Dairy Farm Group And IKEA: A Study Of Operations Management Practices

Looking at your company at organizational level, or department level critically assess the operational methods and strategies adopted to provide the product(s) in a way that give(s) maximum satisfaction to the customers or clients.

A good answer will identify the criteria applied by the customer in assessing satisfaction

i.e. the order-winning and order-qualifying criteria. You should

a)Provide a critical of the principal operations tasks to satisfy these criteria

b)Analyse the process strategies and procedures employed to ensure that these tasks are carried as effectively providing such analysis with appropriate theoretical underpinning.

c)Provide a critical evaluated reflection of the Value-Added contribution you have made to your chosen case study as a result your application of operations management principles and related knowledge.

Overview of Dairy Farm Group and IKEA

Dairy Farm founded in 1886 is a leading pan-Asian retailer headquartered in Hong Kong. The present chairman and managing director of the company is Ben Keswick and group chief executive is Ian McLeod. The company also has its operation across Pacific region and China and listed in the London stock exchange. The area of business relates to supermarkets, hypermarkets, beauty stores, home furnishings, health products and convenience stores. As the businesses diversify the nature we have selected the home furnishings department named IKEA. The company’s performance in 2017 was disappointing as the PAT reduced from US $ 470.1m in 2016 to US $ 392m. The sales increased from US $ 11,200.7m in 2016 to US $ 11,288.7m in 2017. The marketing performance was seen to be adequate in nature and the company mainly followed volume-based discounts, promotional options and incentives. The main brand reputation of the company is identified with strong performance in health and beauty products (Dairyfarmgroup.com 2018).

The main products and services offered by IKEA is depicted with offering complete range of affordable and attractive home furnishings product. In 2017, there is division expanded by opening fourth store in Hong Kong and ensure additional convenience and accessibility to the customers. The customers are promised to experience better function, quality, value and design. The internal customers of the company are more reliant on the home furnishings and grocery divisions. On the other hand, the external customers especially in China seek for the services offered by hyper stores and e-commerce business (Dairyfarmgroup.com 2018).

IKEA is often hailed to have one of the best customer knowledge. It is well acquainted with the purchasing factors which influence the buying decision of the customers. In addition to this, it constantly offers low prices on wide variety of products. The products are designed for ease of logistics and assembling. Secondly, the constant use of innovation has permitted the company to drive costs down. The innovation practices incorporated by the company includes research in new materials which are not only less expensive but also contributes to a more sustainable environment. It has further innovated new ways of transportation, packaging and handling of products (Jurevicius 2014).

Negative publicity is identified as one of the major drawbacks which suffers from various issues such as water treatment of employees, lobbying government authorities and questionable practices pertaining to advertising. This has potential weakness of decreasing the customer loyalty and brand reputation. Secondly, IKEA has struggled to compromise between continuous reduction in cost and at the same time maintaining product quality. Based on a review by UK customer insight, the customers are dissatisfied with the service quality and products than the average customers in the country at other stores. In addition to this, in several instances in the form’s cost reduction strategies has led to war product quality followed by damaged product and increased returns (Management Services 2014). The main competitive advantage of IKEA is derived from low costs which are achieved in part pertaining to standardise products. Moreover, the standardised product is often seen to attract fewer customer segments. Henceforth, this paves the way for inability of the business to offer better quality, customisation to fill the niche and fortify their brand reputation in the market (Dairyfarmgroup.com 2018).

Products and Services Offered by IKEA

The main operations activity of the company includes enhancement in store network, expansion and prioritising smaller store formats. However, this is not supporting the marketing strategy for the company. The growth in the retail market was seen with a minimum of 5% however IKEA has not been able to utilise this inadequate manner. Moreover, the present operations in the developed economies is not yet formally stepped into developing economies apart from China. There are also several opportunities for the company for expansion in Malaysia, Indonesia, Brazil and Mexico to sustain its future presence and growth. The growing online sales in US and UK is accounted with a total of 4% and 17%. The constant growth in this section can be utilised with increasing visitors of IKEA’s website which has account of over 900 million. This can be considered as a major opportunity and keep the costs down at the same time (Slack, Brandon-Jones and Johnston 2013).

Current practice

Jardine Matheson is identified as the representative for the planning of operations to enhance the financial strategies and aim for long-term development of the business. Dairy Farm is able to plan to work effectively thereby utilising its commercial strengths (Kolisch, Brunner and Larsen 2016).

Competitive Priorities

It is related to the main competitive priorities which is defined with the lines of delegation of authority and responsibility. The competitive priorities are for their established with the financial planning that is responsible for assessment of risk and monitoring of groups operation and performance.

Function supporting operations

The functions supporting the planning in operations management for IKEA is mainly identified with the audit and Finance committees which are responsible for continuous enhancement of long-term business development. These committees are also responsible to work effectively in exploiting the full range of commercial strengths (Management 2015).

Ideal future function

The future function needs to be focused on planning of improving the quality of products and implementing cost control. The innovation aspects itself needs to be developed in the planning stage so that the business will be able to ensure process optimisation at each stage is of manufacturing. In addition to this, the planning of transportation needs to be focused with more scope on training employees which may lead to better customer satisfaction and increase in the sales (Management Services 2014).

