IKEA's global sourcing challenge and strategic operations

IKEA Child Labor

Synopsis of the Situation: Write a synopsis that describes the background information about the case, an overview of the case.

The IKEA distribution chain demonstrates a system that employs exclusive outsourcing for product manufacture. Due to this type of sourcing, i.e. The fact that IKEA itself owns no manufacture or production facilities but instead relies exclusively on contractors they have only limited control of how such facilities generate product, with the exclusion of the contracted quantities ordered. Given this scenario IKEA has recently come under fire through public awareness campaigns because exploitative child labor is being used in the production of rugs supplied to the company in India, Pakistan and Nepal. Short-term and long-term decision making must take place that demonstrates good faith in IKEA's relatively new anti-child labor contract amendments and reduces the fall out of the immediate situation while simultaneously demonstrating a long-term proactive response to the issue of child labor in the production of its rugs. In other words IKEA must choose to either eliminate one of its major suppliers of rugs or work with them and others to help respond to the issue of child labor practices in a way that mitigates market loss as much as possible. Market loss could potentially be significant and come from either the elimination of a profitable product line and/or the public outcry that might be created by continuing to source from manufactures that utilize child labor without taking proactive steps to act in the best interest of the child, as is the mandate of company ethics (Bartlett, Dessain, Sjoman, 2006).

Key Issues: Define the key issues/factors in terms of marketing and the roles of the Key Players. You should include only those issues that impact the identified problem.

The carpet line at IKEA is relatively profitable by current standards and though it does not constitute a huge portion of total profit from sale of goods the whole of the product line would be seriously hindered if the exposed manufacturer (which has been exposed as a child labor offender) were eliminated completely as a supplier (Bartlett, Dessain, Sjoman, 2006).

The two main stakeholders in the situation are IKEA in general and the major supplier of Indian rugs (Rangan Exports) but the relatively new member of the marketing management team Marianne Barner, in this position at IKEA less than 2 years prior to the scandal breaking holds the majority of responsibility for decision making in the situation (Bartlett, Dessain, Sjoman, 2006).

IKEAs position as a global sourcing company with no ownership of the means of production demands at least a modicum of personal control over the social/environmental/ethical manner in which its products are produced and supplied and stands to lose a great deal of revenue from the sales of rugs and other products if a consumer boycott occurs, as has happened in past similar situations. IKEA therefore has a central responsibility to act in a way that supports the goals of the company to source ethically in a public manner (Hue, 2009).

Rangan Exports (as well as other unexposed but likely just as ethically questionable sources) has a fiscal responsibility to uphold its commitment to the signing of the IKEA child labor clause in its contract. The IKEA contract is likely a huge portion of its sales, given the fact that IKEA is a major buyer of Indian rugs and though the company may not be violating local laws to the extent of a localized identified response the company must be reviewed in some way to ensure that changes are made and that children being exploited are relieved of burdens and given opportunities, that are in their best interest (Hue, 2009). Internal controls as well as external review is essential for the company to make changes that will ensure compliance with all local laws as well as IKEAs standards, which are based on international child labor law standards (Barner, 2007).

Marianne Barner has a fiscal and marketing responsibility to IKEA and to IKEAs consumers and other suppliers to establish both short-term and long-term responses to the problem at hand. The marketing responsibility requires swift action, some of which has been taken by Barner already in the form of fact finding and global and local research on the issue, including the legal aspects of the case (i.e. If the company is acting outside its local legal rights) and scope and scale issues of child labor). Yet, ultimately Barner is responsible for making the final ethical decision of either terminating the contract with Rangan Exports and any other companies found to be out of compliance with IKEA child labor standards or to create a working relationship with the contractors that ultimately responds to the best interest of the children involved by assisting those found to be at risk through supportive programs and social network changes (Hue, 2009).

Define the Problem. Identify one key problem. While there may be several problems and a multitude of symptoms, attempt to identify one problem, the resolution of which would alleviate most of the symptoms found in the case. The problem can frequently be defined around one of the key factors of the case scenario.

