 "Two relationships of trust built over the years")
ALC and Trident in Ludhiana, two facilities Business Standard visited, offer a glimpse into product categories that aren't really big, in terms of the volume or value of sourcing to IKEA, but are certainly growing.
An IKEA spokesperson said the company planned to expand the lighting business in the coming years. "We are very strong in textiles and are looking at opportunities in metal, plastic, lighting, wood and alternative materials," he said.
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ALC's lighting facility seems to be in sync with IKEA's philosophy. Neatly cut pieces of fabric are lined up on the slowly moving conveyor belt, which goes towards the glue machine where the fabric is lined with paper. One by one, each of these pieces is folded into a lamp shade, with a string of workers waiting to fit the rim of the lamp and the light holders to these. At each stage, a qualified worker ensures every piece is perfect. If not, it is sent for rework. At a later stage, while the products are wrapped and packed in cartons, a random check of products is also carried out to ensure quality is maintained. ALC's association with IKEA is an 18-year-old one. In fact, it was the Swedish company that brought ALC into the lighting industry, after the export company decided to shift from its textile and decoration items business. As it was already catering to IKEA, supplying items such as candle light holders, it was considered a natural progression to team up with the retailer for manufacturing lamp shades. Today, half of ALC's six factories are dedicated to IKEA, with another in the pipeline, owing to anticipation of increased orders, once IKEA starts operations in India. ALC products are shipped to IKEA markets worldwide.
On his company's ties with IKEA, ALC Managing Director Arjun Nath said, "We both highly value innovation and product orientation to bring value to customers at the best possible cost."
The other facility Business Standard visited, the $1-billion Trident Industries in Ludhiana, known for its Terry towels, shares a similar view.
The company's chief operating officer (home textiles), P K Markanday, said, "There is uniqueness about working with IKEA, compared to other retailers. IKEA believes its growth would be achieved along with that of its suppliers, which share the same vision and ambition." As such, IKEA assists suppliers to improve productivity by deploying the best technologies and manufacturing practices, he adds.
IKEA is among the top five foreign buyers for Trident, which also exports to other international retail chains such as Walmart, Target, J C Penney, Sears, Kmart, Macy's, Ralph Lauren, Calvin Klein, Marks & Spencer and Zara Home.
For ALC, which makes seven million pieces a year for IKEA, other buyers include K-Mart, Home Depot, Coop and Williams-Sonoma. It has also catered to retail clients such as Abercrombie and Fitch.
For the lighting company, which is clear about the fact that whatever new item it makes must first be offered to IKEA, about 90 per cent of its consumer business is accounted for by the Swedish chain. ALC also has a design division, where graduates from the National Institute of Design come up with new models of lighting.
The company also sources designs in lighting solutions from San Francisco. The showroom at its Noida facility displays some of the latest designs, with a range of mood lighting options that can be controlled through wireless devices such as tablets. Designs range from contemporary photographs mounted on a wooden frame to edgy and minimalistic chandeliers.
ALC designs about half the lamps it supplies to IKEA. For the remaining, designs are provided by the retailer. While there is a "basic global core range" for its bigger markets, there are customised products as well.
For instance, the colourful and bright range of hanging lamps in shades of fuchsia and turquoise are aimed at Thai customers, exclusively designed extra-large jet black lamp shades, with kaleidoscopic lining inside, are aimed at the German market. The company expects, for India too, IKEA would customise its range, given the specific attributes and preferences of the consumers here and the large size of the Indian market. "IKEA works very closely with us; others only want the delivery of goods. It is a relationship of trust that we have built over all these years," Nath said. In fact, trust is crucial to maintaining confidentiality for its product designs and processes. It is not the case that ALC hasn't received an offer from a competitor to share IKEA's products. This is why if any piece does not match the quality standards, it is either sent for rework or completely scrapped. Therefore, there are no rejects available. Also, if any of its other clients schedules a visit to its factories, the IKEA production line is shut for that time."
Trident's Markanday points to 'IWAY', a concept floated by IKEA. "We have an internal policy for protecting intellectual property rights (IPR). We follow ethical standards. So, a particular design is not to be copied and passed on to other consumers," he says. The retention rate at Trident, which exports 450-550 tonnes of solid and striped towels a month to IKEA, is about 95 per cent (in terms of customers). This, Markanday says, testifies to IPR protection.
The supplier's association with IKEA started seven years ago, and its supplies to the Swedish chain account for eight to nine per cent of its overall sales. "Our code of conduct, IWAY, covers working and social conditions, as well as the environment, with special focus on forestry," says an IKEA executive says. Explaining how working with IKEA is different, ALC's Nath says the furnishing major is concerned with volumes, with about 300 stock keeping units; other companies ALC supplies to order in batches.
However, there is another difference: "IKEA does not do anything for the short term. So, we can both take a long-term view of the market." The company is set to foray into LED lights, to go along with the lamp shades it already makes. ALC is also setting up a paper factory to ensure it doesn't have to source this from Thailand.
For IKEA suppliers, there have been several hiccups, too. Recalling the company's initial engagement with the retail chain, Markanday says IKEA had asked Trident to rectify things. "Over the years, our relationship matured." Nevertheless, IKEA continues to do regular audits "to ensure that we are following the parameters laid down by it", he says.
Perhaps it is these strict guidelines that lead to suppliers optimising operations. Trident has set up an in-house custom clearance system, through which containers meant for export are sealed at the premises. This saves time and reduces "unnecessary formalities".
SUPPLY LIST
- 90% of Associated Lighting Company (ALC)'s consumer business is made up of supplies to IKEA
- 8-9% of Trident's total sales are to the Swedish chain
- Women comprise 60% workforce at ALC, 30% at Trident
- 7 million units a year made by ALC for IKEA, 450 tonnes to 550 tonnes a month made by Trident
- ALC has worked with IKEA for 18 years, Trident seven years
- Other chains buying from ALC include K-Mart, Home Depot, Coop, while Trident's clients are Walmart, Target, JC Penney, Sears, Ralph Lauren, Calvin Klein etc