Current practice

The present process of organising the activities at IKEA is depicted with identification of the operational issue, proceeding with inspection, transportation and identifying in case there is any delay. These stages are followed by ensuring optimum provision is made for storage of the furniture is in its warehouse facilities situated in southern region of Hong Kong. IKEA maintains the flow of the operational activities by following a relevant process map (Callaway 2014).

Competitive Advantages and Weaknesses of IKEA

Competitive Priorities

The competitive priorities as per organising is depicted with thorough analysis of political, social, technical and environmental factors in the existing market. The current practices are able to increase the sales and trading profit and also encourage the growth in e-commerce channels. To gain competitive advantage IKEA has strived to invest in e-commerce and gain nationwide recognition among the franchise markets (Systems and Management 2015).

Function supporting operations

The main function supporting the organising aspect is seen with expanding store network in Hong Kong and growing e-commerce which has improved the digital engagement of the company with the customers.

Ideal future function

The ideal future function can be depicted with improving the e-commerce operation across Macau, Taiwan and Indonesia. It needs to organise the e-commerce activities in a better way by training and recruiting people in these regions. The digitisation of services should be incorporated by facilitating the services in various types of mobile and web platforms.

Current practice

The directing measures by the company are seen in the field of overseeing, instructing and guiding the performance of the individuals to attain a predetermined goal. In terms of operational activities, the company maintains a diversify funding source for funding quality vendors and monitor the short-term forecasts on the basis of expected cash flows. The long-term production of the cash flows is considered for debt financing plans. There are several policies established by the company which are directly related to risk assessment and monitoring of groups operation and performance (Institute of Management Sciences 2016).

Competitive Priorities

The competitive side is maintained by following several procedures of lean manufacturing to lower the chance of overproduction. In addition to this it has allocated more than 200000 employees in 633 store outlets. This shows effective staffing to serve the customer in a better way (Journal, Operations and Management 2016).

Function supporting operations

The different types of function supporting the decisions taken by the company can be directly referred with high operating profit from the furniture division. This has allowed the company to allocate more costs for monitoring, planning, staffing and process management. Therefore, this is effective to implement several strategy decisions based on directing.

Ideal future function

The future functions of directing can be implemented with delegation function. The future scope for the company leading to directing is also depicted with delegation, executive function, creativity piracy function and continuous monitoring of the activities. In general, the scope of future improvement in this category needs to be assessed with predetermined objectives and achievement progress (Slack, Brandon-Jones and Johnston 2016).

Opportunities for Expansion for IKEA

Current practice

In larger stores of the company, controlling function is evident with tallying the merchandise category and marking down the sales which must be written off. In addition to this, the controls are incorporated to reduce the risk of the buying of stocks which have not been able to satisfy the customer. The present practices of controlling functions have improved the cost control in Philippines which has led to a better sales mix. The personal brand items have increased on a significant basis to include provision for additional products pertaining to health care and beauty categories (Thakur and Rao 2014).

Competitive Priorities

In order to maintain competitive priorities Dairy Farm has relied on creating subsidiaries over which it has adequate control. These subsidiaries are controlled in such a way that even if they are supposed to variable returns they can be easily adjusted. Moreover, the purchase method of accounting is conducive for acquisition of subsidiaries by the company. The acquisition cost takes into consideration the fair value on the acquisition date. The group has been able to recognise the noncontrolling interests which are depicted to be proportionate with identifiable net assets of the subsidiary acquired (Slack, Chambers and Johnston 2016).

Function supporting operations

The main function supporting these operations are directly associated with joint arrangement. In the joint irony when the parties are having the control over the rights of net assets which can be utilised as and when required in a situation of crisis. In addition to this, the results of the subsidiaries are included with the effective date of implementation along with the total amount of dividend received when the rights are established (Slack et al. 2015).

Ideal future function

The ideal future function is directly associated to the estimates and judgements which are essential while planning the operational functions and evaluation of the same based on historical experiences (Wienclaw 2017).

Activity performance

The present strategies of the company are only in line with expanding in developed economies such as Singapore and the UK.

Suggesting new design

The new design needs to look forward to the opportunities of expansion into countries like Malaysia, Indonesia, Brazil and Mexico. Therefore, the strategy decision making is depicted with location. The incorporation of the newer ideas should be relevant with costs and visibility along with improved vendor relations for overseas transaction process. It needs to also identify the scope of outsourcing the workers from developing nations to the developed nations in order to further reduce the cost of production. Therefore, the new design is not only focused on improving the service offerings but also strengthening of internal control functions (Alderton 2014).

Current Practices and Future Functions of Dairy Farm Group and IKEA

New resources needed for improved practice

The operational functions for such an expansionary measure need to be ensured with adequate operational measures from the planning phase itself. Some of the key operational resources need to be further ensured with facilities and equipment, technology, suppliers, products and services. In addition to this, the country chosen for expansion should be having adequate patents, labour relations and innovation process. The strategy decisions should be based on globalisation which needs to account for key issues such as economic differences, social and cultural factors (Gneiting and Katzfuss 2014).

Activity performance

As per the present operations Taiwan and Indonesia has depicted encouraging growth in the e-commerce channels of IKEA’s. The group in general is also seen to excel in the e-commerce business activities in the beauty operations, food, furnishing and home Department. However, in some countries including Malaysia the independent discount retailers and e-commerce are depicted with emerging competition thereby leading to highly price sensitive strategies (Rajapakshe et al. 2017).

Suggesting new design

The new design should target the e-commerce potential in the US and UK markets. This is mainly due to the growing retail sales across both the countries. In addition to this, it needs to implement SEO in a more efficient manner to better utilise its growth of online visitors in the website and benefit with lower costs and increased sales (Kumar, Dutta and Ji 2017).

New resources needed for improved practice

The main requirement to improve this area is depicted with recruitment strategy, training and technological advancements. The focus should be given to partnering with information technology firms who will be able to provide better support for SEO engineering and monitoring of website traffic to know about the customer count in their websites. Some of the other considerations of operations need to be included with implementation of a better user interface which will focus on creating a flawless shopping experience. This needs to be also backed up with a prompt delivery service which will ensure that the customers are able to receive on-time delivery thereby fostering the loyalty with the customers and business as a whole (Forecasting 2015).

Activity performance

A majority risk area of the company is depicted with economic risk, financial risk, commercial risk and franchises. The economic risks are seen with global and regional fluctuations in the economies and financial markets. These are seen to cause several problems in the operational measures which are depicted with deflation, fluctuations in the currency, restrictions on credit availability and business failures. In addition to this the commercial risks are seen with the highly competitive market which leads to several changes in terms of product specification, technology, price and levels of service offered by the company. The franchises are prone to expiry or termination of the contract along with cancellation in some cases (Qin, Nembhard and Barnes 2015).

Suggesting new design

The Dairy Farm needs to implement times series forecasts to depict the risk factors associated to long-term movement in the data. In addition to this, some of the techniques for averaging needs to be incorporated with exponential smoothening to depict the risk associated to currency fluctuations and regional fluctuations in the economy.

New resources needed for improved practice

The main resources required for the improvement should be incorporated in areas of recruitment strategy and training. Some of the various types of other resource requirements are depicted with statistical tools and controls to implement the forecasting techniques. There is also significant scope for the company to progress with skill development programs which will focus on the usability of the application of exponential smoothening on a new interface. The resource requirement is also seen with better technological gadgets along with software upgradations needed to support the forecasting tools.

Activity performance

The present focus on concept of refining the small format of grocery concept is evident only in Indonesia and Malaysia. This format of store is seen to be more convenient for shoppers and also address the growing challenges facing in the hypermarket format. In addition to this, the present trend of health-conscious food habits has led to higher demand for different types of grocery products available in the developed economies.

Suggesting new design

IKEA in particular needs to expand the grocery business by following expansionary measures across the present retail areas. The company has been able to develop successfully by establishing a brand name in food outlets. Therefore, the expansionary opportunities will be well aligned with the present operations of the company (Institute of Management Sciences 2016).

New resources needed for improved practice

The main resource requirements for supporting the expansionary measures of the grocery business needs to be undertaken by understanding the impact of changing behaviour of the consumers. For instance, in mainland China the business of 7-Eleven is depicted to be partnering with leading service delivery company named Meituan. IKEA needs to incorporate similar initiatives which will be able to focus on improving the present operations. The strong cash generation along with an enthusiastic team is depicted as some of the other requirements to fulfil the goals of the suggested design. It should also take the necessary initiatives explore new locations to strategically construct small grocery stores. The need identification should be done in the first stage so that the potential demand can be forecasted for the grocery stores from beforehand (Thakur and Rao 2014).

Summarising the new practices for the four areas 

Expansion into developing economies are recommended with maintaining adequate operational measures from the planning phase itself. Some of the key operational resources need to be further ensured with facilities and equipment, technology, suppliers, products and services. In addition to this, the country chosen for expansion should be having adequate patents, labour relations and innovation process. The strategies considered for Growth in online sales is suggested with technological advancements. In addition to this, and augmented emphasis should be given to partnering with information technology firms who will be able to provide better support for SEO engineering and monitoring of website traffic to know about the customer count in their websites. The strategy of better risk forecasting is seen with suggestions on improved practice pertaining to recruitment strategy and training. This is also seen with scope for the company to progress with skill development programs which will focus on the usability of the application of exponential smoothening on a new interface. The new practices in the area of Expanding the growing grocery market is depicted with partnering with leading service providers for knowing about the potential of grocery stores in untapped regions.

Sequential Activities/ Period	Week 1	Week 2	Week 3 &4	Week 5 & 6
Identification of improvement area	ü
Evaluating the performance of present activity		ü
Suggesting new design		ü	ü
Identification of new resources required for the improved practice			ü
Reviewing and monitoring of the implemented process				ü

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