INTERNATIONAL SUPPLY CHAIN MANAGEMENT – BSB20123-M
Written Examination Stimulus Material Case Study - Hennes & Mauritz
(H&M)
Key facts:
H&M was established in Västerås, Sweden in 1947 by Erling Persson and
sells clothes and cosmetics around the world.
Some brief facts about H&M:
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H&M offers fashion for women, men, teenagers and children
The collections are created centrally by around 100 in-house designers
together with buyers and pattern makers
H&M also sells own-brand cosmetics, accessories and footwear
The stores are refreshed daily with new fashion items
Online shopping is currently available in Sweden, Norway, Denmark,
Finland, the Netherlands, Germany, Austria and the UK
H&M does not own any factories, but instead buys its goods from
around 700 independent suppliers, primarily in Asia and Europe
H&M has about 16 production offices around the world, mainly in Asia
and Europe
H&M employs about 76,000 people worldwide
The turnover in 2009 was SEK 118,697 million
Today H&M operates in 38 countries, with around 2,000 stores and has
76,000 employees all working to the same philosophy: “To bring you
fashion and quality at the best price”
Germany is the biggest market, followed by the UK and Sweden
Organisation:
Corporate management is based at H&M’s head office in Stockholm.
Stockholm is also where the main departments for design and buying,
finance, accounts, expansion, interior design and display, advertising,
communications, IR, HR, logistics, security, IT and CSR and environment are
located.
H&M has 16 country offices that are responsible for the various departments
in each sales country. H&M also has around 16 production offices which take
care of contacts with the approximately 700 independent suppliers that H&M
works with.
H&M’s Business Concept:
H&M’s business concept is to give the customer unbeatable value by offering
fashion and quality at the best price. To be sure they can offer the latest
fashions they have a design and buying department that creates their clothing
collections.
To ensure the best price by:
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having few middlemen
buying 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
having efficient distribution
H&M is driven by strong values such as simplicity, continuous improvement,
team spirit, cost-consciousness and entrepreneurship. H&M’s own designers
interpret fashion trends and create fashions that are accessible to all. The
stores are revitalised daily with new items.
Quality is a central issue, from the idea stage all the way to the end customer.
The quality work includes extensive testing, as well as ensuring that the
goods are produced with the least possible environmental impact and under
good working conditions.
H&M does not own any production factories. Production of goods is
outsourced to independent suppliers, primarily in Asia and Europe, through
H&M’s local production offices. Nor does H&M own any of its stores. Instead
H&M rents store space from international and local landlords.
Product range:
H&M offers a broad and varied range that allows customers to find their own
personal style. The collections are created with H&M’s broad clientele in mind
and the aim is to satisfy many different tastes and requirements.
H&M is aimed at everyone with an interest in fashion. Customers should
always be able to find clothes and accessories at H&M for every occasion.
The collections are extensive and new items come into the stores every day.
Women
The women’s collections are intended for
fashion-minded women of all ages. The
extensive range includes everything from
modern basics to tailored classics,
sportswear, maternity clothes and cuttingedge fashion. The collections are
complemented by matching accessories,
underwear and shoes.
Men
The men’s collections include
everything from timeless
tailored pieces to modern
basics, leisurewear and
seasonal fashions that reflect
the latest trends. Matching
accessories, underwear and
shoes are also included in the
men’s collection.
Children
The children’s range is divided into various
concepts: 0 – 18 months, 1.5 – 8 years, and 9
– 14 years. The collections are intended to be
as fashionable as they are practical, durable,
safe and comfortable.
Divided
H&M’s Divided department
offers fashion with a younger
look. The range includes
denim and street fashions for
all occasions, from everyday
looks to partywear,
complemented by matching
accessories and underwear.
&denim
The jeans concept &denim includes
everything from traditional five-pocket jeans to
trendy fashion jeans. Since 2007, a selection
of denim models in organic cotton has been
available.
Cosmetics
H&M’s cosmetics department provides a wide range of makeup, skin care and
body care products. The range is constantly updated with new colours, scents
and products that reflect contemporary fashions. H&M does not permit animal
testing of its cosmetic products either during the production process or in
finished form. All suppliers must guarantee that their contents, packaging and
labelling meet EU quality and safety requirements.
From idea to store:
H&M creates and plans its collections centrally.
