IKEA Supplying Strategy FY20

The

Supplying Strategy until FY20 Growing together-Business and people IKEA’s vision; to create a better every day life for the many people. IKEA’s business idea; we shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.

Updated Nov 2012

INDEX

1. Growing IKEA Together through a better value chain ............................. 3 2. This is Supplying at IKEA ........................................................................ 4 3. Supplying objectives................................ .............................................. 5 4. Strategies ............................................................................................... 6 4.1. The IKEA Purchaising Strategy................................. ............................. 6 4.2. The IKEA Logistic Strategy........................................... ......................... 6 5. Focus Areas....................................................... ..................................... 7 5.1. Sales & supply.............................................................. ...................... 7 5.2. Quality................................................................................... ............ 7 5.3. Cost out!................................................................. ........................... 7 5.4. Övertag......................................................................... .................... 7 5.5. Sustainable use of resources.................................................. ............... 8 5.6. Suppliers – partners for growth...................................................... ....... 8 5.7. Simplify IKEA......................................................................... ............. 8 5.8. Better together.......................................................................... ......... 8 6. Goals................................................................................................ ...... 9

The IKEA Supplying Strategy until FY20 November 6, 2012 3 (9)

1. Growing IKEA Together through a better value chain Our vision To create a better everyday life for the many people. Our vision is more relevant than ever! It inspires and guides us every day and it will continue to do so in the future.

People´s needs and dreams of a better living and life at home are the foundation of our business. We will always be on the side of the many people in their everyday reality.

Creating and delivering IKEA’s offer from material to our customer means a responsibility and an opportunity to contribute to a better everyday life for millions of people that are involved in the value chain of IKEA. What is good for them is good for us. Our business idea To offer a wide range of home furnishing products with good design and function at prices so low that as many people as possible will be able to afford them. Our business idea is the framework we deliver to everyday.

As a business model it means that we strive to create a better offer in the same time as we reduce cost throughout the IKEA value chain together with our business partners. We do this based on development and innovation, bigger volumes and an everyday thriftiness always looking for new ways to drive out unnecessary cost.

This way we are able to provide the many people with better products at lower prices, year after year. This way we fulfill our business idea and vision. The world around us The world is changing rapidly and so is people’s behaviour. Some changes will create challenges. All changes will provide us with new insights and opportunities. We believe there are three changes that will have a major impact on our capability to deliver to our vision and business idea in the future;

Many more people will have a better life in many more places.

We anticipate financial challenges in big markets and economic challenges for the many people setting the scene for the coming decade. Supplying at IKEA needs to be set up for a two-speed global economy, with everything from stagnating volumes in some places at some times, to double-digit growth in other parts. In the future, we need to be prepared to handle higher volatility and lead from the notion that nothing is average.

In the future people will have big dreams, many needs in life at home and limited means to make it happen. We choose to believe that the major world trend going forward is positive; many more people will get a better life in many more places in the world. The middle-income population are on the rise in many places. We will do what it takes to make it possible for people to afford a great life at home in existing and new IKEA markets. Growth from a sustainable business model.

For us, a sustainable business model means that growth goes hand-in-hand with being a company that is people and planet positive.

During the 1900’s, cost for most raw materials decreased, which contributed greatly to IKEA’s growth. Going forward, we anticipate that finding enough natural resources will become a key challenge for all low-cost companies. IKEA’s continued growth will require smarter use of materials, energy, and water. We also will need good solutions for reverse flow of resources that have already been used. Our roots are firmly grounded in the thriftiness of Småland; it is in our nature to never let anything go to waste. We are inspired to lead an agenda that not only compensates for inflation on resource costs but also delivers a lower total cost every year. And people will be the most important resource in the value chain of the future. Technology will make life better.

We believe that technology will make it possible for our customers to access IKEA and our offer 24/7. Technology will make our goods flow more lean and precise. We also believe that technology will be the driver of how we develop better products at lower cost in the future. With bigger volumes and our own offer and design, we will be able to innovate and develop material, construction and techniques.


We are choosing a growth direction! IKEA is today rich on growth opportunities. Expansion in existing IKEA markets where we still have white spots on the map, new markets and e-commerce will have a big impact on our growth. Even more important will be to drive growth in our existing stores.

Among all potentials, the greatest growth driver in IKEA going forward will be our offer. We will add vitality, attract more customers with a wider offer in style and we will explore new functions and areas of life at home. The core of IKEA’s growth strategy will be to deliver better products at lower cost, year after year.

