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May 16, 2023
  • Operations management is one of the most crucial factors for a business or an organisation. With the help of operations management, an organisation can enhance its key aspect, which is to provide services or products in accordance with the demands and needs of the customers. Operations management include effective and efficient maintenance of processes regarding the design and management of products and services along with supply chain management. The study of operations management involves every level including strategic, tactical, and operational (De Toni, 2106). The operational level includes an analysis of the factors, such as operations management, process management, capacity management, and lean management for an organisation. The study of all these processes help a company analyse the current position in the market, and according to the analysis, the company designs strategies and policies in the areas that are required to improve for enhanced sustainability and market value (Slack and Brandon-Jones,2018).

    In this regard, this report undertakes the case study of a company named IKEA found in Sweden and headquartered in the Netherlands. IKEA was established in the year 1943 as a mail-order sales business and started selling furniture in 1948. IKEA is a multinational group that designs and sell ready-to-assemble furniture, kitchen appliances, and home accessories. The name of the company is the acronym for Ingvar Kamprad, who is the Founder of the company, Elmtayrd, which is the farm where the Founder grew up, and Agunnaryd, which is his hometown. The company currently operates in 49 countries and have 145 stores globally. IKEA mainly manufactures types of furniture, such as varieties of beds, bookshelves, sofas, and tables along with bathroom articles and kitchen utensils. The company consists of certain departments which are responsible for the effective management and efficient functioning. The crucial departments of the company include, Human Resource (HR) department, Retail department and Finance department. The HR department is accountable for the satisfaction of the employees and the stakeholders of the company which results in enhancement of the customer satisfaction and image of the company in international market. The retail department handles the retail stores of the company. As, the retails stores of IKEA are constructed in the form of stores, the whole process of maintaining stock and selling it to customers is the responsibility of the retail departments. Another crucial department is the finance department. The primary goal of the department is to maintain the financial status of the company and design strategies to fulfil the organisational goals in lowest minimum price.In the similar context, the report exhibits a detailed study of the company in regard to all significant operation functions of the company, including operations management, capacity management, lean management, and process management. Recommendations for the progress and effective implementation of operation management within the company are also provided in the report.

    Operations management is essential in as it maximises the efficiency of an organisation while producing goods and services, which fulfil the requirements of the customers. Operations management plays an essential role in accomplishing the management strategies of an organisation (Hill, Jone and Schilling, 2014). IKEA is an organisation that produces furniture and some operations management decisions that are involved with this organisation are purchasing wood and fabric, hiring and training workers, planning the location and layout of the furniture factory, as well as purchasing cutting tools and other fabrication equipment. These operations management decisions help the organisation to produce furniture, which is affordable, functional, and attractive. The primary areas of operation management that are focused by the organisation are quality management, supply chain management and cost (Carlsson, 2015).

    The first area of operations management that is focused on by the organisation is cost. Effective operations management ensures the minimum cost of production. IKEA focuses on low manufacturing costs along with meeting the requirements for function, efficient distribution, quality, and impact on the environment. The organisation makes use of sustainable and recycled products in order to manufacture the products. Most of the products that are produced in IKEA are made out of sustainable and recycled products. This organisation is known for providing high value in terms of creative designs, functionalities, and quality at an affordable price (Couto et al., 2017).

    IKEA uses a self-service model instead of appointing salespeople to attend customers. It also focuses on low-cost, modular, and ready-to-assemble furniture. The products are provided to the customers in a flat-packed form. These flat-packed form of the products help to increase the supply chain of the organisation as they are easy to carry for the suppliers as well as the consumers. This strategy of providing flat package reduces the cost of shipping, storing, construction along with assembling. It also provides greater transportation facility and warehouse space. The prices of the products set by the organisation are comparatively lower than the other organisations. IKEA analyses the market strategies and new designs that are implemented by its competitors and produces own modified designs at a lower price in order to attract customers. Other organisations produce ready and assembled furniture, which increases the cost, whereas IKEA produces furniture that is to be assembled by the customers and provided in a flat package that reduces the cost of the product (Hill, Jones and Schilling, 2014).

