A Strategic Framework for Improving Inventory Management Decisions at IKEA

Abstract: Background IKEA has realized the potential benefits of improving inventory management on a strategic level. For IKEA as a market leader in the home furnishing business, an efficient supply chain and proper management of inventory is of crucial importance in order to support their business idea of offering lowpriced products to the many people. Inventory management at IKEA is characterized by an ad-hoc and reactive approach. A new way of working proactively, including clear responsibilities, with inventory management is therefore needed to guide IKEA employees on how to organize, store and replenish inventories and ultimately keep an adequate supply to secure availability of their products. As a measure of approaching the problem and evolving this work, a new strategic framework for inventory management has been constructed by the company. Problem description IKEA has, with its new inventory concept, a clear vision of where to be in their future work with inventory management. However, a definite strategy of reaching this position is lacking and the company has identified the need of clearly mapping present day’s inventory work before proceeding as something vital. IKEA is well aware that many of the problems experienced are related to strategic inventory management and not operational (mathematical). Directions of how to properly steer and plan inventories on a higher level, taking the entire supply chain into account, is lacking and clearer organizational responsibilities need to be defined. Further, the hope is that, by visualizing the problems and questioning high inventory levels, a change in behavior and mindset of employees when it comes to inventory management can be achieved. Purpose The purpose of this study is to highlight current problems in steering and planning inventories within IKEA and to propose practical solutions and a strategic framework in line with IKEA’s new inventory concept to improve their organizational work and strategic decisions related to inventory management in order to reduce inventory costs. Methodology This thesis has been conducted with a systems approach and was carried out in an inductive research process. Addressing the research questions required collaborative action research with IKEA to finalize concluding theory. The process was divided into two phases, a primary exploratory phase with quantitative data analysis and qualitative mapping interviews, followed by an explanatory and normative phase with qualitative interviews and workshops. Conclusions The underlying reasons to high inventory levels at IKEA consist of lack of proper planning, follow up and guidelines related to excess stock situations. There is a clear mindset of securing availability of products for customers to almost any cost due to clearer consequences for potential shortages. This attitude is related to the lack of clear cost support for keeping inventory in the company. Solutions dealing with the high inventory levels in the company were proposed with focus on reducing inventory related costs by defining new stock strategies and suggesting measures to take to reduce existing stock. Moreover, by improving and establishing a deeper collaboration between different parts of the organization involved in the inventory planning activities, and by defining clearer guidelines for planning stock and prioritizing articles, inventory planning was made more efficient.