We come from strengths! We have a strong foundation based on a great vision and business idea. We own our own range and develop it to better fit people’s needs and tastes every year. We have a solid financial platform that makes it possible for us to invest long-term in our growth; always with the focus on taking good care of what we already have in hand. We have a great supply set up and a fantastic supplier base with some of the world’s leading industrialists as partners - people who share our values and business model. And we have great colleagues with high competence, motivation and a unique team spirit. It is about growth: We are only at the beginning, so we are building for growth and for a better everyday life for the many people.

It is about IKEA: Our direction is built on our vision, business idea and culture, our spirit and values; a belief in a better society and a belief in people.

It is about growing IKEA: We develop IKEA in a way that makes us face reality and meet the consumers of today and tomorrow. Through continuous learning, building insights, innovation and creativity, we strengthen our competitiveness for the future.

It is about togetherness: We will build our future together with our customers, together with our suppliers, together with society, and with a strong social and environmental commitment from all of us working in IKEA.

Together we are inspired to take on future challenges and make life at home better for our customers.

Together we will build an even better IKEA.

2. This is Supplying at IKEA

Ingvar Kamprad: “First of all we try to be the good link between our suppliers and our customers. We keep all our costs low and handle goods efficiently.

Secondly, and this is the unique part, is that we take an interest in production where by having our own designs and construction we find production solutions that are cost-efficient.”

Reporter: “Would you say that, because of this, your prices are significantly lower than the competition?”

Ingvar Kamprad: “YES!”

Ingvar Kamprad, IKEA Founder, interviewed on Swedish television 1965.

A unique business model We build our strength and uniqueness on developing and sourcing our own range of products – Design & Quality, IKEA of Sweden.

We involve ourselves wherever and when-ever it makes sense in the value chain in order to design for low cost, eliminate cost and use economies of scale through our limited range of products and an efficient goods flow.

We put common needs at the core – this way we can bundle volumes and create unique advantages. Our offer will be relevant for different needs and tastes through adapting and adding to what’s common.

The IKEA business model is best described in the IKEA Diamond. The role of Supplying at IKEA IKEA Supplying covers all steps from raw material to customer with the task to provide products with everyday product quality, available when customers want them, produced and distributed under good conditions and at lowest total cost.

• The IKEA Supplying organisation refers to the functions in IKEA that deliver to the task above.

• The IKEA Supplying processes are linked in the overall IKEA Process map

• The IKEA value chain refers to the added value in the product from raw material to meeting the customer and back closing the loop.

• The IKEA supply chain refers to where the product is in the different stages from raw material to meeting the customer.


Our approach • We have the customer in focus in

everything we do: every customer counts, every product counts, I am responsible.

• We see our suppliers as partners for growth.

• We expand from strengths in our business model, supplier base and organisation.

• We develop business and people together.

Our wished position Customer Through our contribution, IKEA will be the leader in life at home for our customers. Supplier We want to be the preferred business partner for great entrepreneurs and industrialists based on a shared set of values and business model. We want to be perceived as professional, demanding, fair & honest. Colleagues We want to be seen as professional, competent, solution and result oriented. We want to be known as great people to work with for the common total result for our customers. Employer We want to be the preferred employer for great talents and competent people in the areas of purchasing, logistics and business development. We will offer great responsibility, opportunities to learn and develop and a great team spirit.

3. Supplying objectives

Objectives – Growing IKEA together:

• To be the leader in life at home • Growth and long-term profitability • A Better IKEA

The Supplying objectives:

• Deliver excellent result • Build for long-term growth • Simplify IKEA

Deliver excellent result We have a high focus on performance to satisfy our customers and deliver to our objectives, here and now.

We want to lead from a holistic business view where all leaders contribute to a total result.

In our approach to performance leadership, we will focus on both closing the performance gap and developing new best practices.

We achieve results through effective IKEA processes and navigation that works as an IKEA flight tower.

Build for long-term growth We have a high focus on developing a base for sustainable growth in the future.

The focus is to deliver better products at lower cost and capacity for growth.

We act long-term; we plan long-term and expand our stores and value chain together. We invest long-term in sustainable growth.

Simplify IKEA Our contribution to building a better IKEA will be to simplify IKEA through all dimensions of supplying.