    Another area of operations management that is focused by the organisation is supply chain management. IKEA has adopted global supply chain management system. The products that are produced by the organisation are good quality products, and their cost is also low as compared to the other organisations in the same sector. The current IKEA supply chain management system is designed in such a way that it can control and handle its own designing, manufacturing and warehousing. IKEA’s supply chain management is spread globally with the purpose of both sales and purchasing in all the major regions of the world. The supply chain management of IKEA involves three sectors, which are the primary, secondary, and tertiary sector. These sectors include raw materials that are required in the process of manufacturing products, distribution of products, and retail sales to the end customers (Cetinkaya et al., 2011).

    The goal of supply chain management is to organise operations in primary, secondary and tertiary sector in order to have a positive impact on the environment. The primary sector provides raw materials to the organisation. IKEA accepts only those raw materials that match the quality standards that are set by the organisation. The primary sector extracts and develops natural resources such as timber, oil, and minerals. The secondary sector makes the use of raw materials that are obtained from the primary sector in order to build, manufacture, and develop finished goods. IKEA makes use of these raw materials to design new products at a lower cost to attract customers. The tertiary sector performs the distribution of products to the suppliers. This sector provides the services that are required to fulfil the needs of the customers in the form of retailing, distribution, insurance, as well as customer services (Johnsen, Howard and Miemczyk, 2014).

    The other area of operation management that is focused on by IKEA is quality management. Quality management provides an opportunity to increase the effectiveness and productivity of the organisation. Maintaining the quality of the product is the primary focus of the organisation in order to satisfy the needs of the customers and provide benefits to the working staff of the organisation. The organisation has introduced some quality control tools and practices as they are concerned with the quality of the products. The process of quality management is performed in teams and quality circles that has been incorporated by the organisation. IKEA is capable of delivering products with high quality at low prices (Venkataraman and Pinto, 2017).

    IKEA with the help of a quality assurance program enforces its suppliers to follow the quality standards of the organisation. The quality management team, quality circles, and suppliers contribute to the process of quality management and control. The suppliers of the organisation are committed to IKEA quality staircase model. This model represents the top management commitment value of Total Quality Management (TQM). In order to become an IKEA supplier, the quality compliance standards must be implemented. The quality compliance standards, analysis and fulfil all the requirements of IKEA and work efficiently in order to control the quality and security compliance of IKEA articles.

    The suppliers of IKEA products should also fulfil all GO/NOGO requirements in order to deliver the products of the organisation. The Customer Experienced Product Quality (CEPQ) is a concept that is used by the organisation in order to describe the expectations of the customers from the products and services. CEPQ also covers the areas that are related to renewable materials, the materials that are free from harmful chemicals and are safe to use, materials that are easy to assemble or install, durable and functional (Kuei, Madu and Lin, 2008).

    Process Management in the Organisation

    IKEA process analysis is broadly divided into three sectors, which are the primary, secondary and tertiary sector. Raw materials are developed in the primary sector, where IKEA designs it commodities in Sweden while ensuring that the product meets the functional, qualitative and effective distribution requirements. IKEA also ensures that the cost involved in the production of home furnishing should be minimum (Cosmo and Yang, 2017). The company bargains with its providers to ensure low cost of its products verifies the conditions and value of the market, identify the social conditions of the supplier and analyses the environmental impacts of the materials. The consumption of wood is reduced as IKEA focuses more on developing a design solution that includes the use of recycled plastic. Effective communication between IKEA and its suppliers is a critical factor in the success of IKEA. in the secondary sector, the manufacturing of the products takes place. IKEA designs its commodities in such a manner that the least amount of resources are involved in the manufacturing of the best quality products. The value of the manufactured goods is increased by the big IKEA retail stores, which can store a large volume of products. The use of steel in its products has improved the safety and ergonomic aspects of its design. The company is very conscious of the environment as it utilises a large amount of wood as raw material for the manufacturing of its products. IKEA should continuously review its existing strategies to survive in the changing environment and adopt new technologies. It needs the transformation of business and IR to implement new production procedures along with developing advanced analytic capabilities and implement more efficient end to end processes. IKEA should also apply strategies to shorten the distance between the customers and the suppliers to achieve operational excellence (Raghoebar et al., 2017).

