Distribution Ikea Presentation

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DistributionThe Secrets of Market Logistics

• IKEAs Sustainable Competitive Advantage

Section B- Group 1 Are Hofstad Edo Avraham Kelly
Pender Mark Amritanand Robert Weiming Li Stefan
Salzer
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IKEA Timeline
Ingvar Kamprad from Elmtaryd, Agunnaryd
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IKEA by Numbers
SwedWood Group produces ca. 10 of IKEAs
purchases Main task focus on areas where IKEA
has difficulty finding external suppliers, at a
good price and with guaranteed deliveries
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What is Market Logistics?
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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

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Market Logistics Planning

• Factors to consider
• On-time Delivery scheduling
• Careful Handling
• Damaged goods replacement policy
• Quick re-supply
• Suppliers willingness to meet emergency needs
• 2. Assess relative importance of customers needs
• 3. Evaluate competitors service standards
• 4. Set service standard and design logistics
  system vis-à-vis costs

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Market Logistics Planning

• A. Determine target market
• B. Plan Demand Chain
• Method Design supply chain backwards
• Considerations
• Decide companys value proposition to customers.
• Decide best channel design network strategy for
  reaching customers (use of intermediaries)
• Develop operational excellence in
• Sales forecasting
• Warehouse management
• Transportation management
• Materials management
• Implement solution using best information
  systems, equipment, policies, and procedures

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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

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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

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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 IKEAs distribution centers in flat-packaging
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Inventory Management

• Inventory management
• Order Management
• Daily orders from outlets
• IT solution ILS (Integrated Logistics System)
• Demand forecast

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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 Swedens 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

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IKEA Shopping Experience

• Location Citys 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

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The Do-It-Yourself Concept

• Pickup by customer
• Delivery home by customer
• Assembly done by customer
• Customization if possible is done by customer

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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

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Summary

• IKEAs 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

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And one more thing
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Market Logistics

• Questions?...