4. Strategies The Supplying Strategy builds on the IKEA direction Growing IKEA Together and is one of ten IKEA Group strategies in the strategic IKEA landscape:

• Range and Design Strategy • Quality Strategy • Supplying Strategy • Establishment Strategy • Multichannel Strategy • Positioning Strategy • People Strategy • Sustainability Strategy • IT Strategy • Financial Strategy

The Supplying strategy sets the overall objectives and choices for Supplying and contains the Purchasing and Logistic strategies. In Supplying, plans for e.g. Quality and People are built on the IKEA Group strategies. For Sustainability and Communication we lead from the IoS/ Supplying sub-strategies. 4.1 The IKEA Purchasing Strategy This strategy is focusing on the development of better products at lower cost through supplier base development, supplier relations, continuous cost reduction and building future advantages and capabilities in the sourcing of the products and services. It is valid for all sourcing related activities in IKEA; direct and indirect, IKEA products and components. Wished Position Purchasing for growth enabling IKEA to be the Leader in Life at Home and sustain Long-Term Profitability. Objectives

• Better Products for the many people

• Preferred Partner and Employer • Deliver Excellent Performance

Cornerstones

• Lower total cost from supplier to customer

• IKEA Suppliers – Partners for Growth

• One IKEA Purchasing – Simple and Professional

We lead the purchasing processes in the relevant material areas through categories,

mirroring the industries we work with. The category connects the business strategies in the IKEA home furnishing business areas with the suppliers of the IKEA products. 4.2 The IKEA Logistics Strategy This strategy is focusing on achieving customer perceived availability at lower total cost throughout all dimensions of the value chain – from raw material to customer. The strategy is delivered through a strong focus on the foundation and basics of the business including planning of sales & supply, utilisation of transport equipment and the physical move of goods from suppliers to the end customer. At the same time we develop future capabilities through a set number of key logistics projects including areas such as customer perceived availability, inventory, delivery networks, base flows, commercial agility, sustainability in the goods flow, capability for e-commerce, etc. Wished Position Logistics for growth enabling IKEA to be the Leader in life at home and sustain long-term profitability Objectives

• Deliver excellent results • Full customer perceived availability • Create a platform for sustainable

growth Logistics foundation Deliver excellent results every day Development areas

• People and ways of working • Bring the supplier closer to the

customer • Design, plan and optimise for

growth and customer satisfaction • Committed flows and commercial

agility • Enable multi-channel retailing • Develop transportation • Sustainability as competitive

advantage Key Logistic Projects Key movements are led through Key Logistic Projects


5. Supplying Focus Areas We are rich on potentials, plans and activities as a consequence of our strategies. Many things are led in a specific part of the organisation; others can only be achieved through us working hand-in-hand.

Among many good initiatives, we believe there are certain areas that will have a bigger impact on the way Supplying contributes to Growing IKEA Together.

In the below, we have listed the areas that will have a major impact on the overall IKEA result and involves several functions and processes. 5.1 Sales & Supply What do we want to achieve?

We have managed to achieve a higher service level than ever before considering our internal way of measuring. We now want to take the next step and figure out what it means and what it will take to deliver real customer perceived availability – and at lower total cost.

As we serve our customers better we also want to create better preconditions for our suppliers to perform. Hence our goal that orders should vary less than sales.

What are the most important activities?

• Define customer perceived availability. • Establish a sales and supply planning

program with a focus on better planning, better monitoring and a framework to act on deviation throughout IKEA.

5.2 Quality What do we want to achieve?

We want to take the next step and create a breakthrough in everyday product quality for our customers.


We will deliver to the relevant parts of the ten focus areas in the IKEA Quality Strategy with high attention to:

• A committed leadership with high customer focus and a zero tolerance approach - in IKEA and our supplier base.

• Gap analysis and goal steering.

5.3 Cost out! What do we want to achieve?

As fuel for IKEA’s growth we will focus in all dimensions of Supplying on contributing to our goal of delivering at least 2% of costs out of the business per year. Cost out will make it possible to do price investments in our existing range and drive growth with maintained profitability that will provide IKEA the capability to invest.


• We will develop and lead from a total cost approach and landscape, making it possible for all people and organisations to understand, plan and contribute to a total lower cost. The total cost approach will make it easier to invest in one part of the value chain to drive out cost in another.

• We will lead from performance gap analysis and ensure we spread best practices and raise the least performing parts of our organisation.

