IKEA Works Hard to Mitigate the Global Supply Chain Disruption
Covid-19 has affected the world in various ways. Almost all systems and processes suffered severely. Supply chains globally too suffered extreme disruption due to the pandemic upsetting numerous business operations resulting in enormous losses. However, a few companies have adopted a faster and more efficient approach by using predictive analytics and automating inventory, production, and procurement. This level of digital transformation enables companies to create an integrated supply chain to balance supply and demand and mitigate any disruption. Companies now rely upon technology, enhanced supply chain management strategies, and inventory management software tools to lessen the impact and diminish the losses. This article will focus on how IKEA adopted a more resilient supply chain without sacrificing competitiveness.
- The global supply chain management (SCM) market was valued at USD 15.85 billion in 2020 and is predicted to reach USD 31 billion by 2026
- 38.8% of small businesses in the U.S. alone experienced supply chain delays due to the Covid pandemic; between 2019 to 2020, overall supply chain disruptions increased by 14%
- Due to the pandemic, the estimated value for out-of-stock items in 2020 was USD 1.14 trillion
- As of 2020, around 56% of global retailers reported moderate disruption in their supply chains due to the Covid pandemic, and 12% of retailers reported heavy disruptions
- 57% of organizations are increasing their investments in improving supply chain resilience
- The global supply chain management software market size is expected to reach USD 9.45 billion by 2025
How did we get here?
#1. The Global Supply Chain Disruption
As a result of the Covid outbreak, many countries imposed lockdowns at different levels. The regulations barred the movement of men and material. So, transportation services that were the backbone of global supply chains were running on a reduced capacity. As the means and resources were limited, this led to a rise in transportation costs. The additional costs resulted from increased labor costs, higher container rates, fewer warehouses, and more.
While businesses were struggling with material and transportation limitations, the most significant setback emerged from the unavailability/shortage of skilled human resources. As businesses faced crises, many had to cut on human resources to manage the increased costs. This cut came with a heavy price, and employees were forced to handle increased workloads.
People got confined to their homes with their families struggling to survive through the pandemic. Health became the foremost concern even for employees, affecting their work and employment status. Shortage of human resources came heavily on the quality of the supply chain, resulting in poor customer service. Customer demands for personalization and customization could not be met due to the disrupted processes.
Businesses had to thus manage with the limited human resources and suffered from a lack of skilled workforce for managing the processes effectively and efficiently. The replacements gathered were often not trained or lacked experience with their systems, resulting in further loss of productivity and material, poor customer communication, and increased customer complaints.
Overall, companies suffered massive damages and business losses, realizing how important it is to develop a perfect supply chain tools resilient to such disruptions that are beyond human control.
IKEA, the well-known global furniture retailer, has always been an icon for inventory and supply chain management. Let’s learn how IKEA managed to maintain its business and profitability amid the global supply chain disruptions.
#2. How IKEA Curbed the Global Supply Chain Disruptions?
The global furniture giant, IKEA, has a remarkable supply chain and inventory management strategy in place. Moreover, when businesses across the world were struggling due to the global supply chain disruptions, IKEA experimented with some innovative supply chain improvement strategies to beat the impact of the pandemic. Here are IKEA’s best practices for supply chain and inventory management.
DIY Assembly Lowers Packaging Costs
During the pandemic, while the supply chains were suffering huge setbacks worldwide, transportation costs increased manifold. This directly impacted business profits, and customers had to spend higher, so the demand shrunk.
The very popular global furniture giant IKEA follows a flat-packing system. Here, IKEA sells the parts of the furniture instead of the whole product. Flat packaging saves space, makes transport more manageable, and reduces transportation costs. This strategy helped IKEA maintain its product costs during global supply chain disruptions.
Self-Service Stores With On-Premise Warehouses
Another wise strategy that IKEA follows that helped mitigate the global supply chain disruption is the self-service stores. The company has on-premise warehouses at its stores. The showroom displays the products labeled with detailed information.
IKEA customers can choose the product they like from the showroom. The product tags/labels will indicate where exactly the product is available with direction maps and boards for picking up or self-service inside their on-premise warehouse.
