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H&M Supply Chain

Roxane Bickersteth - Julia Chang - Marine Chelles - Candice Ducousso - Marie Gleyze - Magali Jubilado - Soraya E-Raymond - Supply Chain 3
by

Marie Gleyze

on 2 October 2015

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Transcript of H&M Supply Chain

Supply Chain
Distribution
Manufacturing
Online
Introduction
Retail
The fashion industry sector is dynamic, characterized by short product life cycles, high product variety, low predictability, relatively low margins and high levels of impulse purchasing (Masson et al, 2007)
Supply chain management is recognized as a major source of competitive advantage in the fast fashion industry where H&M was the initiator
‘We ensure the best price, by having few middlemen, buying large volumes, having extensive experience of the clothing industry, having a great knowledge of which goods should be bought from which markets, having efficient distribution systems, and being cost-conscious at every stage’
Multinational retail clothing company established in 1947 in Sweden
3,675 stores in 59 countries with 132 000 employees
Product portfolio: Womenswear, Menswear, Childrenswear, Footwear, Cosmetics, Accessories, Home furnishing
Target market: Fashionable, very up to date. Urban population. Women 15-40 years old, babies, kids, teens, college to graduate social status but the most popular segment is female aged 20-27
H&M’s growth target to increase by 15% the number of stores per year (H&M annual report, 2015)
Incorporates green practices into
their supply chain
In order to facilitate the collaboration between the suppliers and H&M, they use
Vendor Management inventory (VMI)
with Electronic Data Interchange (EDI) which helps manage level of stocks, specify their deliveries quantities and avoid out of stock.

EDi is also used for machines controlling, duties customs, transport documents to avoid paper and also automate data process.

They also use
CPFR (Collaborative Planning, Forecasting and Replenishment)
to improve their supply chain with a collaboration of sales forecasts and plannings.


Technology
Design
Quality
All suppliers need to sign a
Code of conduct
that states that H&M quality employees can visit suppliers unexpectedly to verify compliance criteria.

Each year, 500 000 tests are realized on H&M clothes to check the level of quality.
H&M products come from
100 designers
in Stockholm who work with
50 pattern designers
, around
100 buyers
and budget controllers.
Use of fashion trend forecast services such as
Worth Global Styles Network
(WGSN)
The department’s task is to find the optimum balance between
fashion, price and quality
The design process is happening
a year in advance
Seasonless cycles
Design process driven by a long-term planning for the collections and a design response in real time, taking into account a customer-driven production strategy

H&M has managed to
reduce the average lead time
by 15-20% in the buying process with
technology integration
to facilitate internal communication between the different stages.

Flexibility and short lead times permit to restock quickly and to avoid wrong purchases.

The size of the stores, their location have an
impact
on how the product range is distributed. H&M tries to have approximately the
same arrangement
in any of the stores to help the customer have landmarks, feel comfortable and find the products easily in any stores.

In general
H&M
doesn't own any factories
, but work with
900 suppliers
in Europe and Asia.
1600 factories

owned/ subcontracted by H&M’s suppliers
20 production offices
around the world (2013) - coordinating the suppliers responsible for producing 1/2 billion items a year

--> The relationship between the production offices and the suppliers is essential:
- Offices = main point of contact between local suppliers and H&M
- Fabrics can be bought in early; handle practical aspects of the products

Average supply lead times: 3 weeks - 6 months
Key aspect: use these suppliers relations to optimize time to order each item

Some high-volume fashion basics require to be ordered far in advance, while trendier garments require much shorter lead
times in order to be launched on the market -->
flexibility
Sustainable practices 1/2
Sustainable practices 2/2
CSR has raised awareness on sustainable practices in the fashion industry. H&M has led some initiatives to reduce the impacts of manufacturing its garments.

Better Cotton Initiative
Global project that provides better farming techniques to cotton farmers
- reduces water and chemicals
- preserves the soil and natural habitats
- promotes good working conditions on the farmers' land


WWF partnership
Improving the management of water resources throughout the textile production cycle

Organic cotton
Uses organic cotton:
- quality
- versatility
- safety (no pesticides)
Invested on sustainable cotton production
→ organic fabric is certified by Global Organic Textile Standard (GOTS)


Recycled material
- saves energy and water
- lowers greenhouse gaz emissions
- certified by Global Recycling Standard (GRS)

20,000 tonnes of garments collected for re-use and recycling since 2013

Some have been turned into brand new clothing, most recently into some denim pieces currently in stores (H&M annual report, 2015)
Designer collaboration
Boundary between
high street
and
fashion
has blurred
Collaborations are
exclusive
limited edition of clothes
A new way to
attract customers
and work efficiently thanks to the supply chain system on the background
2004: Karl Lagarfiel '
Why do I work for H&M? Because I believe in inexpensive clothes, not “cheap” clothes'
2007: Madonna, Roberto Cavalli
2009: Matthew Williamson, Jimmy Choo, Sonia Rykiel
2010: La maison Lanvin
2013: Beyoncé "Mrs. Carter in H&M"
Where?
Very new and is available in France since 2014.
In 2015 the brand opened its online store in 7 new countries, making it available in 21 countries.
For autumn 2015 it’s planning on opening it in Switzerland and Russia.
In 2016 they plan on developing their e-commerce in Ireland, Japan, Greece, Croatia, Slovenia, Estonia, Latvia, Lithuania and Luxembourg.
HOW?
Decentralization of the delivery process of online orders in order to save costs and gain in flexibility.
In France its partner is Mondial Relay.
H&M is still responsible for preparing the orders from their clients but it’s its partner that organizes the deliveries and the returns to H&M warehouse.
Cost and time of delivery
Transportation
The physical distribution from the production country is subcontracted.

