1. Introduction
IKEA UAE is basically a Swedish-originated company, which is Dutch headquartered. Its business model aims to design and sell furniture that is already assembled. IKEA UAE belongs to the retail industry and is categorized in the service sector. The furniture of the company belongs to areas of kitchen, miscellaneous home accessories, and furniture for other parts of the home. IKEA UAE is the world’s largest furniture retailer since 2008. It was founded by a young business entrepreneur, Ingvar Kampar at the age of 17, who began the operations in 1943 in Sweden (1). The brand name IKEA UAE uses the acronym of the initials of its founder and that of the farm area where he was born. The work design of IKEA UAE is characterized by eco-friendly adherence (2). This study explains IKEA UAE’s products, strategy, competitiveness (3), capacity planning, work design, and quality management (4, 5).
The key competitors of IKEA are Amazon, Noon, Home Center, and Zara Home and its biggest competitor is 2XL Home Box. IKEA competes with these companies in the sale and design of ready-made furniture, electrical appliances, and kitchen accessories. IKEA UAE is majorly following a low-cost strategy in which the company follows the low-price approach, particularly due to economies of scale, and technological advancement in the business processes (6). It enables IKEA UAE to reap a competitive benefit. Its competitive potential lies in its usage of the efficient network of the suppliers it resorts to in its work operations. More than 1,100 suppliers for IKEA UAE exist globally in about 50 countries. An efficient supply chain network is created with a lesser risk of product substitution (7–9).
IKEA UAE’s strategy in UAE is to deliver an improved daily life to the people by the provision of efficient and welldesigned home furnishing accessories at affordable prices (10, 11). It aims to provide customized designs of furniture suited to the needs of domestic and commercial consumers in UAE. This strategy is followed in all the four stores of IKEA UAE in UAE, which are in Dubai, Al-Ain, City Center of Deira, and Abu Dhabi. The opening timings are suited to the preference of the customers of UAE (12). The stores of IKEA UAE are closed on Friday, and they remain open on Saturday and Sunday. The promotional offers are also subjected to different occasions and festivals such as Ramadan and Eid festivals (13).
Dudovskiy explains that the strategic success of IKEA UAE lies in targeting the right demographic consumer segment, offering cheap furniture, and making its retail stores the best destination for its consumers. IKEA UAE has been majorly following the low-cost strategy in which it had been selling its furniture and home furnishings to consumers at the least possible affordable prices. It can be justified by stating that the design, the value, the quality, and the function of the products (14) delivered by IKEA UAE are all made at an affordable cost. The packaging, distribution, and sourcing of the products are made at the lowest possible cost. Maintaining the cost-effectiveness of the IKEA UAE retail store is the crux of its strategy. It is majorly attributed to economies of scale and advancements in technology (2).
In this study, the focus will be on the home, kitchen furniture, and other home furnishings. The input involved in the sale of these products is to feed essential information in their retail outlets, which can be easily accessed by their customers in the market (15–18). The information which consists of uploading different products on its website, its details, and authenticating the product details offered by the clients is given (19–22). The changes that undergo the process provided the transactions taking place in the delivery of the products like order’s receipt, processing, paying for them, and getting them packaged to be delivered to the customers (23–26). The output is to ship the end products of IKEA UAE to consumers in the market.
The study uses a qualitative approach with case studies and text analysis to explore IKEA UAE’s operational performance within the UAE markets in terms of productivity, forecasts, designing products and services, planning for capacity and facility layout, choosing locations, and managing quality. It is anticipated that the study will explore for practitioners what makes an international organization operationally successful.
2. Research elaborations
2.1. Methodology
The paper’s goal is to explore IKEA UAE’s operational performance within the UAE markets (27). Barratt et al. (28) advised using exploratory techniques via case study analysis. To examine the link between supply chain capabilities and operation management, an exploratory cross-case study will be done on one of the UAE’s major manufacturing firms. According to a recent industry study report (29), Asian manufacturing companies must rearrange their value networks to remain competitive (30–32). For a distinct cycle time, cost, and delivery competitive advantage in the furniture sector, which is defined by frequent changes in product life cycles, seamless integration of operational tasks is required. The study will answer the below question:
Q1: What capabilities can operation practices within supply chain exposure bring to IKEA’s operation management and competitiveness?
