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To understand IKEA’s operations, one had to understand the philosophy and beliefs of its 70-year-old founder, Ingvar Kamprad. Despite stepping down as CEO in 1986, almost a decade later, Kamprad retained the title of honorary chairman and was still very

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To understand IKEA’s operations, one had
to understand the philosophy and beliefs of its 70-year-old founder, Ingvar
Kamprad. Despite stepping down as CEO in 1986, almost a decade later, Kamprad retained
the title of honorary chairman and was still very involved in the company’s
activities. Yet perhaps even more powerful than his ongoing presence were his
strongly held values and beliefs, which long ago had been deeply embedded in
IKEA’s culture.

Kamprad was 17 years old when he started
the mail-order company he called IKEA, a name that combined his initials with
those of his family farm, Elmtaryd, and parish, Agunnaryd, located in the


Christopher A. Bartlett, Executive Director of the HBS Europe Research Center
Vincent Dessain, and Research Associate Anders Sjöman prepared this case. HBS
cases are developed solely as the basis for class discussion. Certain details
have been disguised. Cases are not intended to serve as endorsements, sources
of primary data, or illustrations of effective or ineffective management.Working out of the family kitchen, he sold goods such as fountain pens,
cigarette lighters, and binders he purchased from low-priced sources and then
advertised in a newsletter to local shopkeepers. When Kamprad matched his
competitors by adding furniture to his newsletter in 1948, the immediate
success of the new line led him to give up the small items.

1951, to reduce product returns, he opened a display store in nearbyÄlmhult village
to allow customers to inspect products before buying. It was an immediate
success, with customers traveling seven hours from the capital Stockholm by
train to visit. Based on the store’s success, IKEA stopped accepting mail
orders. Later Kamprad reflected, “The basis of the modern IKEA concept was
created [at this time] and in principle it still applies. First and foremost,
we use a catalog to tempt people to visit an exhibition, which today is our
store. . . . Then, catalog in hand, customers can see simple interiors for
themselves, touch the furniture they want to buy and then write out an order.”2

Kamprad developed and refined his furniture retailing business model he became
increasingly frustrated with the way a tightly knit cartel of furniture
manufacturers controlled the Swedish industry to keep prices high. He began to
view the situation not just as a business opportunity but also as an
unacceptable social problem that he wanted to correct. Foreshadowing a vision
for IKEA that would later be articulated as “creating a better life for the
many people,” he wrote: “A disproportionately large part of all resources is
used to satisfy a small part of the population. . . .

IKEA’s aim is to change this situation.
We shall offer a wide range of home furnishing items of good design and
function at prices so low that the majority of people can afford to buy them. .
. . We have great ambitions.”3

small newsletter soon expanded into a full catalog. The 1953 issue introduced
what would become another key IKEA feature: self-assembled furniture. Instead
of buying complete pieces of furniture, customers bought them in flat packages
and put them together themselves at home. Soon, the “knockdown” concept was
fully systemized, saving transport and storage costs. In typical fashion,
Kamprad turned the savings into still lower prices for his customers, gaining
an even larger following among young postwar householders looking for
well-designed but inexpensive furniture. Between 1953 and 1955, the company’s
sales doubled from SEK 3 million to SEK 6 million.4

Suppliers: Developing Sourcing Principles

its sales took off in the late 1950s, IKEA’s radically new concepts began to
encounter stiff opposition from Sweden’s large furniture retailers. So
threatened were they that when IKEA began exhibiting at trade fairs, they
colluded to stop the company from taking orders at the fairs and eventually
even from showing its prices. The cartel also pressured manufacturers not to
sell to IKEA, and the few that continued to do so often made their deliveries
at night in unmarked vans.

to meet demand with such constrained local supply, Kamprad was forced to look abroad
for new sources. In 1961, he contracted with several furniture factories in
Poland, a country still in the Communist eastern bloc. To assure quality output
and reliable delivery, IKEA brought its know-how, taught its processes, and
even provided machinery to the new suppliers, revitalizing Poland’s furniture
industry as it did so. Poland soon became IKEA’s largest source and, to
Kamprad’s delight, at much lower costs—once again allowing him to reduce his

its success in Poland, IKEA adopted a general procurement principle that it
should not own its means of production but should seek to develop close ties by
supporting its suppliers in a

Analyze the Ikea’s Global Sourcing Challenge.0/msohtmlclip1/01/clip_image002.gif”>

eyond supply contracts and
technology transfer, the relationship led IKEA to make loans to its suppliers
at reasonable rates, repayable through future shipments. “Our objective is to
develop long-term business partners,” explained a senior purchasing manager.
“We commit to doing all we can to keep them competitive—as long as they remain
equally committed to us. We are in this for the long run.”

Although the relationship between IKEA
and its suppliers was often described as one of mutual dependency, suppliers
also knew that they had to remain competitive to keep their contract. From the
outset they understood that if a more cost-effective alternative appeared, IKEA
would try to help them respond, but if they could not do so, it would move

In its constant quest to lower prices,
the company developed an unusual way of identifying new sources. As a veteran
IKEA manager explained: “We do not buy products from our suppliers. We buy
unused production capacity.” It was a philosophy that often led its purchasing
managers to seek out seasonal manufacturers with spare off-season capacity.
There were many classic examples of how IKEA matched products to supplier
capabilities: they had sail makers make seat cushions, window factories produce
table frames, and ski manufacturers build chairs in their off-season. The
manager added, “We’ve always worried more about finding the right management at
our suppliers than finding high-tech facilities. We will always help good
management to develop their capacity.”

Retail: Expanding Abroad

Building on the success of his first
store, Kamprad self-financed a store in Stockholm in 1965. Recognizing a
growing use of automobiles in Sweden, he bucked the practice of having a
downtown showroom and opted for a suburban location with ample parking space.
When customers drove home with their furniture in flat packed boxes, they
assumed two of the costliest parts of traditional furniture retailing—home
delivery and assembly.

In 1963, even before the Stockholm store
had opened, IKEA had expanded into Oslo, Norway. A decade later, Switzerland
became its first non-Scandinavian market, and in 1974 IKEA entered Germany,
which soon became its largest market. (See Exhibit 1 for IKEA’s
worldwide expansion.) At each new store the same simple Scandinavian-design
products were backed up with a catalog and offbeat advertising, presenting the
company as “those impossible Swedes with strange ideas.” And reflecting the
company’s conservative values, each new entry was financed by previous

During this expansion, the IKEA concept
evolved and became increasingly formalized. (Exhibit 2 summarizes
important events in IKEA’s corporate history.) It still built large, suburban
stores with knockdown furniture in flat packages the customers brought home to
assemble themselves. But as the concept was refined, the company required that
each store follow a predetermined design, set up to maximize customers’
exposure to the product range. The concept mandated, for instance, that the
living room interiors should follow immediately after the entrance. IKEA also
serviced customers with features such as a playroom for children, a low-priced
restaurant, and a “Sweden Shop” for groceries that had made IKEA Sweden’s
leading food exporter. At the same time, the range gradually

Analyze the Ikea’s Global Sourcing Challenge.0/msohtmlclip1/01/clip_image004.gif”>

policy was modified after a number of East European suppliers broke their
contracts with IKEA after the fall of the Berlin Wall opened new markets for
them. IKEA’s subsequent supply chain problems and loss of substantial
investments led management to develop an internal production company, Swedwood,
to ensure delivery stability. However, it was decided that only a limited
amount of IKEA’s purchases (perhaps 10%) should be sourced from Swedwood.

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