Case Study Abstract
The focus of this case study is the supply chain of fast-fashion giant, H&M. H&M – the world’s third-largest retailer by sales – has grown into a profitable force in the global apparel market by offering clothing that is seen as both fashionable and reasonably priced. This case discusses the supply chain management practices of H&M and how it responds quickly to changing fashion trends by renewing its lines. H&M’s logistics, inventory management process, design collaborations, sales channels, online branding and best price strategy are briefly covered.
Table of Contents
- Introduction – Fast Fashion and Supply Chain Management
- Background Note
- H&M Quick Facts
- Elements of H&M’s Innovative Supply Chain
- Double Supply Chain
- H&M’s Three Sales Channels
- Efficient Central Distribution Center
- H&M’s Best Price Strategy
- H&M’s rapid reaction supply chain – Flexible Purchasing and the ICT platform
- Branding online and the Virtual retail experience
- Design Collaborations
- ‘The shock of the new’ every day – Building a continuous consumer supply chain
- Exhibit I: H&M’s Growth (1974 – 2007)
- Exhibit II: H&M’s Global Expansion
- H&M Timeline
- H&M’s Financial Performance Summary (Revenue and Net Income)
- Exhibit VI: Comparison with major global specialty clothing retailers
- H&M: Sales Graph by country, 2007
- H&M: Store Locations, 2007
- H&M: Sales by Country, 2007
- Questions for Discussion
Case Study Keywords: Hennes and Mauritz, H&M, Supply Chain Management, SCM, Erling Persson, rapid-reaction, Madonna and Kylie Minogue, Rei Kawakubo, founder of the Comme des Garcons fashion chain, Zara, Gap, Apparel Retailing Case Study, Logistics and Distribution, IT enabled supply chain, supply chain integration, information sharing, inventory management, fast fashion, continuous consumer supply chain, best price strategy, major global specialty clothing retailers, Design Collaborations, sales channels
Case Questions for Discussion
- In the past, apparel pipelines in the fashion industry have infamously been long, complex and inflexible. How did H&M improve its buying cycle and responsiveness of its supply chain?
- “In modern retailing it is the supply chains that compete rather than companies.” Support this statement using examples from H&M’s supply chain and business model.
- Which of the following do you think is the driver of fast fashion that has a distinct impact on the supply chain – the Manufacturer, the Retailer or Consumer Demand?
- Reduced time to market – Photos of fashion shows are available online immediately after a show. This has enabled fast-fashion retailers like Topshop and H&M to cut the time span between catwalk and store. Designs of luxury brands can be interpreted to the general public quicker than before. Earlier, it took months for retailers to interpret designs by luxury labels for the general public. Many designers feel that this has led to shoppers desiring for frequent refreshing of stock.
- Total Stores & Expansion: As of Aug. 31 2011, H&M had 2,325 stores. H&M plans to expand in China, the U.K., U.S. and Germany. (Update: Feb 24, 2012 – H&M has 2, 500 stores in 43 countries with revenues of around $19 billion. It has approx. 94,000 employees. H&M sources 75% of its products from Asia.
- H&M Top Management: In 2009, at the age of 34, Karl-Johan Persson took over as CEO from father. His father became the Chairman of the company.
Fashion isn't just all about dressing up and H&M's supply chain procedures are a testament to that. Globally recognised for being a successful and expansive retail giant in terms of market and financial prosperity, H&M's supply chain strategy is a continuous search for promising markets, cost-efficiency in production of goods, and reduction in lead times for their retail inventory.
H&M, which ranks number three on Gartner's Supply Chain Top 15, is the world's second-largest clothing retailer. This is certainly no easy feat for a company that has 950 stores in 19 countries, AND raked in a whopping turnover of 14.6 billion Euros in 2013. With such staggering figures, one can only wonder how the retail giant manages to successfully stay afloat and ensure adequate stock control for its fleet of stores.
The organisation's reliance on efficient and integrated systems for retail inventory management in the major components of its supply chain, has played a huge part in enabling success in its stock control management and a well-earned placing in the Gartner list. Lets take a look.
