Critiques-Wal-Mart IKEA

UNIVERSITAS INDONESIA
SUPPLY CHAIN MANAGEMENT PRACTICES

IN WAL-MART AND IKEA
KARYA AKHIR
Michelle
0906645432
FAKULTAS EKONOMI
KELAS KHUSUS INTERNASIONAL
MELBOURNE
MARET 2014
Supply chain ..., Michelle, FIB UI, 2014
UNIVERSITAS INDONESIA
SUPPLY CHAIN MANAGEMENT PRACTICES

IN WAL-MART AND IKEA
KARYA AKHIR
Diajukan sebagai salah satu syarat untuk memperoleh gelar

Sarjana Ekonomi
Michelle
0906645432
FAKULTAS EKONOMI
KELAS KHUSUS INTERNASIONAL
MELBOURNE
MARET 2014
Universitas Indonesia
HALAMAN PENGESAHAN
Karya ilmiah ini diajukan oleh:

Nama
: Michelle
NPM
: 0906645432
Program Studi
: Management
Fakultas
: Ekonomi
Jenis Karya
: Makalah Non Skripsi
Nama Mata Kuliah
: Supply Chain Management
Judul Karya Ilmiah
: Supply Chain Management Practices in Wal-Mart and

IKEA
Telah berhasil diselesaikan dan dianggap lulus dengan nilai 78 oleh dosen pembimbing
Vikram Bhakoo dari universitas partner, University of Melbourne. Hak cipta atas karya
ini tetap menjadi milik penulis, pembimbing dan University of Melbourne. Telah juga
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Ekonomi pada Program Studi Management Kelas Khusus Internasional Fakultas
Ekonomi Universitas Indonesia (KKI FEUI).
Kepala Program KKI FEUI,
Harryadin Mahardika Ph.D

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: 5 Maret 2014
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: Michelle
NPM
: 0906645432
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Tanggal
: 5 Maret 2014
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TUGAS AKHIR UNTUK KEPENTINGAN AKADEMIS
Sebagai sivitas akademik Universitas Indonesia, saya yang bertanda tangan di

bawah ini :
Nama
: Michelle
NPM
: 0906645432
Program Studi : Kelas Khusus Internasional

Departemen
: Management
Fakultas
: Ekonomi
Jenis Karya
: Makalah Non Skripsi
demi pengembangan ilmu pengetahuan, menyetujui untuk memberikan

kepada Universitas Indonesia Hak Bebas Royalti Nonekslusif (Non-exclusive
Royalty-Free Right) atas karya non ilmiah saya yang berjudul:
Supply Chain Management Practices in Wal-Mart and IKEA
beserta perangkat yang ada (jika diperlukan). Dengan Hak Bebas Royalti
Nonekslusif
ini
Universitas
Indonesia
berhak
menyimpan,
mengalihmedia/formatkan, mengelola dalam bentuk pangkalan data (database),
merawat, dan memublikasikan tugas akhir saya selama tetap mencantumkan nama
saya sebagai penulis/pencipta dan sebagai pemilik Hak Cipta.
Demikian pernyataan ini saya buat dengan sebenarnya.
Dibuat di
: Tangerang
Pada tanggal : 5 Maret 2014
Yang menyatakan,
(Michelle)
ABSTRAK
Nama
: Michelle
NPM
: 0906645432
(Universitas Indonesia)
NPM
: 550453
(University of Melbourne)
Program
: Kelas Khusus Internasional Fakultas Ekonomi, Universitas Indonesia

Faculty of Economics and Business, The University of Melbourne
Judul
: Supply Chain Management Practices in Wal-Mart and IKEA
Abstrak
Penelitian ini bertujuan untuk mendalami bagaimana proses supply chain management dijalankan
di Wal-Mart dan IKEA, sebagaimana keduanya dikenal karena praktik supply chain yang
dirancang dengan baik. Penelitian ini juga mengungkapkan tentang teknologi yang digunakan
Wal-Mart dan IKEA dalam praktik supply chain-nya, strategi pengadaan logistik, serta strategi
lingkungan dan Corporate Social Responsibility yang dimiliki keduanya. Wal-Mart menggunakan
sistem cross-docking untuk mencapai strategi Everyday Low Prices mereka, di mana IKEA
menggabungkan Vendor Managed Inventory dan Consignment Stock untuk mencapai efisiensi
tinggi dan skema cost-sharing.
Namun, kami menemukan beberapa masalah yang terjadi dalam usaha mereka untuk memperluas
perusahaan masing masing secara global, contohnya seperti masalah birokrasi dan masalah
perpajakan, serta masalah dengan supplier. Wal-Mart dan IKEA telah berhasil mengatasi beberapa
masalah tersebut melalui praktik - praktik supply chain dan strategi logistik yang inovatif dan
fleksibel.
Kata Kunci:
Cross-docking; IKEA; Supply Chain Management; VMI; Wal-Mart
vii
ABSTRACT
Name
: Michelle
NPM
: 0906645432
(Universitas Indonesia)
NPM
: 550453
(University of Melbourne)
Program
: Kelas Khusus Internasional Fakultas Ekonomi, Universitas Indonesia

