H & M, (Hennes & Mauritz AB) is a Swedish multinational retail-clothing company, known for its trendy fashion clothing for men, women, teenagers and children. It started out as a single womenswear store in 1947, and subsequently transformed to a global company offering fashion for the whole family, and their home. The business concept is to give the customer unbeatable value by offering fashion and quality at the best price. H&M ensures the best price by having few middlemen, having a broad, in-depth knowledge of design, fashion, textiles, buying the right products from the right markets, and being cost-conscious at every stage. H&M is driven by seven core values, namely; Keep it simple, Straight forward and open-minded, Constant improvement, Entrepreneurial spirit, Cost conscious, Team work, Belief in people.
H&M’s quality testing is extensive, coupled with hard work to make sure goods are produced with least possible environmental impact and under good working conditions. Production is outsourced to independent suppliers as H&M does not own any factories. Apart from this, H&M does not own any of its stores, as they rent store space from international and local landlords. H&M is present in 43 countries and has employed about 94,000 people as of 2011. It has 2,325 stores at end of 2011 and 2,629 stores at end of August 2012. It is ranked the second largest global clothing retailer behind Zara and No. 1 user of organic cotton worldwide.
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Current Logistics process of H&M
H&M does not own any factory, they have outsourced to external suppliers that managed two departments: Procurement and Production. The Procurement function focuses on customers, fashion and composition of the range. The clothing designs are created in Sweden by around 100 internal designers, 50 pattern designers and an estimated 100 buyers. H&M’s method of production is customer-driven. The company puts emphasis into research and forecasting of emerging trends, both through traditional research methods and innovative ones such as street trends. This activity is conducted by central staff and national offices which are responsible for detecting new trends. The production function involves 21 production offices. H&M purchases garments from about 750 suppliers, in which 60% of production takes place in Asia and the rest mainly in Europe.
The production offices have a mediating function between the internal buying department and external suppliers. They ensure that the buyers’ orders are sent to the right supplier, the goods produced are of the correct price and quality and that the suppliers adhere to the company’s code of conduct. Additionally, production offices also deal with the checking and testing of sample garments, which contributes to reducing lead times. The decision of determining which supplier is the right one is not only a matter of cost-efficiency but is dependent on other factors such as transport times, import quotas and quality control aspects. To reduce risk, buying is carried out on an ongoing basis throughout the year.
Continuous IT developments over the years have helped to support H&M logistics. While the inventory management is primarily handled within the H&M organisation, transport is outsourced to third parties. In terms of distribution, H&M adopts sea transportation where their finished products are shipped to a distribution centre in Germany, which will serve as a transit terminal. The transit terminal will be en-routed to receive the goods from all the suppliers across the world. Upon arrival at the designated location, goods are inspected and allocated either in a store or in the centralised warehouse. The role of the warehouse is to hold and replenish inventory levels in stores according to selling trends.
The Essay on Production Function
Question No. 1P: 219 Explain the difference between short run and long run production function; cite one example of this difference in a business situation. The short run production function shows the maximum quantity of a good or service that can be produced by a set of inputs, assuming the amount of at least one of the inputs used remains unchanged. While a long run production function shows the ...
