ROLE OF LOGISTICS IN H&M CLOTHING COMPANY 1 1. INTRODUCTION ABOUT H M. Hennes and mauritz functioning as H&M. Which is world third largest clothing retailers operating with 2300 stores in 43 countries over 90000 employees directly and indirectly. Its Sweden based clothing company known for its fast fashion; in 1948 the founder Erling persson started the company in Vasteras, Sweden. Initially when the company was commenced Erling were selling only women’s clothes and the company was called as “Sweden for Hers only”. Since 1948 the company started selling kids, men’s apparels and the company was abbreviated to H&M. H&M basically operated from Stockholm headquarters; the designs were made at headquarters and supplied to 800 manufacturing units in China, India, Pakistan, Bangladesh and Turkey. The designs for all the garments are made in headquarters and send to the manufacturers, to avoid any damages, lead times, slow shipping process the company setup the buyer office at capitals in addition respond to competition and demand. The “interbrand” the branding consultancy graded the company as 21 st most valuable global brand in the year 2009-10 by the worth of 19$ million 1
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ROLE OF LOGISTICS IN H&M CLOTHING COMPANY 1
1. INTRODUCTION ABOUT H M.
Hennes and mauritz functioning as H&M. Which is world third largest
clothing retailers operating with 2300 stores in 43 countries over 90000
employees directly and indirectly. Its Sweden based clothing company known
for its fast fashion; in 1948 the founder Erling persson started the company in
Vasteras, Sweden. Initially when the company was commenced Erling were
selling only women’s clothes and the company was called as “Sweden for Hers
only”. Since 1948 the company started selling kids, men’s apparels and the
company was abbreviated to H&M.
H&M basically operated from Stockholm headquarters; the designs were made
at headquarters and supplied to 800 manufacturing units in China, India,
Pakistan, Bangladesh and Turkey. The designs for all the garments are made in
headquarters and send to the manufacturers, to avoid any damages, lead times,
slow shipping process the company setup the buyer office at capitals in
addition respond to competition and demand. The “interbrand” the branding
consultancy graded the company as 21st most valuable global brand in the year
2009-10 by the worth of 19$ million estimated*. Since 2009 H&M stepped into
home furnishing but the orders were done only on online catalogues and home
furnishing stores was launched only in Germany, Denmark, Sweden, Norway,
Finland and the UK.
The company was highlighted among the competitors like Zara, Inditex, and
Primark. When they made collaborations with Guest Designers like Karl
Lagerfeld, Avant-garde, Mathew Williamson and Madonna for their
promotion. In 2011 February the made a collaboration with Versace and
D&G. The details about logistics organization of H&M and problems will be
discussed in empirical backdrop.
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1.2 EMPIRICAL BACKGROUND
The theoretical contextual towards this research outlook the attitude in logistics
models on logistics strategy, logistics functions. The empirical backdrop of the
research is carried on sightings of companies that physical exercise their
logistics in developing under upheld profitability.
H&M, Primark, Inditex, Wal-Mart, Dell, Zara are the companies with high
level of logistics contents in their elements of approach (strategy). In this
dissertation we use Hennes and Mauritz, which is functioning as H&M. The
above-mentioned companies are also good examples companies with logistics
strategy as element of approach, H&M Company use their competency in
logistics to endow long-run development and profitability, in very distinct
ways.
After analyzing the CSR reports of H&M clothing for the last five years, the
company has brandished development under steady profitability throughout the
years (H&M annual report, 2001; 5006; 2007; 2008; 2009; 2010). The main
strategy of the company is to increase the profitability along with the growth of
company; the main target of the company was to increase the number of stores
across the globe nearly 20-25 percentages with an increase in sales (H&M
annual report, 2010). Basically the company operates from its headquarters at
Stockholm the major decisions related to Human resource, marketing, shop
designs, procurement, designs, finance, and logistics (hm.se). Even though
there are headquarters in most nations where the anxiety is present.
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ROLE OF LOGISTICS IN H&M CLOTHING COMPANY 3
Figure 1. profit graph of HM
Share price
Profit after tax
The figures are express in €.
