6 Lessons every Procurement Team can learn from IKEA’s IWAY
My girlfriend and I have a dog, named Charlie.
He’s only one and a half years old and is already, now, rather well trained. Sure, he has an occasional hiccup and puts his paws on a friend from over excitement, or pulls on the leash a bit too much as we approach the lake. But, all in all, my girlfriend and I (mainly her) have done a pretty solid job raising him, and continuing our management of his behavior.
Then again, we haven’t approached this whole dog ownership business with a ‘willy-nilly’ mindset.
We were well prepared. We completed extensive research, watched a lot of how-to clips, purchased some best-practices resources, discussed/strategized amongst ourselves at length, developed ground rules, consolidated a plan, and continuously reviewed our methods and performance throughout Charlie’s first 15 months of training.
Looking at him now laying on the cushion in the corner of Kodiak Rating’s office sound asleep, I feel proud that we took the time and effort, laying the foundation, to help him become the dog he is today.
Looking back on the training process, our research, strategy, implementation and evaluation closely mirrored supplier relationship management and procurement management. In fact, it made me think of a specific chapter I’ve read from Magnus Carlsson’s Strategic Sourcing and Category Management: Lessons Learned at IKEA
Now bear with me here…
In 1995 IKEA faced an organizational shift in purchasing and sourcing methodology. They wanted to expand their production, and become more competitive globally. “For purchasing, this new strategy meant switching perspective from a focus on individual products to the sourcing of product packages. The goal was to break a trend of rising purchasing prices and instead reduce total costs by using the entire Ikea volume as leverage” (Carlsson 2015, p.6).
In order to enact the shift that they wanted to see in their procurement, purchasing and sourcing methodology, they had to not only rethink internally, but work closely with a consolidation and restructuring of categories within their supplier base. Simply, Ikea needed to make a change in order to make an organizational impact.
In the same way that my girlfriend and I were prepared to implement training methods to see the results we wanted to see in Charlie’s behavior, Ikea was ready to take action to ensure their supplier relationships would be leveraged, and show the results they hoped to see.
IWAY, the ‘Ikea way of purchasing’, Ikea’s code of conduct (CoC) for suppliers was introduced to ensure that the drastic changes the organization was experiencing wouldn’t jeopardize key supplier relationships. Furthermore, the guidelines spelled out in IWAY established a new normal for the future of Ikea’s requirements on suppliers.
What is IWAY?
As stated, IWAY is Ikea’s Supplier CoC. It “requires suppliers to act lawfully, and [addresses] if the laws are inadequate to act responsibly towards people and the environment” (Carlsson, 2016, p. 7).
Ikea’s Supplier Code of Conduct sets a precedent for the importance of supplier governance, and a stronger focus on corporate social responsibility.
As procurement, sourcing and/or purchasing professionals, we could all learn a thing or two from IKEA; an organization that went from a small furniture company in Småland, Sweden started by Ingvar Kamprad, to the major global enterprise it is today.
Some would argue that Ikea’s eye for innovation, focus on cost efficiency, affordability of products and strong focus on quality sourcing have been some of the key role players in the organization’s global success and market domination.
In my eyes, IWAY was at the center of Ikea’s rapid expansion. And, I’d like to share with you some lessons we could all take away from Ikea’s successful supplier relationship management.
1. Having a Supplier Code of Conduct is a must!!
A Supplier CoC, and its application, is relative and individual to the organization that plans on implementing one.
At Kodiak Rating, we define a Supplier Code of Conduct as the following:
Clearly defined guidelines and expectations for building collaboration, and innovation, between a buyer and supplier entity; typically applied to strengthen a mutual understanding of how sustainability, corporate social responsibility, human rights, environment and responsible business practices factor in to the global supply chain.
If you don’t have a Supplier CoC, I’d strongly suggest looking into developing one with your sourcing and procurement team. This should be the framework for supplier selection, assessment, collaboration and on-going evaluation.
A supplier code-of-conduct can also stretch beyond the scope of supplier relationship management, and can be utilized as a nucleus for developing procurement and sourcing KPIs when practicing supplier performance management.
2. Language Matters.
Just like we ensured Charlie’s compliance when training him with straightforward language, Ikea has extremely clear messaging in their IWAY document.
Something I think that is interesting to point out is that this language isn’t only standardized for their suppliers, but it communicates to other stakeholders that compliant suppliers can be a valuable source of sustainable development and CSR. However, they hold suppliers accountable for communicating their ideologies or concepts further down — to second, third, and fourth tiers of the supply chain.
In fact, it’s stated directly on their site, “IKEA suppliers are responsible for communicating the content of the IKEA code of conduct to their employees and sub-suppliers” (ikea.com 2018).
Clear language can be the difference between working with suppliers that share your procurement and sourcing teams’ vision, and ones that are anything but compliant.
