H&M Inventory Management Assignment Sample

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Introduction

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In 1947, Erling Persson started H&M, a clothing company based in Sweden. More than 1,500 H&M shops are open throughout the globe today, selling everything from apparel to accessories to cosmetics (Xuejie, Chang, and GuangHao, 2019). As a result of its fashion, quality, and price-all-in-one business model, H&M has built an efficient and inexpensive supply chain. H&M is presently Europe’s biggest clothes store, and its profitability has risen even during the current retail sales slowdown. To keep prices low on garments, the retail behemoth relies on long-term ties with suppliers and lean production processes to maintain strategic inventory management. However, the recent surplus in H&M inventory during the first quarter of 2020 has been an alarming situation for the company that must be addressed. Hence, this research will focus on this problem statement and answer three particular research questions using secondary data collected from credible scholarly articles and journals, along with news articles:

Q1. Why is inventory management an issue with H&M?

Q2. What different aspects of the supply chain are impacting the inventory?

Q3. What are the recommendations for H&M to improve inventory management to go forward? 

2. Findings and Discussion on H&M Inventory Management

2.1 Interpreting Previous and Recent Surplus in Inventory

As per H&M’s Annual Report for 2018, based on the opinion of Grill-Goodman (2018), the company has $4.3 billion in surplus inventory, and the company thinks that digitization to a considerable part may help them reduce the inventory. H&M has now implemented “Radio Frequency Identification” (RFID) in over 1800 of its shops and plans to use it in many more shortly. As a result, they have launched Afound, an off-price marketplace for fashion and lifestyle items, in 2018, which they anticipate will alleviate some of the burdens of their overflowing stock inventories. Automated warehouse systems have also been installed in most H&M facilities, according to a company statement. As a consequence of the automation of logistics centres, lead times have been reduced to an incredible amount.

However, the issue seems to be striking the business once more during the pandemic of COVID-19. From the report published by Cook (2020) in financial Times, it seems that fashion firms across the world face what to do with all of their unsold items from the “Spring collections”.  During the world’s catastrophic pandemic, businesses shuttered for months and merchants worldwide cancelled orders to avoid financial losses. Only those who had already paid their vendors were left holding the bag. Stores acquire too much of a certain product for the season and then reduce it in the end-of-season discounts to attract lower-priced buyers. Both luxury and mass-market firms have a history of ordering too much since it’s easier to scale up production with a factory and deal with the extra afterwards. By the end of April, H&M, the Swedish fast-fashion retailer, had unsold inventory worth £3.4 billion. For the sake of preserving a brand’s reputation and maintaining its pricing integrity, some of that inventory would typically be burned or dumped. As a result of the growing scrutiny, France announced that it will restrict the burning of consumer products worth €800 million annually by that date due to the heightened risk. Inventors must develop innovative strategies for eliminating.

According to the research of Rathore, Maheshwari and Jain (2019), inventory management at H&M may be either centralised or decentralised. Some of the inventory management tasks, like Quality Inspections and excess stock holding, are centralised. Professional inventory managers are hired to perform these responsibilities, hence lowering the likelihood of severe damage occurring. The decentralised inventory management system used by H&M, on the other hand, is only used in certain instances. By restricting one’s operations to a single area market, one may ensure that local clients’ needs are met while keeping inventory under control. Clients like the decentralised approach to customer support used by H&M. The fact that there are no more things accessible while purchasing at H&M is another drawback. Once the supply of commodities has been exhausted, a request for more commodities is submitted, and the regional replenishment centres deliver the additional commodities.

Macas et al (2021), in their research, have opined that inventory management standards that are too loose might lead to poor service quality. Customers are happier when there is a drop in unmet demand and an increase in the number of completed goods available to be sold. For basic clothes fashion retailers, it is important to maintain a high degree of inventory service for seasonal items. Alternatively, when the fashion manufacturer’s inventory service level aim is low, it might enjoy the advantages of increasing its profit level. Also, in the luxury fashion sector, it is important to have a limited inventory service level on particular goods to portray exclusivity.

2.2 Outlining Impactful Supply Chain Aspects for H&M Inventory

Demand Forecast for SC Operation

Based on the opinion of Rathore, Maheshwari and Jain (2019), the efficiency of a company’s supply chain operations is heavily dependent on its ability to accurately predict customer demand. Waste of resources, larger inventory, higher labour costs, inefficient use of operating spaces, etc. is all consequences of a company’s inability to accurately estimate demand for a product in the first place Demand forecasting in the fashion sector is more challenging than in other industries because of the lengthier lead times, unpredictable client demand, and shorter selling seasons.

SC Influenced by Volatile Market of Fashion

Being in the fashion business entails a certain amount of danger, as information has been derived from the company annual report (hmgroup.com, 2021). It is possible that some of a collection’s pieces may not be well-received by shoppers because of the short shelf-life of fashion. Increasingly, shoppers’ desire to live a more sustainable lifestyle affects their buying choices. For each idea, it’s critical to have the perfect quantities and a proper combination of classic styles with the newest current trends. If summarised, every collection must attain the finest possible balance of style, quality, value, and long-term viability for the consumer.

