Achieving pre-defined service

Abstract: Abstract IKEA’s business idea is to offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. To be able to do this the costs must be kept as low as possible. Achieving desired customer service levels is although the key objective while cost reductions are a secondary focus. To be able to retain desired customer service levels companies use safety stock to compensate for variations in customer demand and lead time. This Master Thesis objective is to develop a method to evaluate statistical distribution based on their ability to achieve pre-defined levels of service. Furthermore simulations of the upstream supply chain will be performed to verify and quantify the impact of the results generated through the developed method. The results indicate that the current setup of statistical distributions is not considered optimal and a new setup is recommended, which consists of normal distribution on DCG level and gamma distribution on store level. This new setup generates more accurate inventory control in terms of obtained service levels throughout the supply chain. This study is based on a small selection of articles on one single market. The recommendation is hence to continue the study with a wider scope in order to investigate whether these conclusions are applicable in a global context.