Some Assembly Required

IKEA’s admirable supply chain model allows the retail giant to slash prices without breaking the bank, sacrificing product quality, or causing irreparable harm to the environment.

IKEA is both literally and figuratively a household name across the globe: the Scandinavian home furniture retailer has 298 store locations across 37 countries, and most stores stock close to 10,000 products. Perhaps most impressively, all of these goods are offered at unbeatably low rates — how does IKEA manage to keep its outlets constantly stocked with inexpensive goods?

Long-Term Relationships With Sustainable Suppliers

To start, IKEA boasts a strong commitment to efficient distribution and environmental sustainability that begins at the design stage of each product. They’ve even developed their own tool, the e-Wheel, that helps to assess the environmental impact of every product to ensure it meets stringent quality control criteria for efficient distribution, quality, and social impact. IKEA also sources recycled plastic and textile clippings to manufacture its products, and even designs them so that they stack easily on top of one another to maximize shipping loads for fuel efficiency.

Similarly, IKEA sets strict criteria for the suppliers it chooses to work with — the retailer doesn’t offer the widest profit margin, but it does specialize in long-term, high-volume relationships with choice suppliers who share the company’s commitment to the environment. Those criteria are summed up by the IKEA Way of Purchasing Home Furnishing Products (IWAY), a manifesto that details basic guidelines to help manufacturers create sustainable and environmentally-friendly operations through waste avoidance and regulatory compliance.

Environmental considerations are of the utmost importance when you produce as much furniture as IKEA does — over 50% of IKEA's 9,500 products are made from wood or wood fibers, and by some estimates, IKEA accounts for an incredible 1% of the global wood supply. To more closely manage its production of wood-based products, the company formed a subsidiary called Swedwood that sources all of its wood from legal logging operations. Swedwood also participates in 13 World Wildlife Federation agreements designed to ensure that its supply agreements will be sustainable and environmentally responsible in the long-term.

Cost-Per-Touch Inventory

While its design and production processes value sustainability over profit margins, where IKEA really starts to cut costs is during the sales process. While the bulk of furniture retailers rely on floor salespeople who attempt to match customers with high-end products, IKEA has pioneered an alternate model wherein customers browse a warehouse-like space for products that require assembly at home.

The retailer has adopted an approach to selling based on “cost-per-touch,” a common business principle dictating that for every hand that touches (or adds value to) the product, the more costly it will be. Accordingly, IKEA store staff specialize in a kind of micro-logistics that works to create an optimal flow of goods and people into and within the store. These employees record and monitor incoming stock and ensure that all deliveries are directed to the right place in the store, giving customers a quick and easy shopping experience that boosts both customer loyalty and sales numbers.