Supply Chain Management H and Mvszara

LEILA DE SANTIAGO MUÑOZ MBA-SCM MAY 18th, 2015
JESÚS NIETO GONZÁLEZ H&M
SUPPLY CHAIN
MANAGEMENT
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“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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0. INDEX
0. Preamble 05
1. 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 11
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 16
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 23

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 26

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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8. SCM – Technology usage 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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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.
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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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b) Business Canvas Model from H&M:
H&M BUSINESS CANVAS MODEL

Source: own
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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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• 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.
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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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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 DELIVER
RETURN RETURN
SC activity/ STRATEGIC TACTICAL OPERATIONAL

process
-Buy -Supplier: assembling/ Order entry methods,
transformation Human resource
-Horizontal Integration productivity
with the suppliers. -Production office (Asia)
Base demand
-Greater flow of
information is needed. -Hamburg Warehouse &
PLAN IT Department (Pre-
-More flexibility retail)
-Higher production Costs -Production office (EU)

Surge Demand.
-“Fashion and Quality at
the best price” -Delivery to retail from
CALL OFF WAREHOUSE
from Hamburg.
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- H&M doesn’t own -Standardization. -Each 2 until 6 week the

factories. Products are suppliers make new
commissioned from -Trend controls products.
around 800 first-tier
SOURCE suppliers. -Selling forecasting. -Contracts with low cost
suppliers. High volume,
-Marketing Offices in Asia -Making decision to controls to social
and Europe determine customize the garments. responsibility, several
the orders and where years of contract.
they are sent. -Less price -more volume.
-All suppliers agree to

H&M’s Code of Conduct.
Remember the problem
with the Camboya supply
and the Rights Human.
-Less influence on
second-tier suppliers, but
still have the Limited
Audit Programmed.
-H&M does not own any -Centralized buying office -The actual dyeing and
factories. in Stockholm, Sweden. cutting of the garments
MAKE/ ASSEMBLE can then be decided at a
-Leaves the production to -“Fashion and Quality at later stage in the
first-tier suppliers. the best price” production.
-Collaborations with -Cool ways of coming up -The later an order can

designers of first level. with new fashion. be placed on suppliers,
the less the risk of
-H&M customize their -Centralized buying office buying the wrong thing.
garments in the Matrix of communicates with all -Subcontractors are used
Stockholm. production offices. for most labor intensive
operations like sewing.
-Purchasing departments -The supply lead time -The weight in the
are responsible for ranges from 3 weeks to 6 medium of transport
communicating to all months. It all depends on have to go full
DELIVER first-tier suppliers. the nature of the good
produced. Trendier -Call Off Warehouse is the
-They must buy garments take short lead main store room for final
merchandise on H&M’s times. The distribution at distribution to stores for
behalf. H&M is much of manual selling. The final supply
done by the chain stage is when the
-Each market has its own subcontractors. garments reach the retail
distribution center. stores. These stores are
sole property of H&M.
RETURN -CSR initiatives -Recycling the garments -Feedback from the

customers.
-Code of conduct -Offers to the customers
in discounts bonds for -Defects of the
-less energy cost to the recycling. fabrication.
environment.
-Selling forecasting -Complaints from the
-less contamination customers.
-To create trend
Yearly Monthly/ weekly Dayly/ hourly
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03.SCM - PLANNING:
a. Describe in detail how the company is planning the SCM starting with the
demand planning.
H&M should always have the best customer offering in every market, which means
that each store has to stock the right pieces – a varied range that inspires customers to both
browse and shop.
Each one of our concept teams consists of designers, buyers, assistants, pattern
makers, a section manager and a controller, who are together responsible for producing just
the right mix of garments, accessories and other products. Team members are all
knowledgeable when it comes to fashion and trends, and keep up to date with H&M customers
and their interests.
Flexible assortment planning ensures that each store’s selection feels updated, on
trend and relevant to its customers every day of the year. Different factors determine the final
composition of merchandise. Figures for past seasons are combined with analysis of up-coming
trends, colours and fits.
Demographics and geography also influence the distribution of products: high-fashion
garments produced in limited quantities are sold mainly in big cities while basics are ordered
in larger volumes and more widely distribute.
Also, H&M has to account of the feedback of the customer in each retail. Like this, in
the Matrix of H&M in Stockholm, they can make the right customization for each context.
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b. Describe how the planning activities are shared with customers and
suppliers.
H&M PLANNING Model

