IKEA Company Has a Global Supply Chain

IKEA Company has a global supply chain with sales in over 250 own stores in around 24 countries across the globe and 32 outside franchises in 16 countries. The company's stores are supplied directly from the 1350 suppliers or through 31 distribution centers in over 50 countries. As a result, the firm's supply chain has an international spread comprising of sales and purchases across major regions in the world. Since inception, the growth of IKEA has been remarkable as its sales continue to increase and grow. As part of its strategy to ensure increased growth of its business operations, IKEA has plans to open approximately 20 new stores annually within the next five years in order to double its sales. The growth of the firm and increase in sales is despite of the challenges in supply chain planning, which makes some businesses to change up to 30% of its assortment on an annual basis.

Forecasting Techniques used by IKEA:

The main business idea of IKEA is to provide a huge range of functional and well-designed furnishing products at low prices in order to make them affordable to many people. The company intends to develop its brand through effective communication of the content of its framework and encouraging customers to have an experience of the IKEA concept ("IKEA Marketing Strategy," n.d.). The firm believes that its brand is the sum total of the rational and emotional values that customers associate with its trademark and reputation. Therefore, the IEA brand concept is basically dependent on developing relationships with customers.

In order for the firm to accomplish its business idea and develop its brand, IKEA uses several forecasting techniques. First, the company has adopted a demand forecasting system as part of its initiative to manage suppliers working with longer lead times. The demand forecasting technique is also used by IKEA as part of its quest to increase its sourcing from low-cost destinations that are far from its headquarters in Europe ("IKEA Updates Forecasting for Long Leads," 2006). The company is using demand forecasting and fulfillment modules from supplier of merchandising software since the using countries that are far from its conventional suppliers requires that the firm predict the demand for the products earlier. Secondly, since IKEA launches various new products at least four times in a year, the initial forecast on a national level is established by the departmental head of the firm within the specific country or region. Information from the initial forecast is obtained at least eight weeks before the introduction of the product in the market, which enables the department of logistics to adjust the forecast in advance. Some of the major adjustments that are made to the forecast by this department include the predicted sales and the order level.

IKEA's Preparation of Budgets:

In order to accomplish its business objectives and based on the information from forecasting, IKEA prepares its budgets. The company is among the various international firms that have adopted the Beyond Budgeting model to prepare its budget. The processes of preparing budgets on an annual basis have been time-consuming and cumbersome while adding minimal value and preventing managers from reacting to the rapid changes in the modern business environment. The conventional methods of preparing budgets have mainly focused on fixed targets and performance rewards that often contribute to unethical and dysfunctional management behavior (Hope & Fraser, 2003).

Consequently, Beyond Budgeting model is a new technique for preparing budgets that is used by IKEA as an alternative and coherent management model that enables the firm to manage performance through procedures that are specifically customized to the volatile marketplace. One of the major features of the Beyond Budgeting model is lower cost, which is a major business concept at IKEA. This model promotes lower cost through the elimination of the cost of the budgeting process and prerogative mentality created by traditional budgeting processes. Through this model, IKEA prepares its budgets by releasing able individuals from top-down performance contract chains and enabling them to firm's knowledge resources to gain competitive advantage and satisfy customer profitably.

IKEA's MRP Concepts:

In its supply chain initiatives, IKEA has experienced several problems and difficulties associated with supply chain performance. These problems also included the fact that the firm's planning processes and measures were based on unreliable and disjointed planning information. As a result, the company initiated a program based on cluster of projects in order to enhance the control of its supply chain and its performance in relation to delivery service and costs. The established new program acted as one of the major MRP concepts in the organization. IKEA not only developed but also implemented a new global planning concept for its business operations (Jonsson, Rudberg & Holmberg, 2008).