    IKEA uses several strategies for making its customers experience better, and it assures that the customers enjoy themselves during their visit to the store. The company employs certain customer service strategies to provide the best services to their customers. At each IKEA store, customer relations co-workers are allotted, who know IKEA products, provide advice and information to the customers during their visit (Peppers and Rogers, 2016). IKEA also provides ballroom area for children, so that the parents can enjoy their shopping without bothering about their children. The children can enjoy their visit to IKEA even if they do not want to shop as they can play in the ballroom area and their safety is ensured by the staff assigned to the ballroom. The children are provided with all the necessary things, and the cleanliness of the area is ensured so that the children can be provided with the best experience possible.

    IKEA provides good check out facilities to its customers by enlightening them about the product details and the services provided by IKEA. The company also offers different payment methods to its customers, which ensures a positive impact on the customers about the IKEA store. The process management of managing customers can be improved to attain operational excellence by addressing certain issues. IKEA provides products at lower prices, which has created problems in maintaining the quality to meet the international standards (Jiang et al., 2018). The lower prices of products have not only affected the quality but also the services provided by IKEA. This problem can be solved by providing the workers with proper international training so that they can improve the quality of products. The advertising campaigns that are held by IKEA are not pretty effective in holding the attention of its target customers as the company is not able to research well on the market. The lack of market research is a result of cost consciousness possessed by the company. IKEA can address this issue achieve operational excellence by paying special attention to the traditions and customs of the country where the advertising campaigns are being conducted.

    There are certain inventory management strategies employed by IKEA that help it in growing and developing its business. First is the maintenance of long-term and sustainable relationships with suppliers. IKEA signs long-term agreements with its suppliers, which assures the presence of a sufficient number of suppliers. This helps the company in long to save inventory management cost as the suppliers provide services at regular prices. The second strategy is cost-per-touch inventory strategy which promotes the customers to select the products that they want to buy instead of appointing staff members to do that work. According to a rule of inventory management, the cost involved in inventory management is higher if number of hands touching the product is higher. IKEA applies this approach quite effective in reducing the overall cost involved in inventory management.

    The third approach used by IKEA is the do-it-yourself assembly approach, which helps the company in reducing the packaging and management costs. Flat packaging is applied by the company, which makes it very easy for the customers to assemble the products at home easily. Flat packages are easy to handle and occupy less space, which is helpful in reducing the transportation costs (Yu et al., 2016). Fourth is the sustainable design of products to reduce the maximum amount of costs. The products that are manufactured by IKEA are made up of sustainable and recycled goods, which makes the products effective regarding price. The company tries to utilise fewer materials to manufacture products, which results in lower shipment cost, lower product handling cost and lower transportation cost. Inventory management of IKEA is one of the best, which helps it in achieving operational excellence as a wide variety of products are available to please the customers, and the prices are low as compared to other companies in the market.

    The scheduling operations are the process of managing, arranging, optimising work and workloads in a manufacturing process. IKEA effectively aligns its business model and operating model. The scheduling process of IKEA is mainly divided into three phases. The first phase is the product design process, which includes four different criteria that every product must meet to be available for the customers. The criteria include affordability, sustainability, good design and functionality. The scheduling operation starts by assigning a price to its product that is to be sold. For this purpose, the designers select the elements, raw materials and production techniques for reducing the overall production cost (Hitomi, 2017). IKEA selects only limited raw materials for manufacturing different products, which results in lower rates of defects, which in turn, reduces waste and cost. The second phase is production and distribution. The spreading of production demand allows the suppliers to have uniform time, which leads to lower production cost per unit. IKEA applies the strategy of packing the products into flat packets, which helps the company in optimising warehousing and transportation costs. This enables easy transportation of goods and products and easy storage, which leads to decreased transportation costs and decreased labour cost. The third phase is the retail phase, in which IKEA does not need to hie any labour as the customers are responsible for picking up the products themselves. The customers also transport the furniture out of the store, and this saves labour, overhead and shipping cost, which is associated with assembly and delivery.

