Cost breakdown analysis - A study of the product costs in the kitchen appliances at IKEA of Sweden

Abstract: IKEA’s vision is to create a better everyday life for the many people by offering functional and welldesignedhome furnishing products at low prices. In order to achieve and retain low prices it is criticalto monitor the product cost development. To monitor and lower costs it is necessary to have knowledgeof what drives costs in a specific product. The purpose of this study is to increase the awareness of thecosts by identifying and analyzing cost drivers for two product ranges within the kitchen appliances,hoods and induction hobs. The study will also expose cost saving potential within the product ranges.In a broader perspective this may result in a cost reduction and increased value for IKEA and itscustomers.The authors of this study defined a product cost structure including costs for; material, manufacturingprocess, assembly, packaging, transport and other related costs for kitchen appliances. The result of theresearch showed that material cost accounts for a significant part of the total cost for both hoods andinduction hobs. For hoods raw material is a much higher cost than for induction hobs, whereasinduction hobs have much higher relative cost for semi-finished components. The research also showedthat cost for assembly and transport account for a significant part of the total cost in some cases.Conclusions made from the analysis indicated several cost saving potentials. IKEA should in the futureconsider using different type of steel for some products in the hood range. It is also recommended toconsider how the design of the hood affects the performance, and thereby required motor choice. Forthe induction hobs the choice of ceramic glass and the solution for the printed circuit board should beconsidered. Using methodologies to decrease required assembly time and number of components in thehoods can reduce assembly cost. For some products there is also a substantial cost saving potential insourcing assembly operations to low cost countries.