Source: Mandeep Saini 2007
c. Describe the four three planning activities:
i. Planning the manufacturing
MANUFACTURING
750 suppliers in first-tier and 21 production office
• The actual dyeing and cutting of the garments can then be decided at a later stage
in the production.
• The later an order can be placed on suppliers, the less the risk of buying the wrong
thing.
• Subcontractors are used for most labour intensive operations like sewing.
ii. Planning the materials (MRP) – supplier/purchasing planning

Flexible procurement is the core of the supply chain of H&M. Generally, apparel
industry purchase seasonally, but H&M break this mode since 1968. The buyers of H&M use
the strategy that purchase twelve times a year in order to make change according to the
change of trend. ICT make a huge contribution for support this mode. On the ICT platform, H
& M's purchasing department and the sales department work closely, and all stores can know
each other's sales in the ICT platform and when the production allocation. Procurement and
logistics departments could track the sales of each product and inventory in order to
replenishment in time. "Sync" is the concept proposed by H&M's first CEO that means update
detailed list weekly. So that each procurement departments and store could know how much
of each product has been sold. This idea has been on implementing till today on ICT. ICT
created a closed-loop feedback system which makes sales, inventory, procurement plans and
capacity information becomes completely transparent.
H&M believe they have more efficient flows. Large parts of the shipments are directly
sent from the suppliers’ factory into their logistics center of sales markets. The logistics center
provides support to nearby store without any boundaries. There is no inventory in the stores;
they can replenish any time they want from the distribution center.
iii. Planning the distribution – to the customer

The country of origin is dependent on the quantity (volume) and destination
combination which is solved with the standard cartons from every supplier to co-load if the
destination is same, also this delivery is postponed for the consolidator who is doing a job for
H&M as third party and the right container size and vessel is selected with respect to the
require-ment.
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d. Give your own opinion about what the company is doing well and what
should be refined/improved in the planning area.
The main task of H&M, towards its suppliers is to inform and update them in each and
every thing from order placement to the shipment of goods. If the company (H&M) do not give
the right information, at right time to its supplier then the supplier is not able to give good
services in terms of production and order fulfilment.
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04.SCM - SOURCING:
a. Describe the strategic sourcing approach of the selected company:

This is the SCM’s map to show the behavior of the company.
H&M on the world

Source: www.hm.com
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b. Describe the supplier selection/development/collaboration processes
H&M CPFR Model

Source: own
The CPFR (Collaborative Planning Forecasting Replishment) is defined, by:
FROM THE CUSTOMERS:
1-2. Final Customer ask the order to the retail or web directly to the “CALL OFF
WAREHOUSE” in Hamburg.
2-3. Form “CALL OFF WAREHOUSE” in Hamburg ask the order to Production Center in
Stockholm.
3-4. From the Production Center and Matrix in Stockholm design the CUSTOMIZED
GARMENTS with the DESIGNERS key partners.
3-5. From the Production Center with the designers ask the order to Supplier of EU.
FROM THE SUPPLIERS IN ASIA
3-9. From the Production Center ask the order to the RAW MATERIALS.
9-8. The RAW MATERIALS arrive to the SUPPLIERS IN ASIA. This suppliers manufacture the
STANDARD GARMENTS.
8-7. The STANDARD GARMENTS arrive to “CALL OFF WAREHOUSE” in Hamburg.
MIX, DECOUPLING POINT
8-7-2-3-6-1. Through Selling estimates, the Production center and Matrix in Stockholm buy
STANDARD GARMENT to the suppliers in Asia.
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INDEPENDENT OR OWN-SELF
RETAILERS Renting or franchises (90-10%)
WAREHOUSE “CALL OFF” own self
PRODUCTIOS IN STOCKHOLM own serf
PRODUCTIONS IN ASIA
DESIGNERS Partners (Independent)
SUPPLIERS (PORTUGAL & ITALY) key partners (Independent)
SUPPLIERS IN ASIA & AFRICA key partners (Independent)
RAW MATERIALS own self
The need of fashion industry is the quick response to the market. This requires a higher
degree of flexibility in production and decision making.
In lean production, the customer buys specific products, whereas in agile production
the customer reserves capacity that may additionally need to be made available at very short
notice”.
Leanness means developing a value stream to eliminate all waste including time, and
to enable level schedule.” Further the Agility means “using market knowledge and virtual
corporation to exploit profitable opportunities in a volatile marketplace.”
Traditional LEAN manufacturing process of garments