Faculty of Economics and Business, The University of Melbourne
Title
: Supply Chain Management Practices in Wal-Mart and IKEA
Abstract
The purpose of this study is to identify how the supply chain management practices performed in
Wal-Mart and IKEA, as both of them is known for their well-designed supply chain practices. It
also reveals Wal-Mart and IKEAs usage in technology, their procurement strategy, as well as their
environmental strategy and Corporate Social Responsibility. Wal-Mart emphasizes on their crossdocking technology to achieve their Everyday Low Prices strategy, meanwhile IKEA combines
Vendor Managed Inventory and Consignment Stock to attain higher efficiency and cost sharing
scheme.
However, we found several problems occurred in their attempt to expand globally, such as
bureaucracy and taxation problem, as well as problems with the suppliers. It is revealed that they
have managed to overcome these challenges through innovative and flexible supply chain
management practices and logistic strategies.
Keyword:
Cross-docking; IKEA; Supply Chain Management; VMI; Wal-Mart
ix
DAFTAR ISI
Halaman Judul...i
Halaman Pengesahan..iii
Halaman Pernyataan Orisinalitasiv
Halaman Pernyataan Persetujuan Publikasi.v
Abstrak...vii
Daftar Isi..xi
Daftar Gambarxii
1.
Executive Summary.1
2.
Introduction......2
3.
Analysis....3
3.1.
Supply Chain Management at Wal-Mart......3
3.1.1.
Network Configuration and Strategic Partnering.........3
3.1.2.
Procurement and Outsourcing Decisions..,......5
3.1.3.
Technology Application...........7
3.1.3.1.
RFID.....7
3.1.3.2.
EDIINT AS2.........7
3.1.4.
3.2.
Environmental Strategy for Sustainability.......8

Supply Chain Management at IKEA..10
3.2.1.
The Supply Chain Strategy.10
3.2.2.
Integration and Strategic Partnering...11
3.2.3.
Sourcing, Procurement, and Inventory Decisions..14
3.2.4.
Logistics.17
3.2.5.
Information Technology and Decision-Support Systems..18
3.2.6.
Green Strategy and Corporate Social Responsibility.19
4.
Wal-Mart and IKEA Supply Chain Decisions: Critiques and Solutions20

4.1.
Wal-Mart: Conquering the Chinese Market...20
4.2.
Criticising IKEA: from the Suppliers Perspectives..21
5.
Conclusion..22
6.
References..25
xi
DAFTAR GAMBAR
Figure 1. IKEA and its industrial network ......................................................... .10

Figure 2. Illustration in the IKEA-Sapa sourcing process. ................................. .13
Figure 3. IKEAs Ladder Model for Supplier Interactions and IT/Logistics15
xii
1.
Executive Summary
This document is made to assess the supply chain management process in
Wal-Mart and IKEA. It includes the analysis of Wal-Marts and IKEAs Supply
Chain Practices, Supply Network Configuration, Strategic Alliance with Trading
Partners, Procurement and Outsourcing Strategies, Green and Corporate
Responsibility Strategy, as well as the Technology Application in order to
improve Wal-Marts and IKEAs supply chain management. It will also provide
the Critiques towards both companies supply chain decisions.
In this document, it could be found that in order to actualize Wal-Marts

Everyday Low Prices policy, the company implements highly-automated
distribution centres and cross-docking technology, which reduces Wal-Marts
operating costs to further benefits the customers with low-priced products. WalMart also adopts direct sourcing in order to find the lowest price offered by
suppliers, to further benefit the customers in the form of lower-priced products.
Moreover, Wal-Mart applies the Continuous Replenishment Strategy in order to
cut out-of-stock rate and operating costs, as well as to obtain a high level of
customer satisfaction.
This document also analyses how IKEA is able to provide consumers with
low-price, adequate designs, and functional home furnishings. The cost reduction
is gained from IKEAs extensive network of suppliers and the companys
outsourcing decisions. To manage inventory, IKEA combines Vendor Managed
Inventory and Consignment Stock which provides IKEA with higher efficiency
and cost sharing scheme. Furthermore, this document also explains IKEAs
unique logistics and technology application to ensure supply chain accuracy.
1
2.
Introduction
IKEA and Wal-Mart are two retail giants with their own principles and
business ideals. Both companies were established in two different, competing

continents. IKEA, a Scandinavian retail heritage from Sweden, was first
established in 1943 by a 17 year-old, Swedish teenager, Ingvar Kamprad. The
company started to take shape in 1980s as it expanded dramatically to
international market. IKEAs vision is to offer people with wide range and well
design, functional home furniture at low prices, making them affordable to many
people (IKEA, n.d.). On the other hand, Wal-Mart, an American retail giant, was
established 19 years later, in 1962, by a 44 year-old, middle-aged Arkansas man,
Sam Walton. The Wal-Mart concept has been unchanged since its first
establishment, lowest price anytime, anywhere. Wal-Mart vision, compare to
IKEA, is to help people to save money and live better (Wal-Mart, n.d.).
Nowadays, the companies have expanded to regions of the world,

