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ABSTRACT
IKEAs supply chain has a global spread with growing sales and purchasing in all major regions of the world. This article outlines IKEAs global supply chain planning concept and describes the roles of the planning organization, data quality and software support in the concept. Its cornerstones are mutually integrated planning processes, a centralized planning organization, focus on data quality, use of advanced software support and structured change management during implementation.
1. INTRODUCTION
IKEAs supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centres, or directly from the 1,350 suppliers in more than 50 countries. IKEAs supply chain consequently has a global spread with both sales and purchasing in all major regions of the world. IKEAs growth has been tremendous and sales are still growing. Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the coming five year. Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs.
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The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This has led to a fragmented supply chain planning with local optimization and a lot of manual intervention with plans throughout the supply chain. Furthermore, due to frequent shortage situations some regions have purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand coverage. Hence, some markets have suffered from stock outs during long periods, whereas other markets have ended up with obsolete inventories. Forecasting has been done on a regional level with approximately 120 users striving for different goals and using different methods. Part of the explanation to this is that IKEA has lacked a common and structured tactical planning of demand and replenishment. In terms of capacity planning, all different parts of the supply chain (stores, warehouses, regions, etc.) tried to optimize its own part of the supply chain, leading to a set of imbalanced supply plans with a low and unstable total throughput with long replenishment times for the supply chain as a whole. The above mentioned situation led to a number of problems with direct impact on performance in a number of ways. First of all, the supply chain had a functional orientation with limited transparency, leading to a reactive behaviour with fluctuating goods availability (sometimes stock out situation and sometimes over stock). IKEA has also used extensive manual work in its planning processes and the planning was based on fragmented and unreliable planning information. Hence, there was a lack of trust between different parts of the supply chain, which even further have enhanced the bullwhip effects in the IKEA supply chain. Other problems related to the supply chain performance was difficulties to get enough attention of data maintenance, the lack of proper follow-up tools to monitor forecast deviations, hard to change mindsets among users, no synchronization of order and stock data, to name but a few. To overcome the difficult situation, IKEA initiated a program (cluster of projects) aiming to taking better control of its supply chain, and enhance performance in terms of delivery service and costs. A new global planning concept was developed and is currently being implemented. Its cornerstones are mutually integrated planning processes, a centralized planning organization, focus on data quality and use of advanced software support. The purpose of this article is to outline IKEAs global supply chain planning concept and describe the roles of the planning organization, data quality, software support and project and change management in the concept and its implementation.
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The article is structured as follows. First, the basics of supply chain planning processes, centralized planning functions and supply chain planning software is outlined. Then IKEAs planning concept is described followed by a discussion about the roles of the planning organization, data quality, software support and project and change management in the concept and its implementation.
2. FRAME OF REFERENCES
2.1 Supply chain planning processes
Planning is conducted on different time horizons and levels of detail. In practical terms, the problem of different time perspectives and the level of detail required are dealt with by planning material flows and production successively in a hierarchical structure of planning processes. For long-term planning, a somewhat lower precision and detail levels may be acceptable, while short-term planning demands a high precision and level of detail. The planning structure often used in manufacturing companies contains four planning processes; sales and operations planning, master planning, materials planning, and execution and control of material flows. Forecasts and customer orders are important input information to the planning processes. Figure 1 illustrates the relationships between the four basic planning processes.
Strategic/ Long-term
Order fulfillment
Materials planning
Operational/ Short term
Figure 1: Relationships between basic planning processes. Several of the planning processes consequently have mutual relationships. From a supply chain perspective, there are also relationships between different functional and organizational planning processes. For example, the forecasting process may integrate individual forecasts from several markets and products, the sales and operations planning and master planning processes may involve several production and distribution sites, the materials planning may integrate several warehouses, for example by the use of distribution requirements planning. However, these decisions are often distributed among a multiple number of independent decision-makers along the supply chain which leads to incongruence and imbalances on a global perspective (Pibernik and Sucky,
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2007). Hence, companies typically look for ways to control these imbalances, e.g. through coordination and/or centralization of planning responsibility.
