IKEA

Purchasing

Strategy FY13-20

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Background Purchasing within IKEA has always been an important contributor to realising the Vision and Business

Idea.

We come from a trading organisation that delivered excellent results based on internal competition and

a strong focus on manufacturing in low cost countries. This generated cost savings when moving

volumes from Western Europe to Eastern Europe and Asia. However, this way of working has also left

room for improvement related to better cooperation and increased transparency within IKEA.

To improve and to take full advantage of the IKEA economies of scale and competence we decided to

develop our sourcing strategies in categories. This led to fact-based strategies and a common agenda

towards our suppliers. Our fact-based approach also resulted in the Supplier Development Process and

a clear way of working when using competition or cooperation. One of the results of using the IKEA

economies of scale has been a concentration of our supplier base, which has been reduced from 2,000

to 1,000 suppliers.

To take the next step towards excellent performance we need to continue building on the strengths

that we have within the categories and our way of developing our suppliers. We need to work together

with our suppliers with a common goal to optimise our value chain, resulting in better products at

lower costs.

Purchasing outlook From a purchasing perspective the world around us is becoming more and more challenging, putting

new demands on how we work. We see clear trends in increased cost of materials, energy and labour.

Therefore we see that our work with more sustainable use of resources and finding more efficient ways

to produce home furnishing items under good conditions will be more important than ever.

The ambition to double our sales volume by 2020 requires that we build and develop our capacities in

line with the planned expansion. The need for flexibility in the supply chain demands solid scenario

planning. This also sets preconditions for optimising the value chain.

Success factors lie within our ways of working together, based on our values. Our ability to attract,

recruit and develop our co-workers will determine how successful we will be.

Our approach when creating the strategy The strategy has been developed by the Extended Purchase Management. Stakeholders, co-workers,

suppliers and external companies have contributed through surveys, interviews and benchmarking.

Creating the strategy in this way sets the foundation to secure involvement and strong

implementation.

This strategy sets the direction up to 2020. Through our business we will contribute and deliver to

related strategies such as: Quality, Logistics, Sustainability, Better Products, Communication,

Competence, Home Furnishing Business Plans and of course Growing IKEA Together.

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Table of Contents

Background ............................................................................................................................... i

Purchasing outlook ..................................................................................................................... i

Our approach when creating the strategy ...................................................................................... i

Summary ................................................................................................................................. 2

Cornerstone 1: Lower total cost from material to customer............................................................. 3

1.1 Design for total cost ...................................................................................................... 3

1.2 Eliminate cost ............................................................................................................... 3

1.3 Economies of scale ........................................................................................................ 3

Cornerstone 2: IKEA Suppliers – Partners for growth ..................................................................... 4

2.1 A strong and diverse supplier base developing IKEA .......................................................... 4

2.2 IKEA, the preferred partner for the best suppliers in the world ............................................ 4

2.3 Performance ownership ................................................................................................. 4

Cornerstone 3: One IKEA Purchasing – Simple and professional ...................................................... 5

3.1 Professional purchasing behaviour and competence ........................................................... 5

3.2 Simple and efficient organisation .................................................................................... 5

Goals ....................................................................................................................................... 6

Total cost .............................................................................................................................. 6

Quality .................................................................................................................................. 6

Availability ............................................................................................................................. 6

Sustainability ......................................................................................................................... 6

Preferred partner .................................................................................................................... 6

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Summary

OBJE

CTIV

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CH

AN

GE

DRIV

ERS

GO

ALS

CO

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ERSTO

NES

Better products for the many people

Preferred partner and employer

Deliver excellent results

Lower total cost from material to customer

IKEA suppliers – partners for growth

Total cost approach in IKEA

Partners for growth

Simplify IKEA purchasing

Fact-based business leadership

Total cost Quality Availability Sustainability Preferred partner

One IKEA purchasing– simple and professional

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*Change driver: In the different cornerstones we have identified a number of change drivers. These are the most

important topics that will drive change and have an impact on Purchasing at IKEA in the future. Successful execution of

the change drivers will enable us to reach our wished position: Purchasing for Growth Enabling IKEA to be the Leader in

Life at Home and Sustain Long-Term Profitability.

