Q. Describe IKEA's process for developing a new product

Step 1. Pick a Price Product DevelopmentA sketch for a new product? Yes, but it's also a calculation of what that product will cost. The low price begins at the drawing board. The team behind each product consists of designers, product developers, and purchasers who get together to discuss design, materials, and suitable suppliers. Everyone contributes with their specialist knowledge. Purchasers. for example, use their contacts with suppliers all over the world via IKEA Trading Service Offices. Who can make this at the best quality for the right price at the right time? When product developers were given the task of creat- ing a new mug over five years ago, they were told how much it should cost in the stores. In the case of Trof, the price had to be incredibly low-five Swedish kronor! This mug had to have a real knockout price. To produce the right mug at the right price, the devel- opers had to take into account materials. colors, and design. For example, the mug is made in green, blue, yel- low, or white because these pigments cost less than other shades, such as red. Step 2. Choose a Manufacturer Suppliers and PurchasingThe task of developing products never ends. Working with suppliers, the mug was shortened and the handle changed so it stacks more efficiently, saving space for transport, warehousing, and store displayand, not least, in the customers' cupboards at home. IKEA is always keen to banish as much air as possible from its packaging. Packages should preferably be flat for efficient transport and storage. One supplier, a factory in Romania, has worked with IKEA for 15 years. Long-term relationships help both par- ties to build up a huge fund of knowledge about demands and expectations. That is why products are often devel- oped in close cooperation with suppliers. In the case of Trof, for example, the new size has rationalized produc- tion by making better use of the space in the kiln during the firing process. That's cost-effective and saves time. IKEA has introduced a code of conduct govern- ing working conditions and environmental awareness among suppliers. This deals with matters such as health and safety in the workplace and forbids the use of child labor. The practical work of implementing this code of conduct is carried out by co-workers in IKEA Trading Service Offices worldwide. Many suppliers already meet the demands; others are working together with IKEA to carry out the necessary improvements. IKEA also works closely with external quality control and audit compa- nies that check that IKEA and its suppliers live up to the requirements of the code of conduct. The low price tag is crucial to the vision IKEA has of creating a better everyday life for many people. That is why IKEA works nonstop to reduce costs. But it's also a question of saving raw materials and, ultimately, the environment. The low-cost mug is one example of how environmental considerations can influence the develop- ment of products. For example, the new mug is lighter in color-a move that cuts costs and is more environmen- tally friendly. The less pigment that is used, the better. The mug is also lead- and cadmium-free. Step 3. Design the Product With a price point and a manufacturer in place, IKEA once again uses internal competition to find a designer and select a design for production. The designer begins the design process by writing a brief that explains the product's price, its function, the materials to be used, and the fabricator's capabilities. The designer then sends the brief to IKEA's staff designers and freelancers, and refines promising designs until settling on the one to pro- duce. The designer wants products to be like Swiss Army knivesto get maximum functionality at minimum cost. Step 4. Ship It Distribution and logistics are the lifeblood of IKEA and important pieces of the puzzle on the road to a low price. IKEA strives to deliver the right number of goods to the right stores at the right time. It calculates the goods requirements and makes sure that deliveries are efficient. Each pallet holds 2,024 mugs, which are transported from Romania by rail, road, and sea to IKEA distribution centers around the world. Transportation does, of course, have an effect on the environment, but IKEA is working toward reducing environmental impact Many of IKEA's products are bulky-for example, tables and chairs. IKEA pioneered the concept of flat. The company's eureka moment occurred in 1956, when one of IKEA's first designers watched a customer trying to fit a table into his car. There was only one way to do it: Remove the legs. From that day forward, most IKEA products have been designed to ship disassembled, flat enough to be slipped into the cargo hatch of a station wagon or safely tied down on an auto's roof rack. In IKEA's innately frugal corporate culture, where waste has been declared a deadly sin." the flat pack- age is also an excellent way to lower shipping costs by maximizing the use of space inside shipping containers. The company estimates transport volume would be six times greater if its items were shipped assembled. From the design studio to the warehouse floor. IKEA employ- ees' mantra is always the same: "We don't want to pay to ship air." Making things flat is an IKEA obsession. How many times can you redesign a simple fired-clay coffee mug? IKEA's mug was redesigned three times-simply to maximize the number of them that could be stored on a pallet. Originally, only 864 mugs would fit. A redesign added a rim such as you'd find on a flowerpot, so that each pallet could hold 1,280 mugs. Yet another redesign created a shorter mug with a new handle, allowing 2.024 to squeeze onto a pallet. While the mug's sales price has remained at 50 cents, shipping costs have been reduced by 60 percent, which is a significant savings. given that IKEA sells about 25 million of the mugs each year. Even better, the cost of production at IKEA's Romanian factory also has fallen because the more compact mugs require less space in the kiln. When you ship 25 million cubic meters of goods all over the globe, flat-pack frugality adds up. IKEA now uses a 65 percent average fill-rate target for all the con- tainers it ships, and it hopes to increase that to 75 percent. Meeting that goal will require further design changes and sometimes even sucking the air out of items (like IKEA's shrink-wrapped pillows, which look like giant crackers on store shelves). And, of course, flat packing shifts the cost of product assembly to the customer. saving even more. As IKEA has shifted more of its buying from Europe to the Far East, shipping time and costs have become an even more critical concern. Last year, China tied Sweden atop IKEA's list of supplier countries. The company has responded by creating a global network of distribu- tion centers, most of which are near container ports and major truck and rail routes. There are 18 IKEA distribu- tion centers worldwidewhich handle about 70 percent of IKEA's total product lineand 4 more are under con- struction. The other 30 percent of IKEA's products travel directly from supplier to store. Sometimes, however, product components actually come together for the first time in the store. In the case of the Pang chair, the cushion comes from Poland and the frame from China. The two pieces are united only when the customer pulls each one off the shelf. Step 5. Sell it IKEA sells a lot of expensive furniture, and in a traditional store this is relatively easy: Put a piece in a lush setting, let the customer fall prey to visions of wealth and comfort, then offer plenty of easy credit. But to keep prices low, IKEA needs to sell furniture and other products such as the mug without salespeople or conspicuous price reduc- tions. The company asks customers to assemble their fur- niture themselves. And IKEA doesn't want to ship it to you either. By any conventional measure, these are formidable hurdles to overcome. Yet they also explain why IKEA has worked so hard to create a separate world inside its stores a kind of theme park masquerading as a furniture outletwhere normal rules and expectations don't apply. The Trof mugs arrive at IKEA stores packed on pal- lets. Any transportation packaging is collected for recy- cling. Price tags have already been placed on the mugs at the suppliers. In-store display is important. It's not just a question of displaying mugs and other products. It's also about providing inspiration for smart interior solutions. Customers contribute to the low prices at IKEA by select- ing and collecting the products from the self-serve area