For large companies with what seems like an endless supply of inventory, inventory management systems are crucial to the overall success of the company. The efficacy of inventory management systems is dependent on the inventory that flows through the company’s supply chain, starting with the suppliers and ending with the customers. The main challenge with supply chain inventory management is finding the optimal balance between levels of inventory without creating shortages or overflow of inventory. IKEA, the world’s largest home furnishing retailer, has a unique and successful supply chain inventory management system that allows them to hold more than 9,500 products in each of their stores while still remaining profitable across the globe.
IKEA uses multiple strategies to reduce the pressures for large inventories, which include customer service success, ordering costs, setup costs, labor and equipment utilization, transportation costs and payments to suppliers. First, because IKEA needs to transport a substantial amount of materials to create their products, IKEA must reduce their transportation cost. To do so, IKEA uses as few materials as possible to make their products and uses sustainable or recycled materials without compromising on quality. Next, IKEA holds sustainable relationships with their suppliers. IKEA communicates with many suppliers to create competition in order to receive the lowest price possible. In doing so, IKEA creates long-term business relationships and contracts with suppliers in order to further lower prices.
Additionally, IKEA utilizes inventory management strategies that decrease setup costs and utilizes labor and equipment. IKEA combines retail and warehouse processes through including a warehouse on the premise of each IKEA store, where customers can browse for items. This eliminates the need for a separate warehouse in addition to a fully stocked retail space. IKEA also uses the cost-per-touch inventory tactic that abides by the rule stating that there are more costs associated with a product if more hands touch it. Furthermore, in order to consolidate the large level of inventory, IKEA packages their products into pieces in flat packages. These packages take up less space in trucks to maximize the number of products that can be shipped while also allowing more products to be stored in warehouse bins and racks.
Next, IKEA manages in-store inventory efficiently in order to provide good customer service and deliver customers with products of promised quality and price. First, IKEA employs in-store logistics personnel to handle inventory management, who is responsible for ordering products and for material handling logistics in IKEA stores. The logistics personnel are responsible for the efficient flow of goods, which overall increases customer satisfaction and increases profits. These personnel use an inventory management system called “minimum/maximum settings” in order to maintain the optimal level of inventory in IKEA stores. This system establishes a minimum number of products that are available before reordering and a maximum amount of a particular product to order at one time. Another responsibility of the logistics personnel is to monitor what is sold through point-of-sale data. This data enables them to forecast sales for the next few days and allows them to order the correct number of products to meet this demand.