IKEA, the world-leading furniture seller, was established in 1943 by Swedish Ingvar Kamprad when he was 17 years old. The name IKEA is the acronym of the founder’s initials and the village where he grew up, Elmtaryd, Aguunaryd. With the vision of creating a better everyday life for the many people, the people offers well-designed, affordable, and high-quality furniture to worldwide customers.
The company visit started with an introduction of IKEA, followed by a walking tour in the warehouse, and ended with a Q&A session.
One of the staff of IKEA took us on a tour across the central warehouse. Majorly divided in five sections (Furniture, long pallet, mattress, sofa and market hall) to achieve different storage, loading and marketing functions, the structural layout of IKEA Hong Kong’s warehouse is neat yet efficient.
Flat packaging is one of the characteristics in inventory management of IKEA. It can be easily observed in the shelves. Even for some large furniture, its packaging remains long and flat.
As walk walked through different sections of the warehouse, we discovered that there are quite a number of signs and banners reminding employees of necessary safety measures for uses of folk-lifts. What’s more, notice boards detailing employee commuting information and inventory counts are well documented, achieving effective internal communication.
Here are some photos taken during the IKEA warehouse visit:
Question & Answer
1.Being a subsidiary of Jardines, how does IKEA meet the quality management standard of both the parent company and IKEA international?
As a franchisee operating under the franchise contract, IKEA Hong Kong reports directly to Diary Farm International Holdings Limited as well as the IKEA Group regarding business growth. As long as it fulfills the franchisee regulations, IKEA Hong Kong enjoys a degree of flexibility in operations.
2.How will IKEA respond in the coming 10 years with regard to the trend towards sustainability?
IKEA has released a sustainability guideline called “The IKEA Group approach to sustainability: How we manage sustainability in our business” describing the overall IKEA approach to environmental and social responsibility and the systematic work it does in many areas including Customers, Environment, Suppliers, Co-Workers, and Communities.In terms of Customers, for instance, the products of IKEA are evaluated by the use of “The IKEA Sustainability Product Score Card”. The score card serves as a guideline to help IKEA improve the product in relation to 11 criteria that have an impact on a product’s sustainability profile throughout its life-cycle.
In terms of Environment, for example, IKEA aims to have its buildings powered using 100 percent renewable energy. The group also works to improve the overall energy efficiency such as cooperating with WWF, and with retailers in the European Retail Round Table (ERRT) to improve energy efficiency and reduce emissions.
3.What is the biggest challenge for IKEA to operate in Hong Kong?
The biggest challenge is the disparity in operation standard between local and global branches. Many of the operational regulations and guidelines for global IKEA stores are not applicable to the Hong Kong branches because of land and space constraints. For example, IKEA stores are normally stand-alone stores, which means that the retail outlet is incorporated in the warehouse, however, the IKEA stores in Hong Kong can only serve as “mandatory stores” providing limited product items (9000 items) and facilities. Moreover, the most significant difference is that in most of the cases, customers cannot get their furniture on the day of purchase. The lead time is longer than its global counterparts.
4.Given that Hong Kong’s expensive rent for inventory storage, but also with 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?
Several key determinants including safety stock requirement, delivery lead time, and stock availability are affecting IKEA’s stock inventory. The company has to monitor the supplier’s on-time delivery performance and ensure sufficient stock for sale to determine the stock level.
5.In retail level, how does IKEA practice sustainability strategies and minimise waste in operations?
The main approach of IKEA Hong Kong to minimise waste is flat packaging, which maximises the transportation volume and reduce handling. As a result, carbon emission can be minimised. Its global counterparts are using paper pallets instead of wood pallets, however, it is not suitable in Hong Kong due to the humid environment. Apart from minimising waste during transportation, IKEA also put effort in encouraging customers to minimise waste, for example, it places recycling bins to collect light bulb and batteries for customers.
6.Has your company ever experienced culture clash with your franchisor (IKEA Group)?If yes, how did you resolve it?
IKEA Hong Kong has a weak connection with the IKEA Group, especially in terms of culture and values. The number of employees (management level) attending IKEA international course is quite low, with a ratio of 50%. However, IKEA Hong Kong stills follow IKEA Group’s value, for example, IKEA Hong Kong strives to achieve sustainability.
7.How does the logistic centre of IKEA deal with the outdated inventories?
IKEA uses the first-in-first-out (FIFO) approach to deal with inventory. The inventory system provides notification about the duration of inventory storage to employees. Inventories stored for near 120 days have the highest priority to be delivered to the customers directly. IKEA will donate the goods which its life cycle has been expired.
8.Why does IKEA not use automation such as the robots or machines to move the
The use of automation such as robotics and machine requires significant amount of investments, which has a negative impact on the profit margin. Also, the company has to consider the leasing period as well as the return on investment. It strives to provide affordable products to customers and does not want to increase the price to offset the increase in cost.
9.How does IKEA minimise the waste produced when transmitting inventories?
IKEA focuses on reducing carbon footprint by maxmising transportation volume as well as calculating the shortest lead time, the use of the shortest routes can also reduce fuel consumption.
10.How does IKEA integrate advanced technology in inventory management?
IKEA does not invest much in using advanced technology in inventory management. Forecasting is still the main approach for IKEA to manage inventory. However, the company is considering to use VNA-Racking System for the new warehouse in the future.
11.How do you manage the division of storage for different product types, especially for products with short life cycle (like Vacuum Packed Mattress)?
As mentioned, IKEA uses the computer system to manage inventory. When the storage duration of a particular product reaches 120 days, the system will tagged this product as “high priority”. If the product exceeds its life cycle, IKEA will sell it in the “As Is” section where price of the products will be market down, or donate it directly.
Out of our expectation, the warehouse of IKEA in Kwai Chung does not have the use of the many advanced technology such as RFID or Robotics but the company focuses on accurate forecasting. Beyond doubt, the use of technology is beneficial in managing the supply chain. Nevertheless, the implantation of automation requires a significant amount of investment, which might undermine the company’s profitability, especially the company aims to offer customers affordable, quality furniture.
IKEA Hong Kong has also demonstrated the importance of flexibility in business. On the one hand, it has adjusted its business model to adopt the space-limited environment of Hong Kong. On the other hand, it still follows the core values of the IKEA Group, for example, the company has dedicated in achieving sustainability.