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National Institute of Fashion Technology

HYDERABAD

Master of Fashion Management (2013-15)

SUPPLY CHAIN MANAGEMENT & E-BUSINESS

ASSIGNMENT 1

REPORT ON

SUPPLY CHAIN PRACTICES

OF

"#$%&''() *+, "#$%&''() -.,AKANSHA GUPTA (03) PROF. A SRINIVASA RAO

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CONTENTS

1. COMPANY HISTORY H&M 4

PRODUCTS

CORPORATE RESPONSIBILITY

CORPORATE BENCHMARKS2. SUPPLY CHAIN H&M 13

PROCESS

INFORMATION FLOW

FINANCE FLOW

PRODUCT FLOW PUSH-PULL VIEW

3. REFERENCES

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COMPANY HISTORY

History and Business

Erling Persson, a salesman from Vasteras, Sweden, established H&M. He visited to the US in 1947 and

was attracted by the concept of selling stylish garments products at low prices. Then following the same

concept he founded a store in Vasteras in 1947 for selling the clothes for women and named it Hennes!

(hers in Swedish). The low prices attracted the customers within a short time. Persson was confident

that, this concept would also work in other countries and based on this confidence company started to

venture outside of the country by opening a new store in Norway in 1964. Today this company is

operating its business in 37 countries with around 2000 stores and 74000 employees. A preview of this

successful journey can be stated as follows-

1947- The first store opens in Vasteras, Sweden, selling womens clothing. The store is called Hennes.

1952- Hennes opens in Stockholm.

1964- The first store outside Sweden opens in Norway.

1968- Founder Erling Persson buys the hunting and fishing equipment store, Mauritz Widforss. Sales of

men and childrens clothing begin. The name is changed to Hennes & Mauritz.

1974- H&M is listed on the Stockholm Stock Exchange.

1976- The first store outside Scandinavia opens in London, the UK.

1977- Impulse stores are launched. Sales of cosmetics begin.

1980s- Stores open in Germany and the Netherlands. H&M acquires the mail order company, Rowells.

1990s- Progress continues in Europe. Billboards using famous models complement adverts in

newspapers and magazines. In 1998 Internet sales begin.

2000- The first store to open in the US is on Fifth Avenue in New York. In the same year stores open in

Spain. In subsequent years, H&M opens in many new European markets.

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2004- H&M initiates designer collaborations starting with Karl Lagerfeld. Further collaborations

include Stella McCartney, Viktor & Rolf, Madonna, Roberto Cavalli, Comme des Garons, Matthew

Williamson, Jimmy Choo and Sonia Rykiel.

2006- A major expansion of internet and catalogue sales begins with the Netherlands as the first market

outside Scandinavia. The first franchise stores are opened.

2007- The first Asian stores open in Hong Kong and Shanghai. In the same year, the new store concept,

COS Collection of Style, is launched. Internet and catalogue sales expand with the addition of

Germany and Austria.

2008- H&M opens in Tokyo, Japan. H&M acquires the fashion firm Fabric Scandinavian AB with

Weekday, Monki and Cheap Monday.

2009- The first store opens in Russia. H&M opens in Beijing and Lebanon gets its first franchise stores.

H&M Home is launched. Weekday and Monki open their first stores in Germany. Karl-Johan Persson

takes over as CEO.

2010- The first store opens in South Korea. Israel becomes a new franchise country. Internet and

catalogue sales expand further with the launch of internet sales in the UK.

2012- The first store opens in Mexico

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Business Concept of H&M

H&Ms business concept is Fashion and quality at the best price. Design and buying department of

H&M gathers the collections and makes sure to offer the latest fashion in the market. H&M can ensure

the best price in the market by- having few middlemen, buying large volumes, having a broad and in-

depth knowledge within every aspect of textile production, buying the right goods from the right

market, being cost-conscious at every stage and having efficient distribution. H&M is driven by some

strong values like- salesmanship, simplicity, constant improvements, cost-consciousness and

entrepreneurship. H&M considers the quality as the central issue all the way from the idea stage to the

ultimate consumer. The quality concept includes sufficient testing and ensuring that the goods are

manufactured in a good working condition and without the use of environmentally hazardous chemicals

or harmful substances. H&M is also controlling the quality standard of their suppliers by imposing the

code of conduct theory. H&Ms business growth concept is to increase the number of stores by 10-15

percent per year along with increasing the sales in the existing stores.

H&Ms 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:

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, team spirit ,continuous improvement , cost-

consciousness and entrepreneurship. H&Ms own designers interpret fashion trends and create fashions

that are accessible to all. The stores are revitalised daily with new items.

The central issue is Quality, 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.

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H&M does not own any production factories. Production of goods is outsourced to independent

suppliers, primarily in Asia and Europe, through H&Ms 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. Thecollections are created with H&Ms 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 womens 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 cutting-

edge fashion. Matching accessories, underwear and shoes complements the collections

MEN

The mens 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 mens collection.

CHILDREN

The childrens 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.

DENIM

The jeans concept &denim includes everything from traditional five-pocket jeans to trendy fashionjeans. Since 2007, a selection of denim models in organic cotton has been available.

COSMETICS

H&Ms cosmetics department provides a wide range of makeup, skin care and body care products. Therange is often updated with new colours, scents and products that reflect modern fashions. H&M does

not permit animal testing of its cosmetic products either during the production process or in finishedform. All suppliers must guarantee that their contents, packaging and labelling meet EU quality and

safety requirements.

