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LEILA DE SANTIAGO MUÑOZ MBA-SCM MAY 18th, 2015 JESÚS NIETO GONZÁLEZ H&M SUPPLY CHAIN MANAGEMENT 1 LEILA DE SANTIAGO MUÑOZ MBA-SCM MAY 18th, 2015 JESÚS NIETO GONZÁLEZ H&M “Our strategy is based on the concept of fashion and quality at the best price, it helps us stay balanced even during econ...

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SUPPLY CHAIN MANAGEMENT H&MvsZARA JESUS NIETO

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

SUPPLY CHAIN MANAGEMENT

1

LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

“Our strategy is based on the concept of fashion and quality at the best price, it helps us stay balanced even during economic downturns.” - H&M Chief Executive Rolf Eriksen. “But there’s huge potential to make the new businesses more efficient and expand internationally by having access to H&M's sourcing and logistics.” - Nils Vinge, H&M's head of investor relations. "Our business concept is really what attracts the H&M customer: Fashion and quality at the best price. Because we do carry all these different lines in our stores, we allow our customer to address [his or her] personality, and that's really important. You can come into H&M, and if you want a pair of jeans or a pair of khakis, you can find them. If you want a trendy little one-shoulder top or something lacy or something hip, you a find it, you don't have to go to another store. It's like one-stop shopping, and that's very appealing." - Karen Belva, H&M’s PR manager and spokesperson in 2002

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

0. INDEX 0. 1.

Preamble

05

Company strategy and the SCM

08

a. What is the roll of the SCM in the company overall strategy? b. What is the company value proposition to customers? c. How is the Supply Chain Management helping this value proposition? d. How is the company managing the uncertainty in demand? (Bullwhip effect)

2.

SCOR Model

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Analyze the SCM of the selected company using the SCOR model. Analyze how the company is implementing/managing the 5 main activities of the SCOR model in two levels: strategic and tactical level: • Plan • Source • Make • Deliver • Return

3.

Supply Chain Management – Planning

13

a. Describe in detail how the company is planning the SCM starting with the demand planning. b. Describe how the planning activities are shared with customers and suppliers. c. Describe the four three planning activities: i. Planning the manufacturing ii. Planning the materials (MRP) – supplier/purchasing planning iii. Planning the distribution – to the customer d. Give your own opinion about what the company is doing well and what should be refined/improved in the planning area.

4.

SCM – Sourcing

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a. Describe the strategic sourcing approach of the selected company b. Describe the supplier selection/development/collaboration processes c. Give your own opinion about what the company is doing well and what should be refined/improved in the sourcing area.

5.

SCM – Transport management

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a. Describe the transportation network used by the company b. Describe the transportation management practices c. How the company could improve the main KPIs: service and cost, from the transportation side?

6.

SCM – Customer services

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a. Describe how the company manage the Customer Experience b. How the company measured and take into account the customer feedback? c. Give your own opinion about what the company is doing well and what should be refined/improved in the customer service area.

7.

SCM – Inventory and warehouse management

29

a. What is the warehouse facility structure of the company? b. What roll plays the inventory in the company strategy? c. What are the main KPIs in the inventory/warehousing management activities? d. Give your own opinion about what the company is doing well and what should be refined/improved in the inventory management area.

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ 8.

SCM – Technology usage

MBA-SCM

MAY 18th, 2015 H&M 32

a. Make a recap of the main technologies used by the company in the several areas of the SCM and how this technology is used to achieve a competitive advantage. b. How is H&M using the ICT to achieve a competitive advantage?

9.

Bibliography

34

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

00.PREAMBLE – BUSINESS CANVAS MODEL: a)

Fast fashion and SUPPLY CHAIN MANAGEMENT:

In 2007, retailers around the world cut prices and closed stores with the credit crisis in full swing. Inconsistency in fashion brought down many a clothing store, but Swedish fast fashion giant Hennes & Mauritz (H&M) took advantage of this very quality. H&M’s 2007 annual report began with a statement that the year was the company’s most exciting year to date. It was also the year of H&M’s 60th birthday. H&M, the pioneer of cheap but chic fashion managed to buck the trend. H&M saw the economic slowdown as an opportunity to expand. In 2007, H&M opened 193 new stores and it topped $12 billion in sales. During the year, H&M opened new stores1, entered into new markets2, offered its customer’s new range (expanded footwear collection for women), and even set up a completely new store chain3. H&M continued with the expansion of its Internet and catalogue sales channels outside the Nordic region. Collaborations with Italian designer Roberto Cavalli, style icon Madonna5 and superstar Kylie Minogue6 also did well. How did H&M manage to succeed in what many reckon is the toughest trading conditions in decades? Since 1947 (when it set up its first store in Sweden) to 2007 (with its move into Asia) the key to H&M's success has been its supply chain. 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. H&M responds quickly to changing fashion trends by renewing its lines. This rapid lead time has led to it being called the "follower of fashion" or the “king of fast fashion” by many. The company has an unrelenting focus on costs that stretches from the company's products to its business model. The average sale prices of H&M products are lower than those of its main competitors Spain's Zara and the Gap which helps it to increase market share in the current downturn even as consumers trade down in search of better value. H&M may face tougher times ahead as competition (that are following in its footsteps) grows and as it tries to regain its place from Zara as Europe's largest clothing retailer. The challenge for H&M is to sustain its supply chain advantage, regardless of what happens to the economy.

