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11

Q2 Evaluate the extent to which the SCM strategy adopted by IKEA in the case study may be considered to lean
and/or agile. (25 marks)

SCM is the continuous planning, developing, controlling, informing and monitoring of actions within and between
supply chain links so that an integrated supply process meets the overall strategic goals of the organisation.
Strategic supply chain management [SSCM] can take place at three levels, each reflecting the way that plans
cascade down and each level guiding and constraining the activity of the level below;

Lean supply chain (LSC) can be defined as a set of organisations directly linked by upstream and downstream Commented [WU1]: Features of a lean supply chain
flows of products, services, finances and information that collaboratively work to reduce costs and waste. It can could include: low-cost production, value chain mapping,
be seen as the elimination of duplication of effort and capability in the supply chain, combined with a philosophy forecasting systems,
demand-pull, stock reduction, waste reduction, continuous
of continually increasing the expectations of performance and self-imposed pressure to excel. It incorporates improvement, efficiency initiatives,
three areas: a belief in quality, waste elimination and employee involvement all supported by a structured decentralisation of tasks and responsibilities, integrated
management system. information systems, empowered cross-functional
teams, and mutual loyalty between employees and the
A simple manifestation of lean thinking in application to supply chain requires analysing the supply process and organisation
internal ordering (requisition to payment) and removing any unnecessary steps or processes, thus minimising
waste (e.g. Tiachi Ohno’s 7 wastes - transport, defects, inappropriate processing, waiting, unnecessary motion,
unnecessary inventory and overproducing). More generally, Lean supply chains feature closer relationships with
fewer suppliers, typically single or dual source. (Table P13)
Supply chains generally contain flows of products/services, information and finance. To build a lean supply chain Commented [WU2]: According to Womack et al, there
it is important to identify the wastes associated with these flows and eliminate them. Lean logistics and are 5 key principles to lean thinking. Firstly, specify what
information technology can help companies smooth out and facilitate supply chain flows. creates value as seen from the customer’s perspective;
secondly to identify all steps in the value stream; thirdly,
Agility is a business-wide capability that embraces organisational structures, information systems, logistics make actions that create value ‘flow’; fourthly, only make
processes, and ... mindsets. The agile supply chain is a fast-moving, adaptable and robust system capable of rapid what is pulled by the customer and the fifth principle is to
strive for perfection by continually removing successive
adaptation in response to turbulent and volatile markets, uncertainty created by economic and competitive layers of waste.
forces, market opportunities, and customer requirements.
Agility allows companies to reduce costs and rationalise inventory by anticipating demand as effectively as Commented [WU3]: Features of an agile supply chain
possible, evident in IKEAs interoperability of components like draws etc. Building an agile and resilient supply could include: streamlining of the physical flow of parts
chain is not always the lowest-cost option for a company. However, it delivers a predictable supply chain with the from suppliers,
scheduling processes, synchronising information flows
optimum balance between speed, quality and value. The agile paradigm places special emphasis on product linking demand and market planning, adapting and
innovation, speed and flexibility to read market opportunities to satisfy the needs of increasingly demanding and responding quickly to changing market needs, quick
well-informed customers. Agility is related to an enterprise's processes and interfaces between these processes response between distribution centres and retail stores,
and the market. and stockholding to achieve availability.

While there features of agility within the case study, such as IKEAs streamlining of the physical flow of parts from
suppliers; its improved planning, forecasting and scheduling processes; synchronising information flows linking
demand and market planning; quick response between distribution centres and retail stores; interoperability of
parts in assemblies; and, stockholding to achieve availability, I think the SCM strategies IKEA have in place have
more lean principles and agile.

The first example of LEAN principles and SCM for IKEA can be seen in their new transport and logistics systems
and the location of its distribution centres (DCs) and warehouses.
Transporting between processes is a cost incursion which adds no value to the product. Excessive handling can
cause damage and is an opportunity for quality to deteriorate. Lean techniques can have a huge impact on
logistics and transportation by reducing waste and improving productivity and efficiency.
- E.g. IKEAs new distribution and logistics system - the DC’s location was chosen to position the fastest
movers closest to the retail store for replenishment and close to transport networks, sea freight etc. This
removal of transport has reducing the turnaround on orders to the retail stores from 72 hours to 24
hours, while taking nearly 700 miles out of the distance from the DC to the retail stores and from the port
to the DC.
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The location strategy has supported IKEA in being able to respond to demand quicker through Lean principles.

