IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor
The “A” case opens by describing the challenges faced by Marianne Barner in May 1995 when she learns that a German TV documentary is about to broadcast showing use of child labor at Ragan Exports, one of Ikea’s rug suppliers.
Discussion Questions
1-How should Marianne Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program?
a- A year ago, IKEA was identified as on the companies buying carpets form suppliers using child labor. How do you justify the fact that a year later, you are still engaged in the same abhorrent practice?
b- Why have the contract changes and internal audits you claim to have implemented been so ineffective?
c- Why have you not joined Rugmark?
d- Can you assure your customers that any carpet they might purchase has been made without using child labor?
2- What actions should she take regarding IKEA supply contract with Ragan Exports?
a- Is the coalition of manufacturers and exporters likely to provide a more effective monitoring process?
b- Is this a no win situation?
3- What long-term strategy would you suggest she take regarding IKEA’s continued operation in India? Should the company stay or should it exit? (Be prepared to describe the impact of such a decision and how you would manage it.)
a- Is this all talk of brand image, PR ect? What is IKEAs responsibility? Should they try to have an impact on the underlying situation?
4- If recommending that IKEA continue to source carpets in India, would you suggest that she:
a- Continue IKEA’s own monitoring and control processes or sign-up to Rugmark?
b- Continue to focus only on eliminating the use of child labor in IKEA supply chain or engage in broader action to address the root causes of child labor as Save the Children is urging?
c- If they leave India – where will they go?
"The black and white clause as Banner put it" implies that the Rangan Exports contract must be canceled immediately if they are in violation of the contractual terms. According to the case, the sales of the mats represent a small part of the sales of IKEA. In contrast, the sales of IKEA Germany are the most important in Europe and the world (see Table No. 1), which implies that a deterioration in the opinion of customers could have a greater economic impact than discontinuing a line. Additionally, if the contract is not canceled, the Danish incident could be repeated where "due to the publicity, (IKEA's) sales dropped 20%". Likewise, the non-cancellation of the contract would leave a negative precedent with the other suppliers, especially those located in countries that did not sign agreement 138 of the international labor organization.
In order to find a replacement for Rangan Exports, the search process of "buy unused product capacity" would begin with the purchasing managers. This would allow us to continue with the carpet line and train a supplier that meets the social and technical specifications of the supply contract.
"What long-term strategy would you suggest she takes on IKEA's continued op-eration in India? Should IKEA stay or should I exit? "
In order to answer the previous question, the supplier evaluation methods, supplier development methods and supply chain design will be established as basic strategies for the creation of value.
As a long-term strategy for procurement in the region it should be considered that "the ulti-mate for those that purchase abroad is not to have more global purchasing as such. Rather, depending on elements such as competition, customer demand, product value versus trans-portation costs, intermediate stages of globalization may turn out to be more economically inter-esting ". The foregoing indicates that the type of supply chain that is required must be determined taking into account: 1) value strategy for the products produced in India and 2) sustainability and ethics of the supplier.
The value strategy allows to evaluate if the products that are produced in India are adequate and if their producers are in tune with the needs of the company. "Strategies of low cost or rapid response demand different things from supply chain that a strategy of differentia-tion. "(See Table No. 2) Regarding the Rangan Exports mats, it is necessary to evaluate if they are differentiating products that can only be produced in India or if it is worth training these producers to comply with the specifications and ethical models. of production.
With respect to ethics and sustainability, they must be taken into account when analyzing the supply chain. "Firms must establish standards for their suppliers, just as they have been established for themselves. "This implies that an assessment of the suppliers' production and supply processes must be made and a matrix of sustainability and ethical factors created to evaluate the suppliers.
"Indian rugs accounted for a tiny part of IKEA's turnover, (...) the time cost and reputation risk posed by continuing this product line were not worth the profit potential". Although the previous text refers to the opinion of a few observers within the company and taking into account procurement policies, I consider that the company has the tools to train and produce similar or similar products in the company. other regions. However, it is necessary to consider the costs of procurement that comes from importing from this region, the degree of sophistication of the products and the reputation costs and how these would affect sales in Europe and America. However, it is not considered prudent to withdraw all of the production because you can continue working with suppliers that comply with their contracts, can be supervised with total transparency and that comply with the recommendations of the NGOs.
conclusion
Due to global sustainability trends, consumers are demanding from producers to have production methods and operations that are responsible with the ecosystem and with all its stakeholders. Especially the big producers that are in the center of public opinion. This is the case of IKEA with Rangan Exports where a decision must be made regarding the continuation of production. In order to make the best decision, a method of evaluating suppliers and production must be established.
Personally, I think that for a clear evaluation it is important to have a clear weight for each of the aspects of evaluation with respect to the values ??of the company. Additionally, I think that the best tool to avoid supply problems worldwide.