In this work it is incredibly important to understand what customers want –
from the idea, through the creation of a new product to the customer buying it.
H&M’s designers, pattern makers and buyers agree on the trends that will
inspire H&M’s fashion in the coming season and try to find a good balance
between modern basics, current fashions and high fashion. H&M outsources
the production of the items to independent suppliers, mainly in Asia and
Europe.
Millions of items are involved and these are sent out to the stores via a
number of distribution centres. Getting the right item to the right store at the
right time is the key to H&M customers always finding something new and
exciting.
Idea and Design:
H&M’s own designers, pattern makers and buyers create the collections
together. Taking the world as inspiration, styles are identified that are right for
the times and trends are adapted to fashions that work. It is about creating a
good balance between fashion, quality and the best price.
The idea and design work is a continual creative process. To pick up on
forthcoming trends H&M constantly monitors the world around it and draws
inspiration from street fashion, films, travel and other cultures, the media,
trend institutes, trade fairs and exhibitions as well as fashion history. The
overall themes are often planned up to a year in advance, while the very latest
trends are picked up at short notice.
Always with a focus on the customer
H&M’s collections always emerge with the customer in focus. To meet
demand from customers of all ages, each with their own particular style, H&M
offers many different concepts. Trends and influences are adapted to styles
and models that will suit the customers. The themes, colours, fabrics,
silhouettes and garment types are decided in order to create the new
season’s collections.
Planning the range:
H&M builds up its range by putting together a balanced mix of modern basics,
current fashions and high fashion within each concept. A number of different
factors affect the final composition of the range. What sold well last season is
combined with the coming season’s big trends, colours and models. The aim
is that the range should reflect what customers want at all times.
Customer demand in different markets and in different stores determines the
mix of the product range. Once again, the previous season’s sales form a
good guide. The size of the stores, their location and whether it is a city store
or a regional store also have a bearing on how the product range is
distributed.
High fashion garments that are produced in limited quantities, for example,
will be sold only in stores in the big cities. Modern basics – such as jackets,
tops and trousers in a range of colours and in the current season’s cut – are
ordered in larger volumes and distributed to more stores.
Concept teams find the right merchandise mix, which have their own team of
designers, buyers, assistants, pattern makers, a section manager and a
controller. The number of people working on the teams varies depending on
the concept. They are all united by their common interest in fashion and
trends and by their understanding of what customers want. The teams
produce the right mix of merchandise for each concept.
Buying production:
H&M does not own any factories. Instead, clothes and other products are
bought in from around 700 independent suppliers, primarily in Asia and
Europe.
The buying department plans the range, but the practical aspects are then
dealt with by H&M’s production offices. The production offices, where most of
the employees are drawn from the local population, keep in constant contact
with the suppliers.
The production offices are responsible for placing the order with the right
supplier and for the items being produced at the right price, being of good
quality and being delivered at the right time. They also carry out checks to
ensure that production takes place under good working conditions. Ensuring
the safety and quality of the items also takes place at the production offices
and is the result of extensive testing, including checking for shrinkage, twisting
and colourfastness, as well as checking that the chemical requirements have
been met.
The lead time can vary from a couple of weeks up to six months. It is
important to know the right time to order each item. A short lead time is not
necessarily best, since the right lead time is always a matter of getting the
right balance between price, time and quality.
For high-volume fashion basics and children’s wear it is advantageous to
place orders far in advance. Trendier garments in smaller volumes require
considerably shorter lead times.
Buying and production
H&M purchases garments from around 750 suppliers: 60% of production
takes place in Asia and the remainder mainly in Europe. The production
offices have a mediating function between the internal buying department and
external suppliers, ensuring that:
• buyers’ orders are placed with the right supplier,
• the goods are produced at the right price and quality
• the suppliers conform to the company’s code of conduct as for working
conditions.
Production offices also deal with sample garments and other checking and
testing, which is a major factor in reducing lead times. The decision of which
supplier is the right one, is not only a matter of cost-efficiency but also
depends on other factors such as transport times, import quotas and quality
aspects. To minimise risk, buying is carried out on an ongoing basis
throughout the year.
In recent years, H&M has reduced the average lead time by 15-20% through
developments in the buying process. Flexibility and short lead times diminish
the risk of buying the wrong items and allow stores to restock quickly with the
best selling products.
