Case Connection 16-2: IKEA Hates Waste

IKEA, the international furniture producer and retailer, has incorporated lean and green strategies throughout the company since it began in 1943. Many of the firm's strategies started when the company founder, Ingvar Kamprad, ran into opposition from his Swedish competitors. Other Swedish furniture companies objected to the low prices IKEA charged for furniture, so they made it difficult for IKEA to get raw materials, finished products, or even to show their products at furniture shows. IKEA responded by finding sources of raw material from other countries, designing their own furniture and setting up their own distribution chain, including stores and catalogues. This was the beginning of IKEA's efficient business strategies, and the company uses basically the same format for its more than 350 stores in more than 45 countries today. The company incorporates its waste-management strategies throughout every aspect of the business, starting with the product design process.

The company takes a holistic view when designing new products. The starting point in the design process is a price pointbut not without the right level of quality. IKEA combines furniture design, package design, and distribution from the very beginning of the design process. In fact, in some cases, the company designs the package and determines how many packages they can fit together for transporting to the stores before they even start to design the furniture. IKEA furniture is produced and packaged in parts so that customers can put the furniture together in their homes. This process makes it far less expensive for the company to transport the finished product and it makes it easier for the customer to get the furniture to their homes.

Even after the product is on the market, the designers continue to redesign the packaging. In one case, the company was able to redesign the packaging for a popular sofa. The redesigned package allowed the company to double the number of sofas they could transport in the same amount of space. The reduction in shipping costs was passed onto the customer by reducing the price of the sofa by more than $100. The company proudly points out this also reduced the carbon dioxide emitted during shipping.

IKEA uses the same lean and green philosophy with their more than 1,800 suppliers. The company is not only concerned with getting the best price from suppliers but also monitors working conditions, product quality, and environmental impact. In order to help suppliers reduce their impact on the environment, the company developed a set of guidelines they call IWAY, which stands for the IKEA Way of Purchasing Home Furnishing Products.

IKEA's retail stores also follow the lean and green corporate strategy. The stores are much different from other retail experiences. In each store, there are childcare facilities and cafeterias to make the shopping experience unique. From a business point of view, the stores also act as warehouses. The flat packages of furniture are stored in a separate area of the store, away from the room-setting displays. Customers view the room settings, choose their furniture, and retrieve their own product from bins in the warehouse. The bins of packages are replenished each night after the store closes. This system allows the company to eliminate the need for separate warehouses.

IKEA uses a lean and green strategy throughout their operations from new product development to their retail stores.

Sources: Clara Lu, "IKEA's Inventory Management Strategy: How Does IKEA Do It," tradegecko website, tradegecko.com, accessed March 20, 2016; "The Secret of IKEA's Success," February 24, 2011, The Economist website, economist.com; Ashley Lutz, "IKEA's Strategy For Becoming The World's Most Successful Retailer, January 15, 2015, Business Insider website, businessinsider.com; IKEA company website, franchisor.ikea.com, accessed March 12, 2016; Deniz Caglar, Marco Kesteloo, Art Kleiner, "How IKEA Reassembled Its Growth Strategy," May 7, 2012, strategy+business website, strategy+business.com; Denise Lee Yohn, "How IKEA Designs Its Brand Success," Forbes, June 10, 2015, forbes.com.

Critical Thinking Questions

1. Discuss how effective you think the lean and green strategies used by IKEA are.

2. Discuss the advantages and disadvantages of using the retail stores as warehouses.