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with point-of-sales (POS), stock level, in-transit, current work load, and capacity information, APS can excel supply chain planning in the following ways; Establish integrated supply chain planning processes since it addresses activities throughout the supply chain. Handle vast amounts of data at reasonable run times, and the possibility to run multiple scenarios and what-if-analyses before a central plan is established. Present results in an easy-to-understand environment through visualisation of KPIs, stock and load levels, and so forth; hence increasing the understanding of the effects that the decisions will have on the supply chain performance. A higher degree of automation of planning, which leaves more time for the decision-maker to analyse the supply chain and the actual decisionmaking instead of using the time to find a feasible plan. Since APS used in supply chains have to deal with multi-site environments and is based on a standardised planning process with a high degree of automation, the quality of input data (both master data and transaction data) is even more important than in other types of planning systems. Hence, the organisation has to put a lot of effort into safeguarding that planning data is of high quality. In terms of planning, information is normally distinguished from data, where information is the content and meaning of the data. Information quality is a generic term and has several different dimensions. Normally, distinctions are made between the extent to which information is valid, reliable, up-to-date, complete and straightforward to understand and use (e.g. Jonsson and Gustavsson, 2008). APS requires high data quality to work properly, and in such cases provides the possibility to provide information of good quality to the decision-makers which thereby can make better informed decisions.
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IKEAs supply chain is global with sales world wide. The stores, which are divided into three geographical areas, are supplied through 31 distributions centres, which in turn are supplied by some 1,350 suppliers in more than 50 countries. In terms of supply (purchasing), Europe stands for 69% (Poland being the largest purchasing area with 16% of total purchasing), followed by Asia with 28 % (China 22%), and North America with 3%. The majority of sales is in Europe (82%) with Germany as the top selling country (16%), whereas North America accounts for 15% of sales (USA 10%). Asia and Australia together account only for 3% of total IKEA sales.
IKEA
Distribution services Retail Market intelligence
Operational/ short-term
Execution
Delivery schedule
Replenishment orders
Figure 2: IKEAs global supply chain planning concept and planning processes. The new global planning process starts with the corporate sales planning (1) which sets the frames for the tactical demand planning activities (2) at the 12 business areas. The forecasts are thereafter input to the global need planning process (3), which in turn drives the supplier capacity planning process (4) and the planning of the distribution supply chain (transport, warehouse, and store planning; 5a-c). In the following, the sub-processes in IKEAs centralised global supply chain planning process are described into more detail. Note that this article does not cover the operational distribution supply chain, i.e. transport, warehouse and store planning (5a-c). The global planning process is owned by a central function at IKEA of Sweden (IoS), where decisions concerning the
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number of articles, purchasing, suppliers, distribution, store coordination, and so forth, are made. As such, IoS is the centre of all planning activities in the new planning process.
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(several countries), cf. Figure 3. A Retail Forecast Group (RFG) consists of one to several stores located geographically close to each other. In Europe, a Retail Forecast Group normally corresponds to a country. The Retail Forecast Groups are usually grouped and served by a fewer number of Distribution Services regions, in Europe for example, there are six such regions. The market input on the two upper levels concerns every countrys activity plan (for example campaigns) and estimated price changes on product level. IKEA encourages the individual countries and stores to have local campaigns and activities. But country specific activity plans must be decided at least six months in advance. Activities on store level can be planned on shorter notice. Demand Planners review the forecast on the regional level each week in order to identify those products for which the forecast deviates considerably from actual sales. In case that sales deviate considerably from forecasted figures, the Demand Planner looks for the reason and adjusts the sales figures or forecast model accordingly.
