Cost breakdown analysis - A study of the product costs in the kitchen appliances at IKEA of Sweden

Abstract

IKEA’s vision is to create a better everyday life for the many people by offering functional and welldesigned home furnishing products at low prices. In order to achieve and retain low prices it is critical to monitor the product cost development. To monitor and lower costs it is necessary to have knowledge of what drives costs in a specific product. The purpose of this study is to increase the awareness of the costs by identifying and analyzing cost drivers for two product ranges within the kitchen appliances, hoods and induction hobs. The study will also expose cost saving potential within the product ranges. In a broader perspective this may result in a cost reduction and increased value for IKEA and its customers. The authors of this study defined a product cost structure including costs for; material, manufacturing process, assembly, packaging, transport and other related costs for kitchen appliances. The result of the research showed that material cost accounts for a significant part of the total cost for both hoods and induction hobs. For hoods raw material is a much higher cost than for induction hobs, whereas induction hobs have much higher relative cost for semi-finished components. The research also showed that cost for assembly and transport account for a significant part of the total cost in some cases. Conclusions made from the analysis indicated several cost saving potentials. IKEA should in the future consider using different type of steel for some products in the hood range. It is also recommended to consider how the design of the hood affects the performance, and thereby required motor choice. For the induction hobs the choice of ceramic glass and the solution for the printed circuit board should be considered. Using methodologies to decrease required assembly time and number of components in the hoods can reduce assembly cost. For some products there is also a substantial cost saving potential in sourcing assembly operations to low cost countries.