connected to thousands of suppliers and production sites in various countries. In
accordance to that, their expansions rely on the supply chain managements.
Supply chain management incorporates the companys activities from the strategic
level to the operational level, through the tactical level; and initially aims to be
efficient and cost-effective across systems through proper integration of suppliers,
manufacturers, warehouses, and stores (Simchi-Levi, Simchi-Levi, & Kaminsky,
2008).
This paper will evaluate the design of the Supply Chain for Wal-Mart and
IKEA, in regards to industry network, inventory management, and outsourcing
decisions. This paper will also evaluate both companies are able to reach their
current and potential customers all over the world through the supply chains given
the risks and challenges. In addition, this paper will compare the sustainability
strategies adapt by the two companies.
2
3.
Analysis
3.1. Supply Chain Management at Wal-Mart

In general, supply chain management in Wal-Mart focuses on
implementing an Everyday Low Prices (EDLP) policy, which means that the
products were displayed at a steady price and not discounted on a regular basis
(Johnson, 2006). In order to actualize EDLP, Wal-Mart focuses on procurement
strategy of finding the lowest price offered by vendors, as well as its logistic
network, aiming to cut transportation costs and lead-time; thus, results in reduced
out-of-stock rate and continuous replenishment.
3.1.1.
Network Configuration and Strategic Partnering
Wal-Mart is known for its fast and responsive logistic system. Companys
highly-automated distribution centres, which operate 24-hours a day and are
serviced by private companys truck fleets, are the foundation of Wal-Marts
supply network (Alyea, 2012). Each distribution centre supports approximately 75
to 100 retail stores within a 250-mile area. Thus, the fleet trucks do not have to
travel so far to retail stores to make deliveries (shorter distance), which lead to a
decrease in transportation cost, lead time, and safety stock required. If a shortage
occurred, replenishment can be made quickly as retail stores receive daily
deliveries from distribution centres (Alyea, 2012).
According to Supply Chain Digest (as cited in Alyea, 2012), the trucks are
used to pick up goods directly from manufacturers warehouses, which eliminates
intermediaries and increases responsiveness. However, the use of trucks increases
transportation costs, but is justified in terms of reducing inventory costs. WalMart is also known as a pioneer to adopt cross-docking technology, where the
products are routed from suppliers to Wal-Marts warehouses and then shipped to
3
the stores without sitting for long periods of time in their inventory, which reduces
Wal-Marts costs significantly and passed the savings on to the customers with
highly competitive pricing (University of San Fransisco, n.d). Therefore, WalMart also has store-specific orders packed and shipped directly to the stores by
manufacturer.
Strategic supplier alliances aim to build long-term, cooperative

relationships to improve strategic and operational capabilities that provide
ongoing benefits for participating companies. Strategic alliances can be formed
under joint research and development, joint marketing, long-term sourcing
agreement, equity investments, and non-subsidiary joint ventures (Monczka,
Petersen, Handfield, & Ragatz, 1998). One form of strategic alliances applied in
Wal-Mart is Retailer-Supplier Partnerships (Simchi-Levi, Simchi-Levi, &
Kaminsky, 2008). Retailer-Supplier Partnerships are implemented in order to
increase product flow efficiency, to further increase Wal-Marts profitability.
One form of Retailer-Supplier Partnerships is Continuous Replenishment

Strategy, which refers to a program that triggers the manufacturing and movement
of product through supply chain management when the identical product is
purchased by end user (Al-Balushi, 2009). In order to achieve continuity in
replenishment, Wal-Mart implements Quick Response Strategy, a partnership
strategy where suppliers and retailers work together to respond more rapidly to the
consumer by sharing point-of-sale scan data, enabling both to forecast
replenishment needs, in order to reduce retail out-of-stocks, forced markdowns,
and operating expenses (Al-Balushi, 2009). Through Retail Link, Wal-Mart shares
its sales and inventory data of suppliers goods in retail stores with each supplier
in order to improve suppliers forecasting (3.1.3.). In exchange for providing
suppliers the access for the data from Retail Link, Wal-Mart expected suppliers to
monitor and replenish the products on a continual basis (Johnson, 2006), so that
the suppliers will react quickly when out-of-stock is indicated in each store.
Therefore, Wal-Marts out-of-stock rate and operating expenses will be decreased.
4
3.1.2.
Procurement and Outsourcing Decisions
In order to identify with the companys decisions to outsource, it is crucial

to determine the factors that encourage trade of intermediate goods (Bartkus &
Jurevicius, 2007). It is essential to examine the interactions between the costs of
transportation and the costs of services (Bartkus & Jurevicius, 2007). However,
economists tend to ignore the trade barriers to make the models simpler and easier
to be elaborated. This propensity would result in the elimination of important
features of international trade that involves the costs of production, transportation,
and services (Bartkus & Jurevicius, 2007).
By choosing the suitable procurement strategy, Wal-Mart could reduce its

