JAMYLENE S.

DAGAMI
HRDM III-B
LOGISTICS MANAGEMENT

The clothing retailer H&M was founded in 1947, but during the last decade the
company has made it to the top with $20.3 billion yearly sales.
Forbes now lists H&M #31 in its brand value Top 100, along with Apple and Coca-Cola. In
decade, retail giant Walmart has grown from $70 to $127 billion.
Similar fortune is walking with highly successful clothing chain Zara ($14.4 billion yearly) and
furniture megastore IKEA ($28 billion).
Price Economy with Short Lead Times
H&M has 3500 stores in 55 countries, with a huge supply network, warehousing and logistics
to handle.
H&M’s operations are built around a team of 100 designers, who work closely with a baffling
number of companies on the production side – having no factories of its own.
H&M cooperates with over 700 suppliers, 60 pattern makers and 20 worldwide production
centers.
Though it’s vital to follow fashion trends, the clothing retailer’s success is bound to
price economy. This is where inventory management strategy steps in.
H&M manufactures 80% of its retail inventory in advance and, during the year, introduces the
remaining 20%based on present-day market trends.
Affordability is reached with strong supplier relationships, paired with manufacturing
strategies that reduce lead times.
H&M has 30 international supply partners, and a central inventory management software
system.
Adopting a modern IT infrastructure has brought the average lead times down by 15-20%.
Flexibility and short lead times reduce the risk of buying the wrong items. This allows H&M
stores to restock quickly with the bestselling products at economical prices.
Zara Avoids Inventory Buildup
Zara is an large retail chain with its 6,900+ stores in 86 countries, and 450 million items sold in
year.
The retailer has opened about 400 stores annually on average over the past 5 years spread
out among eight brands.
The brand is renowned for its ability to deliver new clothes to stores quickly and in small
batches.
Twice a week, at precise times, store managers order clothes, and twice a week, on schedule,
new garments arrive.
To achieve this, Zara controls more of its supply chain than most retailers do. On the contrary
to H&M, Zara keeps a most of its production in-house.
For Zara, its supply chain is its competitive advantage. In-house production allows it to be
flexible in the amount, frequency, and variety of new products to be launched.
Incredibly, it designs, manufactures, distributes, and retails clothes within 2 weeks of the
original design first appearing on catwalks.
Six months in advance, Zara commits to only 15 to 25 percent of a season’s line. And it locks in
merely half of its line by the start of the season, meaning that up to 50 percent of its clothes
are designed and manufactured right during the season.
If a style becomes highly popular all of the sudden, Zara react instantly, creating a new design
in the popular style, then gets new items into stores while the trend is still peaking.
From Customer Feedback to Inventory Management
Zara’s inventory management software lets the store managers to communicate customer
feedback on what they’re looking for, what they like and dislike. Zara’s designers keep
sketching, based on the data.
Constant slight changes give customers a sense of scarcity and exclusiveness. This strategy
allows Zara to sell more items at full price. Less mark-downs, less inventory piling up in any
part of supply chain from raw materials to finished products.
Inventory optimization models are used, so the company can determine the quantity to be
delivered to a single retail store twice a week.
The stock delivered is strictly limited, ensuring that each store receives just what it needs.
Thus, the brand image looks exclusive, and building up of unpopular stock is avoided.
The batches delivered are small, so if the hastily created design does not sell well, little harm
is done inventory-wise.
Peaks in demand can be address quickly, as a Zara factory usually operates only 4.5 days per
week on full capacity, leaving flexibility for extra shifts.
The core of Zara’s success is centralized enterprise
resource planning. Inventory, products and logistics are managed in central cloud based
software.
The merchandize is already priced and labelled for selling when it to a store. The operations
are monitored in real time, and changed accordingly. At Zara, change doesn’t disrupt the
system; it’s part of the system.