1. C-Suite
IKEA's Global Sourcing Challenge
May 13, 2013
1
Emma Karkar
●
Olivia Heo
●
Joyce Kung
●
Vikram Angelo
●
Dalal AlBawardi
●
Panos Anadiotis
2. Agenda
COMPANY BACKGROUND
DETAILS OF ENVIRONMENTAL ISSUES AND
CHILD LABOR
WHAT CAUSED THIS ISSUE -ISSUES
ASSESSMENT
THE ALTERNATE RESPONSES
RECOMMENDATIONS
2
3. Background
•
•
Swedish furniture retailer
Sells affordable, good-quality furniture
to mass-market consumers
Procurement policy: Establish longterm relationship with suppliers
2,300 suppliers in 70 countries
Marianne Barner: Business area
manager for carpets
Rangan Exports: Indian carpet
supplier; Recently signed contract
forbidding the use of child labor
•
•
•
•
3
4. Mission, Vision, Values
THE VISION
To create a better life for the majority of people which is the basis of its strategic
orientation.
THE MISSION
To offer a wide range of home furnishing items of good design and function at
prices so low that the majority of people can afford to buy them.
V
A
L Humbleness
and
U
willpower
E
S
Leadership
by example
Cost
consciousnes
s
4
Daring to be
different
Constant
desire for
renewal
Togetherness
and
enthusiasm
Accept and
delegate
responsibility
6. Complication – The Beginning
Global expansion
o The number of stores increased 6 times in 10 years
o Historical Store Growth
1954
Number
of stores
1964
1974
1984
1994
0
2
9
52
114
Need More Supply
o In the mid-1990s: 2,300 suppliers in 70 countries, sourcing a
range of around 11,200 products
o Commercial issues: 24 trading service offices in 19 countries
monitored production, tested new product ideas, negotiated
prices and checked quality
6
8. Complication – The Environmental Issue
1980:
Formaldehyde
scandal in
Denmark
Action
1st
Action
8
Alternative
action
9. Complication – The Environmental Issue
1992:
Formaldehyde
scandal in
Germany
1st Action
• Immediately stopped the production and sales of Billy
•
bookcases worldwide
Estimated lost: $6-7 million
Alternative Action
• Forestry: Forestry policy working with Greenpeace
•
9
and World Wide Fund for Nature
Environmental Criteria: working with suppliers,
adapting the product range,transport and distribution,
ensuring environmentally conscious stores
10. Complication – Social Issue
1st Action
• Marianne Barner, business area
manager, had to deal with the issue
• Apology for ignorance and
acknowledge not being in full control
1994:
Child labor scandal in
Pakistan
Alternative Action
• Take advice from International Labor Organization
• "Black-and-white Clause"
• Monitoring child labor practices with a third-party agent.
• Appointed a Scandinavian company for quality assurance program and
random audits of child labor practices at suppliers' factories
10
11. Complication – Social Issue
• Barner's concerns
Child labor issue not universally concerned within IKEA
Proactive stand can bring cost disadvantage
• Working with foundations
Rugmark
Swedish Save the Children, UNICEF, ILO
1995:
Child labor scandal
reported by German TV
channel at Rangan Exports
11
12. Issue Assessment
Main causes which led to these
issues: the company was founded on
1) Principles
2) General procurement practice due to lack of in-house
infrastructure
3) Oversight from the management in monitoring suppliers
and sub-suppliers
4) Cultural differences
5) Failure to enforce correction measures
12
13. Issue Assessment
Formaldehyde Issue:
Main cause:
General procurement principle
•
Never managed sub-suppliers
•
Worried more about finding the right management
•
Relied on technology and knowledge transfer
•
In constant quest to lower prices, they bought unused production capacity
•
Too trusting as a company
•
Fear of making mistakes
13
14. Issue Assessment
Child Labor issue:
Main cause:
1) widespread socioeconomic phenomenon
2) poorly enforced laws and rarely severe prosecution
•
Cost consciousness and a constant will to renew
•
Child labor is deeply rooted in South East Asian cultures
•
Never monitored their sub-suppliers
•
Made loans to its suppliers
•
•
•
14
General procurement principle, technology transfer and unused production capacity
also directly lead to the occurrence of this issue.
Preventive measures were not strongly reinforced
Barner’s proactive stand to better the children's’ lives was not universally held within
IKEA
16. The Alternative Responses
Acts
Accept
the
invitation
Terminate
Rangan
Exports
contract
Exit India
Rugmark
Solo
Monitorship
16
Ethical Dilemma
Short vs.
Long-term
Purpose
• Explain what
happen
• Take the blame
• Prove how we do
not approve to child
labor
Principle
• No law obligation
• Ethical principles
• Our right for
explanation
People
• Customers have
the right to know
• Shareholders
and employees
have the right to
be protected
Ikea
•
•
•
Haunt them
Make it less
bad
Affect on
shareholders
Short vs.
Long-term
Truth vs. Loyalty
• Policies are clear,
if child labor is
involved, contract
is cancelled.
• It is within our
rights
• Remove any negative
associations with the
brand name
• Rebuild the trusted
brand name
• Within our rights;
dimensioning India
from our supply
chain will make us
lose our
company’s culture.
• Child labor and IKEA
never tie again
Justice
vs. Mercy
• Maintain order with
social and corporate
rules
• Taking clear, quick,
and investigative
actions.
• Teach by example
legal vs. moral
• More pressure on • Chances of
• Our contract was
Rugmark
reoccurrence
based on a goal that
employees
was dismissed, give
• Send a negative
formal written
message to
warning or fire them.
stakeholders.