2.2. Productivity
Depending on the competitive market and the intense workload of IKEA UAE, there is a need for the employees of IKEA UAE to stay productive. In light of Yu’s research, IKEA UAE basically measures the productivity of its employees using a system that tends to compare their performance among themselves. Advanced technological tools are used to measure the levels of productivity in which a prominent method is a ranking method (33, 34). It is used to assess the productivity of every employee by comparing them against each other. The graphic rating scale is also used to assess the performance of employees in production-related jobs (35, 36). Ratings are assigned to workers in reference to the processes of the work, employment of the work procedures, and techniques. Productivity is calculated based on the output that is produced by every team in reference to the work hours expended by every labor worker (37–40).
The key performance indicators are also useful in the assessment of the productivity of IKEA UAE’s work operations. It explains the performance of IKEA UAE’s industry-based new products to be developed, the product launch process, and its associated new products. These help in the improvement of the work processes by assessing the existing levels of productivity (41–44).
The factors of productivity considered at IKEA UAE consist of its organizational environment, work processes, the use of technology in production processes (45, 46), training and development opportunities for employees, and diversity at the workplace. In light of these factors, productivity can be improved by providing a suitable work environment where employees are consistently motivated (47). Continuously automating the work processes and activities is another key measure to improve productivity (37, 48–51).
IKEA franchisees do procurement of products from Inter IKEA Group companies plus give a franchisee payment grounded on trade sales. It touched overall proceeds of EUR 25.6 billion (counting extensive sales to retailers and permit fees as well as retail transactions of the IKEA store) along with a net revenue of EUR 1.4 billion in FY21.
Regarding the production operations of IKEA UAE, each employee’s output is measured in the production process by quantifying the number of products that are produced each time. Employees are also required to engage in computer-assisted design and manufacture of the furniture. The productivity of the employees can be worked out by considering units of furniture they produce in the span of time required to produce. It refers to the usage of the partial productivity theory. Although identification of the productivity of employees in all departments is cumbersome, the new technology has assisted this process (37, 52–54).
2.3. Forecasting
IKEA UAE faces numerous challenges in forecasting the market demand for alignment of its work operations with increasing demand. Dugic explains that The techniques used by IKEA UAE to forecast market demand are explained as follows. It relies on the usage of an advanced technical method, which relates to the use of artificial intelligence, and aids in the improvement of the reliability, consistency, and accuracy of the work operations. In it, the present and the new sales data are integrated to provide for accuracy in the forecasts that are made.
The time horizon that is used by IKEA UAE to forecast demand is up to a period of maximum 12 months (55). The methods or techniques used to forecast the demand by IKEA UAE are aimed to analyze consumer needs. These methods include predictive analysis, Delphi methods of forecasting, client intent surveys, and conjoint analysis.
Predictive analysis predicts the consumer demand in the upcoming months on the basis of their present day’s choices. Delphi technique is used to measure or assess the opinion of the group members by making a survey of the experts in the group panel related to the products’ demand. The client intent surveys are used to figure out the underlying motivations of the consumers in the market to predict the demand (Figure 1). Conjoint analysis is a tool to measure the value placed by the consumers on a product’s features for forecasting the market demand (56).
Figure 1. Forecasting system at IKEA UAE jonkoping. Source: Dugic and Zaulich (55).
The demand-based data for IKEA UAE in the past five years have shown an upward trend except for 2021 in which demand and sales revenue dropped due to the COVID pandemic. It is shown by the following bar graph (55).
