Supply Chain Analysis of H&M

Table of Contents

1. Introduction
1.1 Company Introduction
1.2 SWOT Analysis

2. Structure of Supply Chain
2.1 BOM – Bill of Materials
2.2 BOR – Bill of Routing
2.3 Customer and Supplier Table
2.4 Business Scope Diagram
2.5 Geographic Map
2.6 Thread Diagram
2.7 Problem Definition

3. Supply Chain Analysis
3.1 KPI Decomposition Table
3.2 Aligning Metrics with Balanced SCORcard (BSC)
3.3 SCORcard with Gap Analysis
3.4 Metrics Decomposition
3.5 Current Reality Tree with Causal Analysis

4. Improvement and Conclusions
4.1 Future Reality Tree with Causal Analysis
4.2 Further Improvement Actions

References

Overview of Figures

Figure.1.2.1 SWOT Analysis

Figure.2.1.1 BOM

Figure.2.2.1 BOR

Figure.2.3.1 Customer and Supplier Table

Figure.2.4.1 H&M Business Scope Diagram

Figure.2.5.1 Geographic Map (1)

Figure.2.5.2 Geographic Map (2)

Figure.2.5.3 Number of stores of the H&M Group in 2018, top 10 countries selected

Figure.2.5.4 Geographic Map (3) – Example Europe

Figure.2.5.5 Delivery time to markets distributed from Poznan DC

Figure.2.5.6 Delivery time to markets distributed from Boras DC

Figure.2.6.1 Thread Diagram Example Europe

Figure.2.7.1 Global Supply Chain Challenges

Figure.3.1.1 KPI Decomposition Table

Figure.3.2.1 Balanced SCORcard analysis

Figure.3.3.1 SCORcard Analysis

Figure.3.4.1 Metrics Decomposition

Figure.3.5.1 Current Reality Tree with Causal Analysis

Figure.4.1.1 Future Reality Tree with Causal Analysis

Figure 4.2.1 ABC Classification of H&M products

1. Introduction

1.1 Company Introduction

H&M is a fashion brand, offering the latest styles and inspiration for all. Customers will find everything from fashion pieces and unique designer collaborations to affordable wardrobe essentials, complete-the-look accessories and motivational workout wear.

H&M was founded in 1947 in Sweden, operating in 72 countries with 4,420 stores around the world and online shopping availability in 48 countries.

1.2 SWOT Analysis

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Figure.1.2.1 SWOT Analysis

2. Structure of Supply Chain

2.1 BOM – Bill of Materials

H&M has variable products; you cannot only get stylish accessories, but also motivational workout wear. In this report, we focus on their main product, apparel product, to introduce its BOM.

Due to product variability, H&M has many kinds of fabric materials, sewing thread materials and button materials, which are in the level 4, up to level 3 there are apparel fabric, sewing thread and button. These three items will be processed to garments, garments with the size label and hang tags, which are in level 2. A combination of these three will become the completed apparel product. In level 2, the apparel product will be packed with the polybag and cartons, and then transported to H&M stores around the world. Level 0 is the product that customers can get in H&M stores.

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Figure.2.1.1 BOM

2.2 BOR – Bill of Routing

Below you can see the supply chain cycle of H&M, from organic cotton farming to ginning, further going into the manufacturing process, which includes spinning, knitting, dying, cutting and sewing. After the manufacturing, the next step is packaging. All the products will be packaged and sent to the harbor and shipped to different countries. When products arrive, they will be delivered to the local warehouse, following key activities would be marketing, sales, final disposal and R&D.

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Figure.2.2.1 BOR

2.3 Customer and Supplier Table

There are three main types of suppliers for H&M. The first one are the manufacturing factories, which supply the cutting and sewing, second are processing factories, which are responsible for spinning & knitting, creating prints, washings, embroideries and dying. The last ones are fabric and yarn mills; they are the second tier suppliers, which provide fabric and yarn to manufacturing factories and processing factories. Normally H&M does not have direct business relationships with the mills. Nonetheless, H&M is working more and more to increase their influence and to support improvements at various stages of the supply chain. At the same time, H&M is integrating the most important fabric and yarn mills into their audit program and into their supplier-relationship management strategy. As for the suppliers’ geographic location, there are 40% in Europe and 60% in Asia.

For the customer table, we separate customer groups by areas, which are Europe and Asia. For the lead-time from suppliers to customers, in Europe, it is just 2-6 weeks, but for Asia, it is 3-6 months since the manufacturing locations are far from the sourcing location and another reason is that H&M choose the cheapest and eco-friendliest way of transportation (ship and train).