b)

Background note:

H&M was founded in 1947 by Erling Persson, a salesman from Västerås - a small town in Sweden. He began his career working for his father delivering cheese to restaurants in Stockholm on a bicycle. He was fascinated by the concept of clothes stores selling trendy garments at cheap prices when he once visited the U.S. He was amazed at the success of retailers like Macy's in New York. He opened a similar store in Västerås selling clothes for women. He named the store 'Hennes' which stood for ‘hers’ in Swedish. Customers were instantly attracted to the low prices. Until then overpriced department stores dominated the Swedish market. He expanded the number of stores in Sweden in the coming years. In 1964, the company opened a store overseas in Norway. In 1967, the company expanded further and opened a store in Denmark. The following year (in 1968), Persson acquired Stockholm-based Mauritz Widfross. The store also sold hunting guns and gears in addition to men's clothing. Hennes transformed into Hennes & Mauritz. Persson kept the Mauritz' menswear line and started selling both men and women's wear. In 1974, H&M went public on the Stockholm exchange. In 1976, H&M entered UK. At the time, jeans became the trend in Europe and H&M launched jeans within two days of it being shown on television. H&M's sales doubled in the four years between 1994 and 1998. H&M entered the U.S. in March 2000 when it opened a New York store. Many major U.S. cities boast at least one H&M. 5

LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

Today, H&M is the world's third-largest retailer by sales with around 1,600 stores in 32 countries with 68,000 employees. In the past two decades, H&M grew at an average rate of 20% annually. It managed to grow quickly into the world's third largest clothing retailer by offering clothing that is seen as both fashionable and reasonably priced. It made its mark on the apparel industry, mixing the latest trends with fashion classics. H&M is popularly known as the king of "fast fashion"7 and the purveyor of quick-to market trendy clothing. In 2000, H&M grossed US$3.4 billion. In 2007, H&M opened 193 new stores and it topped $12 billion in sales. H&M is the world's fifth-largest apparel-only retailer by revenue, according to Bloomberg research. In April 2008, H&M was named as the continent’s most valuable brand, beating rival Zara and British chain Marks and Spencer by brand consultants Interbrand in their first ever rankings of European retailers. H&M’s brand value was €10.37bn while the Zara brand was valued at €4.1bn.

H&M Quick Facts Source: www.hm.com

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

b)

MBA-SCM

MAY 18th, 2015 H&M

Business Canvas Model from H&M:

H&M BUSINESS CANVAS MODEL Source: own

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

01.COMPANY STRATEGY AND THE SCM: a.

What is the roll of the SCM in the company overall strategy?

The key to H&M's success has been its double integrated supply chain. 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. H&M responds quickly to changing fashion trends by renewing its lines. This rapid lead time has led to it being called the "follower of fashion" or the “king of fast fashion” by many. The company has an unrelenting focus on costs that stretches from the company's products to its business model. The average sale prices of H&M products are lower than those of its main competitors Spain's Zara and the Gap which helps it to increase market share in the current downturn even as consumers trade down in search of better value.

Double integrated SCM Source: www.casestudyinc.com

Entering new markets, H&M tries carefully studying by examining economic situation in the region, what are city's best places to start the promotion of the network, where and how best to sell, what are the trends, especially in the regulatory framework. Sometimes learning opportunities and risks require a few years however it is compensated by high profits and loyal customers. In addition to this strategy, H&M uses some more interesting approaches, allowing it to maintain market leadership. • • • •

The widest range of fashionable clothes at affordable prices. H & M uses the minimum number of intermediaries, large volumes of purchases and invites best designers, fashion experts and tissues. Cooperation with the stars of fashion and show business. H&M has worked with Madonna, Roberto Cavalli, Karl Lagerfeld, Stella McCartney, Kylie Minogue, the Dutch designer duo Victor & Rolf. Distribution of tasks between departments in different countries. Swedish H&M office is primarily responsible for the marketing, advertising and design company and the office in Asia is mainly controlling a work cooperation with the manufacturers. Marketing channels. The most important distribution channels for H&M are stores. Annually their number is increased by 10-15%. In addition to shops, the company sells through catalogues and the Internet in Sweden, Norway, Denmark, Finland, the Netherlands, Germany and Austria.

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ • •

•

MBA-SCM

MAY 18th, 2015 H&M

Efficiency tailoring. The company is constantly reducing costs, minimizes production costs, and seeks to reduce the number of intermediaries. Store location is the key to expansion. H&M prefers not to open a store until having an optimum space for that area. To create a boutique, the company conducts surveys of passers-by on the street, exploring nearby shops and traffic and correlates this information. The most important thing in each case is to choose the correct format. Growth of employees with the company. In H&M, 76% of management positions are held by women most of whom grew up in the company. The company employs the principle of job rotation. Thus, the key strategic goal of H&M is to increase the number of stores by 10-15% per year, while increasing sales on a comparable basis. The growth which will be fully self-financing and keep the focus on quality and high yield. For "five years" from 2004 to 2009, the company's sales including VAT increased by 88% and profit after tax by 125%.

b.