The Second example of LEAN principles and SCM for IKEA is the ‘pull system’ that has been designed and
implemented. A pull system is a key lean manufacturing principle in which production is based on actual demand
weekly, daily or hourly, and where information flows from the market to management, the polar opposite to that
in traditional (push) demand systems.
A pull mechanism allows IKEA to respond immediately to changing customer demands and increases optimisation
of resources while eliminating waste and reducing the risk of overproduction. By improving their data quality and
planning and forecasting processes, IKEA have been able to better match their supply to demand being ‘pulled’ by
the customer and reducing and balancing inventories along with the associated costs and risks. It also enabled
further waste reduction and continuous improvements to the first factor above and the transport and logistics
through efficient and optimised logistics.

The Third example of LEAN principles and SCM for IKEA is standardisation. Standardisation can be one of the
most effective lean concepts when implemented and used effectively. It supports eliminating waste and enable
for standardised processes to be developed throughout the supply chain to help improve efficiency. IKEA
standardised to the three Euro pallet sizes which enabled for better planning and logistics as far reaching
infrastructure is in place to support them, as well as storage through yield and fill rates. IKEA also ensured all
products are designed around the three standard pallet sizes with the idea that “no matter where our product is
manufactured, it can be shipped to any of our facilities anywhere in the world”. Standardised costings and
processes can be employed to help make the process faster and more cost efficient.
IKEA were also employing lean principles in their drive to reduce the use of wood to make pallets, and that
instead, the wood be used only for products, reducing indirect resource use and maximising material use.

The fourth example of LEAN principles and SCM for IKEA is their use of automation. Automation can be described
as the creation and application of technology technique of making an apparatus, a process, or a system operate
automatically. IKEA used automation is some of their processes for planning and forecast through the use of
advanced planning and scheduling software which helped rectify crucial issues that were crippling the
organisation.
IKEA also employed automation in their warehousing. The cost of an inefficient transport and logistics and
replenishment system, as was IKEA’s original set up, would have been a significant part of IKEAs cost structure
with 7 day operations in 44 DCs globally and over 14,500 staff and seriously impacting its ability to provide low
cost furniture. Automating warehouses would help manage these costs while also increasing productivity and
maintaining tight controls and high levels of visibility to avoid obsolete inventory and/or stock outs, something
which was a clear problem at IKEA. It also follows lean principles by reducing (human) errors and improves
accuracy, especially for repetitive tasks. More than 90% of IKEA’s facility’s volume was ‘full pallet in/full pallet
out’, which suits automated storage and retrieval system. That system, as well as conventional receiving and put-
away processes, was further optimised through task interleaving. Each time a crane put away a pallet in a storage
location, it simultaneously retrieved a pallet to fulfil an order. This development of automation can be considered
a lean concept as it is the optimum level of reduction of waste; humans have been removed; it is in continuous
operation; reducing downtime and defects.

Other examples of IKEA operating Lean principles can be seen in their low-cost production, soupier
rationalisation, value chain mapping, forecasting systems, demand-pull, stock reduction, waste reduction,
continuous improvement, efficiency initiatives, decentralisation of tasks and responsibilities, integrated
information systems, and empowered cross-functional teams.

Overall, the goal of lean is to eliminate waste—the non-value-added components in any process. When done
correctly, lean can create huge improvements in efficiency, cycle time, productivity, material costs, and scrap,
leading to lower costs and improved competitiveness. Lean principles promote learning, reflection and
continuous improvement for organisations, resulting in innovation, continuity and sustainability for any
organisation that choses to live by them.
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In my opinion, there could be scope to argue IKEAs true SCM approach is a combination of a Lean and Agile
approach, or ‘leagility’, where lean and agile principles are combined together in order to achieve both Commented [WU4]: Answers could also have discussed
operational efficiency and market responsiveness. This ‘Leagile’ approach can be seen in IKEAs distribution leagility, where lean and agile principles are combined
centres as de-coupling points, long-term forecasting combined with short-term scheduling, and late together in order to
achieve both operational efficiency and market
customisation in terms of customers being able to select and combine their own choices of design, colour and responsiveness. Examples could include: the distribution
combinations of the standard range of products provided and the interoperability of components and parts. centres as de-coupling points, long-term forecasting
combined with short-term scheduling, and late
customisation in terms of customers being able to select
and combine their own choices of design, colour and
combinations of the standard range of products provided.