In technical terms, H&M operates with two main collections per year, one in
spring and one in autumn. Within each season, however, there are a number
of sub-collections so that customers can always find new goods in stores. The
aim of the company is to find the optimal time (and supplier) to order each
item. In this context, quick is not always the best – while trendier garments
require very short lead times, many fashion basics or children’s wear may be
ordered well in advance. For goods which are selling well, the company is
able, on average, to get supplementary orders in a few weeks.
Green logistics:
The right product has to arrive at the right place, at the right time and at the
right cost. Logistics is a challenge for every fashion company. In addition H&M
demands the greenest possible transportation, which is in line with the
ongoing ambitious work towards sustainability. One example is that the
airfreight volumes have been halved in just a few years. H&M monitors the
environmental performance of logistic service providers such as shipping lines
and road hauliers.
Goods sent from producers in Asia are transported almost exclusively by
ocean. Within Europe, H&M’s ambition is to increase the share of movements
by rail over road. More than 90 percent of all transports are done via ocean,
rail or road. Air is used only in exceptional cases when faster deliveries are
required.
The merchandise arrives at one of the distribution centres located in the
different sales markets. After unpacking and allocation the garments are
distributed to the stores. These centres are in some cases supporting the
stores in a geographic region consisting of several sales countries. The
individual stores do not have backup stocks; they are replenished as required
from central stockrooms. As soon as a product is sold a request is sent for
replenishment. Every day, the H&M stores receive new goods.
The keywords for H&M logistics are simplicity, reliability and transparency.
Simplicity – logistics must not become too complicated. Reliability – the
fastest is not always the best. Instead H&M prioritises the most reliable and
greenest method. Transparency – information exchange between all links in
the logistical chain.
Stores that inspire:
The store is H&M’s most important place for meeting customers, which is why
the right store design is the be-all and end-all. Guidelines for store design and
display windows are drawn up at Head Office.
The store and its display windows are the most important communication
channel H&M has with its customers, and that’s why their design is so
important. Either every other, or every three years, H&M creates a completely
new interiors programme for a large number of stores. The starting point
comes from a special, new store on an interesting market.
Guidance and inspiration for customers
The interiors programme has to work around different conditions and be
adapted to suit. In this way each store becomes unique. When we set up new
stores we often choose the premises because of its location – not because of
how it looks. The aim is for stores to be inviting and inspiring. They should
appeal to a wide public so that everyone feels comfortable in them, whatever
their background.
The store’s most important task is to create a clear framework for a range that
is constantly changing. The aim is to offer a varied shopping experience
throughout the whole store.
The display window is perhaps the most important part of the store, as it is the
first meeting the customer has with H&M. Displays in the windows and most
important areas are changed every ten to 14 days, all over the world. The
guidelines for the displays in more than 5,000 H&M windows are created in a
large “test store” at Head Office in Stockholm. They need to inspire customers
and emphasise the best of their collections. The clothes should look inviting
and be displayed with accessories and footwear, sometimes combined in a
way that customers themselves wouldn’t have thought of.
The layout of the display windows should suggest an association or a feeling,
without taking focus away from the clothes. The store environment should be
inspiring, but also make it easy for customers to find what they are looking for
easily. That’s why the way that garments are presented is crucial to making it
simple for customers to differentiate between different styles or departments.
Online and catalogue shopping complements the stores
For more than 25 years, H&M customers in Scandinavia have been able to
shop from home through a catalogue, and since 1998 via the internet too. The
strength is the freedom of choice, with customers being able to choose which
sales channel suits them best at the time.
Although the stores are H&M’s main sales channel, catalogue and online
sales strengthen H&M’s profile and increase the service provided to
customers, thereby making H&M even more accessible. In the future,
customers from even more H&M countries will be able to shop via the internet
and catalogue, despite the fact that the most of the expansion is happening
through stores.
Corporate responsibility:
H&M’s business concept is to offer customers fashion and quality at the best
price. At H&M, quality is about more than making sure that products meet or
exceed customers' expectations. It also means that they have to be
manufactured under good conditions and that customers must be satisfied
with the company. Taking responsibility for how operations affect people and
the environment is also an essential prerequisite for H&M's continued
profitability and growth.
Some examples of how H&M act in a corporately responsible manner:
Supply chain working conditions
The choice of countries of manufacture places particularly high demands on
H&M. They are aware of the risk of human rights violations and noncompliance with local labour law and internationally agreed labour standards.