What is the company value proposition to customers?

H&M propose give best services to the consumers in terms of fa-shion and quality, near to the market, customizing the products, better outsourcing, low price, location of the stores and by giving flexibility for choosing right products. H&M first priority is by delivering quality products to its customers, not quantity. How can achieve Fashion products- H&M is very keen about delivering high fashion products to its consumers. Every year H&M hire many celebrities and designers to market their products in a different way as compared to its competitors. Different means that hiring top celebrities. Some of the designers are in contract with H&M like Sonia Rykiel, who is top French designer. The policy of H&M is selling products at cheap price with good quality. How can achieve the good quality- H&M order undergoes a variety of tests before it reaches the store. For example shrinkage, twisting, colour-fastness and pilling tests as well as chemical and product safety testing like flammability. Around 500,000 laboratory tests are carried out annually by H&M, our suppliers, and independent third-party test institutes. The H&M Global Quality Department sets standards and requirements for all products and brands within the H&M group, based on customer expectations, health and environmental concerns, product safety and legislation. All H&M suppliers are contractually bound to comply with these requirements. Demands are particularly high when it comes to baby and children’s products, and H&M has long been a driving force within the standardization of the safety of children’s wear.

c.

How is the Supply Chain Management helping this value proposition?

The business concept is to give the customer value by offering fashion and quality at the best prices. H&M strives to ensure the best price by: - having few middlemen, who also buy large volumes; - having a broad, in-depth knowledge of design, fashion and textiles; - buying the right products from the right market; - being cost-conscious at every stage; and - having efficient distribution channels. 9

LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

Good product quality is striven for, to ensure continuous quality controls through its supply chains. In addition to product quality itself, according to H&M quality also means producing the items with minimal impact on the environment and under good working conditions.

d. How is the company managing the uncertainty in demand? (Bullwhip effect) Demand forecasting based on orders received instead of examining end user demand data inherently becomes inaccurate moving up the supply chain. The companies which do not have a direct contact with the end user can lose touch with actual market demand if they view their role as simply filling the orders placed with them by their immediate customers. An effective way to counter the bullwhip effect is to treat the supply chain as a single entity and make it cater to actual product demand. The buffer is determined by the uncertainty in the market demand and service levels required by the market. If forecast data from the Point of Sale (POS) is shared along the entire supply chain, this goes a long way in reducing the uncertainty.

H&M uses the integral focus of QR was to rely heavily on Information Systems to renew processes and create shared practices. A major focus was on improving demand forecasting and reducing stock outs. QR gave the industry a uniform set of barcodes, labels and Electronic Data Exchange messages. This facilitated easier and better information sharing which translates to efficient collaboration between the partners in the supply chain. The process in the apparel industry starts with clothes design, which involves representatives from various business units. Ideas are collected from a variety of sources: trend sniffers, exhibitions, competitors and consumers. In H&M POS data from stores is also used in tracking consumer preferences and demand. When models for new clothes have been agreed, negotiations are started with suppliers to reach agreement on prices, manufacturing volumes and shipping schedules, even though some of the companies have reserved the production capacity already with annual agreements. - Conclusion: Then, there are two parts:

First of all, is the standard garment – this is And in the other hand is the Personalization BASE DEMAND of the garment for attending to the SURGE DEMAND

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

MBA-SCM

MAY 18th, 2015 H&M

02.SCOR MODEL: Analyze the SCM of the selected company using the SCOR model. Analyze how the company is implementing/managing the 5 main activities of the SCOR model in two levels: strategic and tactical level: • Plan • Source • Make • Deliver • Return

The SCOR MODEL of H&M is:

PLAN SOURCE

MAKE

RETURN

STRATEGIC

SC activity/ process -Buy

-Horizontal Integration with the suppliers.

PLAN

-Greater flow of information is needed. -More flexibility -Higher production Costs -“Fashion and Quality at the best price”

DELIVER RETURN

TACTICAL -Supplier: assembling/ transformation

OPERATIONAL Order entry methods, Human resource productivity

-Production office (Asia) Base demand -Hamburg Warehouse & IT Department (Preretail) -Production office (EU) Surge Demand. -Delivery to retail from CALL OFF WAREHOUSE from Hamburg.

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LEILA DE SANTIAGO MUÑOZ JESÚS NIETO GONZÁLEZ

SOURCE

MBA-SCM

- H&M doesn’t own factories. Products are commissioned from around 800 first-tier suppliers.

-Standardization.

-Marketing Offices in Asia and Europe determine the orders and where they are sent.

-Making decision to customize the garments.

-Trend controls -Selling forecasting.

MAY 18th, 2015 H&M -Each 2 until 6 week the suppliers make new products. -Cont...