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Essay: Evaluating Ikea and its sustainability (inc. CSR)

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Promotion

The promotion of IKEA consists of advertising, sponsorship, newspaper and magazine advertising, and many other elements. IKEA also for once had a campaign about men and woman at home and who was worse in their household. For their campaign, they used 4 stand-up comedians, two men and two women, arguing which gender is worse. The target of this campaign was to demonstrate that people face and offer solutions for these kinds of problems. (Services, 2018)

Product

IKEA is one if not the biggest retailer in furniture. But IKEA doesn’t only sell furniture they also sell all kind of different products for a household now in their store. Like products for the garden, kitchen, bathroom and more. They also categories their product in different kind of age groups like for baby’s, children, teenagers, adults and elderly’s. IKEA also has a restaurant where they are known for to have a break feast for only 1 dollar. (Services, 2018)

The STP of IKEA

Segmentation Targeting Positioning

Segmentation

Middle/lower class: IKEA targets this segmentation because the income level of these people is quite low and most of these people live in suburban areas of the country. You could also speculate that IKEA segments at the higher class but that isn’t so visible for the public. IKEA wants to show that there are making good products for a cheap price and that why the segment of middle and low tier is the best option for IKEA. (Cravens & Piercy, 2018)

Targeting

People from urban areas: IKEA first step is to understand the business and what they hope to achieve through their marketing strategies. After this IKEA analyses, what their target is. The target of IKEA is variates from country’s but the most common target that every IKEA has is people in the middle/lower class. This was also in their segmentation; this target group can also go deep in what age group they are targeting but for the most part it’s the young people because they have a lot of money they are willing to spend for furniture and other product in a household. (Cravens & Piercy, 2018)

Positioning

World leader of home furniture: IKEA is like the leader of all furniture stores, not in every country but it is considered one of the biggest stores that sell furniture. If you ask people about buying furniture the most will recommend IKEA as the main to go store for it. It’s not only important what people think about IKEA and its position, position itself is also important. IKEA is becoming more and more noticeable and accessible worldwide. For the future IKEA wants to build the stores in a centrum where more people are coming. And they also want to build pick-up points where the customers can pick the products them self-up. (Cravens & Piercy, 2018)

Finance

Is Ikea private or publicly financed?

Ikea is privately held, it is not a listed company. IKEA has reasons for this choice to be a private company, so that the company can fully decide which way they want to head without only aiming for profit. Because what is also listed in IKEA’s vision is that the company wants to make furnisher available for the many people. This means they want to keep the costs down and don’t aim for the highest profits. This is not what most companies aim for.

Which stakeholders are there in this company?

  • Better Cotton Initiative (BCI)
  • Building and Wood Workers’ International (BWI)
  • Business for Social Responsibility (BSR)
  • Clean Cargo Working Group (CCWG)
  • Compassion in World Farming (CIWF)
  • European Retailers Round Table (ERRT)
  • Forest Stewardship Council (FSC)
  • Global Compact
  • Global Forest & Trade Network (GFTN)
  • Global Social Compliance Programme (GSCP)
  • International Labour Organization (ILO)
  • Rainforest Alliance
  • Roundtable on Sustainable Palm Oil (RSPO)
  • Save the Children
  • The Network for Transport and Environment (NTM)
  • UNDP
  • UNICEF
  • UTZ Certified
  • WWF’

(B.V, 2012)

What can you conclude about the company’s profitability and liquidity using the main financial statements in the annual report?

Ikea does make a net profit of 2,473 million euros although this is a good net income, it is substantially less than last year with a 4,200 million net income. (41.11% less) this is a pretty big decrease in net income, there is a reasons for this. The reason is that the corporate tax rates went up from 21,6 to 24,9%. The current ratio (liquidity) of this company. The group equity is 39,943 divided by the current liabilities 10,220 =3,908. This means the company can pay back there short term liabilities 3,9 times by there current group equity. Current ratio of IKEA is 39,943 / (10,220 + 2,777) = 12,997 = 39,943/12,997 = 3,07 so that means they can pay back all companies debt 3.07 times.

(macfarlane, 2018)

“Quick Ratio = Current Assets (Cash + Cash Equivalents + Accounts Receivable) ÷ Current Liabilities”

“Current Ratio = Current Assets / Current Liabilities”

(investopedia, 2014)

[2023 update – you can download Ikea’s financial reports here]

What does the supply chain of Ikea look like?

What Type of Supply Chain Does IKEA use?

