Supply chain management of H&M

Supply chain management of H&M

By Jingge Lou and Hua Xu

Erling Persson founded Hennes&Mauritz AB in Sweden in 1947, short for H&M. H&M mainly engaged in sale of clothing and cosmetics. At present, H&M develop so fast, and it has more than 3000 stores in 53 countries. Germany is one of his biggest markets, followed by Sweden and the UK. Logistics is extremely important to H&M. To make the right product with right quantity, at the tight time sending to the correct sales store, it is need good logistics distribution system; the key of logistics is fast and efficient. As the importers and retails, H&M have to monitor every step of the supply chain. In addition, it is also important to update information technology constantly for supporting the logistics system.

Different with other fashion retailing industry, H&M does not have its own factories. It outsources its products to independent supplier mainly in Europe and Asia.  Asia always in charge the base demand which needs longer lead time, and Europe always in charge of surge demand which needs lower lead time. Because Asia usually has lower cost of production, it is a good way to reduce the costs. And opposite with Asia, Europe usually in charge the cloth that are popular and will be popular because the Europe and America market always changes fast. And it will not cost a lot because the quantity of each style will not be much since trend changes fast. Another unique supply chain in H&M is its transportation. 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 than 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.

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 everyday to ensure freshness.

            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.

H&M claimed that they are faced with a challenge that how to meet their requirements to keep up with the rapid growth of H&M at the same time, and reduce the impact of transport in the environment greatly. H&M plan to use three methods to improve this situation. Firstly, H&M decided to avoid air and road transportation as far as possible. And then, H&M cooperate with the transport company that attached great importance to the environmental protection. Finally, H&M will improve the logistics efficiency to reduce the impact on the environment as much as possible. In 2012, H&M shipped around 90% goods by sea or railway transport from the supplier factory to the distribution center.

                                                                                         

 Additional information and links can be found below here:

VIDEO:

http://www.youtube.com/watch?v=wA207SCAry8

The background of H&M

http://en.wikipedia.org/wiki/H%26M

http://yingyu.100xuexi.com/view/examdata/20100906/E0743ECE-EC8E-4683-BCBE-A5AF7DDAFC58.html

http://wenku.baidu.com/view/89718f59be23482fb4da4ca9.html

http://ec.europa.eu/enterprise/archives/e-business-watch/studies/case_studies/documents/Case%20Studies%202004/CS_SR01_Textile_2-HM.pdf

Reference

http://supply-chain-case-studies.blogspot.com/2008/09/hm-supply-chain-practices.html

http://www.supplychainopz.com/2014/04/supply-chain-management-case-study.html

http://about.hm.com/en/About/facts-about-hm/idea-to-store/logistics-and-distribution.html