The key problem in the situation is the hands off manufacture approach used by IKEA to source products, to be proactive and still utilize low cost labor (to keep prices for consumers low) IKEA must be socially responsible by being more active in manufacture site review. Though this could ultimately reduce profit margins the need for both short-term and long-term review in the age of social awareness in marketing IKEA must respond to this demand.

-- ¢Alternative Solutions: Develop two or more alternative solutions to the defined problem. This should not be a laundry list of actions one could take to address every symptom, but alternative actions that could correct the problem at hand. Identify the pros and cons of implementing each alternative.

Alternative solution #1 Eliminate Rangan as a contract supplier and cancel all existing contracts in the face of the violation of the child labor aspect of the contract. The pro-of the response would be a discernable and swift response to the current exposure problem. The cons of the response would be a decline in availability and therefore sales capacity of current rug products, the lack of long-term solutions for a large and formerly reputable supplier, and utter lack of support for children already identified as exploited and having already produced the labor for the particular contract supplies.

Alternative solution #2 Allow Rangan ample time to perform corrective action on their own, pending a review by IKEA for current and future contracts. The pros of this alternative include the ability of IKEA to meet current supply deadlines and provide products for their stores, the supportive yet non-invasive responds is also indicative of company history. The cons of this response are that it would provide little discernable evidence of a proactive response on the part of IKEA for consumers and partners already identified as collaborators in attempting to respond to the problem and it would also likely do little to aide those already identified as exploited.

Alternative Solution#3 Suspend contracts with Rangan on a provisional basis, allowing the contractor to fill current orders pending review of systematic changes in child labor practices and create a proactive programs approach for children employed by Rangan, including screening for employment of both employees and subcontractors, internal and external audit of manufacture facilities and increased regulations for hours of work and opportunities for employees. The pros of this response are that current orders will be filled and the contractor will be allowed a reasonable time to make changes and challenge the situation while IKEA is simultaneously responding to this cultural challenge. The cons of this response is that it will require active intervention on the part of IKEA and/or an outside review body to keep constant vigilance with regard to future compliance with child labor standards.

Selected Solution to the Problem: Select one of the alternatives and explain why it would be best. Most of this work is already done if the alternative solutions clearly point out advantages and disadvantages to each. Additional study or research can be a part of the recommendation, but should not be the primary solution. Your job is to identify an action, not put off action.

Solution#3 Suspend contracts with Rangan on a provisional basis, allowing the contractor to fill current orders pending review of systematic changes in child labor practices and create a proactive programs approach for children employed by Rangan, including screening for employment of both employees and subcontractors, internal and external audit of manufacture facilities and increased regulations for hours of work and opportunities for employees.

Solution #3 is the obvious choice as IKEA will be responding to the situation at hand and creating a best practices response that will ultimately help the contractor and any employees currently being exploited. Though it will take resources and vigilance to create and monitor this response the first and second alternatives above do not respond to the long-term. Terminating the contract completely would further jeopardize the exploited workforce by eliminating payment for work they have already done and force greater hardship upon them. The second alternative would ultimately respond only to the needs of the contractor/supplier and would not show the consumer good faith in the situation or respond to ongoing exploitation beyond what the contractor itself deems they can "get away with."

Expected Results and Rationale for the solution: Detail your conclusions and recommendations with supporting rationale including concepts from the text or other sources. Relate how you would have handled situations, problems and people. Write a clear and concise conclusion. Cite sources to substantiate what you say.

The expected results of the third alternative would likely be a proactive/long and short-term solution-based response where the needs of those already exploited are responded to functionally through programs such as those suggested by Hue, such as an educational opportunity plan for children identified as well as family and cultural education and local and regional lobbying of the government to respond more fully to the problem (2009). The response can serve as a benchmark for IKEA to deal with the long-term issue of child labor in many industries in India and elsewhere, and to some degree the rather small issue or product percentage that rugs encompass is a good place to test such a program and plan, that counters the demand for lower cost products in the face of any obstacle, social or moral.