IKEA Group Company Visit

Company Background

 IKEA, founded in 1943, is a multinational company with headquarter located in the Netherlands. As of 31 August 2016, IKEA has 389 stores in 48 countries. IKEA designs and sells ready-to-assemble furniture, household appliances, and home decors. IKEA’s vision statement is “To create a better everyday life for the many people”. To make IKEA’s product affordable, the company offers a wide range of well-designed, functional home furnishing products at low prices. Furthermore, IKEA has a strong tradition of working with sustainability. The company has been implementing the “People & Planet Positive” plan since 2012.

Introduction by Goods Flow Manager- Ivan

Ivan first introduced the organization chart of IKEA. The place we visited was Central Unit. He told us the Central Unit is a reformed central warehouse, which improved the efficiency along the warehousing. Central Unit manages three vital departments consist of the Good flow, Sales & Supply Support and business Navigation & Operations. These three departments perform the basic function of Central Unit, which is to make replenishment and delivery after receiving customers ‘order.

Secondly, he introduced the distribution method, which quite different from other company, there are two distributions centres. They are high flow and low flow distribution centre. High flow distribution centre stores high-demanded inventories, while the low flow one stores low-demanded inventories. This increases the distribution efficiency.

After that comes to the layout of Central Unit, is implied the most important issue, which can reduce operation cost and save a lot of time. IKEA divides Central Unit into five regions, which are furniture, long pallet, mattress, sofa and market hall region. And then Ivan briefly described the different functions of those regions.

We gained a brief insight of Central Unit before the guided tour around the Central Unit.

Guided Tour

When we stopped at the entrance of Central Unit, there is a welcome banner to welcome us.

The word “Hej” means Hello in Swedish.

 The worker made use of the forklift to pick up inventories.

We walked through the shelves. Each shelve carries different size of inventories. 

There is enough space between racks so the forklift can go through between the racks easily.

 The manager, Ivan, is pointing different kinds of stock. He introduces the functions of labels on the box. The label carries some number which can show the category of the stock. 

IKEA Central Unit covers thousand of square feets and with a high ceiling. This can make good use of upper part of space in order to carry more stocks.

In the upper photo, the stocks are placed on wood pallets on the shelve. In the lower photo, wood pallets also are used when moving a certain amount of inventory by forklift. The can consolidate the inventory properly and easy to move as well as utilising the space.

Central Unit uses different colours of the sticker to identify the status of inventory. The sticker in white means the inventory is kind of buffer. The orange sticker means the inventory is ready to be picked. The yellow sticker means the stock was replenished in last month. 

Generally, they will put the heaviest items on the top of the shelf because those items are very big and seldom to move. The rack is consist of three shelves, which are flexible, in order to adjust the space between shelves. 

This is called loading area. The major loading activities are carried out in the area and the trucks are also ready out there. The area must be unblocked and inventory cannot be stocked here for a long time unless the inventory is ready to be loaded soon.

A lot of wooden pallets are used to consolidate the stock. When the pallets are idle, workers will put them here for next time usage.

The red arrow label means these items should be picked first based on the first-in-first-out. Basically, IKEA Central Unit applies a system that can make forecast base on the lead time, safety stock and stock availability. What is more, the system can alert staff to handle those items if stayed over 120 days. 

At the end, we left the Central Unit. 

Question and Answers

Q. Being a subsidiary of Jardines, how does IKEA meet the quality management standard of both the parent company and IKEA international?

Hong Kong IKEA reports to Dairy Farm directly. Since Dairy Farm is under Jardines, the standards of Jardines and Dairy Farm are similar, such as their sustainability practice.

Q. How will IKEA respond in the coming 10 years with regard to the trend towards sustainability?

As time is limited, Ivan did not answer this question in detail. Referring to IKEA's website, the company will put effort on transforming the business. IKEA's strategies will wok with the following drivers: Inspire and enable millions of customers to live a more sustainable life

at home, Strive for resource and energy independence and Take a lead in creating a better life for the people and communities. For example, the company is working hard on enhancing resource and energy independence by employing more sustainable sources and investing in renewable energy . 

