Strategy in Industrial Networks: EXPERIENCES FROM IKEA

IKEA was founded over 60 years ago in Southern Sweden. It has since grown to become the world’s largest furniture retailer; in 2006, it had sales of over Euro17 billion, as well as 12,000 product items and 104,000 employees. The company’s focus has consistently been on marketing products at extremely low prices. Its first purchases in the 1950s were made from producers’ unsold stocks, in order to keep costs low. However, large sales success soon allowed IKEA to start ordering models of its own design from local manufacturers. Next, IKEA introduced innovations, such as flat packs, which reduced production and transport costs, and the “showroom-warehouse” concept, which reduced retailing costs.
During its expansion in the 1960s, IKEA also laid the groundwork for its purchasing strategy, relying on long-term relationships with selected suppliers as external sources for its offerings. Today, its supply network spans the entire world and has become increasingly complex. However, the use of this network is still in accordance with the same basic strategy as in the 1960s: to design and purchase products that entail low production and transportation costs. IKEA achieves this by carefully taking into account, in its design and purchase strategy, all the activities performed in the network, from raw materials to customer homes. Remaining faithful to its original external orientation, IKEA performs only a few of these activities internally, while it intensively uses its relationships with suppliers to combine its internal and their external resources for the sake of both efficiency and development. For instance, products are developed in close interaction with suppliers while taking into consideration the impact of the raw materials, components, and facilities involved, since all these resources entail costs and have an impact on quality, design, and function. In fact, next to low costs, reasonable quality, appealing designs, and adequate product functionality are major goals for IKEA. These goals induce the company to promote a constant product and technical development, which contributes to its image as an innovative and fashion-oriented firm, but which depends heavily on the contribution of its entire network of suppliers.
 
To cope with such tasks, IKEA needs advanced skills in marketing, retailing, logistics, purchasing, product development, and technologies. This need of competence is reflected by IKEA’s complex  organization, which consists of over 550 business units specializing in these fields and spread over more than 50 countries. However, the complexity of IKEA’s organization is overshadowed by that of its industrial network (see Figure 1). This network includes 1,300 direct suppliers and about 10,000 sub-suppliers, spread over 60 countries. Over 220 IKEA stores are located in 30 countries including Europe, Australia, the U.S., and China. Between IKEA’s stores and suppliers stands a vital, but less visible part of IKEA’s network: its wholesale and logistic operations, comprising 26 Distribution Centers spread over 12 countries. Since IKEA does not own any transport facilities, this network is physically connected via another group of external actors, a few hundred logistic partners.
A pivotal role in this network is played by “IKEA of Sweden,” a leading business unit that not only manages IKEA’s product range, but also supervises the entire IKEA universe and develops long-term marketing, logistics, and purchasing strategies. In fact, whereas most IKEA units are rather specialized (e.g., local purchasing for IKEA’s 40 Trading Offices), IKEA of Sweden has both an overall responsibility and a coordinating role in the development, purchase, distribution, and marketing of each single product.
This article analyzes the experience of IKEA in dealing with its industrial network and discusses the structural components and dynamic interactions of a “network strategy,” that is, a strategy that considers and uses the external network for a company’s goals. The case study was built through 70 interviews, conducted mainly in 1999-2003 with personnel at IKEA and suppliers in Sweden, Poland, and Italy.1
The Pervasiveness of Industrial Networks
Networks are widely publicized and researched phenomena, especially in high-tech sectors,2 where the likes of Dell, Microsoft, or Genentech pursue their network strategies through R&D joint ventures, cross-licensing, or strategic alliances. However, these fashionable terms do not fit the type of networking going on within the furniture industry or other low-tech industries. However, traditional sectors also present network-like structures. Examples include the tile industry,3 the apparel industry,4 and the Italian districts5—which specialize, for instance, in knitwear (Carpi), packaging machines (Bologna), or textiles (Prato). These sectors are composed of many small and medium-sized firms that develop close links to their suppliers and partners, and often also cooperate intensively with them on technical issues.
