A Strategic Framework for Improving Inventory Management Decisions at IKEA

Abstract

Background
IKEA has realized the potential benefits of improving inventory management
on a strategic level. For IKEA as a market leader in the home furnishing
business, an efficient supply chain and proper management of inventory is
of crucial importance in order to support their business idea of offering lowpriced
products to the many people. Inventory management at IKEA is
characterized by an ad-hoc and reactive approach. A new way of working
proactively, including clear responsibilities, with inventory management is
therefore needed to guide IKEA employees on how to organize, store and replenish
inventories and ultimately keep an adequate supply to secure availability
of their products. As a measure of approaching the problem and
evolving this work, a new strategic framework for inventory management
has been constructed by the company.
Problem description
IKEA has, with its new inventory concept, a clear vision of where to be in
their future work with inventory management. However, a definite strategy
of reaching this position is lacking and the company has identified the need of
clearly mapping present day’s inventory work before proceeding as something
vital.
IKEA is well aware that many of the problems experienced are related to
strategic inventory management and not operational (mathematical). Directions
of how to properly steer and plan inventories on a higher level, taking
the entire supply chain into account, is lacking and clearer organizational
responsibilities need to be defined. Further, the hope is that, by visualizing
the problems and questioning high inventory levels, a change in behavior
and mindset of employees when it comes to inventory management can be
achieved.
Purpose
The purpose of this study is to highlight current problems in steering and
planning inventories within IKEA and to propose practical solutions and a
strategic framework in line with IKEA’s new inventory concept to improve
their organizational work and strategic decisions related to inventory management
in order to reduce inventory costs.
Methodology
This thesis has been conducted with a systems approach and was carried
out in an inductive research process. Addressing the research questions required
collaborative action research with IKEA to finalize concluding theory.
The process was divided into two phases, a primary exploratory phase with
quantitative data analysis and qualitative mapping interviews, followed by
an explanatory and normative phase with qualitative interviews and workshops.
Conclusions
The underlying reasons to high inventory levels at IKEA consist of lack of
proper planning, follow up and guidelines related to excess stock situations.
There is a clear mindset of securing availability of products for customers
to almost any cost due to clearer consequences for potential shortages. This
attitude is related to the lack of clear cost support for keeping inventory in
the company.
Solutions dealing with the high inventory levels in the company were proposed
with focus on reducing inventory related costs by defining new stock
strategies and suggesting measures to take to reduce existing stock. Moreover,
by improving and establishing a deeper collaboration between different
parts of the organization involved in the inventory planning activities, and
by defining clearer guidelines for planning stock and prioritizing articles,
inventory planning was made more efficient.

• author: Ellesson, Ida and Hultin, Viktor
• supervisor: Fredrik Olsson
• organization: Production Management
• course: MIO920
• year: 2016
• type: M1 - University Diploma
• subject: Technology and Engineering
• keywords: inventory management, inventory planning, supply chain management, organization, inventory strategy, consumer goods, seasonal demand
• other publication id: 16/5551
• language: English
• id: 8892365
• date added to LUP: 2016-09-23 09:54:57
• date last changed: 2016-09-23 09:54:57