(Source: hm.com, annual reports, 2010)
The logistics management of H&M is vast and uses roughly 5,600 employees
directly, while H&M deals with cross docking and inventory management and
transportations and 3rd party logistics (3PL) are carried out through TNT 3rd
party logistics providers, this can be predetermined within relation towards the
gross numbers of 32000 employees. Correspondingly, the cross docking
terminal at Hamburg receives the goods sent from suppliers and store it in the
Hamburg hub which is operated by company itself the goods are delivered on
the demand basis to the stores and the online ordered goods are delivered to the
customers by Hamburg terminal in the European regions.
The inbound logistics ensue from 890 distinct suppliers from Southeast Asian
countries. The company uses the formula introduced by Nissan-cogent, co-
development. Mostly production is intensified to Southeast Asian and European
countries. Here H&M implies early suppliers participation where the 32 buying
offices are established in different production place to avoid damages and get
benefitted of shortened lead-time, the main intension of setting up buyer’s
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office at production place is to reduce lean at every stage at earliest possible.
With decentralization the decisions related to productions are decided and
executed easily, by this system the company has précised the lead-time unto
20-25 percentages. The garments markets are always sensitive with its demand
and supply and alters according to the con-temporary fashions, with shortened
lead-time the garments of H&M clothing rules the garments market prior to
other competitors. The lead was adjusted according to the orders and demand
trendez garments are manufactured in short time period and transported with
more expenses, the seasonal garments orders are designed at headquarters and
placed to production units with longer lead-time which brings downs the
logistics cost and distribution cost. See appendix for customs clearance and
logistics operational cost.
Here the interesting part is strategy of H&M clothing, the company remain the
world 3rd largest retailing stores, and the companies turnovers has increased
more than 60 percentages. Correspondingly, profit after tax (PAT) is averagely
increased around 170 percentages in last 3 years and expansion of stores was
increased up to 48 percentages in last 3 years, this expansion growth is possible
without any monetary support for an enterprises, but it wouldn’t be possible
without of role of logistics. Here logistics plays a vital role in covering the vast
geographical area.
In increasing to novel geographical markets, H&M follows an approach of
moving into one market at time. In a high speed step the density of outlet in a
territory is broadened in order that economic procedures of scale can be arrived
at in environs for instance logistics and marketing. Instead of first initiating a
logistics quintessence the new markets demand are always measured for
intended efficiency.
In their fresh store developments in Germany, Poland, Czech Republic, Italy,
Spain, and Austria. The above examples shall be seen the company share the
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ROLE OF LOGISTICS IN H&M CLOTHING COMPANY 5
distribution center and transportation with neighbor countries headquarters
which bring down the operational cost and logistics cost.
The strategy of H&M, theory used by H&M shall be discussed in other
sections. In addition to that additional logistics models would be recommended
for H&M clothing with their advantages and disadvantages.
1.2 SCOPE AND LIMITATIONS
The backdrop of this study is founded on functional and theoretical fact of
H&M Apparel Company or any production and trading business units that is in
charge to achieve long-term growth under strengthened profitability by means
of logistics. In this research aside from achieving long-term growth under
strengthened profitability, role of logistics and logistics operations in the firm is
widely outspoken in the research. Here businesses with high grade of logistics
content like H&M apparel retailing business would be a broader focus.
But although, I powerfully accept as factual that the recommendations and
outcomes of this study would advantage the logistics content apparel business
to the bigger extent. It’s in the scope of the research to analyze and describe the
logistics roles and operation in the case of H&M clothing company. The
research covers only logistics strategy and logistics operations with it IT uses,
it doesn’t cover company strategy formation.
1. LOGISTICS
The term logistics was derived from Greek word ‘logistiki’ (λόγος). Initially
logistics was used in military forces to logistics weapons and arms during the
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war time later on it was used for business logistics purpose, It’s a part of supply
chain management, which deals with procuring raw materials, stocking
finished goods, transporting, and delivering goods to the customers, it
comprises of all materials flow and information for organization (Pollitt, 1998).
