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IKEA Warns Supply Chain Disruptions Likely to Last Into 2022.
STOCKHOLM: IKEA, the world’s largest home furnishing retailer has 298 stores in 37 countries. It ranks Number 41 on Forbes’ esteemed World’s Most Valuable Brands list and took in 35.5 billion in sales in 2020. IKEA has certainly come a long way in its 60years of business since its 1943 founding in Sweden.
The company impresses not just its consumers with affordable, high quality furniture, but also competitors and companies around the world – especially with its unique supply chain management techniques.
IKEA has a clear vision – to provide well designed, functional home furnishings at prices so low that as many people as possible will be able to afford them. Its various supply chain operations functions work together to support its distinctive value proposition.
A key part of IKEA’s success is credited to its supply chain management, good communications and relationship management with materials suppliers and manufacturers, to get good prices on what it procures.
The company negotiate prices with suppliers, check the quality of materials, and keep an eye on social and working conditions. Although IKEA fosters competition among suppliers to ensure they attain the best prices and materials, it believes in making long-term business relationships with them by signing long-term contracts.
Lately, taking a view of the supply chain disruptions that have shaken up the global economy, the company is leasing more ships, buying containers and re-routing goods between warehouses as its works hard to mitigate a "perfect storm" of global supply chain disruptions which could last into next year executives said.
The company, which earlier on Thursday reported record annual sales as locked down consumers spent more than ever on their homes, is also reducing the number of versions of some products as it struggles with raw materials shortages to ensure its most popular items are available.
"It is re-steering and re-routing. And on the retail side we have learned agility like never before because everyday you have to work with what you have. You have to find ways to solve customer needs with limitations that we have never seen before," said Jesper Brodin, CEO of Ingka Group which owns most IKEA stores.
Jon Abrahamsson, chief executive at brand owner Inter IKEA, told Reuters he expects the supply chain crisis to continue into 2022, with the biggest challenge currently to get goods out of China, where roughly a quarter of IKEA’s products are made.
China’s mounting Covid-19 restrictions are creating further disruptions to its global supply chain. Shanghai and other major Chinese cities have imposed lengthy, stringent lockdowns to try control Covid-19 outbreaks. Previous interruptions in the supply of goods from Chinese factories to buyers around the world mainly involved the temporary closure of shipping ports.
"The problem is not ships; it’s that there are no cargo coming because there are no trucks," Brodin added.
IKEA’s stores in North America are the hardest hit by product shortages, followed by Europe. To avoid disappointing shoppers, it is temporarily removing unavailable products from its websites and store showrooms, instead suggesting similar items.
Brodin said no-one at IKEA had anticipated the current global supply chain crisis, and that there would need to be a preparedness in future for unexpected swings in supply.
"It’s a perfect storm. (But) I think we are way past being surprised. This is the new normal for us. And when things stabilise, we will have learned so much about agility and about sales steering," he said.
A large share of IKEA’s range is sourced relatively close to sales markets. Around 70% of products sold in Europe, where IKEA has the bulk of turnover, are produced on the continent.
Inter IKEA said sales of products and services at all IKEA stores and online totalled 41.9 billion euros ($4.87 billion) in the fiscal year to end-August, up 6% from the previous year and 1% from pre-pandemic fiscal 2019. E-commerce grew by 73% to account for 26% of total retail sales.
Ingka said separately its retail sales rose 6% to 37.4 billion euros. That was 2% higher that pre-pandemic levels, Brodin said.
"All over the world interest in life at home has become bigger," Brodin said. "There is no sign of decline in demand in any of our areas as it is right now,"
In the current fiscal year, Brodin said he believed demand would remain high. "It is also a matter of how we manage to be agile across the whole value chain … I’m truly optimistic we have a good, strong year ahead of us."
He added that a new IKEA store, currently under construction, would open in a central Stockholm shopping mall this year.
Question 1 Based on the information given in the article above, examine the supply chain challenges faced by IKEA.