Ikea Revamps Supply Chain Strategy with JDA

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IKEA is expanding globally and fast gaining market share.

The firm has found great success selling low-price products, including furniture, accessories, bathrooms, and kitchens at retail stores around the world. While IKEA's core business is the selling of home furnishings, it also develops and purchases products in conjunction with suppliers. The company's business strategy is to offer a wide range of home furnishings with good design and function at prices low enough so that as many people as possible can afford them. The supply chain is in constant flux, with improvements being made whenever they are required or new technology appears.

A company deciding to adjust its supply chain strategy must be prepared. The company needs the best tools available to ensure a seamless transition and has to be able to resolve any problems as quickly as possible, especially when it is the world's leading home furnishing retailer. This was the case with IKEA, which was looking to change its supply chain strategy by cutting back on suppliers and focusing on those located in low-cost countries. However, in order to do this, it discovered it would have to endure longer lead times if it wanted to benefit. This would then force higher demands on the planning process and affect the firm's ability to adjust quickly to changes as well as put extra pressure on the whole operation of the supply network. Failure to deal with these problems would have made the whole process a costly mistake. To ensure that this did not happen, IKEA needed to invest in a solution that could be implemented quickly and easily, yet could be amended to suit any developing situations.

CASE STUDY OVERVIEW

GOALS: To maintain its position as the world's leading home furnishing retailer with an agile and responsive supply chain strategy.

STRATEGY: Acquire the best tools available to ensure a seamless transition of the supply chain. With a reduction in the number of suppliers and a focus on low-cost countries, IKEA required longer lead times and the flexibility to respond to changes within the supply chain.

SOLUTION: Global implementation of JDA Demand and Fulfilment solutions

RESULTS:

> Increased visibility in the sales patterns of the IKEA products

> Improved forecast accuracy

> Improved planner experience and productivity through exception-based management

> Enabled the consolidation of supplier base with a focus on low-cost countries

> Increased overall supply chain visibility and efficiency

Solution

The firm has a total of about 12,000 products in the entire product range. Each store carries a selection of 10,000 products, depending on store size; and the core range is the same worldwide. IKEA has over 200 stores in 30 countries around the world. This requires exceptional logistics and outstanding support staff as well as the best solutions. Europe is IKEA's largest purchasing market. In all, IKEA has 1,600 suppliers in 55 countries, and trades through local IKEA purchasing offices in 33 countries. In order to make sure that the supply chain remains intact and at its most efficient level, it must incorporate the best technology and the right people.

The company began working with JDA in 2001 and the first thing the solutions provider did was to implement JDA Demand solutions on all IKEA products globally. IKEA laid out a number of objectives for JDA such as developing a sales planning methodology and tools that assured realistic forecasts used for planning supplier, warehouse, and transportation capacities. JDA also developed a capacity planning methodology and tool that make it possible to benefit from the cost savings of long-term commitments while keeping the risk of imbalance between commitments and demand to a minimum level. A global and regional supply planning system component would make it possible to have a coordinated and consolidated sales, capacity, and distribution planning while having them directly linked to replenishment. The solution would also allow IKEA to consider all inventories in the need calculations and to have supply chain visibility in the order management process.

"We currently have Demand live on all products globally and Fulfilment is currently being rolled out for DC replenishment," says Tommy Stjernfeldt, Project Manager for the ongoing fulfilment implementation. "Performance has always been a concern for IKEA and benchmarks and performance fine-tuning activities were critical in the success of the project. JDA is invaluable in providing support for IKEA's business needs with this."

Results

JDA implemented its solutions in the three main regions. There are approximately 700 users now live with the new solution.

Results to date include:

> Increased visibility in the sales patterns of IKEA products

> Improved forecast accuracy

> Improved planner experience and productivity through exception-based management

> Enabled the consolidation of supplier base with a focus on low-cost countries

> Increased overall supply chain visibility and efficiency

"We have seen a sizeable number of benefits from the JDA implementation. Planners have been enthusiastic about the solution because it gives them better visibility into the sales patterns of the IKEA products and has improved their global view of the business. The planners are happy with the new exception-based working method and we have seen marked improvement in our overall forecast accuracy between the original rollout in 2002 and today. It has been a successful move for us and has made it far simpler to start focusing on low-cost countries and cutting back on suppliers, which will in the long run help to improve profits and make our management system more efficient," said Jimmy Biesert, Head of Supply Chain Planning at IKEA.

 

About IKEA
Since its 1943 founding in Sweden, IKEA has offered home furnishings and
accessories of good design and function, at low prices so the majority of
the people can afford them. Today, IKEA is one of the world's top furniture
retailers. IKEA International sells Scandinavian-style home furnishings and
other housewares in some 225 stores in 33 countries. IKEA incorporates
environmentally friendly efforts into day-to-day business and continuously
supports initiatives that benefit causes such as children and the
environment. To cut transportation costs, IKEA uses flat packaging;
customers assemble the products at home. The company designs its own
furniture, which is made by about 1,500 suppliers in more than 50 countries.

To visit the IKEA Web site, go to http://www.ikea.com

About JDA Software Group
With its acquisition of Manugistics finalised on July 6, 2006, JDA Software
Group, Inc. (Nasdaq:JDAS) is the global leader in helping more than 5,500
retail, manufacturing and wholesale-distribution customers in more than 60
countries realize real demand chain results. By capitalising on its industry
position and financial strength, JDA commits significant resources to
advancing the JDA Portfolio suite of supply and demand chain solutions. JDA
Portfolio software enables high-performance business process optimisation
and execution from the manufacturer's plant, through distribution to an end
customer or a retailer's shelf. With offices in major cities around the
world, JDA employs the industry's most experienced supply and demand chain
experts to develop, deliver and support its solutions.

For more information, visit www.jda.com

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