The quantitative technique to project the demand for the product or service is the use of trend projection. It uses the pattern for the analysis of historical data. Based on the bar graph shown above, which highlights the sales revenue trends between 2001 and 2021, it is easy to analyze the demand and sales revenue for the past 5 years. Based on the data shown in the bar graph, it can be forecasted that the demand is likely to increase in the future, since the demand and the revenues have shown an increasing trend. Considering this, there is a need for the company to expand its production capacity and update its automated procedures and technology to minimize the production cost so that competitiveness is at the same scale of the increased capacity (55, 57, 58).
2.3.1. Forecasting theory
The theory of forecasting is grounded on the proposition that future predictions can be made with the help of past and present knowledge. It helps in taking preeminent decision that helps the company in the best possible way.
2.4. Product and service design
IKEA UAE designs its products and services by the following methods. Yun explains that the designers at IKEA UAE design the wood of the exhaust gas originally in a new home by processes of compression, cutting directly, and scientific ways of pulverization. The input and the basic materials of the basic home product remain unaltered. The product’s process of development is managed by Engman’s team of designers in the company’s 4,000 m2 headquarters in Almhult based in Sweden. These personnel are a source to help in giving IKEA UAE the democratic design ideas. It helps to provide great design for all people under one roof. The five key dimensions of the basic democratic design at IKEA UAE form the underlying foundation (59).
The reasons that initiate the processes of redesign are to encourage a comfortable lifestyle for the people while they make use of the furniture of IKEA UAE. It helps to showcase people the authentic styles, model, and materials to encourage them to experience different home environments. The concepts of affordability, sustainability (60), and easy accessibility advocate the reasons to initiate the processes of redesign at IKEA UAE (59).
Industry and academics are increasingly emphasizing the need for sustainable supply chain management (SSCM). Due to worldwide sourcing, today’s supply chains are becoming increasingly complicated and fragmented (61, 62). The sustainability standards used by IKEA UAE are prevalent as the cotton used by it is procured from the most sustainable sources (63, 64). According to Alrubah et al. (65), it aims to use sustainable renewable energy sources to become energy independent in the future years. Legally, IKEA UAE never does any violation of the patent rights. Its designs are original and unique, and these are never produced by either of its competitors in the market. Likewise, it meets the ethical standards of work practices, thereby improving the brand image of its product design globally (66, 67).
From the perspective of the life cycle, IKEA UAE is at the maturity stage in the market as it has already operated for more than 50 years by now. Alrubah asserts that its demand and sales in the market have steadied. Therefore, there is a need for IKEA UAE’s design team to introduce diverse and unique styles of furniture which are not produced by competitors earlier in the market. 3R factor analysis explains that IKEA UAE is rightly able to deliver economic viability by creating job opportunities, protection of environment by using renewed energy sources, and achievement of social equity. These factors improve the brand image and market value of the product design of IKEA UAE globally (65).
2.5. Capacity Planning
The capacity of the company refers to the maximum level of output that is sustained by the company to produce its products. Lie explains that it refers to the production process, allocation of human resources, and technical levels. What makes the company’s capacity refers to the output that is produced by the company and sold in each time period. The production capacity is based on the number of machines and hours to produce a product. The production capacity is calculated by dividing the machine hour capacity with the hours to produce a product (68).
The design of IKEA UAE is already explained in the previous section. IKEA UAE’s capacity utilization stands at 70−75%. According to Lie’s research, the capacity is maximized by designing, and selling the pieces of furniture into easy, efficient, and flat packages at the least cost. They take up less space in the trucks, and hence, the number of pieces to be delivered to the customers is maximized (68).
On the production side, IKEA UAE manages its capacity by following the lead strategy, which focuses on an upfront investment in the capacity that is needed. Innovative strategies including the ways to maintain the maximum and minimum replenishment of the materials are followed. It means the moment the stock gets at a minimum level it is ordered to restore it to a maximum capacity. The actual output of IKEA UAE is more than 20,000 products as reported in 2021 on its websites, which are visited by more than 2.8 billion visitors (68).
