Modularity and its Effects on Operations and Logistics - A Case Study at IKEA Industry

Abstract: For a modern company to stay competitive on the market, efficient solutions and production systems are often needed. The customer also request more variants while still paying the same low price as before. To keep cost as low as possible several strategies and aspects can be analysed and implemented. In order for IKEA to meet their goals and to be able to deliver according to their plans for the IKEA 2020 strategy, a simpler supply chain and lower costs are needed. One possible way to achieve these goals could be to implement a modular product architecture. In this report the benefits and drawbacks of a modular product architecture is discussed. Today IKEA has very little knowledge about how well their components in their products can be modularised in order to gain cost reductions in the manufacturing. Many of the products are designed with only the end customer in focus, which in some cases leads to an inefficient production process. To get a better understanding of how a change in the product architecture could affect the cost at IKEA this study was conducted. The research was limited mainly due to the limitations in time but also since the request from IKEA was to analyse the solid wood range. The research approach in this study has been to use a single case study methodology, since it is more flexible and well suited for this kind of problem where the authors aim to do an exploratory study. It is also suitable since the authors aimed to gain deeper knowledge about this particular case. In this case the data has mainly been collected through a literature review, archive analysis, observations and interviews. To be able to calculate the monetary savings connected to the suggested changes in product architecture the products where first decomposed in order to analyse possible common components. Then a comparison between the old composition and the new with a reduction in unique components where conducted. The study showed that IKEA could reduce the number of individual components by 21%. Some of the components that could be reduced are bought from suppliers which reduces the potential savings that IKEA themselves can accomplish. However, the main goal is to lower the overall cost for the entire supply chain and if fewer unique components are needed the purchasing division can work more efficiently. Hopefully, this leads to that the components can be bought to a lower price, increasing margins throughout the entire supply chain. When looking at the potential savings for IKEA several aspects where analysed. One of the major costs in the production where the cost connected to material use. The use of material is not directly effected by a modular strategy. This raises the question on what IKEA should focus on and what project they should prioritise. A modular product architecture contributes to savings in changeovers, reduced scrap, and less inventory. However, these are relatively small in comparison to the potential in reduced material.