Design & Production
H&M is famous for offering chic, trendy styles with rapid turnarounds - an epitome of the widely acknowledged and appropriately named phenomenon that is 'fast fashion'. However, Van den Bosch, H&M's fashion oracle and head designer for the last 20 years, believes that the frivolous term does not do justice to the complex design process that is heralded by her team of 100 designers who meticulously curate and coordinate each collection more than a year in advance!
This mammoth feat of designing and producing collections season after season is achieved via H&M's two-fold design process. It involves not only long-term planning of collections, but also a real-time design response that stems from a customer-driven production strategy.
"The design team is very important to us and all our designers are very well-educated," says Bosch. What comprises of this fashionable A-team you ask? Well, its designers come from all over the globe; From Holland, South Africa to Japan. The entire team works from H&M's design center in Stockholm, popularly known as the "white room". It does not stop there however. The team works closely with a mind-boggling number of services to produce its range of apparel - 60 pattern makers, 700 suppliers and 20 worldwide production centers to be exact.
Indeed, the production rate of H&M's retail inventory is elevated by its heavy dependence on outsourcing from design to production. Although H&M’s core operation relies on its designers, creative directors, and pattern makers to stay on top of the latest trends, it also uses the services of fashion trend forecast companies such as Worth Global Styles Network (WGSN). As a fast-moving retailer, it takes on an innovative direction in determining consumer interests through both traditional analysis and experimental augmented-reality technologies.
With customer-driven reports of future trends in hand, H&M creates collections that strike a good balance between latest trends and the basics. Street fashion, haute couture, trends from the '50s and clean lines from the '60s are examples of a few recent avenues of inspiration for the H&M team as well. "We get inspiration from everywhere, but the most important thing is to make it your own way," says Van den Bosch. However, while the brand is international in its persona, it certainly holds the Scandinavian trait of being democratic and practical.
And democratic it is in terms of price tags. With H&M's range of baby-doll dresses, printed silk blouses with fashionable leggings, and drainpipe jeans available at uniform, egalitarian prices. What's behind the brand's economical prices? That's where its manufacturing game plan comes in.
H&M manufactures 80% of its retail inventory in advance and introduces the remaining 20% based on the most current market trends. The retail giant's ability to offer affordably priced apparel is largely due to its strong supplier relationships and its manufacturing strategies to reduce lead times.
The most admirable characteristic of H&M is its ability to collaborate efficiently with its partners. Not having any factories of its own, it utilises over 700 partner companies in more than 20 countries, relying on a network of external suppliers to manage its buying and production. H&M purchases garments from around 750 suppliers, with 60% of production taking place in Asia and the remainder mainly in Europe.
H&M fosters close and effective engagement with its partners by strategically locating 30 production oversight offices as a mediating function and to enable easier contact with the partner companies on the latest fashion trends and the internal matters of the company. This helps to ensure the goods are produced at the accurate quality and price and that the suppliers abide to the company's code of conduct. These production offices play a significant role in checking and testing sample garments.
The company relies on IT integration between the central national office and the production offices. Communication between the various departments takes place electronically, especially in regards to design and product development. This is crucial especially because the fashion giant does not own factories and does not secure fabrics in advance. Instead, its partners secure fabrics on behalf of H&M. With an efficient IT communication infrastructure in place, the company simply has to place an order with one of its partner companies in the region that already have the necessary fabrics.
With these manufacturing operations in their supply chain, H&M has managed to reduce the average lead time by 15-20% through their continuous developments in the buying process. Flexibility and short lead times have reduced the risk of buying the wrong items and allowed H&M stores to restock quickly with the best selling products at affordable prices.
So, there you have it! A brief but hopefully, very insightful tour of the strategic backend processes of one of the world's biggest fashion retailers. If you're ever planning to conquer the fashion retail industry (or perhaps just setting up a cosy retail e-commerce store), it might do you good to follow in the footsteps of the influential H&M.
Are E-commerce Businesses Turning Into Logistics Companies? – An Interview With RedMart’s CEO On The Operations Backend
Incredibly Successful Supply Chain Management: How Does Walmart Do it?
IKEA’s Inventory Management Strategy: How Does IKEA Do It?
Image Credits: 1 | 2 | 3
References: 1 | 2 | 3