In short logistics puts right things at the right location at the right time. Some
times material management, channel management, supply chain management,
physical distribution management shall be known as logistics (ohannessen et
al, 2002). The scope and important of logistics have been extended with
improved new technologies and companies multinational operations in cross
boundaries. According to Bowersox in today’s highly competitive market every
company is trying to accelerate their product and efficiencies by means of
logistics. In recent days Logistics is considered to be most important
competitive advantage (Christopher, 1992). Logistics has advanced from
single-party (self managed) to 3rd party logistics (3PL) is used for storing
inventories and physical distribution; 5PL (multi-party) is used for
multinational operations e-logistics networking. The main purpose of using 3rd
party and 5PL is to bring down the operational cost, maintain inventory level,
to meet demand fluctuation and bring down the capital investment.
According to Christopher and Richardson, The corporate logistics faces some
problems like inability to provide service, improper and delayed information’s,
slow operations, high rate of operational cost and unable to meet the demand
when there is a fluctuation. The researchers have inspected the problems and
suggest integration of logistics, 3PL and 5PL would be better solutions to meet
the required demand in fluctuation, bring down the operational cost and to
provide good service (Fawcett et al, 1993) (Richardson, 1995). The main
functions of logistics are procurement, production, warehousing, distribution,
after sales logistics and disposal logistics.
Procurement logistics - It comprises of buying raw materials, market
research, requirement planning and order planning. Some time the
procurement targets might be inconsistent, procurement logistics always
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concentrate on core competency to maintain the autonomy of the
company that reduces lean in procurement with adequate inventory level
(Pfohl, 2004).
Production logistics - The principles of logistics concepts for
production is called production logistics, It include all the logistics
functions connected to procurement to production to warehouse
distribution. Production logistics is always placed centered to
procurement and production logistics like purchasing a raw materials
converting into product and send to warehouse storage (Pfohl, 2004).
Warehousing logistics (3PL) - Inbound logistics or incoming finished
products are stored in warehouse (Pfohl, 2004). Warehousing can be
also called as 3rd party logistics provider.
Distribution logistics – it deals with Distributing required amount of
goods with right quantity and quality to the retailing stores, customers. It
comprises of transportation and warehouses (Pfohl, 2004).
After sales logistics – It provides good customer service after sales,
replacing defective goods. It’s otherwise called as reverse logistics
(Pfohl, 2004).
1.3 LOGISTICS STRATEGY OF FIRM
Chandler characterizes Strategy; “strategy is the resoluteness of the absolutely
crucial long-run goals of the association and adaptation of main headings and
activities and the proposition of assets assigned to convey out the directed
goals” (chandler, 1962). Meanwhile Porters and Mintzberg argued that
strategy is just to attain market growth and market position by set of supported
activities, on resource based it can be strengthen competitive advantage in the
market (Mintzberg, 1987). However strategy cannot be defined as single
actions, so it was classified in to five definitions like perspective, positioning,
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ploy, pattern, and plan. Even though the word has only one meaning naturally
it’s essentially classified in many ways (Mintzberg, 1987) (Barney, 1991).
H&M clothing implies strategies like push and pull strategies, which would be
discussed in other section. According to Stalk and persson ‘logistics strategies’
importance have increased in recent days, as strategies weapons innovative
product, quality and time which is equivalent to monetary (Stalk, 1988).
According to persson time is the basic problems concerning logistics strategies
on competitive differentiation (Persson, 1991). Many authors like (Bowersox
and Daugherty; McGinnis and Kohn; Cavinato; Norrman; Christopher;
Abrahamsson; Stock et el) have argued on classification of logistics strategies
and logistics relationship to organization structure.
Here the classification of logistics strategies states the importance of logistics
role in the organization that can alter the strategy of the firm.
CLASSIFICATION OF LOGISTICS STRATEGY
Lots of research has been done on classifying logistics and strategy authors like
Kohn, Bowersox, Daugherty have done large numbers of research on logistics
strategies to get noticed of important aspects of logistics strategy in the
company (Bowersox, 1987) (Kohn, 1990).