    Effective purchasing management aims to optimise the total IKEA value chain, which contributes to the goal of providing better products at lower prices. IKEA tries to find effective ways to manufacture its products by making more products by using less material. Purchasing teams are located around the world by IKEA, which works with the suppliers n more than 50 countries. It keeps on looking for new suppliers and developing the existing suppliers. The purchasing teams that are being set up by IKEA ensure optimal production conditions, capacity, availability and product quality. These teams also support the suppliers in their work, so that the working conditions are improved, and the negative environmental impacts are minimised. IKEA manages its suppliers by maintaining long-term relationships with them. IKEA uses the e-wheel for maintaining efficient distribution and environmental sustainability at the design stage of each product. E-wheel helps in accessing the impact of each product on the environment to ensure that the product is environmentally sustainable.

    IKEA ensures long-term relationships and manages the strict relationship with its suppliers. It does not offer a very high-profit margin to its suppliers but ensures a continuing relationship. IKEA maintains a separate department for ensuring the environmental sustainability among the suppliers, and the department is IKEA Way on Purchasing Home Furnishing Products (IWAY). It provides basic guidelines regarding the safety of the environment to its suppliers so that they create sustainable and eco-friendly operations by avoiding waste and making efficient use of technology (Bostrom, 2015). The company also ensures that banned chemicals such as formaldehyde and phthalates should not be exceeded in IKEA’s requirements. The suppliers are provided with a guideline that is required to be followed. The guideline involves certain rules, and the most important rule is that the suppliers must conduct certified product testing through third-party auditors. Process management can be improved by upgrading the relationship between the suppliers and the shops along with improving working conditions for the direct and indirect employees at IKEA.

    Lean Management in IKEA

    Lean management is an organisational approach that contributes to the continuous improvement of the organisation. Moreover, the practices of lean management also support a long-term approach for the working of the organisation to achieve small and incremental changes for the improvement of efficiency and quality of the organisation. The concept of lean management is mainly focused on the manufacturing companies that contribute to the lean production of the company. The lean production is the systematic method that contributes to the minimisation of waste within the manufacturing companies without affecting the productivity of the company. The lean methodology used realistic and proven tools and techniques that help in systematically identifying the varied types of wastes involved in the business and eliminate the wastes to increase the productivity of the manufacturing companies (Bortolotti, Boscari and Danese, 2015).

    In the context of this fact, IKEA being a manufacturing company has also adopted the concept of lean management to improve the growth of the organisation. By adopting the lean management in the company, IKEA has the ability to reduce the manufacturing waste that includes processing time, excess inventory, over production of management, increase in transport time, increased wait time, poor quality of products and operator motion. Lean management is considered as the endless journey for an organisation to become the most effective, efficient and innovative business company. The lean manufacturing is based on the needs of the customers due to which the company that is based on the lean practices are more closely to the demand of the customers (IKEA, 2017).

    The concept of lean management includes various tools and practices for its proper implementation in the system of the manufacturing companies. The various tools and practices include total quality management, total productive management, customer relations, value stream mapping, and production planning and control technology. The IKEA has various benefits with the adaptation of lean management in the working system of their manufacturing (IKEA, 2017). The benefits that IKEA includes with the involvement of lean management are as follows:

    1. Reduction in cost

    The primary goal of the product manufacturers is the cost reduction that helps the company to survive in the market. In order to reduce the cost of the products manufactured by the company, it is required to manufacture only the required products using the minimum manpower available in the market. The lean management involves efficient processes for the manufacturing of the products which prevents the wastage of process. The products of the IKEA company are manufactured at a low cost that can be affordable by the customers that will lead to the sustainability of the company in the market (Meiling, Backlund and Johnsson, 2012).