Networks are not only important for small firms that need to interact with their peers to supplement their limited resources, but networks are fundamental for large companies as well. For instance, multinationals in the steel,6 paper,7 and automotive8 industries interact tightly with their suppliers, sub-suppliers, distributors, and customers to develop new technologies or increase efficiency. There are many examples of large firms from several sectors that relied strongly on networks for their rapid growth: Apple, Benetton, Toyota, Corning, and McDonald’s, to name a few.9 Finally, networks of stable relationships are the norm in several industries, including construction, publishing, textiles, and cultural production.10
It seems that all types of firms, large or small, high-tech or low-tech, interact closely with other firms and organizations around them. In other words, inter-firm interactions and networks are everywhere in our economy.11 However, despite all this interaction, inter-firm networks went practically unnoticed by mainstream management research until around the 1980s. This neglect of interfirm relationships stems from both the actual behavior of firms—in periods characterized by arm’s-length relations,12 close interactions and networks are more difficult to discern—and the dominant research paradigms, which either had different units of analysis or viewed relationships simply as odd exceptions.13
Although Richardson14 recognized the importance of business relationships as early as 1972, it took time for these ideas to enter mainstream strategy literature; and when this finally happened, the impetus came from sociology. Granovetter stressed in 1985 that economic transactions are embedded in networks of social relations where trust matters,15 and Powell attributed networks a status equal to markets and hierarchies, viewed as three alternative forms for organizing economic activity.16 Eventually, Swedberg suggested that all markets can be viewed as social structures filled with interactions, rather than as pure price-driven mechanisms.17
In sum, there exists compelling evidence for the diffusion and persistence of business relationships and networks, in all sectors and for all sizes of firms. Mainstream strategy research was late in recognizing the importance of networks, and did not take them into account until the influence of sociology and widely publicized strategic alliances or joint ventures made it impossible to neglect this interactive side of business life. However, there is still a risk that focusing on these special and conspicuous networking episodes may hide the bulk of networking activities and interactions that go on silently under the surface of daily business activity.18 To avoid such a risk, one can rely on a theoretical perspective that views industrial networks and relationships as essential phenomena, that is, as the norm rather than the exception: this is the viewpoint of the “Markets-as-Networks” approach.
“Markets-as-Networks”: A Network-Based View of Business Management
Are we really sure that inter-firm relationships and networks are merely exceptions in economic organizing, in a world where firms can only choose between pure market exchanges or hierarchical control? What happens if we overstate the argument of Swedberg and start considering instead networks as the norm, that is, as the most natural and normal form of economic organizing?19 Following this reasoning, networks came first, while markets and hierarchies are both human constructions, that is, structures imposed on networks for the sake of transparency (markets) or control (hierarchies).20 Accepting networks as the norm can also help focus on the effects that they produce. Examples of such “network effects” are unexpected product failures,21 irrational patterns of electricity consumption,22 and imbalances spread by IT systems.23 However, to enable researchers and managers make sense of networks and their effects, appropriate analytical tools are necessary.
A set of such tools for analyzing industrial networks as pervasive and “normal” phenomena is offered by a research tradition known as “IMP” (Industrial Marketing and Purchasing).24 This approach, sometimes referred to as “Markets-as-Networks,” grew out of extensive empirical studies of industrial buyer and seller relationships conducted in Europe in the 1960s and 1970s, that is, well before the modern frenzy over networks.25 The early empirical findings were then related to sociological theories of exchange26 in order to develop a series of models of the dyadic interaction between firms. These models stressed the importance of power/dependence, cooperation, closeness, and expectations in the daily interactions between buyer and seller.27 It was only a short step from single relationships to networks of relationships: when IMP researchers recognized that single relationships are related to each other via technical, economic, and social interdependencies, the way was paved for more complex models stretching to the entire network surrounding a firm.28
 
The Markets-as-Networks approach has gained currency within the field of industrial marketing29 and international business,30 but it can also be used to cast new light on strategic issues of efficiency and development.31 To summarize, the Markets-as-Networks approach focuses on all types of inter-firm interactions. The starting point is that firms constantly interact with counterparts such as key suppliers and customers through business relationships that are related in a network structure. Consequently, firms are embedded within networks that exist beyond their will. From a strategic point of view, firms need to be aware of these networks and of how to use them actively. Companies vary widely in their will and capacity to do this: not all firms can become “strategic centers,” which, like IKEA, are able to manage a web of partners.32 Nevertheless, all firms are embedded in a network, which can be both good and bad.33 It is therefore advisable for firms to understand how networks work and how they can be approached for strategic purposes.