The utilization of IKEA UAE’s products or services capacity stands at 70−75%. The effectiveness of the products of IKEA UAE is as follows. Accessories in the living room account for production worth 19% as per effective capacity utilization. Kitchen and dining accessories account for 15%. Children’s IKEA UAE products account for 5%, and the food accessories account for 5% of the capacity of production of IKEA UAE (68).
The breakeven refers to the point where the total revenues and the total costs are equal. It is calculated using the following formula: Fixed costs/(sales price per unit-variable costs per unit). It is calculated in light of the income statement for the year 2021 (69). The sales price per unit for the financial year 2021 can be calculated by dividing 24,282 million Euros of sales revenue with 20,000 units = 1.2141 million Euros. Fixed costs per unit = 2,622 million Euros of fixed cost/20,000 = 0.1311 million Euros. Variable costs per unit = 21,137 million Euros of variable cost/20,000 = 1.057 (69). Breakeven output for the products of IKEA UAE stands at: 0.1311/(1.2141−1.057) = 0.83 rounded off to 1 million Euros. This breakeven output is less than the actual capacity of producing 20,000 million. It means the company has a lot more capacity to meet to produce more than the breakeven output produced (69).
2.6. Process selection and facility layout
The production process of IKEA UAE uses a mass production method and a modular combination design. The products are produced in batches on a massive scale (34, 70, 71). The steps in the process of production at IKEA UAE are explained by the flowchart in Figure 2. It explains that the site of the workplace, land, human capital, financial capital, and expert management play a major role in the conversion of the raw materials into final products as furniture for homes, kitchens, offices, and other furnishings offered by IKEA UAE. The output produced by IKEA UAE is monitored firmly to fix any defects and malfunctioning. They are corrected on a timely basis. The comparison of final output that is produced is compared against the projected output to identify the capacity of IKEA UAE (72).
Figure 2. Desogn of layout for production. Source: Faircloth (72).
A mass production process is usually followed at IKEA UAE in which a focus on sustainability is placed. The management of IKEA UAE claims that the best method to produce is that of mass production that is characterized by sustainability. The variety and volume of the production of IKEA UAE are achieved by operations of the management whereby the furniture design is handled by the trust in Holland. The process of manufacturing is outsourced to China and in countries in Asia. A few designs of the furniture of IKEA UAE are made in Sweden too. These together produce a variety and a greater volume of production of IKEA UAE’s products (72).
The layout used by IKEA UAE is a design termed as a fixed path. It focuses on following the designated path and enables a person to seek direction to stay in one area of the store (65). The consumers usually see about 33% of the output that is sold in the stores of IKEA UAE. The layout of IKEA UAE well supports the flow of work at IKEA UAE whereby the products are produced in batches, usually on a large scale. The layout of the stores of IKEA UAE is such that there is a plotted path in the store where it is possible to move around and check the displayed items. Each customer is allowed to see the items on sale before paying and leaving the store. There is a showroom, warehouses, market areas, and checkouts. It is explained by the following picture in Figure 3 (72).
Figure 3. Layout of IKEA UAE’s stores. Source: Faircloth (72).
2.7. Location
The products of IKEA UAE are manufactured in Sweden where production is outsourced to China and other countries in Asia. The family known as Kamprad is focused on the production of products in IKEA UAE with a prime focus on the cultural heritage, quality (73), loyalty, and preferences of the customers and environmental sustainability. Mostly, Vietnam, Malaysia, Myanmar, China, and Romania in Europe are the leading countries where the products of IKEA UAE are produced. The countries in which the products of IKEA UAE are sold consist of China, Germany, France, United States, and United Kingdom. The market share of IKEA UAE’s products is the highest in Germany, which accounts for 15% (74).
The factors considered by IKEA UAE to choose the location for its markets consist of preference for the single media markets. Alzghool states that IKEA UAE usually chooses an area where the majority of the population lies in a single major media market. It is because television, radio, and newspapers are easily accessible, and these mediums can be used to target the advertisements to the consumers in the target market. IKEA UAE majorly chooses remote areas or suburbs. It avoids locating in cities with a presence of a university in selecting the stores’ location. The costs of every location and the neighborhood are also considered by IKEA UAE to choose its location for manufacturing and selling (75).