Tactical demand planning
Market input FC on region level
Reconcile forecast
Sales frames
Market input
Aggregate sales history
Need calculation
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on the quality of the plans). Volumes are divided between suppliers based on a so-called Supplier Matrix that determines the split of volumes between different suppliers (see Figure 4). One DC SKU could for example be sourced from two or three predetermined suppliers. The Need Planner is the person responsible for the need calculations, and also takes care of the exceptions messages that might occur. Examples of exception messages that the Need Planner must resolve are stock exceptions (low, high, stock-out, etc.), transport exceptions (late-in-transit), and supplier exceptions (capacity, commitment, etc.).
Article 1 Article 2 Article n - stock - in-transits +/- safety stock
DC Group
Store forecasts
Store 1 Sup 1
DC 1
60%
Store 2 Store 3
Cap Com
Sup 2
40%
DC 2
Store 4
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deal with in order to further improve the planning and supply chain performances. The most severe ones are discussed in the following. Insufficient maintenance of lead time data gave wrong input to need calculation and caused stock out problems in stores. Process improvement was difficult because of incompatible data capture and lead time measurements throughout the supply chain. As a response to these problems, a new lead time concept that assigns clear responsibilities to different actors was implemented. Furthermore, a work group was established with members across the supply chain deciding on working methods and lead time issues and a web-based application (based on a data warehouse solution) was created to visualize lead times and exceptions on missing lead time data. There were also some problems with in-transit and stock data synchronization, which sometimes resulted in double-counting of stocks. Status updates of intransit data were not always available throughout the supply chain. This resulted in incorrect need calculations and delayed order generation which may result in stock out risks. Also the master data quality was sometimes of insufficient quality, for example, due to an incorrect updating process. In summary, incorrect data figures resulting in poor planning accuracy, may decrease the trust in the plans and also result in extra manual work. Extra manual work may also lead to more manual intervention with plans, which is counter productive to the main ideas with the common working methods concept. As it is now, the supply plan accuracy is still quite low, mainly because of low forecast accuracy of new products, manual intervention with plans, and that everyone doesnt follow the established working methods. Also, the project is still in process, wherefore the concept so far only has been implemented for parts of the supply chain (mainly for suppliers to DCs and partly for DCs to store).
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accurate and up-to date information net requirements, stock levels, safety stock calculations, and replenishment needs. In summary, the demand and fulfillment software supported the forecasting and the need calculation with functionality to carry out frequent quantitative forecasting, distribution requirements planning, aggregating and disaggregating forecasts, but also with a user friendly interface allowing for customized visualization, report generation and exception based working methods.
5. CONCLUDING REMARKS
Implementation of the global planning concept has lead to several improvements in IKEAs supply chain, such as reduced stock levels and improved service levels. Figure 5 illustrates characteristics of and main differences between the old and new planning concepts.
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Old planning concept Functional orientation Limited transparency Reactive behaviour Extensive manual work Unreliable planning information Lack of trust Fluctuating goods availability Over stock
New planning concept One integrated planning process providing reliable planning information A common working-together environment creating supply chain visibility Working methods and tools to detect and deal with problems at an early stage A coordinated and balanced Supply Chain
Figure 5: Characteristics of the old and the new planning concepts. Experiences from implementing the new planning concept are for example that working methods and the planning organization are at least as important as the software support when integrating the supply chain. The focus on data quality and project and change management were vital for making the new planning concept work satisfactory on a global basis.
REFERENCES
Jonsson, P. and Gustavsson, M. (2008) The impact of supply chain relationships and automatic data communication and registration on forecast information quality, International Journal of Physical Distribution and Logistics Management, 38 (4), 280-295. Pibernik, R. and Sucky, E. (2007) An approach to inter-domain master planning in supply chains, International Journal of Production Economics, 108, 200-212. Rudberg, M. (2004) Linking competitive priorities and manufacturing networks: a manufacturing strategy perspective, Journal of Manufacturing Technology Management, 6 (1/2), 55-80. Rudberg, M. and West, M. (2008) Global operations strategy: Coordinating manufacturing networks, Omega, 36, 91-106. Stadtler, H. and Kilger, C. (2005) Supply Chain Management and Advanced Planning Concepts, Models, Software and Case Studies, 3rd edition, Springer
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