The Structure and Dynamics of a Network Strategy
A network strategy can be understood in terms of structures and dynamics, according to the idea that a network structure composed of relationships and external resources needs to emerge before a company can use the network in its daily interactions with counterparts. Therefore, the analytical frame that we will apply to discuss IKEA’s network strategy comprises three structural components and two types of dynamic interactions (see Table 1). The structural components concern the architecture of the network (e.g., the number of firms involved), the long-term features of each business relationship (e.g., the goals of the involved actors), and the configuration of external resources (e.g., their distribution and technical connections). These structural elements are relatively stable and do not change overnight in a network, as stressed by the Markets-as-Networks approach.34 The dynamic interactions concern instead the processes that go on daily in any business relationship in terms of the activities performed, the communications among actors, and the concrete combinations and adaptations of resources across organizational boundaries. These interactions are termed “dynamic” because the underlying processes change more frequently and can contribute to changes in the structural components (e.g., to the emergence of new long-term goals or to the inclusion of new actors in the network structure).
The three structural components are: definition of the content of each business relationship; formation of the network structure; and evaluation of the matching of IKEA’s goals and resources with those of the network. The logic of Component 1 is that IKEA strives to influence such relationship contents as exchanged volumes, commitments, trust and learning depending on how each relationship can contribute to achieving IKEA’s goals. However, Component 2 stresses that focusing on a single relationship would not be enough because IKEA’s goals can be reached only by connecting several relationships into a broader network structure, including the establishment of new relationships and the assignment of specific roles to certain counterparts within a hierarchy of relationships. Finally, Component 3 suggests that a firm needs to evaluate how its own goals and resources can match those of its counterparts in the network: unless this match can be achieved by means of dynamic interactions, adjustments might be necessary in the other two structural components, such as establishing new relationships or changing their contents.
The three structural components provide the basic network structure within which dynamic interactions unfold continuously. At a general level, these daily interaction processes entail combinations of resources by IKEA and other actors in the attempt to match IKEA’s goals and resources with those in the network. At a specific level, there are two types of dynamic interactions: interacting via inter-organizational routines for efficiency purposes; and interacting via joint projects for development purposes. Whereas inter-organizational routines are, for efficiency’s sake, rigid scripts executed repetitively, joint projects are development processes that can stretch over several years, thus becoming less controllable by IKEA and more uncertain.
IKEA,The Interacting Company: Handling a Network of Relationships
IKEA’s relationships and network are pivotal in fostering development of IKEA’s products and technologies, and in sustaining efficiency in its daily operations. IKEA is certainly not the only firm that relies on extensive network interactions for its strategy. In particular, other retailing firms such as Benetton and Hennes & Mauritz apply a similar approach to complex webs of partners. However, IKEA does it in a special way. A major difference in comparison, for instance, with Wal-Mart,35 is that IKEA stretches its interactions as far upstream as possible in the network, all the way to raw material suppliers. IKEA intensively cooperates with these suppliers in order to ensure the quality and the environmental friendliness of inputs to its direct suppliers downstream. Another important difference is the extent of IKEA’s cooperation with its partners: this extends to complex and enduring development projects whereby IKEA’s products and technologies are co-developed with suppliers.36
Finally, IKEA’s interaction mechanisms strongly differ from both hierarchically steered networks, such as the Japanese Keiretsu,37 and looser arm’slength relations mostly based on purchase power, such as those of Wal-Mart.38 The main difference is that instead of solely exploiting the power of being a large buyer, IKEA takes a long-term approach and strives to build lasting relationships based on mutuality. This means that it also explicitly considers the interests of suppliers, who would otherwise lose the motivation to interact with IKEA. Moreover, IKEA does not strive to unilaterally control these relationships, but relies on extensive delegation of tasks to its suppliers, and even accepts being dependent on some of them. Thus, for IKEA, mutual trust and commitment are more important interaction mechanisms than power.