Source: own
Usage of Lean and Agile

Lean Agile
• Fluent Manufacturing • Postponement
• Zero inventory • Collaborative scheduling
• Just in Time (JIT) • Just In Time (JIT)
• Remove waste • Purchasing input capacity (PIC)
• Vendor Managed Inventory (VMI) • Supplier Trade off (Setup Vs Inventory)
• Total Quality Management (TQM) • House of Quality (HOQ)
• Economies of Scale (Low cost) • Made to Order (High Cost)
• Commodities • Fashion Products
• Continuous, Line and High. Batch production • Integration of Micro and Macro environment
process • Project, Jobbing and low batch Process
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Difference in Lean and Agile

Lean Agile
• Containing little fat • Nimble
• Product oriented • Customer oriented
• Reduce stock to minimum • Reducing stock in not an issue
• Plan ahead • Unpredictable demand planning
• Satisfy customers by eliminating waste • Satisfy customers by configuring order
• Measuring output criteria: Quality, Cost and • Measure output Criteria: Customer
Delivery satisfaction
• Low Cost • High Cost
• Efficiency • Effectiveness
• Less flexible • High flexible
• Low variety • High variety
- Decoupling point
The further marring of lean and agile can be achieved by creating decoupling point; in
a production process it is common to introduce decoupling points where production lead time
is much longer then acceptable order lead time (Christopher and Towill, 2000). The decoupling
point takes physical stock to achieve the advantage of different management and control tools
to efficiently manage the both side (input & output) of the inventory (Velde and Meijer, 2007).
The other side of decoupling point is the natural boundaries of organizations and departments
within the process (Christopher and Towill, 2001, Velde and Meijer, 2007). It is also the hub to
meet the need and capability on either side of point. Within a supply chain there can be many
numbers of decoupling points (Towill, Naylor and Jones, 2000). “A decoupling point divides the
value chain into two distinct parts; one upstream with certain characteristics and one
downstream with distinctly different characteristics” (Olhager, Selldin and Wikner, 2006).
Decoupling point
Source: Christopher and Towill 2000
In figure Christopher and Towill (2001) suggested that, “by utilizing the concept of
postponement companies may utilize lean method up to decoupling point and agile method
beyond that.”
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Here, the decoupling point is the point of inflexion between PUSH & PULL
THEROY. Being Lean – PUSH system and Agile – PULL system. (Push-Pull boundary)
PUSH SYSTEM PULL SYSTEM

-low demand variability -high demand variability
-low product personalization -high product personalization
-better economies of scale -low economies of scale
-low manufacturing variability -high manufacturing variability
-low setup change costs -high setup change costs
-lower lead-times -higher lead-times
- Separation of Base and Surge Demand

Separating demand patterns into “base” and “surge” elements is an employment of
hybrid strategy. “Base demand can be forecast on the basis of past history whereby surge
demand typically cannot. Base demand can be met through classic lean procedures to achieve
economies of scale whereas surge demand is provided for through more flexible and probably
higher cost, processes” stated (Christopher and Towill, 2001). Further Christopher and Towill
pointed that; in fashion industry base demand can be sourced in low cost countries and surge
demand to be topped up locally”. Base demand can be achieved by classical lean
manufacturing with low cost and less flexibility and surge demand by agile with high cost and
high flexibility.
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Hennes & Mauritz (H&M)

As per the case study and H&M internet media; H&M collections are created and
placed centrally in the design and buying department to find the good balance of three
components Fashion, Quality and the best Price. H&M is a customer focused company and
employees more than 100 designers. A team of 500 people works together to build the range
and putting together the colors, fabrics, garment types and theme and provide a feel for new
season’s fashion. Furthermore; H&M do not own any manufacturing units, they have more
than 700 suppliers in the Asia and Europe, but H&M owns the production offices working
closely with the suppliers and ensuring the safety and quality of goods.
Responding to combinations of “base and surge” demands