• We will work with continuous cost improvements in parallel to planning for bigger step changes.

5.3 Övertag What do we want to achieve?

We want to deliver outstanding, affordable products in key functions in life at home through optimizing the value chain from raw material to the customers’ home:

• Outstanding affordability means people

can afford to realize their needs and dreams in life at home. It should deliver a price distance of at least 30% to our closest competitor.

• Key functions means the solutions in life at home that every family needs; a sofa, a table, glasses to drink and plates to eat from everyday, etc.

• Optimal value chain means designing and eliminating cost in all the parts of the value chain to create optimal conditions.


• We will connect needs in life at home with professional purchasing, material and technique development to make it happen.

• We will identify övertag projects for key functions in life at home and keep a high attention to deliver them before 2017.


5.5 Sustainable use of resources What do we want to achieve?

Among many opportunities and challenges in the sustainability area, we will pay extra attention to utilisation of resources. We want to make sure we deliver more from less. By doing this we make growth possible in the IKEA business model. What are the most important activities?

• Develop material strategies in relevant areas that focus on accessibility to affordable raw material long-term (2020+): wood based materials & textiles.

• More from less in product development, material and technique development also linking to the övertag projects.

• Efficiency in the IKEA Supplier Develop-ment process with a special focus on energy and water efficiency.

5.6 Suppliers – Partners for Growth What do we want to achieve?

Our suppliers are the source of our products and services. We base our business on suppliers that share our values and business model. As IKEA is growing we want to make sure that our most important suppliers are long-term partners. We will create success through growing IKEA together.


• Strategic fit: a supplier base with key suppliers sharing our values and business model.

• Suppliers with capabilities to develop and capacity to grow with IKEA.

• Ways of working to ensure long-term development with suppliers in all dimensions of our business.

5.7 Simplify IKEA What do we want to achieve?

We all agree - our suppliers and ourselves - IKEA has become too complex and slow. It’s time to do something about it! We will simplify IKEA! What are the most important activities?

We have chosen 7 focus areas to SIMPLIFY IKEA:

• Better ways of working • Clearer strategies & plans • Common goals & follow up

• Better meetings • Better tools • Better communication • Priorities and focus

5.8 Better Together What do we want to achieve?

We want to take the lead and through the IKEA values make sure we build a stronger and better IKEA for the future. Among all values and value-based strategies in IKEA we will chose to pay special attention to 4 areas:


Together – one IKEA: We will shorten the distance from suppliers to customers in all aspects. We will stimulate a culture of working together with common goals across functions and distances. We will focus on implementing and improving the One IKEA Process map.

Make it happen: We will make sure we can deliver quality results. We will have a high focus on performance leadership. We will stimulate action driven leadership. We will develop a business navigation flight tower to support our planning, execution and follow up.

Lead in reality: We will lead with a strong connection to the everyday reality of our customers, suppliers and people in IKEA. This way, we will be leaner, faster and more relevant.

Great IKEA teams – develop and have fun: We will focus on achieving diversity in all management groups throughout Supplying. We will have a world class approach for learning and development in the business. We will have a special focus on talents. And we will lead with inspiration, having fun together knowing that at IKEA; 1 + 1 = 3. Kraftsamling (concentration of energy) Every year, we will put extra focus on total value chain improvements through a program led in all parts of the supplying organisation. In this program we will combine business and cost goals with common change drivers in how we work together.


6. Goals We will lead performance in a holistic way with focus on our customers and business. This means we will lead for high performance and never compromise on quality and fulfilment of our social & environmental standards at the same time as we achieve our goals in total cost and availability. Availability Full Customer perceived availability is the overriding goal FY16. Measurement to be defined. Stretch the service level goals FY14 and FY15. Every market, every day. S1 >99% S2 >98% S3 >97% S4 >95% Total cost -2% per year is the overriding goal. Purchase price development -2% per year Logistic cost -2% per year Quality Better than 6% yearly improvements of COPQ and CEPQ. Sustainability Full IWAY as a foundation. Reduce CO2 emissions from transport with 20% between FY11 and FY16. 20% improvement per year in supplier sustainability index. People Voice total >725 Voice Leadership index >75 Voice gap mgrs/non-mgrs <80 Gender diversity in mgmt teams 50/50 Supplier relations Supplier survey Total >750 Acting professional >750

IKEA Supplying Strategy FY20

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