IKEA’s Background and the Structure of Its Network
IKEA’s concern with providing low-price products characterizes both its current strategy and its history. The introduction of flat packs in the 1950s allowed important savings in transportation and production costs. In fact, IKEA’s customers took over assembly activities, and suppliers only needed to deliver un-assembled furniture components. Later on, selling costs could be contained thanks to “showroom-warehouses”: retail stores were redesigned so as to combine a large exhibition area with an adjacent self-service warehouse. IKEA could afford such low retail prices that its sales rocketed in the 1960s, signaling the start of its expansion, with several stores in Sweden and abroad. However, a strong reaction soon followed from Swedish furniture retailers, who tried to strangle IKEA’s purchase sources by requiring that all Swedish producers stopped supplying IKEA. IKEA’s countermove was to go looking for suppliers abroad. Thus, the first agreements with Polish producers were signed in the 1960s, laying the groundwork for many business relationships that still exist today.
Long-lasting relationships with selected key suppliers are still the hallmark of IKEA’s purchasing and product development strategy. As IKEA is directly involved only in conceiving, distributing, and selling its products, it needs partners that can concretely develop and produce a total of 12,000 items that meet its cost, quality, and design goals. Still, extensive knowledge of the network, from raw materials to customer homes, is pivotal for IKEA to conceive products that are not only “cool” and functional enough to sell, but that can also be produced according to set cost and quality goals.
Figure 1 gave a simplified idea of the extension and complexity of IKEA’s network, encompassing about 10,000 organizations, from sub-suppliers to IKEA retail stores. Connecting this network geographically requires a very advanced logistic system, including 20,000 transport corridors. However, what counts more than these physical connections are the organizational connections that IKEA needs in order to interface with this complex network. In fact, IKEA created specific organizational interfaces to handle relationships with the various actors: not only the 1,300 direct suppliers and 500 carriers, but also hundreds of the 10,000 sub-suppliers, especially large firms supplying core materials such as packaging (e.g., SCA) or coatings (e.g., Akzo-Nobel).
The strategic role of the unit known as IKEA of Sweden has already been mentioned. From IKEA’s hometown of Älmhult, its 700 employees perform another fundamental role: interacting from a central position with key logistic partners and suppliers on such strategic issues as long-term capacity planning and major technical development projects. Conversely, at a local level, the main interfaces with suppliers are IKEA’s 40 Trading Offices, employing 3,000 people worldwide. Even if these local purchasing offices replicate the structure and competence of the central unit, IKEA of Sweden (with purchase strategists, product category specialists, technicians, order managers, and logisticians), their interactions with suppliers mostly concern daily issues (e.g., orders and deliveries) and occasionally development or tendering for new product assignments. IKEA pays its Trading Offices a percentage on the purchases made from the suppliers they “represent.” Finally, the daily logistic coordination with all suppliers and carriers is handled by IKEA’s 26 Distribution Centers.