Customers can then choose between take-away or getting it delivered through the brand’s delivery partners. The whole process saves a lot of time and human resources for IKEA. Thus, IKEA could manage its business without much hassle even when the global supply chain disruptions caused human resource and cost crises for all.
Controlling Costs per Touch
The cost-per-touch concept in inventory management says that the cost of products in the supply chain increases proportionately with the number of hands touching the products. Thus, one way for businesses to tackle the global supply chain disruption is to adopt practices to reduce cost-per-touch.
The DIY assembly and self-service techniques collectively helped IKEA reduce the cost-per-touch, diminishing the adverse impacts of global supply chain disruption on its business.
IKEA implements a max-min replenishment strategy for better inventory management through an automated system monitored by their in-store logistic managers. The system routinely tracks the inventory stock for the minimum amount of products available before reordering and the maximum amount of a particular product to order at a time.
IKEA’s inventory management system allows businesses to set the mix-max levels and automatically triggers reordering when these min-max parameters reach the required levels. It ensures timely reordering, neither too early nor late.
Advanced inventory management software tools also leverage artificial intelligence to enable businesses to compute these optimum min-max levels based on the delays due to supply chain disruptions and other issues.
Innovative Strategies by IKEA to Overcome the Disruptions
During the pandemic, IKEA discovered many smart solutions to minimize the impact of global supply chain disruptions on its operations. It has been investing more in temporary warehouses to add storage capacity and prevent production halts and delays. To tackle container shortages, IKEA decided to buy containers temporarily to mitigate the supply chain disruptions. Reportedly, the company is leasing more ships, investing in more containers, and re-routing goods between warehouses.
Congested ports have also been a significant contributor to supply chain delays during the pandemic globally. To solve this, IKEA started transporting more goods by train from the Asia Pacific to Europe. Additionally, the company resorted to re-routing the flows to avert congested ports.
Besides, IKEA constantly looks for technological advancements to enhance its supply chain. The company plans to leverage artificial intelligence to optimize inventory management, better execute its supply chain operations, and make informed decisions. IKEA is looking forward to implementing virtual product representation and smart tags to identify products and enhance traceability. Furthermore, the company is deploying robotics to manage their products efficiently, including camera-guided robots for packaging, moving products, and automated product assembly.
Jesper Brodin, the chief executive officer at Ingka Group, which owns most IKEA stores, claims the company is practicing agility like never before.
#3. How Can Businesses Effectively Enhance Supply Chain Management?
Businesses can adopt IKEA’s various innovative strategies to overcome the challenges resulting from global supply chain disruptions due to the pandemic. Here are other best supply chain and inventory management practices and tips for businesses to embrace to be more productive during such crises.
- Develop an adaptable operational environment that is resilient to the turmoil created by the pandemic and other such challenges.
- Make backup plans for disruptions with advanced inventory planning and optimized warehouse management.
- Go digital - promote digital transformation in processes at all levels and conserve resources. Adopt technology and software for business continuity and growth.
- Follow a people-first approach, customer and employee-centric; embrace alternative ways of working, remote and flexible.
- Communicate effectively; ensure proactive communication with onsite and remote employees, suppliers, and customers.
- Diligently and routinely monitor, predict, and analyze periods of excesses and shortages to balance the system during these times.
- Leverage logistics/supply chain control towers to enhance real-time visibility into operations.
- Balance supply and demand by repurposing material, resources, and capabilities.
- Support and motivate the workforce by addressing the physical health and mental well-being of the core employees and the extended logistics personnel.
- Strengthen the supply chain by supporting customers, suppliers, and logistics networks affected by Covid-19.
The disruption of global supply chains post-COVID made businesses discover the deficiencies in their operations and the importance of enhanced inventory and supply chain management practices.
IKEA, the famous furniture brand, has also proved to be a role model in reviving its business by overcoming the impacts of global supply chain disruptions. IKEA also made others realize the importance of software and technology in palliating supply chain challenges.
Companies must leverage powerful inventory control software, and supply chain management systems to automate their operations, save resources, and bring the costs down to balance the ill-effects of the pandemic on their business.
Adopt the practices and tools suggested here, create a resilient system, recover from the losses, boost your profits, and remain unstirred by the pandemic and resulting global supply chain disruptions.
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