IKEA and RFID Technology Improving the Level of Service

1. IKEA and RFID TechnologyImproving the Level of Service CSE 6002R – Introduction Services Science, Management and Engineering Final Paper Presentation 27/03/07 Mikael Blomberg

2. Agenda • Introduction, Scope of the Paper • IKEA • What is RFID Technology? • RFID and IKEA • Conclusion

3. Introduction • Effective use of modern IT can be seen as a requirement to succeed in the markets • ...although IT system is not a shortcut to success • IT system needs to be implemented on the needs of business • The final paper concentrates on the problems in IKEA’s business and presents possible solutions • The focus of the paper is in the end of the supply chain, in the interaction between IKEA and the final customer

4. IKEA (1) • IKEA sells low-price home products, including furniture, accessories, bathrooms and kitchens • The chain has 251 stores in 34 countries • On year 2006 IKEA opened globally 16 new stores

5. IKEA (2) • One of the fundamental innovations made by IKEA is definitely the concept of self service • It requires lots from the system that is built around it • RFID technology can be seen as a part of the system that supports the self service • Observations have been made during numerous visits in IKEA’s retail store in Espoo, Finland

6. RFID Technology (1) • RFID (Radio-frequency Identification) is an automatic identification method • RFID tags are used to store and remotely retrieve information • The RFID tag has an antenna which responds to the transponder (reader) and sends the information • The information in the tag can be read many times • In some tag types the information in the tag can also be rewritten

7. RFID Technology (2) • The main division of RFID tags is between active and passive tags • RFID tags operate using different frequencies • Low frequency tags (30-300 kHz) • High frequency tags (3-30MHz) • Ultra-high frequency (300MHz-1GHz) • Most likely the suitable tag type for IKEA would be passive HF tags (13.56MHz)

8. Solution: RFID equipped cash desks Problem 1: Long queues • Long queues increase the amount of misplaced products, and decrease customer satisfaction and gained revenue • Products may be big • Products may be difficult to handle

9. Problem 2: Difficulties with self service warehouses • Customers need to search for the correct product from the huge warehouse • Certain customers may get frustrated • IKEA needs to hire employees to help customers to find the correct product • Solution: • ”Smart shelves” and Personal Shopping Assistant (PSA)

10. Problem 3: Sharing accurate availability information • Customers do not want to come to the store just to notice that the product they wanted is out of stock • “Showrooms” may contain some interesting product but the customer cannot know if the product is really available • Solution: • More visible stock information and Electronic Price Labels (EPC)

11. Problem 4: Effective home delivery • One IKEA retail store usually serves a wide area the distances can be long and locations scattered • IKEA retail store needs to have effective transportation system • Solution: • Tighter connection between the IT system and home deliveries through RFID technology

12. Problem 5: Theft Prevention • IKEA’s product selection includes products which are small but still relatively expensive • Solution: • RFID tags working as a part of Electronic Article Surveillance (EAS) system

13. Problem 6: Recycling • In the future environmental regulations will become stricter • Companies may need to accept the used product back and recycle it • Solution: • RFID tags containing the recycling information

14. Conclusion • Product level tags will be reality in the near future • RFID technolgy could give several benefits for IKEA • The importance of careful planning and patience to develop the system cannot be underestimated • RFID technology will require lots from the supporting service and IT infrastructure