IKEA’s Approach to Business Relationships
IKEA’s approach to supplier relationships depends on the product involved. Complex products, both in terms of construction (e.g., sofas) and of production technology (e.g., the “Lack” table, featured below), are assigned to suppliers with which extensive mutual trust, commitment, and knowledge have been established through long-term relationships. These strong relationships entail extensive joint investments in facilities. On the other hand, products whose technical simplicity means they are easily interchangeable (e.g., rugs) are usually purchased through shorter-term relations. A similar variation exists in the relationships with logistic partners: out of over 500 such partners, IKEA has developed close cooperation with only 50 (e.g., Maersk, Willy Betz, SJ Cargo, and TNT), which between them account for 80% of IKEA’s transport volumes. Still, the majority of IKEA’s purchases happen through deep and established relationships. A common trait is IKEA’s attempt to avoid abusing its power position. The focus is instead on the mutual benefits accruing to both IKEA and its suppliers. Cooperation with IKEA should ideally bring suppliers advantages such as stable and long-term orders or technical development projects where IKEA can “pay” for thousands of tests. In fact, IKEA is well aware that those actors that no longer have advantages may end their cooperation (as did the coating supplier Becker-Acroma in the episode reviewed in Appendix A).
Moreover, IKEA does not unilaterally control these relationships but accepts that it may sometimes be strongly dependent on its suppliers, as in the case of key logistic partners and those suppliers that daily refill IKEA’s stores through “Vendor-Managed Inventory.” IKEA does not even unilaterally control such key sources of its innovativeness as product and technology development projects. Here, IKEA delegates much responsibility to the most competent partners, either those who have long been in charge of manufacturing a certain product, or those who have specific technical competences.
Different Types of Relationships in IKEA’s Network
The composition of IKEA’s network varies greatly in terms of the size of the actors involved. There are many small suppliers (and especially sub-suppliers) that are highly dependent on IKEA, and which IKEA can more directly influence with its powerful position. However, IKEA exerts its influence not only by holding down prices, but also by inducing suppliers to upgrade their technologies in ways that eventually benefit the suppliers themselves. This mutuality is in fact the hallmark of all of IKEA’s business relationships, even of those where IKEA could exploit a power position due to the overdependence of a supplier.
On the other hand, there are also larger counterparts with which IKEA has a much more balanced power relation. These large actors are not easily influenced by IKEA, and they comply with IKEA’s requests only if they gain something from a specific cooperation. For instance, Akzo-Nobel, a sub-supplier of coatings, is a 15,000 employee and €6 billion chemical group. IKEA is certainly an important customer for Akzo-Nobel, but not to the extent that Akzo will blindly comply with any requests. Instead, Akzo-Nobel chooses to engage in IKEA’s development efforts when this provides it with specific advantages, such as learning a new technology. Similarly, the key logistic partner Maersk has thousands of trucks and employees, alongside hundreds of vessels and local offices: in this case, it is more IKEA’s transportation routines that need to fit into the logistic network of this partner rather than vice versa. Relationships with such large actors directly involve IKEA of Sweden for central negotiations; and even if IKEA still remains a key account for most suppliers (covering at least 1% of their sales), there is more balance in power and dependence.
IKEA’s relationships are also very heterogeneous from a geographic point of view,39 because they are spread over the regions that provide specific resources or location advantages, such as nearness to IKEA’s major markets (Germany and Central Europe). Geographical location is one of the key factors when selecting new suppliers, because it strongly affects costs, competences, and delivery times. The resulting geographic pattern is as follows: Chinese suppliers rank first, with nearly 20% of purchase volumes, mainly due to cost reasons; Polish ones rank second, thanks to a good mix of low costs, technical competence, and nearness to Central Europe; and Swedish suppliers, despite high costs, still rank third thanks to their advanced technical competence.
Geography is an important factor, but not the only factor, in supplier selection and hence in constructing the structure of IKEA’s network. During the selection process, IKEA of Sweden and the local Trading Offices that propose a supplier also evaluate these other factors, in order of importance: total costs,
provided that IKEA’s quality and environment requirements are respected; current and planned production capacity; technical competence; and readiness to make investments for and with IKEA. An additional rule is that suppliers should not depend on IKEA for more than 50% of their turnover. The rationale here is not  only the avoidance of over-dependent suppliers that would be hurt too much if IKEA’s order volumes should decrease, but also reliance on the learning and development achieved by a supplier thanks to interactions with customers other than IKEA.
