Executive Summary

A Case Study of IKEA - in the Interactive Framework of Green

Supply Chain Management

Someone’s or Research

Team’s Name

12 December 2018

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Title Page

1. Executive Summary Page 2

2. Introduction

a. What is Supply Chain Management? Page 2

b. What is Green Supply Chain Management? Page 2

c. Why companies want to have Green Supply Chain Management? Page 2

d. Current Situation of GSCM Page 3

3. The Framework and Case Study

a. The Interactive Framework of GSCM Page 3

b. A Case Study of IKEA Page 4

c. Application of IKEA case into the Framework Page 5-7

i. Green Product Design

ii. Green Material Management

iii. Green Manufacturing

iv. Green Marketing and Distribution

v. Reverse Logistics

4. Challenges and Recommendations Page 8

5. Conclusion Page 8

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1. Executive Summary

This is section is for your Assignment 1. It’s your job to fill in this ES part.

Min: half page; Max: one page (12 font size, double space)

2. Introduction

a. What is Supply Chain Management?

Supply chain management is the management of the flow of goods and services and

includes all processes that transform raw materials into final products, from supplier to

manufacturer to wholesaler to retailer to consumer. (Supply Chain, 2019).

b. What is Green Supply Chain Management?

According to Srivastava (2007), GSCM can be defined as “integrating environmental

thinking into supply chain management” by minimizing wastages like emissions, energy, solid

waste in the supply chain, “including product design, material sourcing and selection,

manufacturing process, delivery of the final product to the consumers as well as end-of-life

management of the product after its useful life”.

c. Why companies want to have Green Supply Chain Management?

There are different factors to motivate companies to go “green” in their supply chain.

One of the factors is consumers’ awareness. Previous survey indicates that more than half of

global consumers (53 percent/representing 1.1 billion people) prefer to purchase products and

services from a company with a strong environmental reputation, according to a global survey

released by video-conferencing company Tandberg in 2007. Another study in 2015 also

showed people continued to be willing to pay extra for green products and services that come

from companies who are committed to positive social and environmental impact. Being “green”

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can increase the reputations of the organizations which also get the supports from specific

consumers. GSCM can result cost reduction and profitability which is another motivator for

organizations to switch to “green” supply chain (Kumar, 2011).

d. Current Situation of GSCM

Top companies are now engaging in going “green”, not only due to the social

responsibility but these organizations also concern the future business environment (17 Top,

2019). For instance, The Bank of America has successfully recycled 30,000 tons of paper every

year. Coca Cola recycled or recovered more than 90% of waste materials at production facilities

in 2009 (Coca-Cola, 2011). Although studies have shown that implementation of GSCM can

result profitability (Kumar, 2011), companies still have hesitation in switching to the “green”

supply chain (Bhateja, 2011).

3. The Framework and Case Study

a. The Interactive Framework of GSCM

Ghobakhloo has developed an integrated framework of GSCM (Figure 1) which is based

on following definition of GSCM:

Green Supply Chain Management (GSCM) = Green Product Design + Green Material

Management + Green Manufacturing Process + Green Distribution and Marketing + Reverse

Logistics (RL)

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Figure 1. Framework of green supply chain process implementation

b. A Case Study of IKEA

IKEA is a Swedish-founded furniture retailer that designs and sells ready-to-assemble

furniture, kitchen appliances and home accessories. IKEA’s vision is to ‘create a better

everyday life for many people’ and their business concept is ‘to offer a wide range of well-

designed, functional home furnishing products at prices so low that as many people as possible

will be able to afford them’ (IKEA Supply AG, 2008). The vision and business ideas are carried

across all aspects of the business, ‘We work hard to achieve quality at affordable prices for our

customers through optimising our entire value chain, by building long-term supplier

relationships, investing in highly automated production and producing large volumes. Our

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vision also goes beyond home furnishing. We want to create a better every day for all people

impacted by our business.’ (Inter IKEA Systems B.V., 2015).

To achieve the above vision, IKEA announced commitments to inspire and enable

sustainable living in 2018. The company aims to remove all single-use plastic products from

the IKEA range globally by 2020, reduce 70% climate footprint per product and use all

renewable or recycled materials by 2030. To achieve these goals, IKEA is investing EUR 380

million to develop new materials and a truly circular IKEA range.

c. Application of IKEA case into the Framework

This section is going to briefly explain the detail of the framework and then apply the

IKEA case in it to explain how IKEA successfully develops and implements the GSCM.

i. Green Product Design

Green product design includes Life-Cycle Assessment/analysis (LCA) and

Environmentally Conscious Design (ECD) of the product. LCA is generally concerned with

the process for assessing and evaluating the environmental, occupational health and resource

consequences of a product through all phases of its life and ECD seeks to design products by

considering the environment (Gungor, 1999). In ECD context, the information from LCA can

transfer into the initial design of a new product. The designers from IKEA have the ECD idea,

they always implement sustainable innovation in their designs. In creating the ODGER chair,

the team implemented LCA, they carried out certain tests, well communicated with the

suppliers in matching the possibilities to fulfil customers’ need, result sustainability and keep

prices low (New ODGER, 2017).

ii. Green Material Management

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It includes green material selection and green material sourcing. The most reasonable

action is replacing a potentially hazardous material by less problematic one (Srivastava, 2007)

or replacing limited resources by renewable or recycled materials. Using the same example,

ODGER chair, the chair is made of wood plastic composite, 30% renewable wood and 55%

recycled plastic.