The factors listed above are good to select the location of the store by IKEA UAE. Additionally, the personal factors should be considered by the management of IKEA UAE while deciding about the store’s location to determine the degree to which the costs could be met. Planning and decisions of the municipal corporations should also be focused on to determine to what degree IKEA UAE’s decision to locate in a particular place is suitable. Based upon these factors, IKEA UAE can possibly choose locations next to the municipal corporation’s office so that it can keep a check and balance IKEA UAE’s work operations to overcome any negative externalities. The top management can prefer opening a few stores of IKEA UAE next to their residence on open lands, where their houses are located to overcome the increasing effect of costs (75).
2.8. Work design and measurement
The work design at IKEA UAE focuses on a design that is openly accessible to all. The paradigms of democratic design are widely followed at the company. Alzghool explains that these consist of sustainability (76), quality (77), affordable price, and good functional capabilities. The jobs of the employees at IKEA UAE focus on activities that meet these characteristics. The jobs pertaining to maintaining sustainability aim to ensure that the right materials are used to perform good functional capabilities (78) and to use them sparingly. The jobs to ensure premium quality focus on following the best key practices at work to deliver products at affordable prices (79).
IKEA UAE specializes in the provision of low-priced goods, which are sold whenever and wherever possible. These are possibly sold in flat-pack form for the people of the in-home assembly by different customers. The specialization related to the above jobs is rendered (80, 81). The advantages of specialization include increased efficiency and productivity at work. Investment in the company grows due to greater productivity, which leads to economies of scale (82).
The disadvantages of specialization include boredom among employees due to focus on repetitive tasks, increased training costs, and loss of jobs in the future as robots may take over the labor force (79).
IKEA UAE can rely on the use of intrinsic and extrinsic motivational factors to improve employee motivation. Intrinsic motivational factors include word-of-mouth recognition to encourage employees at work (83–85). Extrinsic motivational factors focus on hygiene factors like an increase in the salary and the provision of perks and benefits to employees to motivate them duly (86, 87). Quality-based compensation method is used by IKEA UAE to reward its employees based on the delivery of products that meet exceptionally good standards of quality (21, 88, 89). These are provided to employees weekly, monthly, or bi-annually. Its benefits include the fact that quality-based compensation boosts employees’ productivity (90, 91), enhances their motivation, and encourages flexibility (92, 93). However, it can lead to jealousy and politics among the other employees who do not earn quality-based compensation (94, 95). They can hamper work efficiency and productivity. The drawbacks of this method prove to be stronger because a hostile working environment that follows from jealousy and politics at work impedes productivity. Therefore, the system is not appropriate considering its disadvantages (79).
2.9. Quality management
Quality management is considered as the conduct of supervision of all undertakings plus tasks that should be completed to maintain a stated benchmark of excellence (96). The four determinants of quality for a product or service consist of:
• reliability of the product,
• value for the money,
• design quality, and
• less defects.
An example of the dimension of reliability focuses on the dependability of the product in the long, i.e., it does not wear or tear in the long run and is consistently durable. The value for money can be explained with the example that it offers the best form of convenience for the customers and delights them fully once they use it. The design quality is based on the issues or the defects found in the product (97).
IKEA UAE inspects the quality of the product using the sampling method of acceptance known as AQL to ascertain the random sample of the overall order that is required to be quantified. Liliana explains that quality inspection is usually done by identifying the flaws in the product depending on the complexity of the issues (98). A pass or fail result is made once the AQL test is declared. The quality costs the company generates include the inspection cost, costs of testing in the laboratory, process costs, measurement, and costs of testing the equipment in the science laboratory. Each type of these costs can be decreased by using reliable and quality equipment and by using expert personnel conducting testing in the laboratory (97).