cost by 1% of revenue, which will affect the net profit of the company directly
(Chandran & Gupta, 2003). Wal-Mart sources goods directly from manufacturers
(Chandran & Gupta, 2003). The purchase decision is made based on price
comparison between vendors. The vendor that can offer the lowest price will be
chosen by Wal-Mart, and if Wal-Mart is satisfied with the services, the company
will consider a long-term relationship with the vendor. Relationship between WalMart and suppliers play crucial in building strategic networks, as a strong
relationship between suppliers and client will constitute benefits such as
minimizing supplier-related risks, reducing costs, as well as maximizing
customers satisfaction (Black, n.d.).
Although Wal-Marts procurement strategy is to purchase directly from

manufacturers, the company still relies on intermediaries for most of its bulk of
global sourcing (Supply Chain Digest, 2010). To solve this problem, Wal-Mart
needs to move on to more direct procurement by implementing centralisation of
its sourcing operations through the direct sourcing model. Direct sourcing is a
structure where the firm directly chooses and administers the suppliers under the
conventional relationship-based sourcing practices (Belavina & Girotra, 2010). As
a start, Wal-Mart established four global merchandising centres for general goods
and clothing, including an office in Mexico focused on emerging markets. In
5
addition, Wal-Mart acquired ASDA in 1999, the grocery chain in the UK, and has
been in operation ever since. ASDAs expertise in direct sourcing helps Wal-Mart
to reduce cost of purchasing goods, as well as to improve the companys supply
chain efficiency (Supply Chain Digest, 2010).
6
3.1.3.
Technology Application
Wal-Marts investment in technology has helped the company to establish

a more efficient supply chain management. Retail Link serves as the first database
that provides data on every sale made at the company in two-decade period. Retail
Link gives suppliers access to real-time sales data on the products they supply,
down to stock-keeping in each store levels (Johnson, 2006).
3.1.3.1.
RFID
In late 2004, Wal-Mart started the RFID Mandate (Radio Frequency

Identification) to enable inventory tracking in order to increase in-stock rates at
store level and reduce tracking-cost. RFID tag readers are placed in parts of the
stores such as on the receiving docks and on the doors, from stockroom to sales
floor. RFID tags are proven to be efficient, as Wal-Mart stores with RFID have
shown an improvement of 16% fewer out-of-stocks on RFID tagged products that
were tested (Johnson, 2006).
3.1.3.2.
EDIINT AS2
Recently, Wal-Mart improves its technology by investing in EDI over the

Internet (EDIINT), an improved working group of Internet Engineering Task
Force (IETF) enabling the transport of EDI and XML data over the Internet in a
secure manner. It also enables Wal-Mart and the counterparty to exchange
documents in a real time environment, while the traditional EDI provides a batch
driven process that creates a wait-time between submitting and receiving a
submitted document (Effective Data, n.d.). Thus, by enabling an integrated supply
chain, it will reduce Wal-Marts inventory costs (IBM Software Group, n.d.).
7
3.1.4.
Environmental Strategy for Sustainability
On October 24, 2005, the president and CEO of Wal-Mart launched the
sustainability program, consists of three main goals: for Wal-Mart to be supplied
by 100% renewable energy, create zero waste, and sell products that sustain
people and the environment (Wal-Mart, 2012). In addition, Wal-Mart has
developed several strategies to actualize an improved environment, such as
Sustainable 360, a strategy developed to engage suppliers, associates, and
customers in their efforts to develop a better environment, and Sustainable Value
Networks (SVNs), utilized to help integrate sustainable practices into all parts of
the business, implemented to all levels of organization inside and outside WalMart, including leaders of the company, suppliers, academia, government, and
NGOs (Wal-Mart, 2012). For instance, as an implementation of SVNs, Wal-Mart
tries to reduce its greenhouse gas (GHG) emission and they are working with
suppliers to do the same.
Wal-Mart generates power naturally by producing renewable energy using

solar and fuel cell installations, and purchasing green energy to power the stores
(Wal-Mart, 2012). Wal-Mart also uses LED freezer case lightings in stores and
secondary loop refrigeration, as it reduces energy consumption by 70% and GHG
emissions by 95%.
To create zero waste, Wal-Mart focuses on recycling cardboard, paper,

aluminium, plastics, etc.; donating food to food banks around the country; and
creating animal feed, energy, or compost from expired food and other organic
products (Wal-Mart, 2012). For electronic waste, Wal-Mart encourages customers
to join recycling programs with its alliances for its customers convenient (WalMart, 2012). Wal-Mart also uses slimmer packaging to cut unnecessary waste and
saving customers money.
8
Lastly, Wal-Mart maintains its sustainability by developing a standard for

products, including agriculture and seafood products (Wal-Mart, 2012). In
addition to the standards made, Wal-Mart supports Fair Trade program through
Private Label Coffee and Sustainable Palm Oil (Wal-Mart, 2012).
9
3.2. Supply Chain Management at IKEA