• Some of
Terminante
Rangan
employees will
be fired for their
company’s
mistakes.
•
•
•
•
• Affect India image
• Pull other
company’s
• Decrease the
•
standard of living
further
• Customers face
higher prices
Lose a good
supplier
Positive public
response
Lesson to other
suppliers
Lose a good
percentage of
their
suppliers
Cheap childlabor free
countries
don’t exist
17. Course of Action
Immediate actions
1
Take full
responsibility
- Fire
Rangan
Exports
17
2
Find new
supplier
that aligns
with our
values and
corporate
ethics
3
Take legal
actions
4
5
6
Work with
our CSR
department
Monitoring
of the rest
of our
suppliers
Work with
Rugmark
Foundation
18. Debate
NO
YES
Accept taking part in the video
Go public
Explain the situation
Elaborate our course of action
Minimize impact
Do not accept
Take all the measurements
Do not fall in his trap
Do not allow him to use us
Be proactive and prepare
Take advantage of his
mistake
Decision!
Accept the interview
18
19. Recommendations
Rugmark Foundation
– Financial assistance
• Staffing
• Improve quality of services
–
–
–
–
–
Monitoring controls
Community based rehabilitation
Community development programs
Health care services
Expansion plans
IKEA
– Monitoring
• IKEA CSR department
• Avoid same mistakes
• Become part of any community we enter
19
22. Background
“Disproportionately large part of all resources is used to
satisfy a small part of the population. . . . IKEA’s aim is to
change this situation. We shall offer a wide range of home
furnishing items of good design and function at prices so low
that the majority of people can afford to buy them... We have
great ambitions.”
--Ingvar Kamprad
1951: Opened
first display store
Sold small items
out of families
kitchen.
22
Idea of “A better life,
for many people”
Searched for
furniture manufactures
Mid 90’s: Worked with 2300
suppliers in 70 countries.
Sales rose to over 4.5 billion
Began to build long term business
partnerships with manufactures
and distributers
“We do not buy products from
our suppliers, we buy unused
production capacity.” -- IKEA
23. Complication
– The Timeline
1992:
Formaldehyde scandal in Germany
Forestry
Adaptation of product range
Working with suppliers
Transport and distribution
Environmentally concious
stores
1980:
Formaldehyde
scandal in Denmark
Collaboration
with chemical
companies to
reduce
23
formaldehyde
1995:
Child labor scandal
reported by German TV
channel at Rangan Exports
1994:
Child labor scandal in Pakistan
Ikea had no awareness of child labor
problem
Apology
Advice from organizations
Change of supplier contracts
Random tests & situation analysis
24. The Alternative Responses
Acts
Ethical
Dilemma
Purpose
Principle
People
Accept the
invitation
Rule-Based Thinking
Terminate
Rangan
Exports
contract
End-Based Thinking
Exit India
Rugmark
Solo
Monitorship
Care-Based Thinking
End-Based Thinking
24
Source: the heart of Leadership, PLC 2007, Ethics-Oklahoma State University-Student Union
Ikea
Notas del editor
Main cause: General procurement principle, which led to its suppliers buying from sub-suppliers, who collected materials from glue manufacturers. IKEA never managed sub-suppliers. They concentrated on hiring suppliers but didn’t have control over their sub-suppliers (like the glue manufacturers)They were worried more about finding the right management at their suppliers than finding high-tech facilities. Thus, low-tech equipment & lack of know-how could have been a causeRelied on technology and knowledge transferIn constant quest to lower prices, they bought unused production capacity – which means, a lot of their suppliers working off-season might not have been in the furniture business and therefore lacked the know-howThey were too trusting. IKEA was founded on principles like humility and simplicity and therefore assumed their suppliers to share the same ethics“Fear of making mistakes is the root of bureaucracy and the enemy of all evolution” – this pushed the suppliers to take more risks and willingness to make mistakes while experiment with lowering product costs
Main cause: 1) widespread socioeconomic phenomenon arising out of poverty and lack of development and education 2) poorly enforced laws and rarely severe prosecutionIKEA was founded on the principle of cost consciousness and a constant will to renew. These ideologies were communicated to their suppliers who in turn, turned to child labor as a way to cut costs. “Waste of resources, is a mortal sin at IKEA” – Kampard.The concept of children working from a young age is deeply rooted in South East Asian cultures (even though it has been outlawed since 1933). Many times, children working would have been a consensual arrangement between the suppliers and the artisan families. It is difficult to keep track of children working in homes where whole families worked on looms from the sub-suppliers level. They never monitored their sub-suppliers & thus were caught unaware.IKEA made loans to its suppliers at reasonable rates. This put pressure on their suppliers to repay the loans and cut costs wherever possible. Employing children was one way to do this. General procurement principle, technology transfer and unused production capacity also directly lead to the occurrence of this issue. In-house production could have avoided this.After the Pakistan incident, even though they added a ‘black and white’ clause and hired a Scandinavian investigation company, they failed to enforce these measures successfully, which led to a bigger reoccurrence in India. Barner wanted to take a proactive stand to better the children's’ lives, however this view was not universally held within IKEA and this stance indirectly lead to the rise of this issue.
Exit India:Affect on IKEA: The complexity of the child labor issue requires input and influence from many parties.31% of manufactured material coming from AsiaContract:Principle:Diminish those who do not follow my rules
Exit India:Affect on IKEA: The complexity of the child labor issue requires input and influence from many parties.31% of manufactured material coming from AsiaContract:Principle:Diminish those who do not follow my rules