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Supply Chain Optimization at Hugo Boss
Transcript of Supply Chain Optimization at Hugo Boss
1. Hugo Boss overview & Structure
2.1 SCOR Model & its use
2.2 Pilot incentives and results.
4. Conclusions & Recommendations
Luxury fashion brand that has been out in the market for more than 90 years
Global brand spanned more than 100 countries with more than 5,500 retail points of sale
Diversified company, producing high-quality men’s and women’s fashion apparel, shoes, and accessories
Pursue product leadership, market intimacy and operational excellence
HUGO BOSS SCOR MODEL
Inventory optimization :
Maintaining the anticipation inventory prior to the periods of the forecasted increase in demand
Understanfding customers' buying patters.
Fashion SKUs : induce clients in buying the products immediately
two distinct brands, Hugo and Boss
five subsidiary lines – Hugo Boss Black, Boss Green, Boss Orange, and Boss Selection
further segmented by replenishment type
The supply chain operations reference model (SCOR) is a management tool used to address, improve, and communicate supply chain management decisions within a company and with suppliers and customers of a company.
The model describes the business processes required to satisfy a customer’s demands
We use this model to help us explain the processes along the entire supply chain of the NOS products prior to the pilot with the information provided in the case study.
Pilot consisted in changing the order frequency, in which inventory planners ordered from the contract manufacturers, from monthly to weekly for a subset of bodywear NOS items.
This subset entailed 45 similar SKUs within the Black Brand, and was produced in a single factory owned by Delta Galil.
This subset accounted for 16% of the division’s sales in 2004.
➢ The change in order frequency allowed 4 week reduction in total lead time.
➢ The SCO allowed production planners to readjust their forecasts on a weekly basis ensuring that current production schedules accurately reflected observed change in demand.
➢ The average on-hand inventory increased by 16%, from 41,697 to 48,372 units for the piloted NOS SKUs. Consequently, the management intended to maintain on-hand inventory levels close to 2 months of forecasted demand.
➢ Product availability increased from a weekly average of 97,9% to 99,9%.
➢ Inbound transportation costs reduced by 9%, to 0,29 euro per item shipped. More frequent ordering meant smaller shipment quantities, allowed the division to utilize a single, twenty foot shipping container.
➢ Sales went up by 31%, from a weekly average of 3,107 to 4,065 units.
➢ Improved warehouse operations performance: fewer instances of inventory obsolescence and a reduction in billable hours for warehouse staff due to the smaller, more frequent and more predictable deliveries.
➢ Improved sales operations performance : sales managers said to sell more easily.
• Could the SCO initiative broadly applied enable Hugo Boss to improve its already excellent performance?
• Or, did the increased costs outstrip benefits? In this case, how much, if any, credit could operations take for the observed change in sales?
To answer the above questions and drive the conclusion of whether the SCO initiative should be extended, planners should observe three elements, which are inventory levels, sales and product availability.
These elements should be observed in relation to each other, as the operational excellence can be achieved only if the balance is maintained between all of them.
The optimal safety and cycle is determined by two factors, that are the supply lead time and the predictable demand for a specific time period.
The supply lead time :
NOSs - 10,5 weeks . Easily planned, prodicts are repetedly produced & do not involve any complex steps in production process or unexpected raw materials requirements (batch manufacturing process )
SKUs fashion items - rather unpredictable variable.
The production time varies on the complexity of the items produce ( jobbing manufacturing process)
The demand is also different for the different groups of products, that is reflected in the sales numbers.
NOSs items represented 70% of all the products, and had the highest proportion of sales: in 2006 – 85% of all the items sold. Other fashion SKUs items represented the rest 30%, and in 2006 they accounted for only 15% of sales.
The extension of the pilot for the other fashion SKUs products that are low in demand and thus relatively rare pulled by the retail orders, would lead to the additional inventory levels - > it would be a constraint to production planners objective to have the lowest inventory to the sales level.
The forecasting of the demand for the fashion items also cannot be predicted, as it depends on the consumer behavior, which at the same time is determined by the customers’ preferences that are also variable from one collection to another.
Inventory provides customer service in the form of product availability at the right time and place.
The production planners cannot expect to achieve 99, 9 % of product availability for the other fashion SKUs items.
There are numerous difficulties that could arise within a supply chain: fabric, yarn – other raw materials problems, custom delays, delayed production orders, transportation delays, inaccurate sales forecasting, inaccurate production planning, and unanticipated demand.
By committing and achieving high service level, or product availability, on a consistent basis, Hugo Boss is freeing its retail customers from having to carry insurance brands
Consequently, by being a reliable partner to retailers, Hugo Boss is granted additional shelf space, and this helps the company to achieve brand dominance.
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Slack N., Chambers S., Johnston R. (2010). Operations Management. 6th Edition. Pearson.
Copacino W. (1997). Supply Chain Management : The Basics and Beyond. St. Lucie Press Series on Resource Management
Supply Chain Council (2013). Supply Chain Optimization Reference Model. Source : https://supply-chain.org/scor [Accessed on November 25th]
Raman A., Dehoratius N., Kanji Z (2009). Supply Chain Optimization at Hugo Boss. Case Study. Harvard Business School.