3.2.1.
The Supply Chain Strategy
Supply chain principles at IKEA remain the same as it was in 1960s

regardless the complexity of the networks (Baraldi, 2008). IKEA aims to design
and purchase products that involve low production and transportation costs
through upholding long-term relationships with the designated suppliers as their
peripheral sources of offerings (Baraldi, 2008). In addition, IKEA is considered as
an innovative and unique firm by the industry selectors (Hultman, Johnsen,
Johnsen, & Hertz, 2012); therefore, both IKEAs focus on low-cost-butreasonable quality products and the perceived brand image have encouraged the
company to put higher emphasis on the constant product and technical
development that rely heavily on the internationalisation and the supply chain
network (Baraldi, 2008; Hultman et al, 2012).
Figure 1. IKEA and its industrial network. Reprinted from Strategy in Industrial Networks:
Experiences from IKEA, by E. Baraldi, 2008, California Management Review, 50(4), p. 100. Copyright
2008 by University of California Berkeley. Reprinted with permission.
10
3.2.2.
Integration and Strategic Partnering
The concept of supply chain network structure involves levels of suppliers,

in which they interact in order to reach their consumers immediate and/or
secondary to deliver the products (Lusch, Vargo, & Tanniru, 2010). Planning the
supply chain network is believed to help firms to find the balance between
inventory, transportation, and manufacturing costs (Simchi-Levi et al, 2008).
Network planning also benefits firms to maximise the utility of their resources by
sourcing products from the manufacturing facility that may increases the
effectiveness of the firms supply chain activities (Simchi-Levi et al, 2008).
IKEA adapts mostly the direct sourcing model as its supply chain structure
(Belavina & Girotra, 2010). The IKEA industry network contained 550 business
units specialising in different fields and spread over more than 50 countries
(Baraldi, 2008). The organisation has 1,300 direct suppliers and 10,000 subsuppliers, spread over 60 countries (see figure 1). The stores are spread over 30
countries, including China and Australia. IKEAs wholesale and logistic
operations are controlled by 26 distribution centres that are located in 12
countries, linked by hundreds of logistic partners that administer the transportation
facilities (Baraldi, 2008).
IKEA applies a long-term approach and aims to build sustainable

relationships based on mutuality with its suppliers (Balardi, 2008; Hultman,
Johnsen, Johnsen, & Hertz, 2012). In accordance to the direct sourcing model as
explained by Belavina and Girota in 2010 (see section 3.1.2.), IKEA manages its
interactions centralised all the way to raw material suppliers (see figure 1), by
intensively collaborates with these suppliers to guarantee the quality and to fulfil
IKEAs promises on sustainability (Baraldi, 2008). IKEA relies on comprehensive
task delegations to its suppliers, and this decision has brought mutual trust and
commitment into more crucial roles in the interaction mechanisms (Baraldi,
2008).
11
In determining its network, IKEA considers factors such as geographic

point as an important aspect as it determines total cost, quality and environment
requirements, production capacity, and technical competence; as well as the
potential suppliers readiness to invest with and for IKEA (Baraldi, 2008). The
mutual trust between IKEA and suppliers has created powerful yet dependent
relationships (Baraldi, 2008; Hultman et al, 2012). In addition, suppliers control
over information on technical development and/or volume of products requires
IKEA to depend on them in order to plan strategic decisions (Baraldi, 2008).
One of the advantages that IKEA may gain from building long term
relationships involves the reduction of biased opportunistic behaviour due to
profit-relevant non-contractible actions of sourcing partners, such as capacity and
inventory level (Belavina & Girotra, 2010). Many studies have shown that
building long term relationships can resolve the traditional relegation losses
(Belavina & Girotra, 2010). An example of the mutually beneficial relationship
between IKEA and its suppliers is shown by Hultman et al (2012) in their research
on the production process of PAX wardrobe system.
The sliding doors for the PAX wardrobe system are built of aluminium
profiles and other accessories that are sourced by Sapa, one of IKEA suppliers.
Hultman et al (2012) stated that the PAX wardrobe project was the largest single
contract in Sapas history and the contract has opened a new business and
introduced Sapa with a different way of doing business. Sapa leveraged IKEAs
knowledge to establish relationships with other suppliers (Figure 2), and
according to Hultman et al (2012), Sapa stated that IKEAs supports played as an
important bridging role.
12
Figure 2. Illustration in the IKEA-Sapa sourcing process. Adapted from "An Interaction Approach to
Global Sourcing" by J.Hultman, T. Johnsen, R. Johnsen, & S. Hertz, 2011, Journal of Purchasing &
Supply Management, 18(1), p. 18. Copyright 2011 by Elsevier Ltd. Adapted with permission
Sapa incorporated and coordinated the global supply based on IKEAs

behalf which both parties were made mutually dependent (Hultman et al, 2012).
The study by Hultman et al (2012) has shown that the relationships among the
players, both focal relationship the relationships between IKEA and Sapa and
the relationships between IKEA and the supply network affect the global sourcing
process. In addition, according to Hultman et al (2012), the interactions among
players in a supply network may result in internationalisation. In the case of PAX
wardrobe system, the relationship with IKEA had speed up Sapas growth in
volumes significantly from the exploitation of IKEAs knowledge on sourcing
market based on IKEAs experience and presence in China, in exchange of
knowledge on products and materials (Hultman et al, 2012).
13
3.2.3.
Sourcing, Procurement, and Inventory Decisions
IKEAs internationalisation was first driven by the conflict between the