Q. What is the biggest challenge for IKEA to operate in Hong Kong?

The biggest challenge to operate in Hong Kong is match with IKEA’s global requirement. IKEA located in other countries are stand-alone store. They are able to follow IKEA’s global rules and standard, like store size and facilities provided. However, Hong Kong IKEA cannot operate comprehensive stores. These stores cannot fulfill the global requirements. IKEA group required the stores to display a standard amount of products. But Hong Kong IKEA cannot meet the standard due to the space constraint. Besides, when customers buy furniture in foreign IKEA, they are able to enjoy the products in the same day. Hong Kong IKEA has to receive order first, then wait for the warehouse delivers the furniture to customers’ home. This long process will increase delivery lead time. The main challenges of Hong Kong IKEA are related to space constraint. Hong Kong IKEA is still exploring the ways to reduce the lead time and meet the global standards.

Q. Given that Hong Kong’s expensive rent for inventory storage, but also with the large size of furniture. How do you manage your inventory and forecast demand to meet the customer demand with enough stocks and avoid the problem of overstock that incurs high storage fee?

Manage delivery lead time is important. The key factors are the safety stock level and delivery time. Usually, one suppliers will supply inventories to all IKEA store around the world. In order to meet standard percentage of safety stock, lead time forecasting should be accurate for all the stores.

Q. In the retail level, how does IKEA practice sustainability strategies and minimise waste in operations?

IKEA also has sustainable practice in distribution process. Flat packages are very popular for foreign IKEA. They can help to maximize volume during transportation process. Wooden pallets are expensive, heavy and non-productive. So IKEA uses paper pallets to replace wooden pallets. It helps to decrease handling and carbon footprint.

However, humidity in Hong Kong is relatively high. Paper pallets are not able to provide enough protection to the inventories. To avoid damage, Hong Kong IKEA is still using wooden pallets for transportation.

IKEA encourages customers reduce their own waste. In Hong Kong IKEA stores, recycle bins for battery and light bulb are placed. They provide channels for customers to reduce carbon footprint and promote company image. IKEA can do more in foreign IKEA stores. Since the whole building belongs to IKEA, they also invest to sustainable energy sources, such as solar energy board outside the building.

Q. Has your company ever experienced culture clash with your franchiser (IKEA Group)? If yes, how did you resolve it?

Limited by the high rental cost problem, IKEA store in Hong Kong cannot provide quality service and shopping experience that up to the standard set by the franchiser. For example, Hong Kong customers cannot take away the sizable products immediately after that have purchased it. Therefore, Hong Kong IKEA provides alternatives like online shopping, delivery service and pick up points service to increase customers' satisfaction. 

Besides, IKEA's employees in Hong Kong may not have the chance to undergo comprehensive training which includes in-store training, national training and specialized workshops to develop job competence, management and leadership abilities. To resolve the problem, it relies on Hong Kong IKEA to provide in-house training and strive for oversea training opportunities for their staff. 

Q. How does the logistic centre of IKEA deal with the outdated inventories?

 Normally, the product storing at IKEA's distribution centre will have a product life of 120 days. IKEA arranges the inventories under first-in, first out (FIFO) mechanism. The oldest inventories will have a higher priority to be delivered or sold. For outdated inventories, IKEA will sell it at discounted price or even donate it.     

Q. Why does IKEA not use automation such as the robots or machines to move the inventory?

IKEA do not own the distribution center, therefore, investing in automation or High-Tech facilities is not cost effective. Ivan explained, High-Tech facilities like RFID is often used by company that sells high-margin products like luxury or High-Tech products. However, IKEA's products are sold at low price and that's why IKEA cannot afford such technology. Considering the trade-offs on using automation, IKEA decided to  employ manpower instead of robots or machines. 

Q. How does IKEA minimize the waste produced when transmitting inventories?

IKEA's products have flat packing design and it allows greater quantities on each delivery. Therefore, the waste like carbon footprint can be minimized. In additions, IKEA will avoid any damage on the products during the delivery. Minimizing the damage on the product can stay away from creating extra waste. 

Q. How does IKEA integrate advanced technology in inventory management?

IKEA has an electronic system which records the condition of all inventories. For example, in-bound date, out-bound date,  product life cycle etc. The system will prompt alert to inventories which are near its expire date or already exceed its life cycle.

Q. How do you manage the division of storage for different product types, especially for products with short life cycle (like Vacuum Packed Mattress)?

There is an alert in IKEA’s inventory system. When the inventory keeps more than 120 days, the system will remind workers deliver it to customers first. An area named “AS-IS” in IKEA is a section selling returns, discontinued items and damaged stock at cheaper prices. This area can reduce waste and maximize returns. If inventories are not able to sell out, IKEA will donate it or recycle it.