Question

I really need help with my case study please

The case study references IKEA

Soenso’s Furniture Company

THE SITUATION: You’ve recently been hired by a furniture manufacturer in Columbus, Ohio. Your title is “Logistics Manager” and your job, according to the owners, is to help them “…with this ‘logistics’ thing.”

The owners, John and Jane Soenso, are industrial designers that met in school due to their love of designing modern furniture. Over the years they built furniture in their garage as a side business, and eventually came to realize they could go into business for themselves. So, they started Soenso’s Furniture Company 10 years ago. At the time is was a small shop and they did custom pieces. As word spread, the business increased. Rapidly. So much so that they transitioned from hand-build furniture to contracting out the manufacturing, any renting their own warehouse for sales, storage and distribution. They hired family and friends to help with the lucrative business.

Now the business is growing faster than they can handle.

A consultant recommended they hire some outside talent, and start planning to expand beyond Columbus. They hired a Chief Financial Officer, a Sales Manager, an Operations Manager (to coordinate the manufacturing) a Human Resources Manager, to start building a team, and you, the Logistics Manager.

“Our consultant said we needed a person to manage our Supply Chain. We know what that is…but we don’t know how to do it.” John tells you in the interview. “Can you do it?”

Of course you say yes. He offers you the job. You ask for 24 hours to think about it.

You go home and do your research. You find that early Soenso furniture is being bought at auctions for huge sums of money. Some of their pieces are featured in museums, magazines and there was even a few TV news stories. They’ve been routinely called the “Ikea of the Midwest” due to their simple but modern designs. What’s different about their furniture is, it’s just a few individual components, and it’s very simple to manufacture and assemble.

You feel like this is a great opportunity. You call John and Jane and accept the job.

On your first day Jane tells you “We want to be the next Ikea. We hear they are good at this ‘logistics’ thing and we want to make sure we do it right from the beginning.”

John adds “We are planning a store in Indianapolis, one in Chicago and one in Pittsburg in the next year. We’d like to add three more stores per year for the next few years assuming all goes well.”

He continues. “We have some questions for you to answer initially. We don’t need detailed specifics or number crunching yet, just some explanation of our options. Jane will email you a list of those questions here in a bit.”

“We’re very flexible with our options and furniture designs. Our current store sells assembled furniture, but we’ve been doing a lot of shipping worldwide. We’ve designed most of our more recent furniture to ship disassembled and plan to keep doing that as sales grow.”

As the three of you continue to discuss their vision, its apparent Jane and John disagree on a few things. They appear to have gut feelings, but no understanding of Supply Chain Management principals and Inventory Management to back up those opinions with any valid arguments.

They disagree on assembling the furniture for the customers in the stores. Jane feels it saves the company money. John is worried about the customer not buying the furniture because they have to do the work.

They disagree on how to warehouse their product. John feels a Columbus warehouse is best, Jane thinks a warehouse connected to each store is best.

They don’t agree on technology. John feels it’s a waste of money but Jane believes it’s “wonderful.”

They can’t seem to agree on how they should ship their product to customers. Jane wants to have a fleet of their own trucks to deliver right to the customer. John wants to “FedEx Everything!” They don’t discuss any other options, but you assume it’s because they don’t know other options exist.

Later in the day you get the promised email from Jane with the following questions:

1. Should we keep one warehouse in Columbus or should we have a warehouse with each store? What are the advantages and disadvantages of each option? How does each option effect our overall inventory?

2. How can we ensure our stores and warehouse(s) have the right amount of inventory?

3. What kind of technology should we invest in to make our facilities more efficient?

4. Should we assemble the furniture to sell in the stores or leave it in the boxes for home assembly? What advantages and disadvantages come from each option?

5. What are our options to deliver furniture to customers?

6. What other areas should we consider to lower our prices?

THE ASSIGNMENT: In a professionally written paper (not in a list), answer the above questions

IKEA supply chain- how does IKEA manage its inventory?

Answer 1

– Third Party Logistics (3PL)
These fulfillment centers are managed by logistics companies who handle end to end business right from stocking to packaging, shipping, etc. These are beneficial if you don’t want a headache of running your warehouses.

– Company-owned warehouses
These distribution centers are owned and maintained by the respective organizations.

– Fulfillment centers operated by channels (e.g., Fulfilment by Amazon, Flipkart Advantage)
These warehouses are owned by the channels who store and sell these products. They work in SOR (Sell or return) model. Here the channels own the warehouses and manage everything on their own. The merchant has to pay for the warehousing fees, logistics charges, pick pack fees and commission on sales.

All these three options have their advantages and disadvantages. We will discuss them in details later.

There are few questions that you need to answer before you opt for multiple warehouses or multiple distribution points.

There are various additional expenditures associated with opening a new warehouse.
• Warehouse maintenance Expense
• Inventory cost
• In case of back order, transfer expense
• manpower
• Opportunity cost

If you deal with a lot of SKUs and suppliers, it becomes more complex to manage multiple warehouses.
If we consider a jewellery seller Mr. Adam, who deals with 6 suppliers and has 1500 different SKUs. He keeps on adding new SKUs every month to stay updated with the latest trend. Now consider this, if he has to keep 1500 SKUs across 3 different warehouses to reduce on national logistics charges, his storage & maintenance charges for different warehouses might exceed the difference in logistics charges. So, he has to consider another factor that is his order volume.