company and Swedish furniture industry, where IKEAs cost-reduction strategy
was not facilitated by the industry (Hultman et al, 2012). Jonsson and Foss (2011)
mentioned in their study that the internationalisation process at IKEA was initially
highly explorative and based on trial and error mechanism. IKEA, through
international expansions, aims to fuse standardisation with local adaptation
(Jonsson & Foss, 2011). Internationalisation is theoretically based on the
interaction between networks of internationalising firm and the external players,
such as the suppliers that may provide sourcing for the firm (Hultman et al, 2012).
To outsource, IKEA perceives geography location as one of the crucial

factors as it heavily affects costs, competences, and delivery times (Baraldi,
2008). The production of PAX wardrobe system provides an example of IKEA
outsourcing decisions. The sourcing decision for PAX was done by Sapa as the
supplier, but greatly influenced by IKEA (Hultman et al, 2012). In the production
process, there were three assembly units, Sweden, Slovakia, and China. The
sourcing was obtained from the three countries, supported with local backup
suppliers except Slovakia, as it obtained the supports from supplier in Sweden
(Hultman et al, 2012). Other components of PAX were also sourced from different
places such as the sliding profiles from Germany, rubber components from
Sweden, bristle seals from China, and the assembly fittings from Slovakia
(Hultman et al, 2012). This decision to apply the on-site assembly model in the
sourcing countries aimed to optimise the production process and to eliminate
ineffective time used to transport the materials from various places to a single,
large assembling unit, as well as reduce the transportation cost (Li, Guo,
Skibniewski, & Skitmore, 2008; Hultman et al, 2012).
14
In terms of inventory management, the approach that IKEA uses to unify

information is the top-down approach where the forecasting is done at the highest
level across continents and eventually move down to countries forecasts
(Scheraga, 2005). IKEA adopts the Vendor-Managed Inventory combined with
Consignment Stock (CS), or known as the Ladder Model (Baraldi, 2008). VendorManaged Inventory (VMI) places the inventory decisions to suppliers (Baraldi,
2008), including placing orders on behalf of the buyer (in this case, IKEA). The
Consignment Stock, on the other hand, requires buyer to decide the order quantity
and shipment frequency (Ben-Daya, Hassini, Hariga, & Al-Durgam, 2013).
The Ladder Model is composed of three stages: the Call-Off stage, OrderPoint Distribution Centre, and Vendor-Managed Inventory (see figure 3).
Figure 3. IKEAs Ladder Model for Supplier Interactions and IT/Logistics Capabilities. Reprinted
from Strategy in Industrial Networks: Experiences from IKEA, by E. Baraldi, 2008, California
Management Review, 50(4), p. 109. Copyright 2008 by University of California Berkeley. Reprinted
with permission.
15
The Call-Off stage basically the CS stage where IKEA releases orders
every fourth week and decides that suppliers must deliver within the next 4 weeks.
The next stage is the Order-Point Distribution Centre (OPDC), where IKEA
orders daily and requires suppliers to deliver within the next 12 days. The OPDC
often delegates a team that handles only IKEAs orders due to the extensive
product requirements. The next stage, the VMI stage is where only a handful of
suppliers (1%) decide IKEAs order quantity and when to deliver. In the
combination of VMI and CS, both ordering and holding costs are shared between
suppliers and buyers, making the combination of two more cost-effective and
better coordinated (Ben-Daya et al, 2013).
16
3.2.4.
Logistics
IKEAs attempt to reduce logistics cost is through Design for Logistic

(DFL) model (Li, Guo, Skibniewski, & Skitmore, 2008). The DFL principle
considers not only the function and manufacturability, but also the convenience of
packaging, transporting, and assembling the product (Mather, 1992). To further
reduce costs, IKEA also implements the customer self-service through the do-ityourself assembling system. In addition, IKEA also implements the system inside
the stores, allowing customers to locate and transport the purchased furniture (Li,
Guo, Skibniewski, & Skitmore, 2008). However, IKEA does not leave the
customers alone. To support the self-service system, IKEA provides 3D assembly
instructions set, and also include the product name, price, size, composition, and
possible usage and alternative decorating idea (Li, Guo, Skibniewski, & Skitmore,
2008).
To further support the supply chain efficiency, IKEA uses an innovative

unit load carrier in a form of a loading ledge. The loading ledges allow various
size and design, compare to traditional unit load carriers where the dimensions are
fixed so that products and packaging are design and made accordingly (Hellstorm
& Nilsson, 2011). Using this loading ledge, the cube utilisation of transport units
may be increased as well as allowing the unit load dimensions to be adjusted to
the products to eliminate empty spaces, thus increases the space utilisation
(Hellstorm & Nilsson, 2011).
17
3.2.5.
Information Technology and Decision-Support

