Read the case study below and answer ALL questions.
H&M: A Global Fashion Company
Hennes & Mauritz, hereafter H&M Group, is a family of eight brands where employees with different roles, skills and experiences come together to make great design accessible around the globe. H&M, COS, & Other Stories, Monki, Weekday, H&M Home, ARKET and Afound currently constitute the eight well-defined brands which make up the multi-brand matrix organisation called the H&M Group.
From its humble beginnings in 1947 as a single shop in the Swedish city Västerås, H&M is now one of the largest names in the retail fashion industry, handling an enormous supply network, warehousing and logistics. H&M employs over 177, 000 people, both in Sweden and in more than 4, 414 stores, which are in over 73 countries, spread across the globe, including most countries in Europe. Over the years, the rapid expansion has continued. Today there are H&M stores in Europe, North America, Asia, the Middle East, Africa, South America, and Australia.
It plans to open further stores (it has a target of increasing the number of stores by 10 -15 per cent each year), as well as expanding its online sales operations (currently 51 online markets) by rolling out its digital presence to an increasing number of countries. H&M’s digital ambition means setting up not only a dedicated website to serve each new country, but also the physical presence that can ensure goods ordered on it will be delivered to customers in that country.
The most visible part of H&M’s operations is its stores. The company says it wants these to provide an ‘inviting, inspiring and exciting experience’ to shoppers. While every store is unique, any is immediately recognizable as H&M from its signage, window displays and internal layouts. All stores seek to place the clothes centre stage through the use of internal displays that aim to provide styling tips and inspiration. H&M’s online stores try to emulate this experience in the virtual world, while providing additional accessibility for customers who can’t easily get to H&M’s physical stores, and enhanced levels of service by enabling customers to view and order a much wider range of merchandise (and in many more sizes) than will be possible in any physical store.
However, the stores are only the end point of a much longer supply process. This starts with design. All of H&M’s garments are designed in Stockholm by its in-house team of clothing designers, pattern-markers and print designers. They aim to provide something for men, women, and teenagers and children, whatever their taste or style.
The H&M Group has always believed that great design should, and can, be available to anyone. From the beginning, their role has been to democratise fashion. Today, that means making it sustainable: the only way to keep making great fashion and design available to many people, for many years to come.
H&M has a business model that focuses on outsourcing non-core operations so they can focus on the core business model. To do this, H&M buys clothing and accessories from a large selection of suppliers but does not own a single factory. Their core business is to have “fashion and quality at the best price”. In contrast to the design process, H&M does not produce any of its garments in-house, but instead buys its products from a network of over 1900 factories owned by as many as 900 independent suppliers which are based in
1
countries such as China, Turkey, Bangladesh, Cambodia, India and some European countries. H&M views its suppliers as long-term strategic partners who manufacture its products, including being responsible for sourcing the necessary fabrics (mainly cotton) and related components. By eliminating the intermediaries and outsourcing production they are able to focus on the design of their clothing and the retail experience. This approach gives consumers fashionable product with good quality and the best price. That said, they closely manage the production processes to ensure that you get that chic, trendy jacket at a great price.
As H&M buys large volumes of garments and other related products in these countries, H&M contributes by creating jobs for many people. For many countries, these jobs, created by companies within the clothing industry such as H&M, spark further industrial development and help to lift individuals and nations out of poverty.
H&M’s logistics and distribution operation must then ensure that the right goods end up in the right quantity as required by each store. Factory shipments are transported, mostly by sea and rail, to H&M’s logistics centres, which are strategically located in the geographic vicinity of its stores in each region. Stores do not hold backup stocks, and so must replenish as required from the distribution centres. In 2013, H&M launched its Garment Collecting Initiative (GCI), which enables customers to hand in clothes that they no longer want for reuse or recycling. This is aimed at creating a closed loop in textiles, so that nothing ever goes to waste. The first H&M garments containing materials from the GCI were launched in 2014 – denim garments that contained 20 per cent recycled cotton.
Source: www.hm.com (accessed on 30 September 2019)
Question 1 (30 Marks)
Drawing on the operations management literature and supporting evidence from the case study above where necessary, answer all questions below.
1.1 With the aid of an appropriate diagram discuss any FOUR (4) perspectives that inform the content
of the operations strategy of a globally competitive company, such as H&M. In your discussion
highlight how a consolidated view of the four perspectives of operations strategy provides
broader ideas about the pressures which inform the content of H&M’s operations strategy and
provide a practical example to illustrate each of the four perspectives. (15 marks)
1.2 H&M has a business model that focuses on outsourcing non-core operations so they can focus on
the core business model. To do this, H&M buys clothing and accessories from a large selection of
suppliers but does not own a single factory. Their core business is to have “fashion and quality at
the best price”.
