IKEA’s vision is to ‘create a better everyday life for many people’. Owned by the INGKA Group, the famous retailer has built a solid reputation for doing just that - providing beautifully designed, but practical and affordable furniture and homeware options to its 657 million customers that visit its 390 stores, across 32 countries.
The Group is in the process of rethinking its approach though, understanding that the world is changing and so are peoples’ buying habits. Whilst the traditional large city stores still do well, INGKA is also shifting to other form factors and ‘getting closer’ to its customers through digital tooling.
For instance, to highlight the changing times, the IKEA website has had 4.3 billion visits and there have been 23.9 million downloads of the IKEA app.
As part of this change, INGKA (IKEA) is implementing a new SAP system for its finance and procurement functions, with the aim of standardizing its systems as much as possible. However, the company is also in pursuit of the ‘perfect order’ and is trying to streamline its processes globally so that customers have the best experience possible when buying from an IKEA outlet.
That doesn’t come without its challenges, however. And INGKA is using Celonis’ process mining platform to help with this transformation programme. Speaking at a recent Celonis user event, Tim Hills, Process and Data Insight Development Manager at INGKA Group, said:
For those of us that work in process modeling, that means the types of processes and the ways of meeting customers are going to be very different.
One of the main contributing factors to the work we are doing now was an SAP implementation. But because we were doing SAP for finance and procurement, we were still retaining our legacy landscape and trying to connect that into SAP.
Bringing data in from a fragmented retail landscape into something as standardized as SAP is a little bit of a challenge.
A number of things aligned for INGKA to pursue its use of Celonis. For one, Hills took a course during the COVID-19 pandemic focused on process mining and data science, which left him thinking about how it could be applied to IKEA retail. Secondly, IKEA in Spain had been using Celonis already to work on and try and improve its ways of working - specifically thinking about continuous improvement and development. Hill said:
With the SAP implementation, the challenges that we thought we were going to face came to fruition. This is where we are implementing Celonis. What we want to do is bring together the global push, the local pull and the individual energy.
What makes a perfect order?
INGKA currently has about 500 million events inside Celonis and nearly 50 million orders, to help it better understand what is working and what isn’t. Hill said:
We’ve brought in the end to end sales order, from when the customer says what they want, to us fulfilling it.
Why do we want to do this? We want to make every decision better. We want to leverage process and data insights into our operation to make sure that the changes we want to make, we make them optimally and they’re realized optimally. Not only the insights, but driving those insights into operations.
Any company of our size there are a near infinite number of ways that we could become better. How do we articulate and how do we decide which are the right things to go after? It’s not just about who can weave the best storyline, but who has the best data?
Knowing this, and using Celonis to understand what makes the ‘perfect order’, will help with the company’s standardization on SAP. Hill added:
Standardization acts as a multiplier, because whenever we’re doing change management, which does come up as a big thing - if you’ve got 30 different markets at 30 different starting points, making that change can be quite challenging.
In turn, INGKA has created a process and data insights lab: a center of excellence for Celonis. This lab has been set up to drive insights and help achieve operational excellence, but also identify the best development opportunities.
That’s not to say that it is working in isolation. The lab coordinates with approximately 1,000 stakeholders across the Group, including the sales and order managing steering group, the individual markets, subject matter experts, as well as global senior executives (e.g. the CFO). Hill added:
We are in a digital world, so it’s impossible to forget all of our digital organizations - our product teams, enterprise architecture, data governance. And then the group we want to feed back to is the team looking after this SAP project, to make sure we are enabling this in the right way.
A working lab
Hill ran through how INGKA and IKEA at large are thinking about process mining, specifically as it relates to creating the ‘perfect order’ for customers. He said:
We start with the data, we make sure we get the data from our source systems, we understand it and we structure it in the right way. We have a multitude of home grown systems, some that we buy off the shelf and then manipulate, so ultimately very few are standard connectors. So we have a lot of data discovery and exploration to do.
Then Hill and his team focus on engagement, how they engage with the markets and the business. He said:
We go to the countries and say: what have you already committed to working on this? How can we help accelerate that? How can we help optimize? Because then the engagement is easier. It’s all about communication.
Then we do a little bit of homework. We have this core team within our CoE, where we do have the technical team who look after the data side, but we also have some business experts who have a lot of experience within the business.
They engage with the countries and show them the art of the possible, this is how we can find synergies between what we have and what they need.
Part of the process also involves workshopping, where INGKA aims to identify not just the big use cases, but the root causes and the challenges in the processes, as well as the counter measures. It’s an interactive process, which leads into the solution proposals and potential fixes. Hill added:
In order to realize value we need to be able to measure where we are, measure where we want to be and figure out how to get there. The measure we are looking at is our perfect order. And so the metric we are looking at is our ‘perfect order’.
The perfect order is flawlessly taking and fulfilling the customer order - take the order correctly, allocate inventory, deliver the product, with an accurate invoice. We’ve got internal and external benchmarking.
A UK example
Hill provided an example of how IKEA stores are using Celonis to improve its order to cash processes. One of the first regions it focused on was UK and Ireland, which were also two of the pilot countries for its SAP project - which allowed for “synergies”.
Looking at the data, INGKA found that IKEA in the UK and Ireland had a very high failure to collect rate, when customers ordered goods online for pick up in store. Whilst the customer pays online, they may get to the store and find the product isn’t right for them, or they may never show up, or there may be an issue with the product, which means they get refunded.
No matter the scenario, the work involved in getting the product ready for collection is time consuming, and so reducing the waste in this area could be an opportunity for the Group. HIll said:
When we look at the various contributing factors for this click and collect cancellation, we can see that the UK had more of an opportunity than all of our other countries combined.
But when we looked at the data further, we could see that we had some countries with similar volumes to the UK, but lower cancellation rates.
So then it’s about trying to understand the correlative and causal effects in the end to end flow, to then look at what is causing the problem? How do we prevent it in the first place?
Using Celonis and analyzing the data, the results were fascinating. INGKA found that by reducing the time slot available for customers to pick up their product meant a causal effect on the rate of collection. He said:
In the tooling we have you can configure the pick up window between 1 and 12 hours. One of the things that we were able to see is a causal effect between the length of those windows and the rate of cancellation.
We did some testing in the UK of reducing those appointment windows and it showed that for every hour we reduced those appointment windows, the rate of cancellation reduced by 7%.