Magnus Carlsson – Sourcing Insight From The Trade Extensions Event

You may recall we reviewed Magnus Carlsson's book “Strategic Sourcing and Category Management -   Lessons Learned at Ikea” exactly a year ago.  We really liked it and said this; “it is still unusual and remarkable to find a book that goes into so much detail about the internal procurement and supply chain workings of a highly successful business. This is another highly recommended book from publishers Kogan Page, and essential reading for anyone who is serious about procurement”.

Carlsson worked for IKEA for many years, and the book is an illuminating description of how that incredibly successful firm uses its supply chain to drive success. It is well worth a read, so I was pleased to meet him in person at the recent Trade Extensions conference in Stockholm.

His keynote session at the event was also very impressive. He started by giving us his five-level classification of procurement which should drive different sourcing approaches.

Group 1 - Low influence on the company’s results; avoid shortages, focus on administration

Group 2 – Important products but no synergies; lowest product cost, competition, negotiation and new suppliers

Group 3 – High volumes of similar products; lowest total cost, global tenders, consolidate supply base

Group 4 – Control product development (i.e. high buyer involvement)  – optimise value, value analysis, optimise suppler base

Group 5 – Steer company’s long-term position – create value, innovation, design supplier base

It is an interesting way of looking at matters, somewhat different from the Kraljic matrix. And as you move “up” through these levels, sourcing gets more sophisticated, the potential cost benefits increase, but also the potential for increased customer value grows. That is fundamental to the IKEA model; finding ways through the supply chain of making well-designed products, to sell at what seem like incredibly cheap prices.

Carlsson was very interesting as well when he talked about how to “be an important customer”.  He (and IKEA) believe that is a fundamental element of achieving the value. Part of that is “providing what the supplier wants” – which might be technological support and benchmarking, entrance to new markets or shorter payment time.

As he said, “if we can borrow money more cheaply than our suppliers, we reduce the overall cost of the supply chain if we provide finance”. That is very logical even if it goes against the approach of many large firms who have pushed out payment times. We’re with him on this issue.

He also talked about optimizing the market; IKEA places a lot of emphasis on value chain activities, and whilst they are loyal to good and effective suppliers, they constantly seek out better suppliers in the market, as well as looking at how they can use current supplier capabilities better.

All in all, it was a very illuminating session; there is more, including “how to design a successful tender in category sourcing” and you can download all of his slides (and those of other presenters from the event) on the Trade Extensions website here.

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