Identify and discuss the core competencies and core operations of the H&M Group. (5 marks)
1.3 From the perspective of the comparative advantage theory, highlight the factors accelerating
the continuous expansion of outsourcing by global companies and discuss the non-core
operations which the H&M Group has decided to outsource. (10 marks)
2
Question 2 (15 Marks)
2.1 Discuss any SIX (6) possible reasons why the H&M Group has chosen to globalise
(internationalise) its operations beyond its domestic market of Sweden. (6 marks)
2.2 In pursuit of global opportunities multinational firms typically employ one of four options of global
operations strategy. By first elaborating on the four options of global operations strategy, identify
and analytically discuss the most likely global operations strategy option which the H&M Group
uses in their extensive international operations.
With the aid of a diagram and substantive evidence from the case study situate H&M Group within one of the four global operations strategy options. It is recommended that your discussion weaves together evidence from the case study on one hand and relevant theoretical viewpoints and
citations from relevant academic sources on the other hand. (9 marks)
Question 3 (15 Marks)
Study the information provided below and answer the questions which follow:
INFORMATION
H&M’s chief demand planner has estimated that 9,250,000 units of clothing will be sold in 2021. H&M’s cost of placing and processing an order is R250, while the annual cost of holding a unit in its distribution centre is projected at 5% of the unit purchase price. Both costs are expected to be constant for the foreseeable future. On average H&M sells a unit of clothing for R300.00 at cost plus 50%. Orders are received two weeks after being placed with the supplier. Assume a 365-day year and that demand is constant throughout the year.
Furthermore, as part of the drive towards operational efficiency, the chief demand planner is thinking about using the seasonally-adjusted moving average method to forecast demand for H&M’s clothing for the 2021 financial year. In this regard, Mrs Masuku has retrieved from the retailer’s database the following information on number of clothing sold over a four–year period.
Year Quarterly sales (‘000 units)
Q1 Q2 Q3 Q4
2016 1300 1500 1200 2000
2017 1600 1800 1100 2200
2018 1700 1900 1300 2300
2019 1800 2100 1400 2500
3.1 Study the information provided above and answer the following questions:
Calculate the economic order quantity (EOQ). (3 marks)
3.2 Using a simple regression analysis, determine the trend equation of the sales and use it to
estimate the number of units of clothing sold throughout the fiscal year 2020. Assume that
Q1 of 2016 is 1, Q2 of 2016 is 2, etc. Show all relevant calculation details. (12 marks)
3
Additional information:
For detailed discussion on operations strategy, outsourcing, core competencies, competitive advantages, etc. you are encouraged to consult:
Heizer, J., Render, B. and Munson, C. (2017). Operations Management: Sustainability and Supply
Chain Management (12th global edition). Harlow, UK: Pearson Education.
Slack, N. and Lewis, M. (2017). Operations Strategy (5th Edition). Harlow, UK: Pearson Education.
Preview at: https://www.amazon.com/Operations-Strategy-5th-Nigel-Slack/dp/129216249X/ref=sr_1_1?keywords=9781292162515&linkCode=qs&qid=1568407908&s=b ooks&sr=1-1
Any other Operations Management scholarly literature.
PROJECT GUIDELINES
Your work (excluding table of contents, cover page, diagrams, and appendices) must not exceed 5000 words.
Your work must include a Table of Contents page as well as an assignment cover page.
Text: Font: Arial or Arial Narrow (12), Spacing: 1.5 lines
All text must be justified at each margin.
All your discussions must be supported by relevant theories and literatures references, and must demonstrate the highest degree of rigour and relevance as expected of a postgraduate level academic paper.
Note that you are to include at least 8 literature sources in this assignment. Therefore, you are expected to conduct an extensive review of the literature beyond the confines of the module guide, to include relevant peer-reviewed journal articles, books, etc.
You are encouraged to use current academic sources in all your discussions.
Wikipedia and personal blogs are not considered as reputable academic sources and should not be used.
You are required to provide a list of references: One single alphabetical list of all references cited in
the text, containing in all cases full bibliographic details: author; date; title; publication; volume and issue of journal, where applicable; pages of journal article, where applicable; publisher; city; as well as full details of internet report author; title; URL of internet site and date on which internet site was accessed. We prescribe the use of the Harvard referencing system.
4
