SCM cross pollination: Ikea and the Indian bi-cycle manufacturers
While each industry has its peculiarities which prevent adoption of some SCM best practices, the potential for cross-pollination is immense. It was with such a thought that I had penned a blog on the similarity between Dell and the Indian cement manufactures here. Continuing on the theme of postponement, I write today on how Ikea, the closely guarded Swedish furniture giant, and the Indian bi-cycle manufacturers have adopted this strategy to rich gains.
Usually, postponement of an operation is carried out for shifting the point of differentiation to a later stage so as to reap the benefits of reduced inventory and improved customer service. But the two entities in question here have adopted this approach in their supply chains to drastically reduce transportation cost. Both the firms faced the same issue in transportation – high product variety and the bulky nature of their products meant transportation cost were a drain on their margins. Ikea responded by re-designing its supply chain to have its furniture transported in kits and shifted the final assembly to the end-user (who gladly did so for the benefit they derived from reduced pricing besides the ‘constructive experience’). The Indian bi-cycle manufacturers limited their activities to production of frames, handle bars and transmission parts and transported these in a cost-effective manner to the dealer/retailer who did the final assembly based on consumer order. Thus, by postponing the final assembly, both the entities were able to utilize the carrier’s space much more effectively so as to reduce their transportation expense.
Postponement strategy has been adopted in diverse sectors – automobile, consumer appliances, food, apparel and airlines to name a few – but the thread common to firms in these diverse sectors has been high forecast uncertainty and high product customization which led them to modularize their design (Design for Transportation). Though I deflected the query on whether I have lived up to the expectations of best practices’ cross-pollination, I invite readers to share their obvious and not-so-obvious experiences of SCM best practices across unrelated industry sectors.