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.

Related Reading

• Download Case study PDF file on Wal-Mart's Supply Chain Management Practices
• Of Wal-Mart price cuts, Struggling Retailers and Weak 2008 Retail Sales Forecast
• Wal-Mart's Marketside or Tesco's Fresh and Easy stores in US
• Wal-Mart stops Movie Download Service
• Wal-Mart and The Salvation Army Partner

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.

Dell Supply Chain Management Case Study

Case Study: Supply Chain Management at Dell, Dell's Direct Model

Dell Inc. pioneered the Direct Model of selling PCs directly to the consumers. How it enabled Dell to manage its supply chain efficiently is discussed in this case study.

Dell Computer Corporation a leading direct computer systems company was founded in 1984. Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users.

Dell’s direct contact with customers allows it to:

• properly identify market segments,
  
• analyze the requirements and profitability of each segment, and
  
• develop more accurate demand forecasts.
  

Dell matches supply and demand because its customers order computer configurations over the phone or online (Internet). These computer configurations are built up from components that are available. Dell’s strategy is to provide customised, low cost, and quality computers that are delivered on time. Dell successfully implemented this strategy through its efficient manufacturing operations, better supply chain management and direct sales model. Dell takes orders directly from its customers; either on phone or online. Thus, Dell reduces the cost of intermediaries that would otherwise add up to the total cost of PC for the customer. Dell also saves time on processing orders that other companies normally incur in their sales and distribution system. Moreover, by directly dealing with the customer Dell gets a clearer indication of market trends. This helps Dell to plan for future besides better managing its supply chain.

Another advantage Dell gets by directly dealing with the customer is that it is able to get the customers requirements regarding software to be loaded. Dell loads the ordered software in its plant itself before dispatching it. By eliminating the need of a PC support engineer to load software, the customers gain both in time and cost. They can use the PC’s the moment they arrive. More soon....

Case Study Keywords: Supply Chain Management, SCM, Supply Chain Case Study, Direct Model, PC Retailing, Dell Computer Corporation, Michael Dell, Founder and CEO

Click to download full text of this Case Study in PDF format: Dell's Supply Chain Management Strategy

Walmart Case Study on Supply Chain Management (SCM)

Case Study : Walmart's Supply Chain Management (SCM) Practices

Supply chain management (SCM) is important for companies that deliver goods or services. Transitioning from a single company to the whole supply chain implies the need for reorganization and reengineering, strategic management or organizational theories have not yet been incorporated in supply chain management. A competitive business environment has made Walmart focus on innovative processes and systems to overhaul its supply chains and make them more efficient. Increasingly, Walmart is integrating its supply chains with major customers. Wal-Mart is an innovator in SCM, which has helped it to provide low-cost merchandise to its customers and undercut its competitors.

Stalk et al. (1992) reported:
“In 1979 Kmart was one of the leading companies in the retail industry… At that time, Wal-Mart was a small niche retailer in the South with only 229 stores and average revenues about half those of Kmart stores… Today Wal-Mart is the largest and highest profit retailer in the world. How did Wal-Mart do it? The starting point was a relentless focus on satisfying customer needs; Wal-Mart’s goal was simply to provide customers with access to goods when and where they want them and to develop cost structures that enable competitive pricing. The key to achieving this goal was to make the way the company replenishes inventory the centerpiece of its strategy. This was done by using a logistics technique known as cross-docking. In this strategy, goods are continuously delivered to Wal-Mart’s warehouses from where they are dispatched to stores without ever sitting in inventory. This strategy reduced Wal-Mart’s cost of sales significantly and made it possible to offer everyday low prices to their customers."

Stalk, G., Evans, P., and Shulman, L.E. (1992). Competing on Capabilities: The New Rule of Corporate Strategy. Harvard Business Review, March-April, 1992, 57-69.

More soon.....

Keywords: Case Study, Walmart, Wal-mart, Supply Chain Management (SCM) Practices, SCM, Supply Chain, Strategy and Organization in Supply Chains

Download Case Study: Walmart in Japan (pdf format)

Will Wal-Mart be able to sustain its supply chain advantage : Download Case Study on Wal-Mart's Supply Chain Practices in PDF format.

Supply Chain Masters

Achieving supply chain mastery. A few examples:

Dell Computers: Dell was struggling as a second tier PC maker until 1994. After it implemented a new business model, “build to order”, Dell eliminated its inventories and adopted a direct selling approach. The just-in-time (JIT) systemyielded rich dividends. Dell quickly became a market leader. Dell was able to make computers much faster than it produced earlier. Plant uptime also went up to a record 95 percent.
Click to download full text of this Case Study in PDF format: Dell's Supply Chain Management Strategy

Baxter: Baxter; in the hospital supply business established powerful partnerships with hospital customers in the mid 80’s. Baxter adopted ‘vendor managed inventory’ and managed its customer’s inventories within their hospital facilities. Also, by following ‘stockless system’, a supply chain innovation, Baxter transformed itself from a supplier of increasingly commodity like products to a distinguished provider of value added services.