Then, with some suppliers, IKEA develops long-lasting and complex content relationships, which entail large volumes and commitments. IKEA often even purchases machinery for these suppliers and trains their personnel. An even more restricted group of highly trusted suppliers is then invited to take part in complex technical development projects with IKEA: these suppliers are those with greater competences (e.g., in logistics or coating technologies) and those willing to become more committed to IKEA due to a positive history of interactions or strong expected benefits. IKEA already understood in the 1960s that using a long-term approach to purchasing actually favors IKEA itself, by allowing lower production costs and purchase prices and faster and improved development for its products. This approach produces even better results if IKEA follows a philosophy of mutuality and also takes into account the interests of its suppliers: this is reflected in IKEA’s attempt to balance production volumes among several suppliers and in IKEA’s investment programs to upgrade a supplier’s competences (e.g., technical or administrative training).
For instance, IKEA applies a ladder model to IT and supplier logistics issues (see Figure 2): increasing supplier responsibility in deliveries (from simple fulfillment of IKEA’s orders to “Vendor-Managed Inventory”) must correspond both to increased IT integration with IKEA and to improved logistics capabilities. However, this model does not build only on improved routines and IT, but also on the development of a stronger business relationship, entailing more trust and commitment between IKEA and a supplier. This also implies better information flow and the commitment of concrete resources, ranging from dedicated personnel to building new warehouses at a supplier’s site.
The deepening of a supplier relationship around IT and delivery issues starts from consistent delivery performances, and proceeds along a supplier’s improvements on these dimensions:
▪ increased experience of IKEA’s ordering routines or retail sales patterns;
▪ logisticians and order management teams dedicated to handling IKEA’s orders;
▪ improved communication with IKEA’s units such as retail stores and IKEA of Sweden;
▪ improved IT competences acquired from daily use of advanced IT tools such as ERPs;
▪ the willingness to invest in expensive new IT solutions;
▪ a direct knowledge of the IT ordering systems located at IKEA; and
▪ improved manufacturing flexibility and willingness to make physical investments (in production or warehousing capacity) in order to cope with fluctuating order volumes.

FIGURE 2. IKEA’s Ladder Model for Supplier Interactions and IT/Logistics Capabilities
 
Key:
Call-Off: IKEA emits orders every fourth week and suppliers must deliver within the next 4 weeks.
OPDC: IKEA emits orders daily and suppliers must deliver within 12 days.
VMI: Suppliers are in charge of deciding when and how much to deliver to IKEA.

Suppliers who achieve the aforementioned capabilities (often thanks to support and training provided by IKEA) and make the required commitments can move up along the ladder depicted in Figure 2. However, IKEA is also costdriven and a highly demanding customer that puts pressure on its suppliers. Therefore, if repeated efforts to improve a supplier competence and efficiency do not produce good results, IKEA is ready to terminate that relationship. As a result of IKEA’s efforts to develop (or terminate) supplier relationships, its network is heterogeneous, a feature that IKEA views as a key source of development.

What Goes on in IKEA’s Network? Two Interaction Processes
The rich structure of relationships and the widespread competences accessed by IKEA through its network would be useless if IKEA did not have the ability to combine these resources to achieve efficiency and foster development. At a general level, this ability relies on IKEA’s organizational structure, on its strong competence in such areas as product and technology development or logistics, and on its long-term approach and network-oriented culture. At a more concrete level, the combination of external resources and competences relies on two managerial tools: detailed routines performed repetitively by IKEA and its suppliers in such efficiency-driving processes as order management; and ad hoc projects that tackle specific product and technical development issues and often involve up to 20 firms. Inter-organizational routines and projects are essential mechanisms to promote and handle the numerous interaction processes unfolding in the network structure reviewed above.