Bowersox have classified strategy in three general types like information,
process and market strategy are discussed below in detail.
Information strategy - Information strategy, which can be termed
channel strategy. It analyzes the flow of information inside the
organization and converts its available information’s into business
strategy. Information’s strategy comprises of coordination in
organization and uses logistics to work together with good assistance
(Bowersox, 1987).
Process strategy - It comprises set of early 20th centuries logistics
activities, as value added system (Daugherty, 1987).
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Market strategy - Its similar to process strategy functions, which are
established over enterprise hubs (Bowersox and Daugherty, 1987).
Based on the strategic management and boarder notion of strategy Mintzberg
have five classifications strategies as…
Plan - Plan as strategy, which means the strategy is made in advance to
action
Ploy – ploy as strategy, which is nearly similar to plan c
Pattern –
Positioning –
Perspective -
Kohn and McGinnis have given the other classifications of logistics strategies
like intense, balanced, unfocused, low integration logistics strategies, low
effectiveness logistics strategies, integrated and intensive logistics strategies
in 1990’s. This classification of strategies will be discussed in literature
section.
DISPOSITION
In alignment to present the general of thesis’s structure, here pattern of journal
from the first section to the last part of the conclusion been outlined.
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Introduction and scope of the dissertation
Introduction and scope of the dissertation
Chapter 1. Introduction and scope of the dissertation, this section presents
backdrop of logistics, logistics strategy, and Hennes and Mauritz logistics
organization and importance of logistics in multinational operations. In
addition to that empirical data are provided.
Chapter 2. Research methodology this section presents how the research was
conducted and how methodology was chosen and how the interviews were
carried out. Followed by frames of references.
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Research methodologyResearch methodology
Analysis of Empirical study
Analysis of Empirical study
Conclusion and Recommendations
Conclusion and Recommendations
List of ReferencesList of References
ROLE OF LOGISTICS IN H&M CLOTHING COMPANY 11
Chapter3. Empirical analysis this section presents empirical analysis, the
business strategic tools are used to identify the H&M internal strengths and
external weakness. According to analysis suitable organizational theories are
applied to strengthen the company. The organizational theories are widely
concentrated eliminating waste in H&M productions, logistics and marketing.
And sustaining long- term profitability by means of logistics.
2. METHODOLOGY
According to (Li and Cavusgil, 1995) when carrying out an investigation on
any subject or topic or state of knowledge in the field. The authors can take up
three advances the first set about is Delphi procedure, where the professionals
who are experts in the specific subject are surveyed. Second set about is Meta-
investigation in which preceding forms on specific topics are assembled and
statically analyzed. In addition this approach was given by (Ashenbaum et al,
2005) to calculate the 3rd party logistics growth rate in European countries and
US. The third approach is the content analysis, which we ultimately use in this
dissertation. Normally content analysis can be done with two levels the first
level is definition of sources and analysis of articles, the second level is
classifying the collected articles. In the beginning 25 journals in the field of
logistics, reverse logistics, 3rd party logistics (3PL) covering time period 1960-
2011 the articles was searched dealing with any facet of logistics strategies and
logistics operations.
The area of this research is divided into two parts: logistics strategy and
logistics operations. Most of the theories from logistics strategy and operations
perspective have specified beginning in literature review, based on articles in
supply chain management and logistics journals that are available in online
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database from Coventry University library, National University of Singapore
(NUS), Brunel university. The journals are selected and studied in qualitative
method.
1. American society of transportation and logistics
2. European journal of purchasing and supply chain management
3. Journal of business logistics
4. Supply chain management (Scm)
5. International journal of logistics
6. International journal of physical distribution and logistics management
7. International journal of logistics system and management
8. International journal of logistics research and applications
9. The logistics manager
10. Transport research
11.Transport logistics
12. Others,
In searching appropriate articles I used ‘logistics strategy’ and ‘logistics
operations’ in keywords, nearly 119 articles were found, each articles contents
and text were reviewed in ordered to omit the articles that were not related to
logistics. At the end of eliminations 42 articles related logistics, 3PL, reverse
logistics were identified. An ancillary search was conducted using Business