    1. Increase in efficiency

    The lean management in IKEA supports operations management that helps in organising the business in such a way that contributes to the improvement in the efficiency of manufacturing the products. With the help of lean management, the small and incremental changes in the process of manufacturing also contribute to the improvement of efficiency. To achieve a high rate of efficiency, IKEA has minimized the use of the resources and increased the quality of the manufactured products available for the customers. The lean manufacturing followed by lean management has a line balancing technique that ensures that every person in the manufacturing process is working inefficient manner that leads to an increase in the efficiency of the company (Meiling, Backlund and Johnsson, 2012).

    1. Reduction of Manpower: The major reason for adopting lean practices in the manufacturing industries is to get more work to be done with the involvement of less number of employees. With the impact of increased efficiencies and standardized work, the ability to complete the work with less number of employees becomes easily possible. Thus the lean practices allow the company to manufacture the products at low cost and also it requires less manpower to increase the productivity of the company.
    2. Total Involvement of the Company: The concept of the lean manufacturing is meant to involve every member of the company to increase the productivity of the company. The lean mean manufacturing does not focus on a specific area of the company rather it covers the whole production system of the company. In the context of this fact, the employees get empowered as it promotes the concept that everyone is the part of the company. Moreover, the lean practices of manufacturing process also make the employees able to know the work they have to perform with the help of standardized work instructions (Arnheiter and Maleyeff, 2005).
    1. Improvement in the Morale of the Employees: The major benefit of the lean management in a company is found in the increasing morale of the employees. The improvement in the morale of the employees cannot be seen at the initial stage of the lean practices, but as once the employees will completely adopt the lean practices the morale raises with their involvement and empowerment in the company.
    2. Increase in productivity

    The production method involved under the lean manufacturing includes the concept of 5s. The 5s concept is considered as a workspace philosophy management that mainly comprises of:

    1. Sort: This method involves the elimination of unwanted items that are found in the workspace of the manufacturing industries.
    2. Sustain: In order to sustain in the global market it is very important to maintain the products and services that have been accomplished successfully in the market.
    • Standardize: This is the basic method by which the manufacturing process is required to be done in a consistent and standardized manner that help in achieving the growth in the production of the company.
    1. Shine: This method of lean manufacturing includes proper maintenance and cleanliness in the working place of the company. The better maintenance of the workplace contributes to the increase in production rate as well as the working motivation of the employees.
    2. Set in order: The tools and equipment that are required in the manufacturing process are to keep in an ordered manner and within reach of every individual working in the company. The proper availability of tools prevents the delay in the manufacturing process (Panwar et al, 2015).
    3. Increase customer satisfaction

    The practices involved in the lean management focuses on the needs of the customer and contribute in fulfilling the required demands. The customer satisfaction in the lean management involves five basic principles to improve the needs and satisfaction level of the customers. The five principles of customer satisfaction include value, flow, value stream, perfection and value pull. Employing these five principles will contribute to knowing the values adopted by the customers with the manufacturing process (Fullerton, Kennedy and Widener, 2014).

    1. Environmentally friendly

    The lean management is a technique applied to eliminate the wasteful activities involved in the production process affecting the efficiency and profitability positively. According to the new environmental policies that are implied by the government the manufacturing industries should have minimum impact on the environment, and the process used by them for production should be eco-friendly. This is also one of the major motives of IKEA. for this the company has adopted lean manufacturing as the basic concept of lean manufacturing is regarding waste reduction and this minimises the negative effect of the industry on the environment. Lean manufacturing uses raw materials which are recyclable and mostly are the renewable resources. Use of such materials does not harm the environment and the waste produced is also reduced to a significant level (Modi and Thakkar, 2014).

