Cost tables
As seen in the case, IKEA takes purchasing decisions seriously. Before suppliers are engaged,
IKEA does an analysis of the suppliers to evaluate their competency for the different geographic
locations. Information is obtained from the suppliers regarding prices and specifications of the
raw materials per the required specifications. Cost estimation provides support base for the
feasibility, cost effectiveness profitability of a given production (Jha,1996).
Estimation of costs at design phase offers opportunities to optimise the product design as well as
feedback to improve the design for the most profitable product hence enhancing competitiveness
(Salmi, et al., 2016). He further argues that cost estimation at the early phase of the product is
challenging. However, this is not the case for as IKEA has managed to build strong relationships
and is actively involved with its suppliers and these are more than willing to share information
on the pricing of the different components that need to be done for an understanding of the costs.
From the information obtained, IKEA is able to analyse the different costs, identify unnecessary
deviations made by the suppliers and venture into different alternatives to further reduce the
costs of possible. However, given that IKEA engages 67 frame suppliers, the case does not state
the costing methods used by these suppliers. For example, in the costing of overheads one can
either decide to use absorption costing or activity based costing. Even though in most cases
IKEA may be the supplier’s primary client, it may be difficult to convince all the suppliers so as
to standardise their computations.