Advantages Of IKEA

996 Words 4 Pages
Reduce Cost / Economies of Scale/ Increase Profitability

Like many other international operations, IKEA too seek to take advantage of the tangible opportunities to reduce their costs. Figure 2 below shows the three pillars of IKEA’s concept which represents low cost, good design and functionality. It is inevitable that the furniture business was not an easy business to be expanded globally and primary reason would be the transportation of the goods is expensive.

IKEA had been the pioneer in flat packed furniture concept which was especially introduced to reduce prices for its customers by eliminating transportation and storage costs. Another interesting point to note is that IKEA differentiate itself from the competitors by offering designers
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They had leveraged on technology, innovation and sustainability to lower the cost of manufacturing. IKEA is also known for cost-effective management of distribution center where the democratic design of products ensures quality, form, functionality, sustainability which helps to lower cost due to is high volume production and economies of scale. Figure 4: Three Pillars of IKEA’s Concept

Operations in foreign locations with lower wages can help lower both direct and indirect costs. Furthermore, less stringent government regulations on a wide variety of operation practices helps in costs reduction. Hence, the opportunities to cut the cost of taxes and tariffs also encourage global operations for IKEA.

Shifting low-skilled jobs to another country has several potential advantages such as cost reduction for the firm. Secondly, moving the lower skilled jobs to a lower cost location frees higher cost workers for more valuable tasks. Lastly, reducing wage costs allows the savings to be invested in improved products and facilities at the home location. Trade agreements such as World Trade Organization (WTO, North American Free Trade Agreement (NAFTA), European Union (EU) have also helped reduce tariffs and thus reduce the cost of operating facilities in foreign
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Efficient supply chain is a core pillar of IKEA’s success. They have over 42 distribution centers and a seamless supply chain from designing to manufacturing and warehousing and to the retail stores are highly controlled. Over 1400 global suppliers had been highly integrated to IKEA’s business model. Hence, managing such a huge pool of suppliers is not an easy task if there is no lasting relationship with them and ownership of product rights.

An effective supply chain management should not only be efficient but also sustainable. Hence, supply chain sustainability would be the management of the three sustainability pillars, i.e. environmental, social and economic impact and the good governance practices throughout the entire lifecycle of goods and services. IKEA had placed great importance to this to form, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to

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