Source: Christopher and Towill 2001
H&M’s lead time varies 2 weeks to 6 months based on the item. The main transit point
of goods is in the Hamburg and company got more than 1500 own stores. As per the company’s
business concept Fashion, Price and Quality; 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 (Li Li, 2007). The production offices situated with in the origin of
production act as the second hub of information flow downstream and ensure the quality and
the work standard of the suppliers. The other reason of placing production offices is to
maximize the efficiency of supplier to achieve the lowest cost and zero defects in the products
and minimize the lead time. The transit point in the Hamburg works as a decoupling point,
while managing the flow of goods and information upstream and downstream. As H&M is a
customer oriented company and learning from customers and serving the surge demand by
production in the Europe (Li Li, 2007). The author is tried to develop a model of H&M supply
chain to illustrate the particular ways of marriage of lean and agile. To illustrate in easiest way
the author had put only one supplier in the Asia and one in Europe, to make it easier the
inventory points, are not also explained.
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c. Give your own opinion about what the company is doing well and
what should be refined/improved in the sourcing area.
- Conclusion
The need of supply fashion fast in the volatile demand; led companies such as H&M to
make the changes in lean and agile process and integrate the both to achieve the benefits of
lean and agile. The main motive to achieve the “leagile” is to react fasted on the changing
demand. This requires a better control and view of inventory levels across the network, enable
sales and replenishment planning across the internal and external network. This company
achieved the benefits of standardization. Although H&M took the different approach to
marring the lean and agile but the overall purpose is the same; “Supply Fashion Fast” with
lowest possible price and highest degree of quality.
Benefits of Leagile:
• Control & view inventory levels across a network
• Manage orders between trading partners
• Organize collaborative demand plans
• Plan replenishment across an internal or external network
• Enable Sales and Operation Planning
• Monitor and Alert on significant events
• Managing JIT approach
• Managing Vendor Managed Inventory
• Quick response to market
• Achieve benefits of postponement
• Standardization of products
• Converting voice of customers (VOC) into products
The main SCM processes affecting to the Customer Satisfaction. We think that the new
CSR of the company is making a good framework to improve this CPFR of H&M. We can see
more developed in the CUSTOMER SERVICES point 07.
22
05.SCM – TRANSPORT MANAGEMENT:
a. Describe the transportation network used by the company

H&M always make the best route plan according to the truck touting. Usually, the
production produce by supplier will directly send to the central warehouse in Hamburg,
Germany and that deliver to the stores. But if the production is design or a regional market, it
will deliver the production directly to the segment in the country, and even directly to the
stores to ensure the supply just in time. And also, H&M always use the lowest cost
transportation. Productions produce by European suppliers always transport by railway traffic;
productions produce by Asian supplies always transport by ocean transportation; productions
which have to deliver to stores from warehouse always transport by truck.
b. Describe the transportation management practices

