Long-term agreements give lower prices
Bigger volumes mean lower prices. And the aim is for the already low prices to become even lower still. To make this feasible, IKEA signs long-term contracts with its suppliers. This enables them to make the necessary investments and to ensure the supply of raw materials over a long period of time. In certain instances, IKEA may also support suppliers by providing financial assistance. This creates unique business opportunities, enabling IKEA to continue to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible are able to afford them.
Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the next five years. Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs.