IKEA case: warehouse and store are one entity by Carla Casas

IKEA CASE: WAREHOUSE AND STORE ARE ONE ENTITY

Managing inventory cost-efficiently is key to optimize profits. We can observe some companies that perform better than others when it comes to storing management. It is interesting to analyze the case of Ikea, one of the largest furniture retailers worldwide.

Ikea although storing a large quantity of products is able to offer high quality furniture at affordable prices. This is mainly due to its unique supply chain and inventory management techniques.

Focusing on inventory management, warehouses and stores in Ikea are one entity. So consumers can observe the products in the showroom and then obtain the products themselves from the floor pallet location. Moreover, at the night the warehouse is replenished with the products sold during the day.

Ikea follows an inventory strategy called: “cost-per touch”. This theory says that the less people touches the product the lower the costs incurred. So in this case, customers getting the furniture and bringing it home induces no costs for the company.

Another interesting aspect of Ikea’s logistics is their reordering process management. The company has an in-store logistic manager, who controls the ordering and storage of furniture. Thus, having an employee managing this part of the supply chain is key in order to ensure an efficient flow of goods.

Furthermore, Ikea created a reordering management system named minimum-maximum settings. This system is based on ordering the maximum level of products at once when there is the lowest level of remaining products. This type of system ensures meeting customers demand while reducing inventory costs.

Finally, we can highlight the types of storage they have according to the level of demand, depending on the type of the products. In case it is a high-flow warehouse, so that the demand of those products is high, the company uses an automatic storage to reduce its costs per touch.

On the other hand, the facilities we can find if we observe the low-flow warehouses are mainly manual storage systems, due to the lower movement of inventories.

To conclude, Inditex has a leading position in the market due to its unique management of the supply chain, including an efficient control of inventory flows. Indeed, the unique coordination of the different parts of the supply chain makes it highly difficult for competitors to copy their strategy.