Logistics and Supply Chain Sustainability: IKEA in Action
Contribution by David Weaver – from the Inventory & Supply Chain Division at INFORM
Supply chain and logistics sustainability is a topic that has been gaining momentum over the last decade. It is a topic that has reached the executive board in companies across the globe. It is, however, quite a generic topic that, in the end, leaves managers wondering where to start.
A simplified explanation of supply chain and logistics sustainability revolves around an organization’s supply chain efforts in the areas of environmental, waste and risk assessment and improvement. In 2008, The Future Laboratory released a three-tier model that outlined an organization’s path to becoming a more sustainable operation:
1. Getting the basics right
This gives business managers a place to start in the quest for sustainability. This step addresses recycling, turning off idle machines, choosing greener forms of transportation, and so on. These “small” steps can already reduce a company’s carbon footprint.
2. Learning to think sustainably
The second step encourages the integration of sustainable practices into the supply chain. A company’s impact across its various operations is assessed, including manufacturing, distribution and product design.
3. The science of sustainability
The final tier involves the long-term integration of sustainability measures into business and supply chain practices which includes creating benchmarks and conducting audits to help maintain the sustainability efforts. The framework for sustainable supply chain efforts should also take external partners into consideration and include a plan to get them on board.
Tips on how to achieve the lofty goal of supply chain sustainability are all over the web. Much like in a university classroom, the theoretical framework for supply chain sustainability is out there. The theory taught in the classroom is typically a great starting point. However, during my studies, I really enjoyed working on projects together with companies. Taking the theory learned in the classroom and, for example, helping a retailer assess data for a new store location or developing an information management system for a start-up, really helped me the most in understanding the business world. The same holds true with supply chain sustainability.
I was lucky enough to be serving as the chairman for the world class logistics stream at the European Supply Chain and Logistics Summit in Barcelona when Karl Johan Servin, director for distribution services for IKEA Spain, presented a case study which addressed some of IKEA’s sustainability efforts. The case study provided me with real insight into what a logistics sustainability project can look like and the results that can be achieved.
Ikea’s business vision is “to create a better everyday life for the many people.” The company offers a wide range of functional home furnishings with the aim of reaching as many customers as possible, mostly by offering affordable price points. IKEA is consumer focused and emphasizes four aspects that help create satisfied customers:
[list][item icon=”128077″ ]Quality – Well-designed, functional, customer-friendly, durable and safe to use products;[/item][/list]
[list][item icon=”128077″ ]Price Development – Saving costs without compromising customers’ needs, quality, safety or environment;[/item][/list]
[list][item icon=”128077″ ]Availability – Product should be on the shelf when the customer wants to buy it;[/item][/list]
[list][item icon=”128077″ ]Sustainability – Products must be manufactured under acceptable working conditions by suppliers who take responsibility for the environment.[/item][/list]
During his presentation, Servin honed in on Ikea’s focus on the environment and sustainability in its logistics processes. One line that really grabbed my attention during the presentation was: “Sustainability cannot be a luxury good, it must be affordable for the many people,” a statement that is in line with the overall company vision.
[blockquote style=”2″]In order to put theory and words into practice, Servin shared some facts with the audience regarding Ikea’s sustainability projects, one of which is the wooden pallet phase-out project and the switch to paper pallets. The goal of this project was to reduce costs and minimize IKEA’s impact on the environment. In general, paper pallets provide many advantages: they are lighter, recyclable, no fumigation is required, and they are more flexible and typically allow for more product to be shipped on a load. Along the same lines, IKEA also introduced loading ledges to its supply chain. IKEA won an innovation award for these loading ledges in 2008. In contrast to wooden pallets which use trees, the IKEA system, OptiLedge, uses Poly Propylene which is recyclable and easier to dispose of, making them a more environmentally friendly option.[/blockquote]
Since implementing the loading ledges and paper pallets, Ikea has been transporting less “air” and more product, which has reduced transportation costs significantly as they were able to improve their “fill rate.” The switch to paper pallets has also reduced Ikea’s footprint on the environment, cutting its CO2 emissions by 75,000 tonnes per year. A further benefit resulting from the company’s commitment to sustainability includes a reduction of overall supply chain costs in the form of reduced fuel and labor requirements. An increased quality perception in stores due to a cleaner and neater appearance has also been observed. Furthermore, IKEA has noted an increase in availability at the store level due to more volume per sales location.
This example represents a company that has reached tier three in the theoretical presentation of what it means to be sustainable. IKEA’s commitment to sustainability can also be observed here:
It will be interesting to see what the future hold for IKEA and its sustainability efforts.