKEA who has now depended on a make to stock

inventory network. The framework that IKEA had before refreshing to the worldwide inventory

network set requests without anyone else's input. This is especially in light of the fact that the
whole framework depended on determining. Accordingly, the organization needed to confront a

few occurrences that brought about stock outs. Since there were stock outs, the development of

the items were up to speed in a Bull whip. At the point when a situation of Bull whip emerges,

there is a high shot that the stock that is requested may either be close to nothing or to an

extreme.

The present Supply Chain Management System of IKEA is structured especially with the goal

that the organization can have an outright authority over its plans, creation exercises,

warehousing and all other retailing exercises. Moreover, the current and refreshed Supple Chain

Management System of IKEA permits its retail locations to work as distribution centers or

storerooms simultaneously. As such, the clients are permitted to stroll into the retail locations

and shop items as per their own inclinations. When they have picked their products, they are

required to make installments at the leave tills of the retail location. The relationship that IKEA

imparts to its providers of crude materials is amazingly solid. IKEA has been in relationship with

its crude material providers for an extremely prolonged stretch of time now. Truth be told, these

providers have encountered development especially because of the momentous advancement of

the organization. The Flat Pack machines are utilized to pack the items made by IKEA. These

items are then taken to the circulation focuses, and afterward to the distribution centers. The

stockrooms are appended to the retail locations of the organization. The store network of the

organization additionally includes the interest of the clients who pick their merchandise from the

stockroom. Truth be told, IKEA additionally gives its clients the choice to collect the furniture

independent from anyone else. IKEA is additionally associated with the co-creation of its items,

with the assistance of its clients.

The PAX supply chain at IKEA outsourced most of its tempered glass from China back in 2009.

The situation, however, was rather different back in 2003 when production commenced and the

initial supplier relationship was developed. In that particular year, IKEA sourced tempered glass

from a domestic supplier (based in Sweden). IKEA then experienced major success by launching

new products in the market. The success forecasts of the company exceeded 100% for the first

couple of years. In this manner, IKEA was pressurized to increase its capacity and source

products from more suppliers. Within two years of IKEA’s immense success, the initial supplier

in Sweden was phased out. This was particularly because of the inability of a single supplier to

cater to the growing capacity needs of the corporation. In addition, the domestic supplier was

also reluctant to cut down on the prices of tempered glass.

At this point in time, IKEA took a major decision to source tempered glass globally. This

decision was made in 2005. IKEA then turned to China to source tempered glass and also

influenced its purchasing associate, Sapa Profiler, to do so. IKEA also assigned China to Sapa

Profiler to source products from, especially the tempered glass. IKEA has managed a team of

capable individuals who develop component suppliers and glass suppliers. These suppliers work

in close association with the suppliers at Sapa Profiler. Sapa Profiler manages all the

procurement strategies and activities of IKEA and sourcing tempered glass from China proved to

be a very successful decision. IKEA has significant knowledge of global sourcing and sourcing

markets that has led to its commendable development over the years, After China, IKEA turned

to Slovakia to source tempered glass. The experience of sourcing tempered glass from Slovakia

had been beneficial as IKEA turned more towards global sourcing. IKEA signed the production

contracts for PAX in 2008 with another supplier from China. The second supplier already had a
healthy relationship with IKEA that led towards the development of an assembly unit in

Slovakia.

Limitations of Research

The present case study of IKEA’s procurement strategy and supply chain management has

provided valuable insights on the development of a global supply network at the corporation.

Although the research reported here provides insights, it has also raised many important

questions. The history of global and domestic sourcing at IKEA has nor reported any critical

event or crises in the development of sourcing, it would be of immense benefit and interest to dig

deeper and investigate how the complexity of sourcing development at the corporation stirred

reactions amongst the executives. Torekull suggests that a significant component of the culture at

IKEA has emerged positive after undergoing crisis (1999).

If a thorough study of crisis and critical events hitting IKEA is undertaken, there is a high

likelihood that the exploration of reactive and proactive sourcing development will become a

possibility. Secondly, this study does not suggest how the supply network could manage

innovation. Innovation in supply chain networks is rather significant given that the company has

a made a huge move towards international sourcing. Besides, studying the innovation activities

in the supply chain network would provide insights on the changing dynamics of global

sourcing.

Conclusions and Suggestions

This research was conducted to study the development of global sourcing at IKEA. This paper

reviewed the background of IKEA touching a little on its culture. This was then followed by a

brief literature on global and domestic sourcing. Within the context of global and local sourcing,

the internationalization process of IKEA has also been discussed in great detail. The synthesis
further resulted in designing the study focusing on the development of global sourcing at IKEA

and supply chain management. The PAX supply chain at IKEA has made immense contribution

to a better comprehension of the process and development of global sourcing resembling a

linear-staged process.

This study also highlights how subsidiaries tend to coordinate, communicate and collaborate for

the development of global sourcing within a network on suppliers that is based on an

international platform. The process of global sourcing for IKEA has been discussed through

substantial literature on internalization (Bilkey & Tesar, 1977; Johanson & Vahlne, 1977).

Besides, there is a brief discussion on how the global and domestic markets overlap

(Balnkenburg, 1995). Sustaining the global sourcing process requires the suppliers to coordinate,

interact and communicate. This becomes possible through the strategic subsidiaries that are

found all across the globe in strategic positions and offer valuable knowledge regarding source

markets.