Lessons Learned At Ikea – Procurement Secrets Exposed in Excellent New Book

The sub-title of this book tells you a lot more about the contents really than the title. “Strategic Sourcing and Category Management” is very generic, and this is not really a general guide to either of those (overlapping) disciplines – Jonathan O’Brien is not facing any competition here! The sub-title though – “Lessons Learned at Ikea” is spot on.

Magnus Carlsson, the author, worked for 25 years in procurement and supply chain practitioner roles in the firm, at various management levels, as well as lecturing and advising other organisations. This makes “Lessons Learned at Ikea” a procurement book that is both philosophically interesting but also as practical and grounded as any I have ever read; it is a hands-on guide rather than a textbook, if you like.

Ikea is one of the great business success stories of the last 50 years. The founder, Ingvar Kamprad, instigated an extremely strong and unique culture which comes through in the book. An obsession with cost is part of that, which enables products to be sold to the customer at what seems like remarkably low prices. That is supported by a frugality within the business; and that is expected to be a philosophy for suppliers as well.

Procurement is highly analytical and structured and based around the DMAIC process - define, measure, analyse, improve, control. There is a constant focus on understanding costs and value, and looking for ways to take cost out of the product, which again goes back to Kamprad. One of the many stories about him is that he “worked with a technician for six hours to take €0.30 off the price of a chair”.

The ways of working with suppliers are both very collaborative and yet pretty brutal at times. Show you can provide a product for less than your competition, and Ikea will work closely with you, help you expand your business or move into new countries. Don’t show the right approach and price reductions will be demanded or business will be moved away very quickly. Procurement works constantly to understand value chains and suppliers’ businesses, create competition in its supply markets (and not just at the first tier), to break oligopolies.

But it is not all raw power; the firm was a trailblazer in reducing supplier numbers, low-cost country sourcing, and aspects of ethical behaviour too, appointing a “supplier ombudsman” some time ago for example. The aim is always to create situations where price reductions “naturally follow” – although those situations are based heavily on power and the strength of Ikea’s BATNA* (although that term is not used, that’s what it is all about!)

At a time when many in procurement talk about giving suppliers freedom to innovate, and defining outcomes and outputs rather than using detailed specifications, it is fascinating to see a highly successful firm that is not afraid to get into the minutiae of detail with suppliers and acts in what we might describe as a paternalistic fashion. Sure, Ikea encourages suppliers to innovate, but Ikea will want to know exactly how have done that, details of your own supply chain, and so on. There isn’t much discussion in the book of real commercial detail, unsurprisingly, but one does wonder how an Ikea supplier might protect any unique IP it might develop!

The book acknowledges that the relevance of the processes described is very much around repetitive, manufacturing type purchasing. There are two pages given over to the buying professional and marketing services (indirects), including a recognition that “value” is somewhat different here, although the approach is still very structured and analytical. We’re also aware of one process Ikea uses that doesn’t get mentioned here at all, presumably because it may be seen as a source of competitive advantage.

However, 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 recommend book from publishers Kogan Page, and essential reading for anyone who is serious about procurement.

* Best Alternative to a Negotiated Agreement

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