Systems
The information technology at IKEA is mostly revolves around to support

supply chain accuracy. The attempt to improve accuracy through IT is done by
IKEA in the application of track-and-trace solution (Chartered Institute of Logistic
and Transport UK, 2008). The need arose when IKEA identified tracing system to
increase stock visibility from the time products leave the Central Distribution
Centre (CDC). IKEA installed mobile computer in the delivery trucks, connected
to the IKEA Home Delivery Management System. This will enhance
communication between the drivers, customers, and the Home Delivery
Management.
In addition, IKEA installed the in-truck printers to print customers receipt

as well as helping drivers to label damaged and returned goods with warehouse
barcode, to help speeding up the return process when the truck returns to the
warehouse. This system, according to Central Institute of Logistic and Transport
UK (2008), has helped to create audit trail of every item loaded on to a truck and
ensuring the correct deliveries. Moreover, the system has reduced the cost of call
centres and after-sales administrations (Chartered Institute of Logistic and
Transport UK, 2008).
18
3.2.6.
Green
Strategy
and
Corporate
Social
Responsibility
IKEAs effort in sustainability presents in the knowledge exchange
between IKEA and suppliers (Martucci, De Felice, & Schirone, 2012). Through
People & Planet Positive strategy, IKEA aims to offer customers with products
that help customers to save money through product designs and material decisions
that enable customers to use less energy and water, as well as reducing waste
(IKEA, 2012).
Because IKEAs sustainability strategy incorporates product designs and

materials, IKEA encouraged its suppliers to apply the same concept. Moreover,
IKEA also continuously supports the development of a good place to work,
throughout the supply chain, asking suppliers to not only focus on professional
responsibilities, such as employees obedience, but also the presence of shared
value in the working environment (IKEA, 2012).
19
4.
Wal-Mart and IKEA Supply Chain

Decisions: Critiques and Solutions
4.1. Wal-Mart: Conquering the Chinese Market

Wal-Marts operation has been expanding since its first store opened in
China in 1997. However, the company faced several challenges from Chinas
distribution sector, and by overcoming these challenges through innovative and
flexible supply chain management and logistics strategies are vital to Wal-Marts
success in China (Huffman, 2003).
Like other Multinational Corporations in China, Wal-Mart confronts the

consequences of provincial autonomy and self-sufficiency, such as difficulties for
road commercial and private trucking (Huffman, 2003). However, with advanced
communication and infrastructure, it managed to diminish the rationale for
regional self-reliance. The company believes that the use of distribution centers
and back-haul trucks is efficient and allows Wal-Mart to maintain control over
most of its distribution chain, yet still can provide the customers with Everyday
Low Prices products (Huffman, 2003). Even though the trucking is contracted
out, Wal-Mart still manages the rest of supply chain directly.
As the goal of logistic managers is to create a seamless flow of product

going and payment made to suppliers, Chinas banking, finance, insurance, and
taxation; however, were bureaucratic and agitating for managers to achieve the
goal (Huffman, 2003). However, Wal-Mart manages to work with the Chinese
government to set up a holding company to consolidate joint venture distribution
and finance, in order to overcome this challenge with Chinas financial matter
(Huffman, 2003).
20
4.2. Criticising IKEA: from the Suppliers Perspectives

IKEAs requirement for global standardisation is seen as a threat for
suppliers regarding the traditional value and competence of the suppliers might be
undervalued and neglected (Ivarsson & Alvstram, 2011). Suppliers also see
IKEAs sourcing model as too bureaucratic, and resources have been wasted on
constant and time consuming inspections for IKEAs auditing purposes. Beside
inspections, decision-making at IKEA is seen to be unclear and involves too many
people, at global and local level (Ivarsson & Alvstram, 2011). This lack of clarity
has resulted in information asymmetry which may eradicate small but important
margins among the suppliers (Ivarsson & Alvstram, 2011).
However, the way IKEA response to the critique is rather simple. From
IKEAs point of view, it is a waste of time to deal with suppliers who do not want
to cooperate well, and IKEA is ready to terminate such relationship (Baraldi,
2008). One advantage of IKEA from its readiness to terminate (and build)
relationships is that the heterogeneous network resulted from the dynamics is one
of the key sources of development (Baraldi, 2008).
21
5.
Conclusion
In conclusion, supply-chain management is an important factor to
determine whether or not a company is effective enough in utilising its resources,

as well as whether a company has incurred unnecessary costs or not. In todays
global market, it seems that retail companies choose to apply price-leadership
strategy which involves reducing cost in the chain process, which Wal-Mart and
IKEA apply according to their own ways.
With respect to its policy, Wal-Mart tries to cut its operating costs to
further benefit the customers with lower-priced products. In order to actualize the
policy, Wal-Mart implements highly-automated distribution centres, which
operate 24-hours a day and are serviced by private companys truck fleets. These
distribution centres each supports 75 to 100 retail stores in 250-mile area, so that
each truck fleet will not have to travel so far, which will reduce its transportation
cost, lead time, and safety stock required. Wal-Mart also adopts the cross-docking
method to cut inventory holding costs, which also will benefit the future
customers.
Wal-Mart adopts Continuous Replenishment Strategy, as a form of