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Figure.2.3.1 Customer and Supplier Table

2.4 Business Scope Diagram

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Figure.2.4.1 H&M Business Scope Diagram

In the business scope diagram above, we divided into three sections, which are suppliers, H&M Company and customer. Punctuated arrows indicate flow of information; full arrows represent flow of goods. H&M completely outsourced the manufacturing/supplying part that includes spinning knitting, dying, cutting and sewing. Their suppliers/manufacturers (over 900) are seen as strategic partners. The main part of the manufacturing process takes place in Asia. A key point in H&M´s business is, that the manufacturers and suppliers are all connected to the company´s global ERP-system and graded by H&M based on their performance. Satisfactory performance enables the opportunity of vertical integration.

H&M has 20 Production offices, who work in close relation with the manufacturers. After production, the goods are transported to one of their 13 distribution centers worldwide. In order to keep economic stability and facilitate environment friendly transportation H&M only uses shipping and railway. Only in very exceptional cases, airplanes are used. It need to be mentioned, that the whole transportation is outsourced as well. The red circle in the diagram indicates H&M`s core company. Besides production offices and distribution centers, their Headquarter in Sweden (Stockholm) is the heart of the company. This is where the R&D and the designing process of new products is located.

Although nowadays 85% of their purchases are made online, there is still demand for physical H&M-stores around the world. To give a rough idea about H&M´s store net around the world, we can state that there are around 4400 stores in 72 countries. Every single store has an Electronic Point of Sale System (EPOS), which is connected to the global ERP-system. In addition to the flow of goods from the stores/distribution center to the customer, H&M also offers reverse logistics to its customers. Unwanted clothes can be given back to the store and the client can get a discount on his next purchase.^{1 2}

2.5 Geographic Map

As already mentioned above H&M is a worldwide operating company. Therefore, the geographic interrelations between single units is a very crucial part, when analyzing the supply chain structure. This part is developed in a comprehensive way, starting with suppliers, continuing with operating countries and concluding with an illustrative example of flow of goods and flow of information in Europe.

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Figure.2.5.1 Geographic Map (1)³

In this world map, the dark green countries are countries, where H&M has its suppliers. The major part of its over 900 suppliers is in Asia, followed by Europe. The minor part of its suppliers is in Africa and North America. The blue circles in the map represent their 20 production offices, who receive production orders from the Headquarter in Stockholm – marked as a red house in the map – and assigns orders to suppliers and manufacturers respectively. Furthermore, the production offices around the world ensure that products are delivered on time and at an agreed-upon price, enforce fair labor standards at supplier factories and choose the right suppliers. 100 in-house designers at the headquarters in Stockholm analyze emerging fashion trends and translate them into product designs. Another 400 designers expand these styles into actual H&M collections. In addition, the 17 distribution centers are marked as red triangles, e.g. in Poznan (Poland) or Boras (Sweden).^{4 5 6}

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Figure.2.5.2 Geographic Map (2)⁷

The second geographic we would like to introduce shows the countries where H&M is operating in. The red marked countries indicate that H&M has physical stores and in most cases, it offers the opportunity to shop online as well (stated: February 2019). Production offices, Headquarter and Distribution Centers are implemented in the same manner as in Geographic Map (1).

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Figure.2.5.3 Number of stores of the H&M Group in 2018, top 10 countries selected⁸

After detailed explanation of the geographic map, it may be interesting to see H&M´s most important markets in terms of countries. More than 1000 of almost 5000 stores are nearly equally distributed to the USA (578) and China (530). As a result of that, we can state that around more than 20% of H&M´s operations are taking place in the USA and China. All the other countries, who are contained in the top 10, are European countries. Taking all European countries together, their share is higher than those of US and China are. Therefore, we conclude that Europe is the most important market for H&M. At this point Germany deserves special emphasize. Although it ranks on number 3 behind China and the USA with 469 stores, the density of stores, in consideration of population and country´s size, is the highest around the world. Therefore, Germany can be identified as the most significant country in H&M´s most important market, followed by UK (304 stores) and France (237 stores).

Nevertheless, we need to keep in mind that nowadays 85%⁹ of customers purchase their clothes online and that the number of stores as a key performance indicator loses its importance gradually.

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¹ Unknown (2014)

² Engelmann (2016)

³ H&M website (2019)

⁴ H&M website (2019)

⁵ Kondracki (2018)

⁶ Engelmann (2016)

⁷ Wikipedia (2019)

⁸ Statista (2019)

⁹ H&M annual report (2018)