Make to stock

“Make to stock is the traditional production process of building up an inventory based on sales forecasts. Inventory is then stored in locations such as warehouses or retail stores until it is purchased by the customer.” (John, 2017)

Make to stock is also the most effective for the ratio between the revenues and the use of resources. Ikea has a fast-moving consumer goods, this means they can produce their products in large batches which can achieve the consumer in getting benefits in production and / or transport on a large scale at a low costs per unit. (John, 2017)

Make to stock relies on reliable prediction for the future situation for a particular aspect of the demand. IKEA’s case is design of the furniture. If the forecast is off, this leaves IKEA with unsold products. Food is particularly hard in make to stock, because these products may parish if not sold in time. Make to stock normally allows the customer to get their product the way it is without customising them. This way they are often used as starter items for mass customization. Take the products of IKEA for example, they are designed in one way but can perfectly fit together with all different products. (John, 2017)

IKEA Supply Chain

Raw materials and components are supplied to IKEA suppliers. IKEA main distribution method is that the suppliers supply directly to the Ikea retailers or warehouses. This is also how IKEA maintains their low costs. Ikea has 2 types of warehouses, one for products that sell a lot, and one for products that don’t sell that much. Ikea has 3 warehouses for the low distributions, one in America, Europe and Asia. The other warehouses are used for all other products that can’t be stored directly into the Ikea retail shops.

When costumers place orders for Ikea products to be delivered at their homes, Ikea normally sends the products from a warehouse, but they can also be sent directly from the store. But mostly IKEA wants the costumers to pick up the products themselves, so there is no cost included for the costumers to pay.

What Does IKEA Do for Cost Saving In Their Supply Chain?

Furniture design

More than half of the items IKEA produces are made from sustainable or recycled products. This is very nice because in this way IKEA uses les materials. Ikea cuts down on transportation costs, fuel and manpower to receive materials and shipped products in this way. (Tradegecko, 2018)

Packaging design

IKEA has unique packaging, this way their packaging takes up less space during transport and inside the warehouse bins and reserve racks. This way the products are really convenient and efficient. The packages are as flat as possible and there for taking up less space in trucks, so a maximum number of products can fit inside the trucks. This way the costs of the shipment is minimalised, and the costs saved in this way can be used to make the products of Ikea cheaper. (Tradegecko, 2018)

Sustainable relationships with suppliers

IKEA does shipments in bulks, because of this IKEA can make good trades. IKEA wants to have the best prices and materials, and to ensure this IKEA makes long-term contracts with their suppliers. Therefore, IKEA has low prices. (Tradegecko, 2018)

“Cost-per-touch inventory tactic”

“Having customers select the furniture and retrieve the packages themselves is an inventory management tactic called ‘cost-per-touch’. As a rule of thumb, companies find that the more hands touch the product, the more costs are associated with it.”

Every time a product is moved someone must be paid for doing so. This means if a product is left on the shelves for the costumers to take it themselves, less costs are made and this way the product can stay cheap. (Tradegecko, 2018)

KPI’s

IKEA makes use of a make to stock model which is the most effective supply chain option for them to use. There is a visible relationship between the cost saving tactic and their supply chain. They also make sure to put their packaging design in a way so as many products as possible can go with the cargo, and they try to ship as little air as possible. Based on everything I talked about what Ikea does for cost saving, I think one of IKEA core KPI’s is definitely cost saving. Ikea also has good relationships with their suppliers, so they can buy their products for a good price, and they expect their costumers to come gets the goods themselves, so the price can be even better.

Is IKEA behaving Ethically?

Introduction

The theory explains that ethics is the study of what is good and evil, right and wrong and just and unjust. But in this case ethics will be seen in a business way, with values based on religion, philosophy, culture and law. It is important to look at IKEA from an ethical perspective for the simple reason that the organization became the biggest furniture store worldwide and thereby gained worldwide brand name recognition. Said that, it means that with the whole world watching what the company is doing the organizations gained a lot of responsibility. Not only towards the customers, but towards co-workers, suppliers, business partners, the environment and stake holders too. So, the company has gained a social responsibility that needs to be maintained. But how will IKEA deal with this responsibility?