At the transportation network of H&M, The products are delivered to the distribution
centres from the suppliers in boxes that contain in average 46 pieces during the fall season and
56 pieces during the spring season. The suppliers sort the units for each box to contain one
type of SKU. H&M utilize two distribution centres (DCs), which are located in Sweden and in
Poland. When the products arrive to Poznan DC they are stored in a large buffer with space for
470 000 boxes and in the picking area which contain approximately 39 000 stock locations.
Poznan DC keeps an anticipation inventory for all of the European markets and distributes
products with two weeks cycle stock to Borås DC. Borås DC has a smaller buffer with space for
37 200 boxes and a pallet buffer used for cosmetics and home decor. The dispatch area in
Borås DC has 35 000 stock locations. At both distribution centres each SKU has its own picking
location with the exception of products with only very small quantities left. The products with
low quantities, of maximum 10 pieces, are at the end of the season, usually moved to a
temporary stock location where several SKUs with low quantities are stored together. A SKU
keeps its own stock location for maximum two seasons, but after a review they can also be
moved into a temporary stock location earlier.
- REPLENISHMENTTO POZNAN DC
The distribution centre in Poznan receives daily deliveries from suppliers in Asia and
Turkey. Five percent of the items in each procurement order are quality controlled when they
arrive to Poznan DC. Products arrive to Poznan DC in accordance to catalogue releases to
ensure that the DC has adequate stock. Poznan DC therefore receives 50 60 percent to the
total seasonal products in the beginning of the season when the first catalogue is released. The
rest of the good sare then delivered during the season, primarily with the second catalogue
release.
- REPLENISHMENT TO BORÅS DC.
Most products at Borås DC have been transported firstly to Poznan DC where they
have gone through a quality control. Transports from the supplier directly to the distribution
centre in Borås only occur exceptionally. A situation when Borås DC are supplied directly from
the supplier is when the ordered products from that supplier is enough of fill a container or
when the supplier is located in the closeness of the distribution centre in Borås. The final
reason for direct transportation to Borås DC is when articles are going to be sold only within
the Scandinavian region. Articles that are directly transported from the supplier to the
distribution centre in Borås are quality controlled in Borås DC. Each week the sales forecast for
the next two weeks are updated. The distribution centre in Borås is then requesting a
23
relocation of goods from the warehouse in Poznan. The system is then comparing the request
from the distribution centres with their previous replenishments and the forecast for the
season. When products are selling more than expected for one of the distribution centres, it
sometimes means that the quantity of products requested will be reduced. If the distribution
centre has not exceeded its limitations due to the seasonal forecast or the demand at other
distribution centres, the requested products are then allocated to that distribution centre.
- RELOCATED PIECES
The products transported from Poznan DC to the

distribution centre in Borås, can be delivered from the goods
reception area, the buffer area or the picking area in Poznan.
Products received from the goods reception area are directly sent
to the distribution centre in Borås after a quality control at Poznan
DC. The goods from the buffer area have been stored at the buffer
system and are then taken out of the system to be delivered to
Borås DC. The goods received at the distribution centre in Borås
are transported from areas in the central warehouse in Poznan
with a distribution process as represented in Figure.
- IMMEDIATE OR FORECAST TRIGGERED REFILL
Each week, the sales forecast for the following two---weeks is updated to assign the
products needed for relocation. However, when the forecast is not totally accurate, and sales
are higher than expected, the customers order products not in the storage of Borås DC.
Relocation can either be triggered by forecasted need or by a customer request. A customer
order made on products not in stock, and the picking of the last piece triggers an immediate
relocation from Poznan DC to fulfil the needs of the customers. For the immediate relocation
to be settled, the value of the products requested for relocation needs to be higher than a set
lowest relocation product value (specified in the Appendix). Approximately 23 percent of all
products transported to the distribution centre in Borås DC 2009 were classified as immediate
relocations. The immediate relocation goods are assigned either from the buffer storage area
or the dispatch area in Poznan. 33 percent of all products that are assigned to Borås DC from
the dispatch area at Poznan DC are immediate relocations, whereas 32 percent of the products
from the buffer area are immediate relocations (calculation are presented in the Appendix).
24
c. How the company could improve the main KPIs: service and cost, from
the transportation side?
• H&M supporting their police of sustainability, reduce the impact of transport in the
environment greatly. So H&M must to replace the truck way the and bring the goods by sea or
railway transport from the supplier factory to the distribution center.
• H&M cooperates with over 700 suppliers, 60 pattern makers and 20 worldwide
production centers. Currently H&M use two delivery organizations at each market, which
results in extreme amount of different contracts and business arrangements. Even more
arrangements are needed and it is therefore suggested that H&M purchase a global agreement
with two or three suppliers. This would mean that the same distributor handles several
markets and economies of scale can be gained.
25
06.SCM – CUSTOMER SERVICES:
a. Describe how the company manage the Customer Experience