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Wished position

Purchasing for Growth Enabling IKEA to be the Leader in Life at

Home and Sustain Long-Term Profitability.

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Cornerstone 1: Lower total cost from material to customer By working together to optimise our value chain we can make better products and services at lower

total cost. We will develop a total cost approach enabling us to take decisions based on the total

impact on our value chain. This leads to continuous improvements of our value chain and more

övertag*. Our total cost approach will empower our organisation to make decisions closer to reality.

We will always strive to connect our suppliers to our customer’s needs and expectations.

1.1 Design for total cost Optimising our value chain from material to customer is only possible by utilising total IKEA and an

end-to-end perspective. It starts with the design of the product, from the choice and use of sustainable

materials and techniques to design for efficient manufacturing (cost and quality), logistics, the buying

process and customer use. By using standard solutions, components and platforms when developing

the offer we will develop better products faster at a lower cost. We will lead and invest in innovation to

exceed customer’s expectations.

To support the growth of IKEA, we will design and develop capacities in the supply chain that are

aligned with the development of sales and expansion. In the short and mid-term we will use sales and

supply planning to optimise the utilisation of our capacities.

1.2 Eliminate cost We will use the IKEA volumes to re-engineer the value chain. Introducing standard solutions,

components, platforms, new materials and investing in efficiency in the value chain will lead to

eliminated cost. Changing the level of integration, locating the material supply close to the production

and/or locating production closer to sales market are examples of how we will eliminate cost and

reduce the CO2 impact in the value chain.

1.3 Economies of scale Volume is our best friend! Volume is the foundation in our shared business model with our suppliers.

Volume makes it possible to take out cost by engaging in supplier’s purchase, as well as close

cooperation with suppliers in choice of machinery and technologies. Volume makes it possible to invest

in efficient industrial production set ups and to drive industrialisation of new industries, which will lead

to better quality and lower cost. Volume and our knowledge of indirect purchase will make it possible

to lower indirect cost throughout IKEA.

We will develop material and components strategies focusing on affordability, accessibility and

sustainability. The material strategy will include how to develop the material and how to use it in the

products to optimise the meeting with the customer.

Change driver: Define, develop and implement a total cost approach in IKEA

*Övertag The way to create outstanding affordability for key functions in life at home through optimising all parts of the

value chain from raw material to people’s homes.

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Cornerstone 2: IKEA Suppliers – Partners for growth To offer better products that are affordable for the many and developing a more vital IKEA calls for a

diverse supplier base that can meet the needs of our businesses and customers. Partnerships are built

on a shared business model and values, which we call strategic fit.

2.1 A strong and diverse supplier base developing IKEA In the future we will need a more diverse supplier base with different suppliers for different purposes.

Our supplier base will handle more products and services, have higher flexibility and react to

customer’s needs with speed and accuracy. We will build and develop a strong supplier base with

competitive capacities.

Our supplier base will contribute to better products and services through improved form, function,

quality, sustainability and cost – Democratic Design. They will take responsibility for producing the

right quality while complying with our Code of Conduct, IWAY.

Our supplier base will work in an integrated way in our supply chain and contribute to the development

of products, standard solutions, components and platforms. Driven by the future way of developing the

offer we will engage with suppliers in different parts of our value chain. IKEA and suppliers working

together will lead to better products and services at a lower cost and shorter time to market.

Our supplier base will deliver affordable supply to new sales markets where we do not have an

industrial footprint, and through a new business model we will create preconditions for the successful

expansion of IKEA.

In selected businesses, our Industry Group will deliver outstanding customer value and set new

standards within the industry and transfer knowledge to other partners. The Industry Group will create

capacities in markets where it is difficult to find suppliers or in industries with monopoly/oligopoly

situations.

Together with our suppliers we will develop industrial concepts*, delivering reliable and scalable

capacities. The IKEA Industry Group will be the leading example of developing and taking full use of

the production concepts.

2.2 IKEA, the preferred partner for the best suppliers in the world Our wished position on the supplier market is to be the preferred business partner, both for our

existing and for new potential suppliers. Our partnership is characterised by mutual respect, trust and

transparency.

