From local failure cost problem to global interest in Lean within IKEA
June 28, 2022
Roberto Priolo is editor at the Lean Global Network and Planet Lean
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These are interesting times for IKEA. The company is transforming from a cash-and-carry to an omnichannel retailer. Our margins for online channels (where we have more competition) are obviously lower than when customers come to pick up items in one of our stores. To go beyond lowering operating costs and have a positive impact at the bottom line, we understand that it is critical to redouble our efforts to become more efficient and address the failure costs associated with the services we provide.
I recently started in a new position, as Group Business Navigator, but my previous position as operations manager at the Haarlem store gave me invaluable experience in addressing some of the failure cost issues we see across the group. I think the lessons learned by my team in Haarlem and I can help IKEA chart a leaner course into the future.
As many of you have undoubtedly experienced over the past two years, the Covid-19 pandemic has opened our eyes to some of the biggest problems in our processes. When the pandemic first hit, all IKEA stores in the Netherlands closed. Suddenly we could only make money with click & collect: within a week we went from 30 click & collect orders per week to about 1,000 per day. We had to quickly find ways for process reorganization. In essence, we were trying to think Lean without knowing it!
The start through a Lean Black Belt A3
The opportunity to introduce Lean came after an Lean Black Belt training organized by Lean Management Institute that I attended in the fall of 2020. The A3 improvement I worked on (a requirement for successful completion of the course) focused on kitchen installation, a service offered by IKEA that was costing us a lot of money. We had many errors in kitchen orders, a lack of communication between suppliers and the store, and insufficient capacity to book installations. We often had to visit a customer's home three to four times before we finished installing a kitchen!
Together with other employees in the store, we managed to reduce our lead time for installation by 2-3 weeks -also thanks to a signaling system that was connected to headquarters to ensure that more capacity was made available when needed-and to reduce kitchen order errors by 30%. (Because less after-sales were now needed, we were able to save about 15,000 euros.) The standardization we implemented applied to all kitchen orders, not just those with installation, meaning we improved the customer journey for all our kitchen customers (we receive about 5,000 kitchen orders a year).
The Haarlem store's Lean journey began there. Using A3 Lean Thinking, we began addressing more and more issues, from reducing absenteeism (which we reduced by 1.55%, by standardizing our response and making our leaders better able to interact with people who called in sick to try to understand how we could help them, rather than simply asking them when they would be back at work) to changing the way we work with service providers.
Gemba Walk and failure cost reduction
Let me give you another example. One of our leaders worked to reduce loss and damage on our transportation orders. To do this, she worked closely with the service provider, invited their quality manager to visit our gemba, and even went with drivers on one of their delivery routes. In the end, she managed to reduce loss and damage from 4.26% to 2.31%: that means the number of customers losing a package each week went from 47 to 14! For IKEA, that means 1,700 customers a year, and about €90,000 in failure costs.
Later, we began working on our business plan for the next fiscal year and integrated continuous improvement into it with solving some key problems. That was a pivotal moment for our Lean journey. The plan included an entire section on long-term profitability, with an emphasis on creating a customer-centric culture and addressing the root cause of problems by ensuring that the services we sell(transportation, installation, etc.) were delivered right on time. The key issues we focused on were employee interaction, shopping convenience, the IKEA food experience, wait times and failure costs.
Lean Green Belt problem-solving ability
Then we started providing leaders with a methodology and the tools to increase their problem-solving capabilities. A group of team leaders participated in the Lean Green Belt training from the Lean Management Institute, and as part of that, each was asked to improve a process associated with a low score in customer satisfaction and high failure costs. Along with the training, we provided on-the-job coaching. Over time, people began to challenge each other to make improvements and deeply understand problems. This is perhaps the biggest learning point from my time at Haarlem:
"It's easy to throw money at a problem, but it's much harder to look at it thoroughly before jumping to solutions."
Lean corporate culture
IKEA is often seen as a pretty lean company to start with. Indeed, in the area of purchasing and production, Lean is already quite common. Lean in the retail industry or retailing, however, is still largely uncharted territory. So I see a lot of opportunities there. One of our core values at IKEA is Renew and Improve. That ties in perfectly with Lean Thinking! Moreover, we have an underlying culture where senior leaders show up on the shop floor to talk to people and understand the mechanics of work.
Now that I am in a new role and tasked with closing the performance gap across the group through improvement, I have a unique opportunity to envision our approach to "renew and improve."
We have identified a few things we want to do: collect a few case studies to show that Lean is successful (we could use the Haarlem store case studies for this), but also explore how to effectively capture and apply knowledge across our 430 IKEA stores. Currently, we cluster stores based on their characteristics and see which store performs best on a particular KPI and then mimic their practices elsewhere in the cluster. That often doesn't work because the conditions in each store are unique. Moreover, our IKEA culture gives people room to take matters into their own hands - which is great - but that leads to a lot of variation in how we approach the work. We will have to emphasize standardization if we want to improve, and that is quite a challenge for us.
Growing Lean interest worldwide
We are beginning to see growing interest in Lean in several countries, from Poland to Korea to the US. As experimentation increases across the enterprise, we will hopefully be able to connect the dots and make our overall approach Leaner.
"I am determined to teach people to fish instead of giving them the fish.
This will involve the development of improvement capacity across the board. For me, it was a revelation to see how much more effectively we can solve problems if we follow the scientific method and then use that knowledge to set a standard. The potential of this approach could be enormous for our organization.