A large part of the flow of goods transits via H&M terminal in Hamburg.

At the terminal the goods are
inspected
and allocated to the stores or the centralized store stockroom.  

The centralized store stockroom, replenishes stores on item level according to what is selling

These distribution centres are in some cases supporting the stores in a geographic region consisting of several sales countries. The individual stores cannot have backup stocks; they are replenished as required from
central stockrooms
.


For H&M the price of delivery is 3,95€ and returns cost 0,95€.
H&M faces some challenges with its online shops.
In France for example, when the online shop was launched, some products were never delivered.
Unlike most of its competitors, H&M refuses returns in their shop, they all have to be postal.
Case of France

The transportation is outsourced from the production countries to the port of Hamburg and from this one to the centralized stockroom of Le Bourget.

H&M Logistic GBC France (subsidiary of H&M) organizes the preparation of each stores’ orders and take care of its transportation to the different stores.


Bangladesh = main manufacturing country


monitoring factory compliance
providing training to suppliers and their workers

900 suppliers across 23 countries => local sourcing
(China ->262; Turkey ->194)
reduces the lead time
reduces the amount of product leftovers and carbon emission (production/distribution)



Shipping via sea or rail
more than 80% of the volume
carbon dioxide decreases over 700 tons a year

Training course to the truck drivers
does not use the trucks which have been used for more than 10 years

Reduce their airfreight volumes
except faster deliveries

Intelligent transportation system for direct shipments
an energy and resource management software system

Transport boxes are always reusable

=> greenest possible transportation

Green Distribution
The clothing conscious collection initiative worldwide

Sustainable concept in ethical consumers in retailing
Consumers can return the old apparel products to all H&M stores across 54 countries.

In return, consumers can get a 15% off coupon for their next purchase.

Green Retailing
Conclusion
=> In 2013, customers brought in 3047 tons of used clothing, such as new jeans made of recycled fibers (avoid textile waste)
Revenue
: fund the customer coupons, donate to local charities and reinvest in H&M’s sustainability initiatives

The sales per H&M store are higher in a country with a higher human wellbeing due to higher inventory level in a store
The stores :
- The store location is decided by the Swedish Head Office.
- We can visit two kind of H&M stores, the new ones and the old ones.
- The general atmosphere in store : the commercial campaigns lead the general atmosphere in the store. The Commercial handbook is used by the visual merchandisers of each department to create the store environment.
-The overall aim is to
‘create a comfortable and inspiring atmosphere in the store that makes it simple for customers to find what they want and to feel at home’.
The products delivery :
- The product replenishment is interlocked by the tills action : each time a product is sold, it is automatically order to the Merchandising Department.

-The H&M stores are delivered every day by truck, and processed in two times : the stock replenishment and the new products.
Delivery processing :
The delivery is processed by department and is split up in two tasks :
- First in the stockroom : put the safety tags on the clothes and then put the clothes on the hangers.

- Secondly : in store during the same time, employees are putting the clothes on displays.

All the products have to be displayed, the stock is reduced to the minimum.
The golden hanger
A worldwide challenge in order to improve the logistics in store.

Management of the products from the arrival of the products in the stockroom to the hand of the customers.

Main objectives : Involve all the employees and train them to automatically reduce wastes in term of time and energy.
H&M's supply chain success is based on its experience in the fast fashion industry coupled with the use of few intermediaries, big quantities and an efficient green distribution approach.
References
Battaglia, M.; Testa, F.; Bianchi, L.; Iraldo, F.; Frey, M. Corporate social responsibility and competitiveness within SMEs of the fashion industry: Evidence from Italy and France. Sustainability 2014, 6, 872–893
Behind H&M’s fashion forward retail inventory control, accessed September 23rd 2015
https://www.tradegecko.com/blog/hm-retail-inventory-control

Competing in volatile markets through analysis of agile supply chain – Case of H&M, accessed September 23rd 2015
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Company Stakeholder Responsibility, Magnus Linderström , 2012
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CSR within Large Retailers International Supply Chains, Fabio Musso, Mario Risso, 2006
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From idea to store: logistics and distribution, accessed September 23rd 2015
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H&M website http://about.hm.com/fr/About/sustainability/hm-conscious/value-chain.html#cm-menu
http://about.hm.com/fr/About/sustainability/hm-conscious/value-chain.html#cm-menu
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Li, Y.; Zhao, X.; Shi, D.; Li, X. Governance of sustainable supply chains in the fast fashion industry. Eur. Manag. J. 2014, 32, 823–836
Our supplier factories list, accessed September 24th 2015 http://sustainability.hm.com/en/sustainability/downloads-resources/resources/supplier-list.html
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Shen, B.; Chow, P.S.; Choi, T.M. Supply chain contracts in fashion department stores: 
Coordination and risk analysis.            
Shen, B.; Zheng, J.; Chow, P.; Chow, K. Perception of fashion sustainability in online community. J. Text. Inst. 2014, 105, 971–979   
Slack et al(2013) « operations management » 7th ed Pearsonhttp://www.staffs.ac.uk/schools/business/resits/postgrad/InternationalSupplyChainMgmtHandMCaseStudy.pdf
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The International Fashion Supply Chain and Corporate Social Responsibility, accessed September 23rd 2015
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TUNGATE Mark - Le monde de la mode: Stratégies (et dessous) des grandes marques – Edition Dunod – from page 46
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