IKEA, the world’s largest home
furnishing retailer, was founded in 1943 in Sweden and has 410 stores
in 49 countries. It ranks Number 41 on Forbes’ World’s Most Valuable Brands
list, and took in 36.4 billion in sales in 2016. It has smooth running
backend operations and efficient supply chain practices.
CHALLENGES IN IKEA’S INVENTORY – TRACKING INVENTORY:
Categorizing Products Into High-Flow
and Low-Flow Facilities
are categorized into two. They are high-flow facilities whose focus is on the 20 percent of SKUs, that are
sold in high volumes, that amount to 80 percent of the store’s capacity or
low-flow facilities that are sold in low volumes and require manual processes.
The high-flow facilities have an automated software which tracks each
product so that accuracy is maintained. The employees don’t shift or move the slower-selling
products around too much which drives down cost-per-touch.
Maximum and Minimum Settings:
Barcode scanners are used to update the inventory. IKEA developed
an inventory replenishment process called “minimum/maximum settings.” The
process was introduced to avoid ordering either too few products or too many
products, which can lead to the company losing customers or having too many
products in its inventory, while meeting customer demands. The “minimum
settings” and “maximum settings” calculate the right amount of products to be reordered
and is based on the reserve stock left after store hours. IKEA uses a software
that tracks everything in the inventory
INVENTORY MANAGEMENT STRATEGIES:
Do-it-Yourself Assembly Approach and Flat Packaging:
IKEA implements a Do-It-Yourself approach to product
assembly, which the customers can easily assemble at home, to lower inventory
management costs. Most IKEA products have flat packaging, which makes handling easier,
so that it occupies less space both in the trucks during transportation to
stores as well as in the warehouse.
Cost-per-Touch Inventory Strategy:
believes that the inventory management costs increase when more hands touch a
product. So IKEA implements a cost-per-touch inventory
strategy that allows the customers to select and retrieve the
products and take them to checkout themselves. This strategy will decrease
their staffing costs.
Combining Retail And Warehouse Processes:
IKEA’s warehouse is on the
same premises as the main retail or showroom floor. Customers browse for items
which are available in the lower racks and they obtain the products themselves.
The additional products or reserve stock are stored in higher racks. Inventory
is moved to the lower slots only at night due to safety reasons. The bulky
products, which require the help of staff to be loaded are placed in the middle
racks. IKEA is working to reduce the number of these bulky items since they