A fishbone diagram is one of the seven tools of the quality circles aiming to identify the root cause of any problem. The purpose is to figure out the underlying quality issues and to improve the quality (Figure 4). The fishbone diagram highlights the quality tools of humans and machines explaining the quality issues. It shows that lack of appropriate supervision of the human personnel and out-of-order machinery and equipment results in quality issues at work. Besides, other tools of measurement, process, materials, and environment also lead to the quality problems of an ineffective output. The resulting process tool is useful to improve the work processes and activities (97, 100).
Figure 4. Fishbone diagram. Source: adapted from Bicheno (99).
The recommendations to improve the quality of the products are to define the quality of the product, make sound investments in machinery, train and develop the employees, and conduct timely product testing (97).
2.10. Production planning and inventory management
The planning at IKEA UAE is conducted by feeding the main inputs. These consist of forecasting demand, developing an outline of the production, and placing market orders for furniture and other accessories at IKEA UAE. A system of business management known as enterprise resource planning (ERP) is used to generate input automatically. It maintains a link between the sales and the production department. The supply chain planning is done by IKEA UAE in which the representatives plan to order the raw materials from their supplier. The plans for resources distribution to manufacture and to plan production follow next. The delivery of the manufactured products to warehouses, stores, and the market is also rightly planned. The time horizon is 1−12 weeks with a review meeting held every 1−2 times per week (101).
The types of inventories held by IKEA UAE consist of:
• raw materials,
• work in process,
• finished goods and maintenance, and
• repair and operations inventory.
An aggregate plan is developed using an overall unit for measurement of the sales, forecasting demand, cost determination method, and a model combining forecasts and costs to develop a schedule. It shows the forecasted output, levels of inventory, and the costs incurred (101).
3. Conclusion and recommendations
This case study shows how IKEA implemented excellent operations management methods in the setting of a production process that is very flexible. As illustrated in IKEA’s furniture production facilities, excellent operations management is necessary to save costs. Production facilities are relocating to China, India, and other countries with cheap labor costs (102), similar to many other modularized furniture goods. IKEA has implemented a worldwide supply chain strategy that has resulted in cost savings and increased production. However, in light of recent financial results from retail companies, such operations management approaches may not give basic answers to the expanding business difficulties. Even though IKEA is one of the world’s largest furniture manufacturers, its profit margins are satisfactory. Businesses are increasingly looking for innovative strategy models that provide significant value-added goods and contribute to high-profit margins (103).
Examining IKEA’s supply chain reveals that the company provides a diverse selection of items to its clients. Furthermore, the company’s high demand for its products mandates it to maintain high-quality standards in both its goods and functional operations. IKEA’s worldwide market position is based on its strong brand image, global presence, effective financial management, customer-centric policies, and innovation, as well as strong ties with its suppliers and partners (104, 105). Importantly, the SCM process’ efficiency and smart rules have enabled IKEA to gain financial benefits and improve its competitive capacities. As a result, the firm has been able to achieve its organizational goals while also strengthening its position in the marketplace (106–108).
The recommendations for IKEA UAE for the way forward are to present realistic examples to evolve into sustainable cities that can be easily afforded by different people (109) and the society overall. The garden, the kitchen, and the market overall should be well-sustained using measures of environmental sustainability. There should be an emphasis on urban farming, which will provide fresh products to different people (2).
In light of the findings of effective capacity planning, inventory management, sustainable work design, and adequate demand forecasting (110–112), IKEA UAE views itself expanding in the local and foreign markets abroad. IKEA UAE foresees it to be operating in a cut-throat competitive environment where the competitors are experimenting with novel work designs. The standards of social responsibility are commonly seen to be embraced by IKEA UAE globally in the future, which will improve its credibility as a welfare organization too.
The selected strategy of IKEA UAE is being followed, which focuses on cost-effectiveness. It is suggested for IKEA UAE to experiment with outsourcing its supply chain to foreign countries to be more profitable in the long run. Work ideas should be sought from global countries too. In lines of intense competition in the market (113–115), it is recommended for IKEA UAE to compete effectively by offering special discounts, concessions, and other promotional packages to the consumers frequently (2).
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