Executive Briefings

IKEA let's Verticalnet assemble its private exchange

IKEA, the Sweden-based home furnishings retailer and manufacture with 149 stores in 22 countries, has selected Verticalnet's Collaborative Supply Chain Solutions to build a private trading hub to connect and communicate with its global supply chain of internal groups and external trading partners.

IKEA outsources nearly all of its business processes, including design, manufacturing, supply and logistics. It has uses a multi-tiered network of more than 2,000 suppliers around the world to manage these processes-a task that no longer can be handled with conventional enterprise-centric applications. The role of the Verticalnet-powered trading hub is to manage this entire supply chain for a long list of products that grows fivefold every two years.

IKEA expects to lower overall supply-chain cost by around 20 percent using the business-to-business (B2B) exchange. Just as important, it sees the exchange as the best way to rapidly respond to changing market factors that impact both IKEA and its global supply-chain partners. The Verticalnet Collaborative Supply Chain Solutions will enable sourcing, demand/supply collaboration and order management to increase supply-chain visibility, improve relationship management and enhance transactional velocity while linking divergent global supplier networks and consolidating raw material purchasing. The secure, real-time, internet-based platform from Verticalnet will support IKEA's efforts to share information and workflow between multiple tiers of trading partners and contract manufacturers to support its cost reduction and service enhancement objectives.

Using the example of new product, such as a couch, here is how the IKEA B2B will work:

Headquarters would set up a new exchange location for the couch and assign the product to one of many trading service organizations (TSO) within IKEA that will manage the supply chains for the couch. The TSO would build a request-for-quote bid package that includes all key components, such as fabric, legs, hardware, etc. Each component would have a series of attributes, such as price, quality, and delivery time, lead-time and freight term. The TSO would post the bid package on the B2B with access given to selected tier-one suppliers, so they can bid on each attribute of each component. These tier-one suppliers, in turn, would allow their tier-two suppliers to have access to appropriate sections of the bid package to bid on. Each supplier can aggregate IKEA's buying power for the materials. All relevant information is collected and viewable to IKEA and others with permission at this section of the site, including suppliers' bids and their relative comparisons on all attributes. To help make the selection, the exchange evaluates the bids in terms of percent match using weighted scoring for the attributes. IKEA can use the data to determine its landed cost for each item, which is a key factor in determining pricing. The winning bids are converted to contracts on the application.

The entire lifecycle for the new product is mapped out on the site in terms of weeks, so IKEA can see exactly where the product's progress stands and if there is any deviation from the timeline and the expected profitability.

Through the order management application, IKEA can check contract adherence, shipment tracing, cash settlements, and essentially any other transaction detail.

The collaborative planning application on the IKEA B2B allows a wide variety of forecasting information to be shared. For example, total demand planning data created by an IKEA legacy application can be dispersed to the suppliers, who will commit to their requirements or change their portion of the plan based on their capability. If the supplier's figures put the whole plan in jeopardy, alerts go off, and appropriate people intervene to resolve the issue before it becomes a problem. The entire process is dynamic, but the application also creates an audit history in case problems need to be reviewed at a later date.

Visibility exists throughout the extended supply chain to see how much inventory there is, and where it is at any point in time-with the manufacturer, the supplier, the third-party logistics provider, in transit, etc. With this detailed view, the need for buffer stocks is greatly reduced at every level. All parties can see a filtered view of the inventory on a permission basis to supply-chain partners.

With the Verticalnet solution, IKEA will achieve both transaction visibility and velocity along its supply and demand chains-from purchase orders through fulfillment---between multiple enterprises. All trading partners and IKEA will work with one set of data, integrated to existing back-end systems, and utilizing global formats, including language, currency, weights and measures. Projected benefits include integrated global sourcing, reduced inventory at multiple tiers of the supply chain, and accelerated response to market demand, while eliminating or reducing numerous manually supported processes.

IKEA, the Sweden-based home furnishings retailer and manufacture with 149 stores in 22 countries, has selected Verticalnet's Collaborative Supply Chain Solutions to build a private trading hub to connect and communicate with its global supply chain of internal groups and external trading partners.

IKEA outsources nearly all of its business processes, including design, manufacturing, supply and logistics. It has uses a multi-tiered network of more than 2,000 suppliers around the world to manage these processes-a task that no longer can be handled with conventional enterprise-centric applications. The role of the Verticalnet-powered trading hub is to manage this entire supply chain for a long list of products that grows fivefold every two years.

IKEA expects to lower overall supply-chain cost by around 20 percent using the business-to-business (B2B) exchange. Just as important, it sees the exchange as the best way to rapidly respond to changing market factors that impact both IKEA and its global supply-chain partners. The Verticalnet Collaborative Supply Chain Solutions will enable sourcing, demand/supply collaboration and order management to increase supply-chain visibility, improve relationship management and enhance transactional velocity while linking divergent global supplier networks and consolidating raw material purchasing. The secure, real-time, internet-based platform from Verticalnet will support IKEA's efforts to share information and workflow between multiple tiers of trading partners and contract manufacturers to support its cost reduction and service enhancement objectives.

Using the example of new product, such as a couch, here is how the IKEA B2B will work:

Headquarters would set up a new exchange location for the couch and assign the product to one of many trading service organizations (TSO) within IKEA that will manage the supply chains for the couch. The TSO would build a request-for-quote bid package that includes all key components, such as fabric, legs, hardware, etc. Each component would have a series of attributes, such as price, quality, and delivery time, lead-time and freight term. The TSO would post the bid package on the B2B with access given to selected tier-one suppliers, so they can bid on each attribute of each component. These tier-one suppliers, in turn, would allow their tier-two suppliers to have access to appropriate sections of the bid package to bid on. Each supplier can aggregate IKEA's buying power for the materials. All relevant information is collected and viewable to IKEA and others with permission at this section of the site, including suppliers' bids and their relative comparisons on all attributes. To help make the selection, the exchange evaluates the bids in terms of percent match using weighted scoring for the attributes. IKEA can use the data to determine its landed cost for each item, which is a key factor in determining pricing. The winning bids are converted to contracts on the application.

The entire lifecycle for the new product is mapped out on the site in terms of weeks, so IKEA can see exactly where the product's progress stands and if there is any deviation from the timeline and the expected profitability.

Through the order management application, IKEA can check contract adherence, shipment tracing, cash settlements, and essentially any other transaction detail.

The collaborative planning application on the IKEA B2B allows a wide variety of forecasting information to be shared. For example, total demand planning data created by an IKEA legacy application can be dispersed to the suppliers, who will commit to their requirements or change their portion of the plan based on their capability. If the supplier's figures put the whole plan in jeopardy, alerts go off, and appropriate people intervene to resolve the issue before it becomes a problem. The entire process is dynamic, but the application also creates an audit history in case problems need to be reviewed at a later date.

Visibility exists throughout the extended supply chain to see how much inventory there is, and where it is at any point in time-with the manufacturer, the supplier, the third-party logistics provider, in transit, etc. With this detailed view, the need for buffer stocks is greatly reduced at every level. All parties can see a filtered view of the inventory on a permission basis to supply-chain partners.

With the Verticalnet solution, IKEA will achieve both transaction visibility and velocity along its supply and demand chains-from purchase orders through fulfillment---between multiple enterprises. All trading partners and IKEA will work with one set of data, integrated to existing back-end systems, and utilizing global formats, including language, currency, weights and measures. Projected benefits include integrated global sourcing, reduced inventory at multiple tiers of the supply chain, and accelerated response to market demand, while eliminating or reducing numerous manually supported processes.