Why it is important for the Organization to think about Corporate Social Responsibility

IKEA strives to meet the requirements of all the buyers wishes which resulted in that a growing number of consumers choses the products. The organizations goal in the future is that the company will be able to continue to operate effectively and keep fulfilling the consumers demands. But nowadays consumers do not only want products that have a good design and are cheap, but they want products that are not harmful to the environment and that employers are treated in a decent way. Therefore, if IKEA wants to keep the large number of consumers it has now is it necessary for the brand to think about corporate social responsibility. Corporate social responsibility can be explained as the urge to meet the requirements we have in the present such as maintaining a healthy ecosystem, social equity, a good organizational governance and as main goal to contribute to a sustainable development. To check if IKEA takes corporate social responsibility into account we should look at, what is expected of the organization by customers and society, environments standards and how the company uses the power that it has. (Frost, R., 9 March 2011)

What do the customers demand from the Biggest Furniture Store?

As told before consumers find it important that a brand such as IKEA does not only provide good quality products and services, but that the company also benefits the environment and creates a good working environment for its employers. In order to develop a good working environment Ikea promised to ensure that employees feel that they are being heard and feel empowered. They need to feel that they are a part of the company. Because of that must business contagiously be done with common sense. Common sense based on generously, admiration, justice and uprightness. IKEA expects that every co-worker should be themselves at work, respect a diverse work team and should stand up for others and themselves. When the company fails these requirements from the consumers, it is most likely that some will turn their back on the company. That would mean that the goal would not be achieved. The question is: does the organization fulfill its promises?

(Business Case Studies., n.d.)

Environment Standards

The organization states that sustainability means that on a long-term you have to meet the needs of the people but should not compromise the needs of the future generations. So, the organization strives to make a significant positive impact that does not only affect the present but also the next generations that are yet to come, but how? To fulfill that statement, IKEA balances three things, namely protect

and regenerate the environment while making a positive social impact and also focus on economic growth. You can see that Ikea is very committed to sustainability since the store has invested in sustainability through its entire organization. Since consumers demand products that meet the highest possible standards for the environment, the organization aims to perform business in a way that energy, water and raw materials are used with efficiency and waste of products are as low as possible. Therefore, Ikea made small changes that are of a big impact since it has 423 stores worldwide. For example, changing the whole lighting range to energy-efficient LED. They also strive that by the year of 2020, 100% of its used wood, cardboards and paper sources are more sustainable, like recycled material of certified wood. In the present the percentage of wood that comes from sustainable foresters is close to the 50%. Meanwhile 100% of its used cotton comes from sustainable farmers who meet the Better Cotton standards. So that means that the company is on the right path. They want to produce as much as they consume. Which concludes that they do not want to consume their resources at a faster rate than nature can replace them or want to use any unnatural materials and substances. In fact, they strive to preserve nature and its inhabitants they want to avoid dumping waste as much as possible. To make true of they have promised, IKEA has installed over more than 700,00 solar panels that are powering their stores and also invested in wind energy. They even plan on selling solar panels to customers in the UK.

(Business Case Studies., n.d.; Inter IKEA systems B.V., 2018.; Inter IKEA system B.V.,2003-2017.; Care2., June 2, 2016)

How does IKEA use its power?

IKEA strives to be a company with a vision to form a better way of life for the various individuals. And will still invest in commitment to creating a positive distinction to individuals and therefore the planet. Ikea uses its power well. The company is well aware of the fact that customers and other organizations are watching every step they take. They use this advantage to encourage other companies to act ‘greener’. For example, at the moment they are the only retailer worldwide that sells product that are made from 100% cotton sources that meets the Better Cotton standards. goal is to be an example on how to be more responsible to the environment with result that other companies will follow their footsteps soon. (Inter IKEA Systems B.V., 1999-2018)

Conclusion

IKEA believes that it is necessary for them to be able to maintain their standards and achieve certain goals and expectation. The company has two values, that come back in every aspect of the report, namely being cost conscious and simplicity. The company strives to be profitable which explains it professional behavior. But on the other hand, must the company pay a lot of attention to the sustainability to meet the demands of the consumers. Luckily, is the company of the opinion that profitability and social responsibility have links and can easily combine the two for an optimal outcome. Ikea’s code of conduct is based on a long-term perspective of the company. The company raises its voice on essential problems like global climate change. So, when Ikea uses equipment, materials and services, they strive for an option that is best for the environment and for their long-term perspective. So, do they invest in alternatives for powering their stores till finding different sources for their products. And at the same time is in the organization a good working team. Where honesty is a key value., which on the working floor must always be maintained. Given these points in we can answer the question: Are there any ethical/socially responsible rules of conduct in the company regarding professional behavior? Yes, simply because sustainability has been invested through the entire organization.

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