Ikea brings picture to life

Ikea is in the process of going live with a global solution to manage replenishment and supply planning based on store-level forecasts.

Project manager, Tommy Stjernfeldt, has the look of someone who has lived and breathed a large IT project for the last 12 months, but so far anyway, he's lived

This is a major undertaking because Ikea's 202 stores across the world attract a total of a million customers a day, every day of the year. So it's a good job they're enormous.

The company holds 3.5m stock keep units, with 10000 different types of product amongst them, 10% of which are new every year.

What makes its supply chain really complex, though, is that its stores are spread across 32 countries. In some cases, an Ikea store opening is a national event, and people sometimes travel hundreds of kilometres to shop there.

Add to that the fact that it has 1600 suppliers in 55 different countries - split more or less evenly between Europe and Asia - making its furniture. There are 27 central distribution centres in 16 different countries.

Ikea has been going, and growing, since 1949. It has managed to double sales roughly every fifth year achieving a total of euro12.8bn in 2004.

The fun began for Stjernfeldt last September, when Ikea launched a whole new supply chain operation.

Following the story further back in time, Ikea's extremely extended supply chain has, historically, caused it problems. The first of these that Stjernfeldt mentions is a "supply-demand imbalance".

This is, of course, far from unique to the Swedish furniture retailer, but he points out that his company is "production-oriented", which has made its supply chain more push than pull. "This produces fluctuations that are often very hard to foresee," he explains.

Other problems will probably sound familiar too: a lack of transparency in the supply chain, information silos, too great a reliance on "being reactive" (also known as firefighting) rather than planning in advance. There were also problems with capacity in the distribution centres from time to time. Inventory costs were too high and the Ikea IT systems were too fragmented.

Stjernfeldt explains that, in spite of continuing to expand and to increase its profits, his company realised it had to do something about these issues, which is why it embarked on the process of putting in its new global system.

"We drew a picture of a more synchronised replenishment process," he says, "and began to look at a solution to support this with SAP."

He adds that, for technical reasons, SAP could not support the integrated planning functionality Ikea needed (this was in the mid-nineties, remember).

Some years later, in October 2002, Ikea implemented a demand-planning tool from Manugistics and it's with this company that the retailer is now working on its current supply chain transformation project.

Stjernfeldt maintains that the SAP exercise was worthwhile because it helped identify what tools Ikea needed. It wants one lot of forecasting across the whole company to organise its distribution centres into groups and hold one lot of safety stock for a number of DCs.

So this is what the current project is about, finding and putting in tools that will address these issues and help Ikea improve the way it manages its distribution centres and its suppliers.

In more concrete terms the goal is to reduce inventory levels in distribution centres by at least 10%, and to reduce the fluctuations between planned orders and the orders suppliers actually receive.

"Manugistics is good solid software to base this on," Stjernfeldt says." The Manugistics platform - version 6.1 of the software - sits in the middle, with systems Ikea developed itself to link into it from stores and distribution centres.

After launch last year, a pilot ran for 16 weeks. Then, this May, global roll-out of the system began. Before next summer Stjernfeldt says he will have 700 users in place across the world working on the system.

He describes them as one set of planners working on distribution centre replenishment, with a different set working on store replenishment. Together, they're turning the picture Stjernfeldt drew into reality.

lkea is"production-oriented','which has made its supply chain more push than pull.