Ikea Case Study Analysis

IKEA CASE

Background

• Global Business Area Manager Marianne Barner was faced with the decision to cut off one of IKEA’s major suppliers of Indian Rugs.
• Investigation released by Swedish television program found that the key supplier was using child labor.
• These labor problems persisted despite IKEA suppliers signing a contract vowing not to use child labor; not obeying the contract being grounds for termination.
• Extensive problems with being the low cost provider and environmentally friendly over the last decade (formaldehyde glue and Billy bookshelf).
• How does IKEA bounce back and repair image?
• Time, cost, profit potential of finding a new supplier may not be worth the effort.

Issues

• How to deal Rangan Exports (supplier) apparent violation of contractual commitment to not using child labor.
• Should the company continue to deal with the issue of child labor through its own relationship with suppliers or step back and all Rugmark to monitor the use of child labor?
• Should it continue to face the problem in India, Pakistan, etc. or recognize that it was too deeply embedded in the culture of these countries and withdraw?
• Will there mission of cost consciousness and constant will to renew be significantly affected by greater social responsibility?
• Do they continue to produce in India? Or move elsewhere to avoid backlash?
• How to improve IKEA’s image?

Stakeholders

• IKEA, shopkeepers, customers, suppliers and furniture manufacturers.

IKEA

• Aims to offer a wide range of well-designed, functioning home furnishing products at prices so low that as many people as possible can afford them.
• Mission: “Create a better everyday life for the many people.”
• Objective 1: To be the leading home furnishing company.
• Objective 2: Strengthen IKEA’s competitive position.
• Objective 3: To sustain long-term profitability.

Recommendations

• Be proactive and not reactive to environment and humane issues.

Introduce a more in depth code of conduct which they did so with IWAY in 2000:

• Working conditions: No forced/bonded/child labor, illegal overtime, harassment, etc.

Extensive partnership with auditors to spot child labor cases, the contract clearly wasn’t enough.

Explore the idea of building own factories in foreign countries.

Encourage government involvement in the abolition of child labor.

Explore alternative supplier in China.

Rangan Exports

Pros and cons of cancelling the contract:

Cancel Contract

• If Rangan hasn’t internalized the policies of the contract then it never will.
• Suppliers from China are getting more attention and there compliance may be better too.

Do Not Cancel Contract

• Important supplier for IKEA.
• Switching costs will occur.
• Give it a chance to improve, hope is not lost.

Worried more about to finding the right management for cheap production, became too trusting with supplier relationships as shown with formaldehyde crisis.