According to IKEA’s annual report 2018, IKEA used around 0.7% of all cotton grown

around the world. Traditional farming techniques require large amounts of chemical fertilisers

and toxic pesticides which result soil erosion. As an investor of Treetotextile, this company has

developed process to transform wood pulp into a cotton-like fabric which has assisted IKEA

to manufacture a more environmental product.

IKEA also responds to sustainable sourcing; more and more products only contain

sustainably sourced wood. For instance, all wood used in the furniture series HAVSTA comes

from sustainably managed forests.

iii. Green Manufacturing

It consists of resource consumption reduction, waste reduction and emission reduction.

The main objective in the green manufacturing process is to reduce the usage of materials and

the indirect resources/energies (Ghobakhloo, 2013). To minimize the unnecessary waste in

production, IKEA cuts and shapes every piece of wood with designs and plans. For instance,

SKOGSA worktop is made with a thin layer technique, placing a 3mm solid wood surface on

particle board. This technique requires less raw material than the ordinary solid worktop.

The organization also pays efforts on reducing the emission of carbon dioxide. IKEA

Group has invested EUR 1.7 billion in renewable energy since 2009. It is operating 416 offsite

wind turbines and has installed around 750,000 solar panels on IKEA buildings (Circular and

Climate, 2018).

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iv. Green Marketing and Distribution

Green marketing consists of promoting products and services based on environmental

factors or awareness. Companies hope that consumers will associate the environmental core

values with the company or brand, which can help to cater a new target group (Green Marketing,

2018). For instance, IKEA includes the latest sustainability information in the website to

promote their products and brand. The Group has announced to phase out single-use plastic

products by 2020 (IKEA commits, 2018). The 3 stores in Hong Kong has stopped providing

plastic bags for consumers.

Green distribution defined as; ''transportation service that has a lesser or reduced negative

impact on human health and the natural environment when compared with competing

transportation services that serve the same purpose'' (Björklund, 2010). For instance, IKEA

cooperated with particle-board producers to create a new particle-board alternative. The new

boards reduced the need for resources by 85,816 tons; on the other hand, the weight of cargo

and number of trucks dropped, finally resulted less carbon emission and helped IKEA lower

costs (Design for, 2018).

v. Reverse Logistics

Recycling, reusing and remanufacturing of materials are under reverse logistics.

Recycling is the process of collecting and processing materials that would otherwise be

thrown away as trash and turning them into new products (Recycling, 2018). IKEA encourages

consumers to recycle cardboard, drinks containers, betteries and light bulbs by placing them in

recycling bins at stores.

Reuse is defined as to use an item more than once. IKEA has just implemented a new

scheme of exchanging used IKEA furniture for a reward voucher in Edinburgh. The company

will sell the items in the bargain area (IKEA to sell, 2019).

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Remanufacturing refers to extend the life of the original core unit by repairing,

refurbishing or overhauling the item (Ghobakhloo, 2013). In 2019, Premier Sustain shared its

experience about remanufacturing office furniture with IKEA which is a pioneer project.

4. Challenges and Recommendations

One of the visions of IKEA is to provide quality products at affordable prices for our

customers. However, according to the annual report in 2018, due to the increased raw material

prices for wood and metal products, it led to an approximately 1% lower gross margin and an

0.2% price increase to IKEA retailers.

Reduction in gross margin definitely results a negative impact to the company’s financial

performance. Practising GSCM initially is a costly affair, since it is a long-term investment,

IKEA needs a longer time to see the result. To cope with this challenge, sourcing of new

suppliers and educations for suppliers maybe useful. IKEA can keep looking for new suppliers

which can provide sustainable resources. At the same time, the Group can establish a long-term

relationship with suppliers in assisting them to improve their manufacturing process in order

to reduce costs.

Increasing of retail price may influence customers’ decision making in purchasing

products. Many customers may not be willing to pay more for green products. To overcome

this challenge, IKEA can pay more effort in green marketing.

5. Conclusion

This paper briefly explains the framework and analyses how IKEA successfully develops

and implements the GSCM within the organization by using the framework. Apart from the

organization itself, cooperating with suppliers (in products design, sourcing & manufacturing)

and consumers (in marketing and reverse logistics) is also required.

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