We will make it easier for suppliers to start to do business with IKEA. We will use the full potential of

the IKEA presence in all markets and on the web, in order to attract potential suppliers. We will

develop a business model that allows for a grace period for cost competitiveness, applicable in areas

where it is difficult to find new suppliers. Long-term competitiveness is a prerequisite for doing

business with IKEA.

2.3 Performance ownership We will create the right preconditions for our suppliers to take full responsibility for performance, based

on shared business plans and common goals. The increase in responsibility and accountability at our

suppliers will lead to less control and follow-up, and increase the focus on business development. Our

high-performing partners will grow together with IKEA.

Change driver: Develop partners for growth

*Industrial concepts. A standardised production set up including technology, layout, competence need, output,

management systems, investment needs and lead time to build capacities etc.

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Cornerstone 3: One IKEA Purchasing – Simple and professional The DNA of IKEA Purchasing will be competent co-workers and professional purchasing behaviour in

everything we do. This means that we build strong supplier relations based on a shared business

model, trust and transparency. The basis for how we interact with our suppliers and make decisions

will be fact-based business leadership*. We are genuinely interested in understanding the markets we

are working in as well as the reality of production. We will always act with the customer, supplier and

total IKEA interests in mind, with a long-term view and a good balance between co-operation and

competition.

3.1 Professional purchasing behaviour and competence The foundation for how we work within Purchasing will be to deliver results through our own direct

work as well as through supporting and developing others. Working together based on IKEA culture

and values will enable us to optimise the total cost and to always deliver on our promises.

We will develop sourcing strategies for categories and action plans with suppliers using the Purchase

Development and Supplier Development processes. The work is based on and contributes to the IKEA

offer. We will develop a business intelligence platform and have a common framework for defining,

communicating and mitigating risks, leading to one view on trade barriers, market, political and

sustainability risks as well as volatility in currency and raw materials. To deliver results we always take

the required measures to implement the strategies and action plans, with a project approach on key

initiatives.

We want to be the preferred partner and we will always treat our suppliers with a high level of

professionalism and trust. We will actively use supplier’s competence to contribute in developing IKEA

and the offer. Our supplier relations will be built with a long-term view and based on trust and

transparency. To create preconditions for suppliers to perform and to always meet needs and

expectations, we will develop and use our supplier classification in order to ensure continuity, as well

as the right competence and seniority.

We will build the competence needed and also build a position as the preferred choice for talent.

Competence for performance will be based on a total view on making a difference and delivering

results, including knowledge, relationships, behaviour and project management. The starting point is

understanding the needs of our customers, our businesses and our suppliers. Competence and

potential will be recognised and we will empower co-workers to perform to the best of their abilities

and to continuously develop in their assignments.

3.2 Simple and efficient organisation To enable professional purchasing we will have a simple and efficient organisation, with a shorter

distance between customers and suppliers and fewer people involved. This will lead to an agile and

empowered organisation, where we take leadership and give clarity about where and by whom

decisions are made and accountable for. The principle is that we act as One IKEA Purchasing along our

core processes, with all functions and people contributing directly towards our business objectives. The

business needs set the agenda for allocation of resources, regardless of function or location.

Change drivers: Simplify IKEA Purchasing, Define and implement Fact-based Business

Leadership

*Fact-based Business Leadership. Doing business with a holistic view using a combination of analysis and facts, deep

understanding of the industry, entrepreneurship and the ability to build long-term business relations with suppliers that

have a strategic fit with IKEA.

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Goals

Total cost

Total Cost better than -2% per year is the overall goal.

Purchase Price Development better than -2% per year

We will develop 20 step changes per year. A step change should be seen as an significant

improvement >25 % on part of the range in the area of:

o Cost

o Quality

o Sustainability

Quality

CEPQ – yearly improvement >6%

COPQ Purchasing (TA/Cat) – yearly improvement >6%

Availability

FY16: Full customer perceived availability.

From FY14;

S1>99, S2>98, S3>97, S4>95. Every day, every market

Sustainability

Next step in IWAY implemented end of FY15 (Full IWAY in China).

IWAY must at critical sub-supplier verified by end of FY13 (FY14 for China)

Supplier sustainability index, 20% yearly improvement

Preferred partner

Supplier survey: Total >750 by FY16

Supplier survey: Acting professional >750 by FY16

Indirect purchase goal

Total value contribution by FY16 > 200 MEUR per year