Postponing the decision of final destination: A potential way to make IKEA more flexible and responsive

Abstract

IKEA is a global retailer in the home furnishing business. The delivery lead time for products to reach IKEA stores or IKEA distribution centres from suppliers located across the globe can be up to 16 weeks and during this time the actual need will change. As a result the order quantity which is based on the forecasted quantity is not always matches the actual need. In addition to variation in demand, constraints in supplier capacity and distribution result in stock out, excess stock or early deliveries. In order for the company to stay competitive and grow in the e-commerce business, there is a need for a more flexible and responsive supply chain. Therefore IKEA has realised potentials in implementing a postponement strategy in the distribution network to achieve this. In order to explore if postponement is feasible for IKEA, the distribution network has been mapped. The consequences of deciding destinations early in the supply has been discussed for each IKEA stakeholder. Currently, IKEA decides the final destination, which can be a store, distribution centre or a customer distribution centre, when they place an order to a supplier. Customer distribution centres are used for online customer orders. IKEA has three different replenishment solutions from suppliers to stores or selling units, Direct Delivery, delivery through distribution centre and Combined Supply, which is a combination of the other two solutions. Some of the deliveries that is categorised as Direct Deliveries are cross-docked at a distribution centre. These deliveries are called Transit Deliveries. External companies have been interviewed about the use of deciding destination at a later stage. Their inputs in terms of benefits and challenges with the postponement concept has been used together with interviews with employees at IKEA entities and IKEA suppliers to create and analyse three different postponement scenarios. The first scenario is to postpone the destination decision until shortly before an order is dispatched from a supplier. This is most valuable for make-to-order suppliers who have a long production lead time. The second scenario is to postpone the destination decision until shortly before the goods are received at a distribution centre. This is only suitable for Transit Deliveries, where goods are cross-docked at distribution centres. The third scenario is to postpone the destination decision until shortly before the goods arrive at a consolidation point, port of loading or port of discharge. The scenario can be suitable for all the replenishment solutions. The thesis result can be an addition to the existing literature about postponement, which is mostly about delaying the production or movement of goods until the customer demand is known. However, postponement can be implemented by delaying the decision of final destination of products during the production phase or during the distribution.