H&M meets the customer through three complementary sales channels:
THE STORES First store established in 1947 in Sweden. Stores range from big full-
B2C range stores to small concept stores. The stores are self-service stores
(around 1,600 stores in 32 countries)
THE INTERNET First offered to customers in 1998 in the Nordic region.
B2C Internet and catalogue sales are available in the Nordic region, the
Netherlands, Germany and Austria.
THE Available to customers in the Nordic region for more than 25 years. In
CATALOGUES 1980, H&M purchased Rowells, and started catalogue sales in Sweden,
B2C Finland, Norway and Denmark.
Each year H&M produces four large catalogues – two in the spring and
two in the autumn supplemented by smaller seasonal catalogues.
The most important of these is the stores though the customers can choose the sales
channel that suits them best. In 2006, H&M began a roll-out of Internet and catalogue sales
outside the Nordic region.
The company manages the Customer experience with two parts: Marketing Plan and the
Decoupling Point:
See the Marketing Plan:
- PRODUCT:
- H&M delivery their products in different trends: H&M ladies; H&M Man, H&M kids
and Divided (youngers). Also, the CO’s has cosmetic and accessories. The Trend hunters look
for the last trend.
- The retailers receive new products every day, so H&M surprises to their customers.
- The collaboration with designers is a perfect complement. For example: Comme des
Garçons, Matthew Williamson and Jimmy Choo.
- H&M is associated with the image of fiction characters through permanent licenses
that were purchased.
- PRICE:
- Fashion- quality with a low cost.
- Their products have a good relationship between quality and Price.
- H&M coverages the trends of quality to the best price because: H&M has few
intermediates, they buy in big volumes, they have experience in trends and textile productions,
and they dispose of effective delivery.
- PLACE:
- Customization of H&M products is made in the Matrix in Stockholm.
- They have independent suppliers sited in Asia and in EU.
- H&M delivery every year millions of items from the “CALL OFF WAREHOUSE” sited in
Hamburg ‘til the 2000 retailers on the world.
- H&M use clean and effective transports with a limited environment impact.
- Their trucks always goes out with a full load. So, they reduce the environmental
impact.
- Retailers in the center of the best cities.
26
- COMUNICATION:
- The advertising from H&M must respond to the best quality exigencies. H&M uses all
the communications channels.
- H&M is provided a magazine, H&M magazine, which offers an attractive selection of
the trend items. It is published four times each year through of his webpage.
- H&M communicates with the economic journalist.
- H&M has his own Facebook and twitter to communicate with the customer
- Also, H&M has own YouTube channel where publish “FASHION TV”.
- REACTIONS MODELS against the competitors:

Hennes & Mauritz has a model of TIGER REACTION. The CO’s doesn’t reactions
immediately with the competence, but when the time happened, they makes with an effective
form. For example, when Zara open a retailer, H&M finish opening a retailer near to Zara.
- CONCLUSION:
With the Marketing Plan of H&M, they arrive to the customer. The second-tier is
approached in the handling of the DECOUPLING POINT, how we have explain about this in the
CHAPTER 04, SCM- SOURCING (CPFR).
b. How the company measured and take into account the customer feedback?
APPROACH COMMENT
Complaint analysis Through complaint sheets, defects in
the garments and the new code of
conduct to the suppliers and
retailers.
Critical incident studies By the accident in Camboya, H&M
decided clean his image with new
CSR.
Customers panels Through on internet webpage
Key client survey Through social nets
Customer survey/ questionnaire When the customer goes to the
retailer, the employee manage the
inventory thank you to the ICT.
Surveys approaches by e-mail, web, mail (catalogues), and face to face in the
store.
27
c. Give your own opinion about what the company is doing well and what
should be refined/improved in the customer service area.
In 2014, H&M suffered a blow, his supplier from Camboya had laboral exploitation workers
and child workers.
From then, H&M polished his CONDUCT CODE and the Company created a document and
foundation called H&M conciencius (CSR initiatives- Corporate Social Responsibility). This is
the conduct and guide that stablishes the rules and duties to can be KEY PARTNER of H&M.
This is very important, because incidents as Camboya Supplier can to make dropping the
customer satisfaction.
To promote recycling From at 2015, H&M installed recycling

container in each retailer. For every
garment that you recycle, H&M gives
away with 5€ for your next shopping.
-H&M recycles the yarn and textile parts
-the other parts is used to obtain energy.
Less contamination The transport systems have reduced,
making more efficient the
standardization.
Full load transport Until the transport is not full load, this
doesn’t goes out.
Human rights H&M monitors human rights. H&M
made donations to the education of the
underdeveloped countries. Also, H&M
will never stablish relationship with
suppliers with child workers.
H&M recycling
Source: CSR initiatives H&M www.hm.com
28
07. SCM – INVENTORY & WAREHOUSE

MANAGEMENT:
a. What is the warehouse facility structure of the company?