Leading to the next lesson learned…
3. Have a Clear Vision.
Going about supplier relationship management and governance in an aimless manner isn’t beneficial for anyone. Consolidate your internal vision, and align your organization with suppliers that share that vision.
Communicate your vision and ambitions/goals to suppliers from the get go!
Taking away from Ikea’s IWAY Supplier CoC, they quickly share what their guiding principles are when working with environmental, social and working conditions:
· What is in the best interest of the child?
· What is in the best interest of the Worker?
· What is in the best interest of the environment? (ikea.com 2016)
This information is in the very first paragraph of their IWAY Standard, ensuring that there will be no miscommunication of their core principles.
4. Cover a Thorough Scope of Supplier-Related Risks.
Supplier compliance and governance is a result of quality due diligence on the part of a sourcing and procurement team.
Taking a look through Ikea’s IWAY, there is a solid framework for covering all risk areas that can arise in collaboration with a supplier. Brand association is a slayer of giants as we all know, and there’s nothing worst than mudslinging PR that rightfully sticks to your brand image.
Being thorough in the scope of your Supplier CoC can’t ensure that your suppliers will remain compliant, or that your on-going governance will create risk-aversion, but it can be a comprehensive framework for supplier assessment and auditing.
Ikea’s IWAY covers a lot of the most important areas of supplier risk, including some extras:
- General Conditions: Overview of Requirements
- Business Ethics
- Emergencies and Fire Prevention
- Worker Health & Safety
- Recruitment, Working Hours, Wages and Benefits
- Child Labour and Young Workers
- Worker Involvement
- Harassment, Abuse, and Disciplinary Actions
5. Better Standards for Supplier Compliance, Better Supplier Relationships.
For obvious reasons, the implementation and reinforcement of a Supplier CoC will have an overall impact on supplier relationships; new and old.
Your Supplier CoC could very well be the affirmation of a successful supplier relationship or the affirmation that a supplier needs to be cut loose. A Supplier CoC is your reference point for how your supplier relationships should look. And, anything less than compliance from suppliers gives you the power of previous contractual agreement. As much as a supplier CoC is a foundation to move forward in positive supplier relationships, it’s also a safeguard for termination of crappy ones.
This is where the real power lies!
“After establishing IWAY, IKEA started monitoring trading service offices and conducted surprise visits to their suppliers and sub-contractors. After all, there is no point in having a code of conduct for all your suppliers and simply assuming that they are all willing to observe to the code. If evidence of child labor is found, the supplier has to not only put an end to children working, but the children must be placed into an education program. After that, IKEA will visit the school and still continue with surprise visits for the supplier. If IKEA sees that no changes have been made, their contract with the supplier is terminated” (Chandler 2014).
As Invar Kamprad has previously written, ‘A good Ikea manager knows many details and gains his/her knowledge on all our floors’, meaning both the factory and store floors (Carlsson 2015, p. 7).
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6. Building Shared Value.
Implementing IWAY improved the productivity and organizational strength of suppliers as well as Ikea’s internal organization. They were able to locate key suppliers, leverage those relationships, and (with the combination of technological advancements) ultimately reduce their supplier base to about 1000 suppliers by 2012.
Everyone grows together when an organization decides to focus in on quality supplier relationship management. Suppliers are able to apply the lessons learned from IKEA further down the supply chain to their sub-suppliers, and maybe even within other delivery contracts they have with other procurement organizations.
Stronger suppliers = stronger collaboration… It’s that simple.
In Ikea’s case, they took it one step further to ensure that their application of IWAY would receive equal engagement from their side, as they too expected from their suppliers. A practice what you preach mentality. Ikea decided to appoint direct managers to individual suppliers. “This was a senior person with extensive business experience and integrity — someone who had the confidence of the whole organization. Suppliers’ complaints and questions were put to the [manager], who investigated and made recommendations. More often than not, involved parties accepted the recommendations as fair” (Carlsson 2015, p. 7).
This kind of engagement and attention to detail/relationship management lives up to Kamprad’s ideology that managers should have and gain their knowledge directly from the floor. There is no person too insignificant, no supplier too small, and no piece of knowledge too granular to not be seen or heard.
A supply chain is an amalgamation of thousands of moving parts, and when an organization takes the time to dismantle that machine, and put it back together, showing equal respect to the assembly of each and every moving element, that’s an organization that has put in the leg work to succeed.
These are 6 lessons learned, and taken away, from Ikea’s IWAY Supplier Code Of Conduct.
Kodiak Rating has no direct affiliation with Ikea or their procurement organization, but they are an organization that deserves recognition and respect within the industry and domain. We hope that you were able to gain some insight and inspiration, and if you’re interested in checking out Ikea’s IWAY Standard yourself, you can click this link here.
It’d be interesting to hear your thoughts of this article/IWAY. Please leave your comments and questions, and let’s start some friendly discussion.
Until next week.
This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.