FEATURE: IKEA’s MENA flat pack logistics from UAE
Logistics Middle East loves statistics, so our site visit to the new IKEA Distribution Centre in Dubai South proved particularly satisfying.
This warehouse is a colossal piece of engineering, employing more than 200 people from 20 different countries, and with a capacity to handle 120,000 cubic metres in conventional racking on eight levels of storage.
The 100,000sqm of storage space is split into two sections with 134 loading docks and 180 parking spaces in the yard for containers and trucks.
The prime purpose behind the development of this new centre, at a cost of 120-million euros, was to bring IKEA closer to the local market, shortening the supply chain for its GCC stores and thereby reducing costs.
That last point is extremely important for IKEA, which manages its global supply chain with characteristically Scandinavian precision and ruthless attention to detail.
“Before the opening of this DC we were supplying the GCC stores from our centres in Italy and Germany, with delivery times of around six weeks. That has been reduced now to four to ten days, depending on the store location in the GCC,” explains Abdelaziz Kadri, managing director, IKEA Distribution Services DWC.
See the video below for a tour of the IKEA Distribution Centre in Dubai South.
“The lead time is now much shorter, transportation is cheaper and sales are better because there is increased availability of stock. With this DC we are also supporting the expansion plans of IKEA in the region by bringing the supply chain closer to the local markets.”
To truly appreciate how the new DC will reduce supply chain costs, some perspective of the operation is necessary.
IKEA sources its products from more than 1,000 suppliers in 50 countries around the world, which are also each delivering top seller products directly to every stores across the world, and to IKEA’s 56 distribution centres and customer distribution centres globally.
“Our low-flow range is stored centrally for large regions, while highflow range is stored at centres closest to the relevant market,” says Kadri. “This DC for example manages only part of the total flow for each store, as it’s cheaper and quicker to have the best selling items delivered directly to the stores. In this region, around 65% of all goods fall into this category.”
“We have one of the world’s largest ports adjacent to us,” says Kadri. “We use ocean freight to get the supplies as close to the market as possible at the time of delivery, so here in the GCC market we collect the goods from Jebel Ali. The first aspect of this is getting custom clearance for all the cargo we import into Dubai for the Distribution Centre, then we have to secure the transportation of the containers from the port to the DC.”
For these processes, IKEA has partnered with Sharaf Group’s logistics subsidiary Emirates Logistics. “Emirates Logistics handles customs, transport to the warehouse and the operation of the DC itself. The outbound transport we outsource on a per-tender basis.”
IKEA is currently working with local 3PLs for its regional deliveries to stores in the GCC. Getting the products to Jebel Ali Port and then onto the stores around the GCC is just one part of the puzzle, and perhaps the easiest.
The real challenge that IKEA faces, and that it has managed to overcome so brilliantly, is its UPS of selling thousands of different products, that are each able to be packaged so efficiently, that no other home interiors company can compete on the same level. “The supply chain is at the heart of IKEA’s business,” Kadri explains.
“The supply chain is what IKEA thinks about from the very start in designing a new product. The design of the product is developed with its ability to be flat-packed as one of the main considerations.”
On top of this, IKEA is also able to use its mammoth size to secure huge savings through economies of scale, not only in terms of the agreements it has with suppliers or the rates it has secured with the shipping lines it uses, but also in terms of internal savings.
“We do this by making sure that every single store and every single distribution centre is run exactly the same, so that every process in terms of the packaging, transport and storage of each product can be standardised.”
The company’s size and the volume of items that it ships to its stores and DCs globally means that small savings on each shipment at each location adds up to a significant amount. “As an example, we have switched from wooden to paper pallets throughout our supply chain, maximising available space during transport.
IKEA ‘hates air,’ when there is air in a container or a flatpack we lose money. During transport we save an incremental amount of space with the use of a paper pallet. When that is added up across our entire supply chain globally though, it equates to a huge saving.” The same attention to detail is seen in IKEA’s relationship with its suppliers.
“There are multiple stages of quality control, at the source from the supplier, here at the DC and at the store, for example, but also IKEA retains full control of the supply chain from procurement to delivery. We design an item with the raw material supplier in mind and all the specifications are done by us, the supplier then executes this design and in order for a supplier to work with IKEA they have to demonstrate the ability to do this exactly the right way in large quantities, taking into consideration high quality, sustainability and low price,” says Kadri.
This relentless examination of every detail in the supply chain is what IKEA uses to corner the market, its remarkably simple and yet extremely impressive to see in practise. “We do have WMS that was developed inhouse for IKEA and it is used across all our DCs, enabling real-time tracking of all our products around the world,” says Kadri.
“This WMS includes a yard management module that ensures the 180 container and truck spaces in the yard are being utilised in the most efficient way, and ensures that we know what items are coming in aboard each truck, so that we can unload and store the items in the most efficient way.”
In terms of its picking operations, at the Dubai South DC IKEA is using 27 reach trucks and 18 counter balance machines supplied by BT Cargo, with conventional racking by STOW that reaches as high as 12m.
“Our racking was built to an exact design decided in Sweden, but with two different aisle widths for our long pallet and short pallet flatpack sizes that we deal with,” says Kadri. “This distribution centre is the first for IKEA that has eight levels of storage, with the racking reaching up to 12m.”
And while keeping things simple yet standardised is how IKEA has managed to grow into the industry goliath it is today, it isn’t afraid to try new technologies in the pursuit of efficiency.
“We track inventory using RFID scanning, but we’re now in the process of examining the use of drone technology within the warehouse to provide constant updates on inventory,” Kadri tells us.