Innovative Supply Chain Practices at H&M

Hennes & Mauritz (H&M) AB, a pioneering apparel retailer based in Sweden is known for its cheap but chic fashion. While other retailers are struggling, H&M sees the economic slowdown as an opportunity to expand, enter new markets and to add new brands. In September 2008, H&M is all set to enter into Japan, known as one of the world's most competitive fashion markets. It will open a second store in Japan in November and a third one expected to be launched soon. In Japan, H&M is also entering into a design collaboration with designer Rei Kawakubo. The Japanese designer is the founder of well-established fashion brand Comme des Garçons. Last year, H&M entered in China. It now has presence in 30 countries and more than 1,600 stores.

Download Management Case Study on H&M in Japan (PDF File)

H&M's Business Model Advantage

H&M's core business strategy - to provide the fashion concept and quality at the best price - is paying off largely due to its innovative supply chain practices. H&M's average sale prices are lower than those of its competitors. This it achieves with its in-house designers (around 100) who work with buyers and centrally design the garments at Stockholm, Sweden. The production is outsourced mainly to independent suppliers (around 700 who in turn use subcontractors) in Asia and Europe. For high-demand products, manufacturing is carried out in Europe and in Asia in case of garments with longer lead time. In all, there are around 20 production units and more than 700,000 people involved in product manufacturing.

Central Warehouse and Distribution with constant replenishment

A central warehouse in Hamburg in Germany collects all apparel from various locations and distributes locally to various distribution centres across various countries wherever H&M has a presence. Based on the demand, the apparel are replenished constantly. The constant replenishment helps maintain novelty and attract repeat customers. To be continued...

Wal-Mart - Monitoring supply chain risk

In January 2008, the world's largest retailer Wal-Mart introduced Supply Risk Monitoring (SRM) service as a requirement to Wal-Mart's supplier community. This after Wal-Mart made an agreement with Strategic Forecasting, Inc. (Stratfor) to assess and rank security risk for countries in its global supply chain.

Stratfor is a leading private intelligence company and its services will enable Wal-Mart to identify risks with supply chain infrastructure in countries (ranked as high, medium or low) within its supply chain using a unique analytical methodology. The countries will be assessed on risks associated with terrorism, insurrection, crime, the political and regulatory environment, natural disasters, including various other factors related to supply chain infrastructure. This will help Wal-Mart to produce a quantifiable measure of the actual risk to a nation's supply chain and thereby determine appropriate supply chain security counter-measures. It can thus quickly warn of emerging threats and prevent disruption of deliveries of goods to major markets around the world.

Why Wal-Mart's supply chain is so successful?

The key to Wal-Mart's supply chain

Wal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailer Wal-Mart's success is its ability to drive costs out of its supply chain and manage it efficiently. Many supply chain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores. Wal-Mart's company philosophy ('The Wal-Mart Way') is to be at the leading edge of logistics, distribution, transportation, and technology. The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain (Wal-Mart has made significant investments in supply chain management).

Wal-Mart's business model and competition

Wal-Mart's business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low Price Strategy), Wal-Mart's suppliers - both large and small - either break even or make profit supplying at Wal-Mart's stores. But the real winners are Wal-Mart's customers (approximately 175 million every week) who save thousands of dollars buying at low prices. Since Wal-Mart stores began selling groceries almost three dozen regional grocery suppliers have struggled to match or simply run out of business. Last year, Wal-Mart's annual sales were $350 billion and it had more than 7,000 stores, 120 distribution centres and operations spanning 15 countries. Nearly two million employees at Wal-Mart focus on cost, customers and continuous improvement on a daily basis. Other major retailers like Target and Home Depot have emulated Wal-Mart's logistics strategies and actics.

Wal-Mart's one-store-at-a-time, RFID and just-in-time distribution approach

Every Wal-Mart store operates like a small company. Store managers are trained to manage one store at a time, one department at a time, and one customer at a time. Decisions are made by store teams to make the individual stores operate at its best with superior in-store execution. With established vendor partnerships with top manufacturers, Wal-Mart has implemented advanced logistics solutions like RFID (radio frequency identification). RFID solutions help maintain lower costs, identify out-of-stocks and increase sales. Distribution centres instead of warehouses, automated replenishment and cross-docking technology also reduce inventory carrying costs.

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Vendor Managed Inventory - Basics and Advantages

What is Vendor Managed Inventory?

Vendor Managed Inventory (VMI) is a supply chain practice. The stock or inventory is monitored, planned and managed by a vendor on behalf of a consuming organization. The vendor does this based on expected demand and previously agreed upon minimum/maximum stock levels.

VMI had its beginnings in the retail business in line with Efficient Consumer Response (ECR). In ECR, the consumer expectation of stock availability gives an advantage. Wal-Mart pioneered this strategy in the retail sector and today it is being used by several companies even in other sectors.

Advantages of Vendor Managed Inventory

The advantages of VMI can be broadly classified into cost, delivery, and quality. The advantages of VMI can be overlooked if supply chain managers keep a narrow focus on the benefits as they relate to their own companies. Supply chain experts are of the opinion that the real benefits of VMI come with driving a lean supply chain centered on creating an end-to-end pull system, which is based on end user demand cascading through the chain.

Cost Advantages of Vendor Managed Inventory

The vendor holds stock on site or near the customer. This gives the customer almost-instant access and the ability to pull stock as needed and only pay for that which is consumed, thereby reducing stock investment and increasing stock turnover.

The vendor is responsible for replenishing stock in most VMI partnerships. This includes ordering the stock, managing the logistics and freight to ship the material, as well as stocking and counting the stock. By passing on these expenses to the vendor, the customer can reduce overall costs.

Another advantage of VMI is that it separates demand variations and forecasting errors between upstream and downstream supply chain partners. Such decoupling eliminates the practice for every supply chain node to buffer its stock position. This helps reduce the stock levels and the linked costs of maintaining the stock.

With VMI the customer can pull stock in the quantities necessary to meet consumer demand. Therefore there is no need for minimum order quantities. The vendor can restock based on pre-specified minimum-order quantities internal to its company. Moreover, because the vendor is responsible for stock liability it becomes more of an incentive to eliminate requirements that push excess stock and cost into the supply chain…

RFID and Supply Chain - Reverse consumer effect

RFID, Supply Chain and the Reverse Consumer Effect

During the last several years, Radio frequency ID or RFID technology was seen as the catalyst to supply chain revolution. But many feel that the most important technology trend is moving into the reverse direction i.e. from business use to consumer use. RFID technology in the supply chain has not progressed as well as the RFID industry had hoped for. This is creating the 'reverse consumer effect'. The consumer effect is when technologies popularized by consumers find their way into business use. A great example is the Apple iPod or social networking sites like Orkut. But RFID, which has been a corporate technology since its introduction is finding its way into the consumer market. Businesses in various sectors and industries are adopting RFID, but not necessarily for the supply chain.

Examples can be derived from At&T's move to provide radio-frequency identification and GPS-based products and services for schools. Schools can use RFID to track their staff and students. Even insurance companies, and hospitals are using RFID tags to track important assets, files and equipment. On the reverse, corporate side, Wal-Mart (RFID's most aggressive user -- e.g. Wal-Mart's suppliers tag pallets and cases with RFID tags), has said that its RFID plans have fallen short of the company's goals.