    Capacity Management within the organisation

    Managing capacity is a significant part of operations management in an organisation. The concept of capacity management is defined as managing organisation’s resources, such as labour force, manufacturing and office infrastructure, raw material, technology and IT resources, and inventory. Changes in capacity management have direct implications on organisational factors, such as quality of the product manufactured, supply chain management of the organisation, human resource, and maintenance. Thus, it makes effective and efficient managing of capacity a crucial task for operations manager of the organisation (Heizer, 2016). There are three special considerations for effective capacity management, which include forecasting demands accurately, understanding technology and capacity increments, and finding the optimum level. Through these three considerations, an organisation can maintain an adequate level of capacity management.

    Managing capacity is a crucial factor to be considered for effective management of a company as it is characterised by uncertainty. Either capacity management is carried out in accordance with the anticipated demand patterns for a particular product, or there are some situations where capacity is not required to be managed according to the expected demand patterns. Generally, the practice followed for capacity management includes anticipating demands critically to effectively manage raw material, infrastructure, and resources including IT and machines. The companies are required to analyse the market and sales patterns for individual products manufactured by them as the first step of capacity management. The ordering and storing of raw material is managed according to the market demands analysed and resources, such as workforce and machines, are also managed in regard with sales forecast and demand pattern for a particular product. The well-established manufacturing-oriented organisations usually follow the approach of managing capacity and sub-processes according to the anticipated demand and sales forecast for the product. This helps the organisation to manage raw materials and other hardware and software requirements effectively and according to the demand for the products.

    Managing capacity according to the anticipated demands and sales forecast also proves beneficial for the company as it saves the amount of capital, which is wasted in the case raw materials and resources are extra or damaged by the time they are used. Although managing capacity according to the anticipated demands and sales pattern has several advantages, the companies, sometimes, have to go through situations where the demand pattern and sale forecast suddenly change. The change may be in the form of a sudden increase in demand and sales for a specific product or sudden decrease in the demand and sales for a particular product. In both the cases, the companies have to incorporate sudden changes in their capacity management process, and the change can also impact other management processes of the company negatively. The supply chain management also becomes vulnerable in the case of ineffective capacity management and hence, the operations of the companies as a whole are affected.

    In the cases where uncertain situations occur, the companies do not co-relate the two concepts of capacity management and anticipated demands and sales forecast, and capacity management is carried out according to the management of the company. They manufacture products irrespective of demand or sales of the product and keep them in the warehouses as stock.

    However, in IKEA, capacity management is not related to demand pattern for a product, and it is also not carried out in accordance with the uncertain situations. The company has adequate infrastructure for storing manufactured products that include warehouses and stores, and the company does not face storage issues. The layout of the stores of IKEA is made like a warehouse, which provides the company with the benefit of having retail stores as warehouses. This saves the capital of the company as it does not have to maintain separate warehouses and the stock is also maintained in the retail stores (Laurin and Fantazy, 2017).

    IKEA is known to keep an adequate amount of manufactured and delivery-ready products as stock in warehouses, and yet it sells products at a low price. This is according to the philosophy the company follows, the products should be affordable to people of every category in the society. This maintains customer strength of the company and helps in sustaining the position of world’s largest furniture retailer. Keeping products in stock is advantageous for IKEA as the availability of the product is maintained every time, irrespective of high or low demands for the products. This increases customer satisfaction and loyalty towards the brand (Laurin and Fantazy, 2017).

    As IKEA is a well-established manufacturing firm, it can operate on both the strategies. If the firm manages capacity according to the anticipated and known demand patterns for a specific product and sales forecast, it will have many benefits such as raw material will not be wasted as it will be ordered according to the demand and quality of production will also increase. The company can consider the option of managing capacity according to the demand for the product as it will help in efficiently maintaining stock and the number of products manufactured will be limited. As the products manufactured by the company take time to be delivery-ready, the customers have to then wait for the product. This can lead to a decrease in the level of customer satisfaction and customer loyalty for the company. Hence, the company can also consider managing the capacity and product manufacturing according to organisational management and should not incorporate the two concepts of anticipated demands and sales forecast for a specific product and capacity management



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