Procter and Gamble (P&G): The ‘continuous replenishment system’ was pioneered by P&G when it partnered with Wal-Mart. Based on Wal-Mart’s product movement data; P&G replenished the stores. This supply chain innovation brought a striking turnaround in the consumer products and retail industries.

Scholastic, a world's leading publisher and distributor of children's books is another example of a supply chain master as it increased revenues substantially, by adopting a unique supply chain business model.

Glaxo Smithkline Supply Chain Challenges –Part II

Glaxo Smithkline (GSK) spends about GBP 800 million to develop a drug. Its efforts and money will go waste unless its customers get the product in time without any defects and have no difficulty in handling the package. In other words, every facet of GSK’s supply chain should be up to the mark. The previous article highlighted some of the supply chain challenges GSK faces. This article illustrates GSK’s response to those supply chain challenges.
Countering Market DynamicsLate pack customisation

To counter the challenge of supplying to a multifaceted US market and low volume niche markets, GSK implemented the late pack customisation programme. While typical production runs were up to 30,000 numbers for cost effectiveness, GSK could effectively produce as low as 100 or 500 packs at a time with this programme. For instance, basic boxes were volume filled with blisters at the pack site and shifted to the two distribution centres in Europe. At these centres, clear labels were printed online with country related information and applied automatically. Even country specific folded leaflets were attached automatically. Quality was ensured with three two-dimensional bar codes, one pre-printed on the box, the other pre-printed on the leaflet and another printed online on the label. Online inspection on the codes could be performed at one go owing to their inline position.

Countering Packaging Complexities
Global Pack Management

With more than 36,000 SKU’s and a six-month life cycle of its products, handling packaging specifications, associated graphics and artwork changes was an enormous task. Standardising the packaging changes was another major obstacle. GSK developed the Global Pack Management (GPM) to handle this complexity (currently in use for its prescription products). The GPM programme focussed on four major issues:

1.Change Standardisation- Packaging changes are standardised using global training and implementation programmes.
2. Developing a pack catalogue- All employees have access to a central and current set of all GSK’s packaging information. This helps foster idea sharing while achieving packaging optimisation simultaneously.
3. Central artwork development: Accordingly, only four centres (strategically chosen at US, UK, Italy and India) were to service the packaging graphic needs of all products. Earlier, 250 centres performed the same activity.
4. Uniform and centralised information technology- This helps streamline workflow. Since all the employees use the same central applications (For example, GSK adopts the graphics industry standard Apple Macintosh computers and software) it ensures uniformity. There are no serious encryption issues, if packaging artwork is transferred between similar standard systems.

Paperless labelling/electronic leaflets

According to FDA regulations, all drug companies in the US must print and attach labels to every product going into the market. So, any label or leaflet change can take up to a year to reflect with pharmacy stores first emptying existing inventory. Working along with the Pharmaceutical Research and Manufacturers of America (PhRMA), GSK has been striving hard to push forward its paperless labelling initiative. The aim of paperless labels and electronic leaflets is to prescribe information to healthcare professionals electronically. This will help instant updation as any change in the leaflet/label is reflected automatically. Patient safety is the ultimate goal of GSK.

Online Printing

GSK is working on developing online printing that matches the speed of the packaging line and prints at the desired quality level. Efforts are on to keep costs of online printing down.

Countering Supplier/Outsourcing issues
GSK realises the importance of finding and qualifying multiple suppliers to avoid any supply disruptions. For instance, for its popular Advair Diskus device, GSK has three suppliers, two in Europe and one in the US. The goal is to have enough capacity globally with all suppliers producing identical components with identical tooling on identical machines. Meeting strict regulations is of prime importance. Communication can play a vital role in establishing coordination among multiple suppliers. GSK uses an electronic CAD package. The CAD package has drawings indicating minor details and any subsequent or ongoing review to every component to overcome communication gaps if any.

Countering Operational/production challenges
GSK limits the number of equipment suppliers to minimise downtime. For instance, on one packaging line it has one supplier Schubert’s four robotic systems. The robots do the cartooning and case packing as well. In response, Schubert offers GSK the benefit of assigning a dedicated team that works for GSK alone. The team also has an office in GSK’s plant itself. Healthy supplier relationships have helped GSK minimise downtime. Moreover, all equipment from a single supplier facilitates a better understanding of the equipment functioning, than having disparate machines for same tasks. Thus training costs are also less.

Furthermore, GSK uses a central TIPS production management system that minimises downtime. The system tracks downtime data allowing for ongoing production improvements. GSK is able to maintain product quality with vision cameras and online inspection using bar code scanners. GSK prefers to be the rapid follower instead of being bleeding edge with respect to technology adoption. Instead of using ‘packaging only’ lines, GSK uses lines, which are integrated to do final assembly and packaging also.

GSK’s efforts as illustrated above have been successful. Organisations can follow its Supplu Chain Management strategies as they truly extend the value of product, packages, plants and people.