IKEA aims to reduce the price of its offerings by 2-3 percent per year, which requires relentless attention to cost cutting. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Consider the company’s best selling Klippan love seat. Designed in 1980, the Klippan with its clean lines, bright colors, simple legs and compact size has sold some 1.5 million units since its introduction. Originally manufactured in Sweden, IKEA soon transferred production to lower cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. Today there are five suppliers of the frames in Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, production has been concentrated in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decisions enabled IKEA to reduce the price of the Klippan by some 40 percent between 1999 and 2006.
IKEA aims to reduce the price of its offerings by 2-3 percent per year, which requires relentless attention to cost cutting. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Consider the company’s best selling Klippan love seat. Designed in 1980, the Klippan with its clean lines, bright colors, simple legs and compact size has sold some 1.5 million units since its introduction. Originally manufactured in Sweden, IKEA soon transferred production to lower cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. Today there are five suppliers of the frames in Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, production has been concentrated in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decisions enabled IKEA to reduce the price of the Klippan by some 40 percent between 1999 and 2006.
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