At the same time, they are convinced that there is an opportunity to contribute
to better working conditions for all the hundreds of thousands of people who
make their products.
Code of Conduct
Since H&M do not have direct control over this production, they have drawn
up guidelines for suppliers, which together form a Code of Conduct.
This Code of Conduct is based on the UN Convention on the Rights of the
Child and ILO’s conventions on working conditions and rights at work. It is
there so that they can be sure that products are produced under good working
conditions.
The Code includes requirements concerning:
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working environment
a ban on child labour
fire safety
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working hours
wages
freedom of association
Corporate Responsibility Example:
Better Cotton
10.11.2010
As we wrote in our Sustainability Update message 2009.11.30, cotton
continues to be a main focus for H&M. Because of the challenges we’ve seen
in connection to cotton production H&M took a decision to initiate an active
and long-term work on improvements. We address the issue in several ways,
but the two main areas are how we can seriously contribute to a more
sustainable cotton cultivation, and also to find a method that can operate at a
large scale when it comes to track cotton's origin, so that we can choose
which markets we want to purchase from with and which we want to avoid.
We are happy to be able to share some very positive progress within this area
with you.
The first harvest of Better Cotton; H&M’s aim for all cotton used in our
product range to come from sustainable sources by 2020 at latest, and Better
Cotton Initiative (BCI) is our main effort to achieve this goal. The very first
cotton to meet the Better Cotton criteria has just been harvested and will be
available in our stores spring 2011. Furthermore, Better Cotton is traceable.
We have been involved with the BCI since its inception in 2004, and are an
elected member of the organisation’s council. The BCI is a long-term initiative
that develops and promotes good farm practices allowing more cotton to be
grown while reducing water and chemical use. The system has established
minimum environmental and social requirements for cotton growing. H&M is
one of the first companies to support BCI, for example by investing in training
farmers in Pakistan, India, Brazil and West Africa.
Traceability project; This fall we have just initiated a traceability project with
an external service provider in Bangladesh and China. The aim for this project
is to find methods which can realistically be used routinely and on a large
scale to trace the origin of cotton. Our goal is to make it a natural part of our
work.
We are very happy about our progress described above, but it is also
important to understand that when it comes to cotton from Uzbekistan this
issue must also be addressed on a political level. H&M has written several
letters between 2007-2010, most recently on 22 June 2010, to the Swedish
Minister of Trade, Ewa Björling, to urge the Swedish government to act upon
the issue of Uzbekistan. The Swedish Minister of Trade has confirmed that
they have raised the issue bilaterally within the EU.
Cotton from Uzbekistan
H&M takes a clear stand against child labour, and does not accept that
underage workers are used anywhere in our supply chain – including cotton
cultivation. One of our concerns is the discovery of forced child labour in
cotton cultivation in Uzbekistan.
Although we do not have direct business relations with cotton producers, and
the routes of global cotton trade are often complex, we seeks to avoid the use
of Uzbek cotton where we can. In the same instance, Uzbekistan is one of the
largest cotton producers in the world and avoiding the use of cotton from there
is a serious challenge.
So far, we have taken the following steps to avoid Uzbek cotton in our
products:
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In the spring of 2008, we received confirmation from the around ten
suppliers in Bangladesh who have their own spinning mills and source
their own raw cotton that they do not buy cotton from Uzbekistan.
The majority of the cotton used in products made in Bangladesh
originates from Uzbekistan. Therefore, our current efforts focus on
Bangladesh. We have begun requesting that all our garment suppliers
in Bangladesh declare the country of origin of the cotton, yarn and
fabric used for each H&M order.
We are investigating methods which can realistically be used routinely
and on a large scale to trace the origin of cotton, to be able to promote
or avoid certain markets. This year, we will initiate a pilot project with
an external service provider.
We aim for all cotton in H&M's range to come from sustainable sources
by 2020 at the latest. We will never accept child or forced labour, and
therefore, as long as the government of Uzbekistan continues to
compel children as workers in its cotton fields, Uzbek cotton will not be
an option for H&M or those involved in our supply chain.
This case study is based on information in the public domain (collated and
edited by Stephen Kelly) and used the following sources:
www.ebusiness-watch.org
www.hm.com