Order Management Routines at IKEA and Its Partners
This process defines the replenishment needs of IKEA stores and communicates them to the supplier in charge of each specific product. Setting exact order quantities is critical in order to avoid stock-outs in retail stores or extra inventory costs. Timing is essential too, because suppliers are bound to given lead-times and cannot react to a delayed order with immediate deliveries. IKEA achieves efficiency in the order-management process through an advanced procedure that estimates its own replenishment needs and very structured routines that transfer these needs to each supplier, stating such details as the exact response time and modes required from them. Nothing is left to chance, and IKEA considers many variables (such as stock levels, lead-times, and goods-intransit) to define when and how much should be ordered of a certain product.
However, matters are complicated by the fact that IKEA sells 12,000 products, with very different production approaches and lead-times. For instance, a sofa will be finished after a customer order is placed, because the producer needs to wait until the customer has chosen the fabric; whereas standard products such as coffee tables are produced before orders, against sales forecasts. Therefore, IKEA’s orders of sofas and other customized products are steered by end-customer orders, and so need longer lead-times; whereas orders of standard products are triggered by automatically preset reorder points at IKEA stores and Distribution Centers, and have shorter lead-times. To be able to fulfill an order, a supplier needs to master the details of the ordering routine specific to each of the products it delivers to IKEA. Manufacturers supplying IKEA with volumes higher than Euro50 million yearly have large teams of IKEA-dedicated order managers, fully engaged in handling IKEA’s orders.
To further complicate things, not all IKEA suppliers are equally able to respect short lead-times and to fulfill orders coming in daily. Therefore, different suppliers interact with IKEA by means of different ordering routines, depending on their ability and type of product. For instance, IKEA cannot implement with all suppliers the ordering routine “OPDC” (Order-Point Distribution Center), which involves issuing orders every day and requiring fulfillment within 12 days. Instead, many suppliers follow the “Call-Off” routine, which involves issuing orders every fourth week and requiring deliveries within the following 4 weeks. The OPDC modality is clearly more precise for IKEA’s receiving units and reduces stock levels and goods-in-transit within IKEA. However, OPDC creates stronger pressures on suppliers not only to learn a new ordering routine, but also to become more flexible and speculative, or even to increase finished goods stocks in order to react to shorter lead-times.
Still, OPDC is not IKEA’s most demanding ordering routine for a supplier. The “VMI” routine (Vendor-Managed Inventory) grants suppliers access to IKEA’s stock data and assigns them the responsibility to decide when and how much to deliver. In this way, a supplier is empowered to exploit its knowledge of IKEA’s ordering patterns. However, this knowledge, essential to forecasting IKEA’s needs, only comes after having interacted daily with IKEA for some years. Additionally, with VMI, close interaction and joint planning between a supplier and IKEA stores become necessary to secure product coverage for special events such as store openings and sales promotions. All order management modalities are highly interactive routines performed daily by IKEA and its suppliers according to rigid scripts, mostly decided unilaterally by IKEA. At the same time, IKEA strives to introduce new ordering routines such as OPDC with key suppliers, according to the aforementioned ladder model that requires direct supplier involvement and large mutual investments.
The “Printed Veneer” Project for the “Lack” Table
An important type of development projects in IKEA’s network concerns new technologies. In fact, IKEA searches constantly for technologies that can reduce costs, improve quality, or allow new designs. Coating technology, for instance, is pivotal in furniture manufacturing, because it strongly affects both design and quality, but it is also costly and, if badly handled, can become hazardous to health. IKEA is therefore very concerned with coating technologies and has promoted hundreds of projects to improve them at its suppliers. One of these projects is the “printed veneer” project, which addressed the high cost of the veneers used for IKEA’s best-selling “Lack” table, with more than 2.5 million units sold yearly.