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Corporate responsibility:

H&Ms 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 non-compliance 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 forsuppliers, which together form a Code of Conduct.

This Code of Conduct is based on the UN Convention on the Rights of the Child and ILOs 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:

working environment

a ban on child labour

fire safety

working hours

wages

freedom of association

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Corporate Responsibility Benchmarks:

Better Cotton

Cotton continues to be a main focus for H&M. Because of the challenges theyve seen in connection to

cotton production H&M took a decision to initiate an active and long-term work on improvements.

They address the issue in several ways, but the two main areas are how they 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 they can choose which markets they want to purchase from with

and which they want to avoid.

The first harvest of Better Cotton

H&Ms 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. They have been involved with the BCI since its inception in

2004, and are an elected member of the organisations 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 they 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. Their goal is to make it a natural part of our work.

It 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 Bjrling, 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.

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Cotton from Uzbekistan

H&M takes a clear stand against child labour, and does not accept that underage workers are used

anywhere in their supply chain including cotton cultivation. One of their concerns is the discovery of

forced child labour in cotton cultivation in Uzbekistan.

Although they do not have direct business relations with cotton producers, and the routes of global

cotton trade are often complex, they seek to avoid the use of Uzbek cotton where they 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, they have taken the following steps to avoid Uzbek cotton in their products:

In the spring of 2008, they 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, their current efforts focus on Bangladesh. They have begun requesting that all their

garment suppliers in Bangladesh declare the country of origin of the cotton, yarn and fabric used

for each H&M order.

They 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, they will

initiate a pilot project with an external service provider.

They aim for all cotton in H&M's range to come from sustainable sources by 2020 at the latest.

They 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.

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SUPPLY CHAIN

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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 H&Ms production offices then deal with the practical

aspects. 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. A team of 500 people works together and built the range, putting

together the fabrics, garment types, colors and theme and glimpse at new seasons fashion.

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 andchildrens wear it is advantageous to place orders far in advance. Trendier garments in smaller volumes

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require considerably shorter lead times. H&M produce most of the garments outside Europe to achieve

the benefits of leanness. They buy fabric in advance as per the forecast in order to minimize the cost.

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 companys 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 on-going 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 childrens 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.

Focused on trade-off between price, time and quality

All manufacturing is outsourced to 700 suppliers

Local production offices look after suppliers and place orders as well as looking after quality

assurance

Lead times vary from 2-3 weeks for high fashion items to 6 months for more basic product

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Logistics & distribution

The right product has to arrive in the right place, at the right time and at the right cost. H&M ups the

stakes even further by always demanding the greenest possible transports CThe final leg of a products

journey is the delivery to stores. H&M controls every part of the distribution process and currently

operates two major regional DCs in Poland (serving Poland, non-Nordic online and catalogue) and

Germany (serving Germany and Netherlands) as well as a further 15 DCs around the world, servicing

all its major markets. However, when entering new markets, H&M will either rely on existing facilities

in neighboring markets or an outsourcing partner. However, as soon as the sales justify it, H&M brings

distribution back in-house. Goods sent from producers in Asia are transported almost exclusively by

ocean. Within Europe, H&Ms 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 centers located in the different sales markets. After

unpacking and allocation the garments are distributed to the stores. These centers 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 prioritizes the

most reliable and greenest method. Transparency information exchange between all links in the

logistical chain.

DNWSRVAHDSN WUS` K WDNANTJ WUS`H&M is a large organization, where the flow of information has to be clear and accurate. In fact one of

the keywords that the company swears by is Transparency-information exchange between all links in

the logistical chain. In the company the flow of information is important for forecasting demand and

other improvises. Information, along with materials and money, must readily flow across the supply

chain to enable the planning, execution, and evaluation of key functions. H&M makes sure of that. The

accurate information flow of H&M makes its supply chain more successful CIt is a crucial tool along the

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entire supply chain. Individual stores are connected with the logistics and procurement departments and

the central warehouse. From central departments, it is possible to follow sales of individual items, thus

feeding an intelligent procuring system. The company relies on IT integration between the central office

and the production offices. Communication between departments takes place electronically, including

design and product development.

PRODUCT FLOW

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The streams of material in H&Ms supply chain consists of both push and pull principles, demonstrated

In Figure 22. The material flow where products are produced to stock and not yet consolidated

flow where products are produced to stock and not yet consolidated to a certain customer. When the

customer receives his order the pull flow completes its destination. However as the customer has the

possibility to return products, the total material flow might not be over yet. If the customers sends his

or her items back they will start the reverse logistic process, creating a push flow back to the

distribution center

Though essentially H&M supply chain is based on the pull strategy from its customers. Point-of-

sale information is used by store managers while regarding issues such as ordering stock levels and

identifying individual trends within each store. The company designs each collection on the basis of

customer demand. They constantly observe the trends in the fashion industry, street fashion, college

fashion, and events, encounter different cultures, travel, visit exhibitions, flea markets, and films and

keep eye on television and Internet and then the highly in demand products are planned and executed.

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REFERENCES

www.hm.com/ie/customer-service/faq/about-hm-com

www.ecoconsultancy.com/ie/blog/11051-21-ways-online-retailers-can-improve-

customer-retention-rates

Foundations of Marketing- John Fahy and David Jobber

www.ebusiness-watch.org

www.forbes.com

Logistics and transport management-Leif Enarsson

www.hm.com/gb/corporateresponsibility_responsibility.html

www.webmagazine.com