Retailer-Supplier Partnership, aiming to increase product flow efficiency and
satisfy customers, to further increase Wal-Marts profitability. As for its
procurement strategy, Wal-Mart adopts direct sourcing strategy. However, for
most of its global sourcing, Wal-Mart still relies on intermediaries.
Wal-Mart adopts Retail Link, RFID, and recently EDIINT for its
technology application, aiming to cut operating costs and improve information
sharing with suppliers, which lead to a better forecast results for the suppliers.
Moreover, the company develops a green strategy, consists of three main goals: to
22
be supplied by 100% renewable energy, create zero waste, and sell products that
sustain people and the environment.
IKEA, on the other hand, attempt to reduce logistics cost is through Design
for Logistic (DFL) model and the application of innovative unit load carrier in a
form of a loading ledge. This load carrier has proven an increase in space
utilisation in trucks, therefore it helps to increase efficiency. In terms of
technology, IKEA installs mobile computer to increase communication efficiency.
IKEAs sourcing decisions has managed to benefit the company in terms of
eradicating unnecessary cost and maximising profit through various ways of
outsourcing.
In addition, IKEAs strategy for sustainability starts at the suppliers level.

IKEA encourages suppliers to apply certain principles and to make sure that
suppliers create a work-friendly environment as well as choosing product
materials that can be recycled and support the environment sustainability.
Despite the difference in the supply chain strategies, both Wal-Mart and
IKEA have achieved their desired goals in reducing cost, as well as keeping their
principle of providing low-cost products for consumers, while still committed to
their promises to maintain environment sustainability.
23
6.
References
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27

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UNIVERSITAS INDONESIA

SUPPLY CHAIN MANAGEMENT PRACTICES

Supply chain ..., Michelle, FIB UI, 2014

SUPPLY CHAIN MANAGEMENT PRACTICES

Diajukan sebagai salah satu syarat untuk memperoleh gelar

Karya ilmiah ini diajukan oleh:

: Makalah Non Skripsi

Nama Mata Kuliah

: Supply Chain Management

Judul Karya Ilmiah

: Supply Chain Management Practices in Wal-Mart and

Kepala Program KKI FEUI,

Harryadin Mahardika Ph.D

HALAMAN PERNYATAAN ORISINALITAS

Karya ilmiah ini adalah hasil karya saya sendiri,

HALAMAN PERNYATAAN PERSETUJUAN PUBLIKASI

Sebagai sivitas akademik Universitas Indonesia, saya yang bertanda tangan di

Program Studi : Kelas Khusus Internasional

: Makalah Non Skripsi

demi pengembangan ilmu pengetahuan, menyetujui untuk memberikan

: Kelas Khusus Internasional Fakultas Ekonomi, Universitas Indonesia

: Supply Chain Management Practices in Wal-Mart and IKEA

: Kelas Khusus Internasional Fakultas Ekonomi, Universitas Indonesia

: Supply Chain Management Practices in Wal-Mart and IKEA

Supply Chain Management at Wal-Mart......3

Network Configuration and Strategic Partnering.........3

Procurement and Outsourcing Decisions..,......5

Environmental Strategy for Sustainability.......8

The Supply Chain Strategy.10

Integration and Strategic Partnering...11

Sourcing, Procurement, and Inventory Decisions..14

Information Technology and Decision-Support Systems..18

Green Strategy and Corporate Social Responsibility.19

Wal-Mart and IKEA Supply Chain Decisions: Critiques and Solutions20

Wal-Mart: Conquering the Chinese Market...20

Criticising IKEA: from the Suppliers Perspectives..21

Figure 1. IKEA and its industrial network ......................................................... .10

In this document, it could be found that in order to actualize Wal-Marts

business ideals. Both companies were established in two different, competing

Nowadays, the companies have expanded to regions of the world,

3.1. Supply Chain Management at Wal-Mart

Network Configuration and Strategic Partnering

Strategic supplier alliances aim to build long-term, cooperative

One form of Retailer-Supplier Partnerships is Continuous Replenishment

Procurement and Outsourcing Decisions

In order to identify with the companys decisions to outsource, it is crucial

By choosing the suitable procurement strategy, Wal-Mart could reduce its

Although Wal-Marts procurement strategy is to purchase directly from

Wal-Marts investment in technology has helped the company to establish

In late 2004, Wal-Mart started the RFID Mandate (Radio Frequency

Recently, Wal-Mart improves its technology by investing in EDI over the

Environmental Strategy for Sustainability

Wal-Mart generates power naturally by producing renewable energy using

To create zero waste, Wal-Mart focuses on recycling cardboard, paper,

Lastly, Wal-Mart maintains its sustainability by developing a standard for

3.2. Supply Chain Management at IKEA

The Supply Chain Strategy

Supply chain principles at IKEA remain the same as it was in 1960s

Integration and Strategic Partnering

The concept of supply chain network structure involves levels of suppliers,

IKEA applies a long-term approach and aims to build sustainable

In determining its network, IKEA considers factors such as geographic

Sapa incorporated and coordinated the global supply based on IKEAs