In 2000, IKEA of Sweden raised some concerns about the high cost of veneers, which accounted for about 20% of the material costs for the veneered versions of Lack. These concerns triggered a series of discussions and an evaluation of potential solutions at Swedwood Poland, the manufacturer of Lack tables. Akzo-Nobel, one of their major coating suppliers, proposed to Swedwood a new coating technology that would allow substituting real veneers with a printed pattern. Thus, Swedwood and Akzo-Nobel initiated a large technology development project with the aim of printing veneer on wood. This project was particu-larly important not only for cost reduction, but also for product design and aesthetics. Veneers are very visible on Lack tables and so the need to respect the perceived-quality requirements made this project particularly complex. The aesthetic target was that consumers should not notice any major difference in the printed pattern compared to real veneers. Akzo-Nobel took a leading role in perfecting the technology and introducing it into Swedwood’s plants. Leading the project meant identifying suppliers of the necessary equipment and supervising the many tests required to fine-tune the technical solution. Many technical and organizational resources had to be combined during this project (see Figure 3, which shows the products, equipment, business units, and relationships that were involved).
 
 
The involved business units were all related by long-term relationships. In particular, Akzo had been supplying Swedwood for 20 years and closely interacted with IKEA of Sweden to negotiate the prices and conditions applicable to IKEA’s direct suppliers. Finding a way to print veneer patterns on Lack’s surface, which is made of HDF (high-density fiberboard), was not a technically easy task.
To start with, Akzo had to develop new coatings and inks. Moreover, many technical resources fell outside Akzo’s competence: new coating lines, resembling printing presses instead of traditional coaters, were necessary. Therefore, Bürkle and Sorbini, two coating lines suppliers who had previously supplied Swedwood and cooperated with Akzo, modified their equipment to suit the new process. Following Akzo and Swedwood’s specifications, Bürkle and Sorbini adapted two coating lines that were installed at Swedwood’s plants. However, the most demanding part of the project was getting all the technical resources to work together to satisfy IKEA’s requirements. This took over a year of tests, led by Akzo at Swedwood’s plants. On several occasions, Akzo had to modify its coatings and inks to allow them to work together with HDF and the new coating lines.
However, by the time the new “print-on-wood” technology was ready, the problem of high-cost veneers had already been solved by a large supply of inexpensive and high-quality veneers purchased by IKEA’s Trading Offices. Still, the new technology was now available, and IKEA decided to apply it to other products manufactured by Swedwood, namely, a series of shelves that were officially launched in 2002. In initiating this project, IKEA had justified its high costs with large cost savings for a specific large-volume product, the Lack table. When the new technology became less relevant for these tables, IKEA could rely on the fact that Swedwood manufactured several other IKEA products with similar veneering problems.
At the same time, efforts continue now to diffuse the “print-on-wood” technology both to other IKEA products and to other suppliers across IKEA’s network. Moreover, in 2006 the aforementioned large supply of inexpensive veneers dried out. Thus, printed veneer was finally applied to its original target, Lack tables. IKEA and Swedwood are currently discussing the application of the “print-on-wood” technology not only to substitute veneers, but also to print directly on IKEA’s furniture any pattern developed by IKEA’s designers. Thus, a technical development initiated for cost reduction has opened up another way to sustain IKEA’s image as an innovative and cool furniture company.
Interaction processes such as ordering routines and the printed veneer project would not be possible without two important premises: IKEA’s internal structure and competences and its well developed interfaces for interacting with the network. For instance, IKEA of Sweden employs 700 people specializing in furniture technologies, logistics, and so on. That unit includes 50 “purchase strategists” and 100 technical experts. Moving from IKEA’s center to its periphery, we encounter 40 local Trading Offices employing 3,000 people who deal daily with suppliers. Therefore, IKEA’s multifaceted organization, with its many internal competences and external interfaces, is necessary for IKEA to pursue its network strategy and interact with the actors in its network.