H&M’ inventory turnover is very fast. As the data shows online, a cloth averagely
depreciated 0.7% every day, which means if it sold 10 days earlier than it will be less
depreciated 7%, and the gross profit margin will also increase by 13%. H&M’s central logistics
system can follow the sales process for every piece of production through ICT (Information and
Communication Technologies) in order to avoid a backlog caused by excessive production.
H&M’s suppliers of products usually shipped the productions to a central warehouse in
Hamburg, Germany, to collate and transmit, but if this product is for a regional market, H & M
will respond quickly through ICT, and the product will deliver directly to the country's division
and even direct delivery to stores. When the goods arrive in a different distribution center,
they will be checked and then allocated to different shops with local warehouse. H & M
distribution system can handle daily goods reach more than 160 million pieces, and there will
be 20-55 pieces of new goods into the store every day to ensure freshness.
b. What roll plays the inventory in the company strategy?

H&M Company utilizes a warehouse network with a master warehouse in Poznan
keeping the excess stock for all markets and distributing products to three customer markets,
and a distribution centre in Borås without safety stock distributing products to four customer
markets. The warehouse network is to be seen as decentralized with local inventories. This
structure brings advantages such as closeness to the customer. Some activities are centralized,
such as quality inspections and excess stock keeping. Keeping these activities on a centralized
level brings advantages such as low holding cost, less tied up capital, and reduced risk of
cascading effects or obsolescence. Moreover, since these activities are consolidated to one
warehouse, investments in technology and machinery will provide shorter pay back times, due
to increased utilization. Also attain cost saving benefits from the centralized performed
activities since the personnel cost at the centralized warehouse is lower than at the other
distribution centre. A decentralized warehouse networks means that the distribution cost is
lower as local inventories are utilized. However, in the studied case, the distribution cost is the
main cost of the logistics expenses. Contributing to the high distribution cost is the orders sent
in more than one shipment to the customer when required products are not in stock.
29
c. What are the main KPIs in the inventory/warehousing management

activities?
We compared the principals KPls that we consider for the analysis, with the
principal competitor of H&M; INDITEX:
By these measures, Inditex performed better than H&M. The figures indicate that
Inditex held its inventory for shorter periods and turned it over more frequently, pointing
toward less likelihood of discounting. For both companies the two measures deteriorated over
the period, but some negative impact can be justified in such large expansion phases.
Some of the differences may also be attributed to business model approaches. While
both companies design their goods, H&M buys products from independent suppliers but
Inditex takes a different approach. Large amounts of their goods are produced in-house with
a logistics and supply chain management approach that is frequently mentioned favorably
both in the media and in academia.
d. Give your own opinion about what the company is doing well and what
should be refined/improved in the inventory management area.
Our Study of the company operates with a distribution centre
that keeps anticipation inventory for two weeks and a central warehouse that keeps excess
stock for all markets. However, the transportation of products from the central warehouse to
the distribution centre is not fast enough to be seen as a safety stock. When a customer orders
products that are not available in the local distribution centre, these products will not be
delivered within the standard delivery time. Keeping a safety stock increase the inventory,
while lacking safety stocks can result in lost sales. Lacking safety stock also result in costs
associated with split orders since the order might be sent in two shipments when only parts of
the required products are in stock. A reason for not keeping safety stock is the inventory cost
and therefore balance between inventory costs and the cost of lost sales due to low stock
availability need to be found.
30
A split order results in high distribution cost for the company as H&M pays for the delivery of
remaining products. The number of split orders is high and the associated costs are therefore
major issue. The cost of split orders is essential which can be seen.
31
08.SCM – TECHNOLOGY USAGE:

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.
IS IT USED? WHY?
TECHNOLOGY FOR KNOWLEDGE AND DECISION SUPPORT
GIS NO ---------
DATAMINING YES For example dropbox or
ORACLE, it is a system for
obtaining the information
from the several places,
always online.
EIS YES H&M can manage the data-
information-knowledge-
competitive advantage.
DSS NO ---------
DATAWAREHOUSING YES In a “CALL OFF
WAREHOUSE” is used to
monitor the inventory with
the same code that the
supplier.
TECHNOLOGIES FOR ACTIVITIES SUPPORT
E-LEARNING NO ---------
WORKFLOW Yes Is an integrated system for
managing the information
extensions between
different department or SC
MOBILITY NO ---------
ERP YES This is an internal labor,
H&M monitors the finance,
human resources and
Logistic.
CRM YES It is totally necessary for
controlling e-business, e-
commerce, m-business.
SCM YES CPFR is the clear example.
TECHONOLOGIES FOR COMMUNICATION
GROUPWARE YES To be in continuous contact
with the supplier and the
“CALL OFF WAREHOUSE”
BLOGS YES To obtain feedback from the
customer and to create
trends
SOCIAL NETWORKS YES To obtain feedback from the
customer and to create
trends
32
b. How is H&M using the ICT to achieve a competitive advantage?

In my opinion the ICT’s can redesign the business process:
• Implement the horizontal process of H&M. Relationship between the Matrix in

Stockholm and the suppliers of the base demand and the surge demand.
• Multiple knowledge integration.
• The customer is oriented and, in the same time, the customer orients to the company.
• ICT’s help in automation, coordination and added information management.
• Providing data/ changing business processes (like CSR)/ organization/ and changing
strategies.
33
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LEILA DE SANTIAGO MUÑOZ MBA-SCM MAY 18th, 2015

JESÚS NIETO GONZÁLEZ H&M

1. Company strategy and the SCM 08

3. Supply Chain Management – Planning 13

5. SCM – Transport management 23

6. SCM – Customer services 26

7. SCM – Inventory and warehouse management 29

8. SCM – Technology usage 32

00.PREAMBLE – BUSINESS CANVAS MODEL:

H&M Quick Facts

b) Business Canvas Model from H&M:

H&M BUSINESS CANVAS MODEL

01.COMPANY STRATEGY AND THE SCM:

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

Double integrated SCM

• Efficiency tailoring. The company is constantly reducing costs, minimizes production

b. What is the company value proposition to customers?

c. How is the Supply Chain Management helping this value proposition?

- 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.

d. How is the company managing the uncertainty in demand? (Bullwhip

The SCOR MODEL of H&M is:

SOURCE MAKE DELIVER

SC activity/ STRATEGIC TACTICAL OPERATIONAL

-Higher production Costs -Production office (EU)

- H&M doesn’t own -Standardization. -Each 2 until 6 week the

-All suppliers agree to

-Collaborations with -Cool ways of coming up -The later an order can

RETURN -CSR initiatives -Recycling the garments -Feedback from the

H&M PLANNING Model

ii. Planning the materials (MRP) – supplier/purchasing planning

iii. Planning the distribution – to the customer

a. Describe the strategic sourcing approach of the selected company:

H&M on the world

b. Describe the supplier selection/development/collaboration processes

H&M CPFR Model

FROM THE SUPPLIERS IN ASIA

8-7. The STANDARD GARMENTS arrive to “CALL OFF WAREHOUSE” in Hamburg.

MIX, DECOUPLING POINT

Traditional LEAN manufacturing process of garments

Usage of Lean and Agile

Difference in Lean and Agile

PUSH SYSTEM PULL SYSTEM

- Separation of Base and Surge Demand

Hennes & Mauritz (H&M)

Responding to combinations of “base and surge” demands

05.SCM – TRANSPORT MANAGEMENT:

a. Describe the transportation network used by the company

b. Describe the transportation management practices

- REPLENISHMENT TO BORÅS DC.

The products transported from Poznan DC to the

- IMMEDIATE OR FORECAST TRIGGERED REFILL

06.SCM – CUSTOMER SERVICES:

a. Describe how the company manage the Customer Experience

- REACTIONS MODELS against the competitors:

To promote recycling From at 2015, H&M installed recycling

07. SCM – INVENTORY & WAREHOUSE

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