Logistics and Transportation

Xuejie, Chang and GuangHao (2019) have opined in their study that H&M’s unsold item inventory might also be attributed to the company’s decision to outsource its logistics. To guarantee timely delivery and deployment of goods, DHL and Green Cargo handle all of the company’s logistics; freight transport is subcontracted to competent transport firms, utilising an ICT platform for tracking the logistics process management and arranging the optimum route. Control effectiveness, cost, and professionalism are all taken into account to guarantee H&M’s core competitiveness in cheap prices and good quality. A second difference between H&M’s speed and ours is that we focus on logistics and transportation costs, thus trains and ships are our primary vehicles of transportation.

Response from Market Impacting SC

H&M makes 80% of its retail inventory in advance and releases the other 20% depending on the most recent market trends. As informed by the research of Macas et al (2021), for a fashion retailer and its supply chain (SC), decreasing the danger of low-profit levels is the most important reason for reacting concerning inventory. With a greater level of inventory management, a higher level of responsiveness becomes necessary. Having an item on the shelf makes it easier to respond quickly and increase the likelihood of selling the item. As a result, this feature is critical in a retail business since it ensures a greater turnover in inventory, which influences profit or revenue.

2.3 Using Theories of Inventory/Supply Chain Management

Based on the knowledge gathered from the researches of Lee, Padmanabhan and Whang (1997), Lavassani, Movahedi and Kumar (2008) and Wang et al (2008), four theories have been identified to be recommendable for H&M to improve their inventory management at this point:

Bullwhip Effect

A corporation has significant difficulties in accurately predicting demand. One of the key goals of supply chain management is to find the right balance between the needs of consumers and the firm’s production capabilities. In this regard, the Bullwhip Effect refers to a phenomenon in which the difference of demand rises considerably since every order needs to travel through each level of a company’s supply chain. This phenomenon, known as the Bullwhip Effect, has been suggested by Rathore, Maheshwari and Jain (2019) for H&M, and it occurs when a company’s supply chain is subjected to dynamic variations in both production rates and inventory levels that result in supply chain distorting.

Strategic Choice Theory (SCT)

The foundation and premise of this concept are laid by the strategic theories used by management to ensure that the proper decisions are being made throughout the supply chain. The H&M group strives to achieve the highest level of fashion correctness by optimising the number of ongoing purchases throughout the season in conjunction with a thorough evaluation of daily sales and stock levels in different areas. Even though fashion is now a worldwide phenomenon, consumer behaviour varies widely between economies and distribution channels. Seasons and seasons begin at different times in different countries. Therefore, the delivery dates and product quantities for the different markets and channels are re-calculated. During the year, the organisation was also restructured so that it could better serve customers in the area and the local market. A more sustainable company model may be developed with less resource use and a higher degree of precision.

Network Perspective (NP) Theory

In order to understand the relationships and explanations of all the supply management networks accessible, this theory provides a framework to do so. Customers in today’s fast fashion market demand fashion to be more individualised, thus H&M should avoid mass manufacturing and instead be transparent with customer-centric ideas. If H&M has £3.4 billion in unsold inventory in their warehouse, they should halt their mass manufacturing process to prevent additional losses and choose a method to get rid of the inventory. There is no point in keeping H&M shops open if they are no longer lucrative. As a result, they may see an increase in revenue, as opined by Rathore, Maheshwari and Jain (2019). If H&M wants to shorten its lead time, it has to create production facilities near its warehouses, which will allow it to outsource less and reduce the amount of time it takes for goods to reach customers.

Materials Logistics Management (MLM) Theory

In order to keep inventory under control, this theory devises ways to accomplish that goal. If H&M wants to ensure that customers get their goods on time or they have them in stock before they are sold, they must choose the cheapest and fastest way possible. There are times when H&M assures that a demand for a given design is high enough to warrant a direct shipment of raw materials to a specific place, such as a shop or warehouse in a particular nation. Rathore, Maheshwari and Jain (2019) stated that this ensures that the product will be accessible in time. “H&M International Transportation, Inc.” is the name of H&M’s own logistics company, which does not rely on a third-party provider for its logistics. H&M transports its products across the globe primarily through trains, rivers, and roads that save money while also protecting the environment. In times of high demand for new trends, however, air travel is often the favoured form of transportation.

3. Conclusion

The supply chain strategy at H&M is focused on finding new markets, reducing manufacturing costs, and shortening lead times for their retail inventories, all of which are recognised across the world for their market and financial success as a retail behemoth of the highest order. The firm depends largely on integrated and comprehensive systems for retail inventory management in all of its supply chain elements, which has contributed substantially to its efficacy in stock control management. The research has found that the issue of inventory management in H&M lies in the overproduction without aligning the market response and demand forecasting for both physical and online stores. In the fashion industry, it seems that the question of overproduction is taboo. However, it does occur, and on a vast basis as well. As a result, there has been a significant amount of accumulation. Logistics and transportation and the very threat of operating in a volatile market like the fashion sector also stimulate the incapable handling of inventory. As for recommendations to these issues, four theories of inventory/supply chain management have been used to support improvement suggestions for H&M’s inventory.