Memorandum

To:

From:

Date: 28TH NOVEMBER 2022

Subject: IKEA’s Global Sourcing Challenge Case Analysis

Introduction

The international retailer IKEA, which is the biggest furniture shop in the world and one

of the best-performing international merchants. IKEA offers affordable home furniture that are

basic, contemporary, and practical. IKEA uses a distinctive sourcing strategy that includes

numerous vendors in low-cost nations.IKEA is the subject of the case study "Ikea's Global

Sourcing Challenge."

Challenges

The business encounters difficulties with sourcing, international expansion, and corporate

culture. These problems are unrelated to one another, and each calls for a unique approach. Ikea

faces a sourcing difficulty because it must procure goods from nations with low costs while

upholding strict quality standards. The business had been depending on cheap suppliers in China

and other nations, but it was getting harder to keep its low prices due to rising labor and

transportation costs (Bartlett & Beamish, 2018). Furthermore, IKEA was having trouble locating

enough raw materials to meet demand. Additionally, the business was having trouble

maintaining quality control because it was challenging to confirm that suppliers were upholding

IKEA's high standards.

 Ikea faces a difficulty in its global expansion since it must continue to operate on a

budget while expanding into new regions. The issue for Ikea's corporate culture is that it must

uphold its low-cost business strategy while yet provide a positive workplace for its staff.

Communication issues between IKEA and its suppliers and the possibility that some of its

suppliers are unfamiliar with the business' practices and procedures are additional obstacles the

company faces. Another challenge was Consumer Preference Changes since IKEA needed to be

able to spot emerging trends and quickly react since the furniture business was undergoing fast

change. IKEA wanted a mechanism to monitor shifting consumer preferences and adjust its

offerings. Lastly, Pressure from rivalry .This is due to the fact that other furniture companies

were putting greater competitive pressure on IKEA as they expanded their network of

international suppliers. IKEA needed to remain in the lead when it came to creating and putting

into practice a low cost sourcing strategy that was both successful and efficient.

IKEA's dominating theme was how to keep its pricing low while expenses were going

up. The business had to figure out a method to either cut costs or raise prices. IKEA was having

trouble finding adequate raw materials, which was another problem. To fulfill demand, the

business needed to figure out how to expand its sourcing capability. In order to ensure that its

products matched the high standards that its customers expected, IKEA also needed to strengthen

its quality control (Bartlett & Beamish, 2018).

Potential remedies

i. IKEA may buy locally rather than internationally.

ii. IKEA might purchase from vendors who can produce at a cheaper price.
 iii. IKEA may be able to find suppliers ready to negotiate over prices.

iv. IKEA might purchase from vendors who provide discounts for large orders.

v. IKEA might buy from vendors who provide seasonal discounts.

vi. IKEA should concentrate on enhancing its online visibility.

vii. IKEA needs to concentrate on growing its consumer base.

viii. IKEA should prioritize raising consumer awareness of its brand

Criteria for solving the problem

This outlines the process that IKEA can implement to find a solution to the issue. It

begins with identifying the issue; at this step, the problem is identified, and the issue is

thoroughly understood. In this instance, the issue is IKEA's sourcing issue. Second, IKEA should

conduct a study on the issue at hand; IKEA must now study the root reasons of this issue. The

organization would then choose the best solution from the available options in the third stage,

which involves identifying viable solutions to the global sourcing dilemma. The fifth stage

entails putting the chosen solution into action, followed by an evaluation of the results (Ilan

Oshri et al., 2015).

My strategy for helping IKEA solve the issue focuses on a combination of process

enhancements and purchasing from new suppliers. IKEA might simplify its product line and

lower complexity with the use of process improvements. IKEA's supplier base would be

diversified by sourcing from new vendors, lowering its susceptibility to supply disruptions.

Although it would be more challenging to put into practice, this option might provide the most

cost reductions. Also, company can have a human resources division tasked with preserving

Ikea's corporate culture. Europe, Asia, and the Americas should be the three geographic divisions

of the department. A team of human resources specialists and a human resources manager should
be present in each location. The upkeep of Ikea's corporate culture in their region is the

responsibility of the human resources specialists.

Considerations

IKEA must first keep sourcing from low-cost nations. This is the secret to their current

success and the reason why they have been able to maintain cheap rates. Second, IKEA needs to

understand its supply chain well and be able to manage it well. This entails having effective

communication and coordination with its suppliers, as well as understanding where they are

physically located and what their capabilities are. Third, IKEA's sourcing approach needs to be

adaptable. This entails being prepared to change providers or source from multiple nations as

necessary to obtain the best products and prices.

Alternative solutions

Coordination and communication improvements across functions and nations are one

possible approach that IKEA should implement. Establish a worldwide marketing and

communication department to handle all communication, with the ability to create and carry out

a global communication strategy. In addition to traditional advertising, this plan should involve

working with social media influencers to reach new markets. IKEA should employ uniform

contract terms as well to increase competition with suppliers. The business should create a set of

international contract clauses. This can lessen the possibility of misunderstandings and increase

the effectiveness of the negotiation process (Dragičević, 2018). IKEA should strengthen

transparency and communication, establish a supplier site, hold training sessions for suppliers,

and, in the end, set clear objectives and deliver prompt feedback.
 IKEA should cultivate a more empowered and entrepreneurial culture to improve culture.

This entails providing workers the freedom to decide for themselves and take calculated risks.

IKEA should also promote creativity and innovation by establishing an innovation fund and

rewarding the development of successful new goods or services. After thinking about the

fundamental issue facing IKEA Company, I made a decision.

Reccomendation

IKEA's senior management should think about putting in place a consolidated global

sourcing structure to meet the company's worldwide sourcing dilemma. In order to do this, a

centralized global sourcing organization that would be in charge of managing all of IKEA's

sourcing operations would need to be established. Negotiating contracts, building and

maintaining relationships with suppliers, and making sure that quality standards are fulfilled

would all fall under the purview of this organization.

Additionally, to make sure that items are sourced in a way that fulfills the demands of

IKEA's customers, this organization would collaborate closely with IKEA's product development

and marketing departments (Dragičević, 2018). IKEA would be able to more efficiently manage

its sourcing activities and make sure that its items are purchased from low-cost, high-quality

suppliers by using a centralized global sourcing structure.

 References

Bartlett, C. A., & Beamish, P. W. (2018). Transnational management text and cases in cross-

border management (8th ed.). Cambridge, United Kingdom New York, Ny Cambridge

University Press.

Dragičević, I. (2018). Integrated marketing communications on social networks: A case study on

IKEA. Marketing, 49(2), 93–104. https://doi.org/10.5937/markt802093d

Ilan Oshri, Kotlarsky, J., & Willcocks, L. P. (2015). Achieving Success and Innovation in Global

Sourcing: Perspectives and Practices. Cham Springer International Publishing Imprint:

Springer.