Cost-based model for international logistics : case-study with IKEA Industry’s supply chain in Russia

University essay from SLU/Dept. of Forest Products

Abstract: The global market is constantly changing, which implies that successful companies incessantly need to respond to new conditions of how they operate. One strong trend changing the structure of the market is globalization, making the business arena wider with intensified investments and trade across borders. Increasing the flexibility in international supply chains should be done by broadening the supply chain perspective. Supply chain management (SCM) are therefore an important concept, focusing on creating competitiveness by integrating supply chains (SC) and manage downstream and upstream relations. Resulting in competition through supply chains rather than individual companies. Many companies in the forest and wood industry are focusing on company internal activities and therefore lack a broad supply chain perspective. This leads to in-efficient supply chains and limited contributions to the SC flexibility, leaving unused scope of competitive advantage and exposure on an international market. Also, the forest market is constantly changing with new industry investments and shutdowns. This leaves some forest industry companies with uncertain supply since they might lack their own forest possessions and are dependent on bi-products from other forest industries. This study was conducted with the aim to identify processes, cost-drivers and estimate costs affecting the design of international supply chains of raw material in the forest industry sector. The approach was empirically driven with a flexible design since the method emerged during the time of the study. The results of this study give a detailed presentation about the processes related to one specific international supply chain. International supply chains assume an understanding of related processes and costs, which could be facilitated by mapping the SC design. This thesis therefore started by mapping the SC and identify processes and cost drivers, followed by a detailed presentation about them and an estimation of related costs. A cost-based model was created to evaluate different SC alternatives and identify individual costs contribution to total SC performance. This gave an indication of the most cost-efficient SC design by including a broad SC perspective. Implementation of SCM is currently focused on markets with pull characteristics and low customization. However, the findings of this project indicate SCM also being an efficient competitive strategy in forest companies – though the sector is characterized by low customization and market push. Efficient and un-biased sharing of information also was found to be an important aspect in international supply chains which could be managed by technological systems.

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