A report on Operations Management analysis

In-store retailing operation

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Table of Contents

INTRODUCTION 3

ANALYSIS AND EVALUATION 4

I. About H&M 4
1. Company overview: 4
2. Mission & Vision 4
II. Operation: In-store retailing operation 5
III. Analysis 6
1, Operational Strategy 6
2, Quality Management 9
3, Inventory 10
4, Facility layout: 12
5. Forecasting 15
BIBLIOGRAPHY 18

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INTRODUCTION

This report was to fulfill the requirement of the subject INS2023.

This report provides an analysis of H&M in-store retailing operation to identify
whether it performs well. However, there are some issues which are detected during the
operation, which offers the company to solve using operation management method. By
doing research and using operation management knowledge provided in this subject, we
make an analysis about how the company works to make its gain success in the industry,
related to operation strategy, quality management, facility layout, inventory management
and forecasting.
On the other hand, some the recommendations are given while doing a research.

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ANALYSIS AND EVALUATION

I. About H&M
1. Company overview:
H&M, which stands for Hennes & Mauritz, is a Swedish public limited company
known as fashion and quality at best price in a sustainable way of clothing for men, women,
teenagers and children. H&M and its associated companies operate in 73 countries with
4,414 stores around the world. It is the second-largest global clothing retailer, just behind
Spain-based Inditex (parent company of Zara). The company has a significant online
presence, with online shopping available in 51 countries

2. Mission & Vision

Mission: H&M Foundation reaches beyond the H&M group's value chain and
complements. They offer the latest styles and inspiration for all season, all style from
fashion pieces and unique designer collaboration.

Vision: H&M’s vision is to lead the change towards a circular and renewable
fashion future industry while being a fair and equal company. Using size and scale, they are
working to catalyze systemic changes across their own operations and entire value chain. In
this way, they can continue to engage customers and provide more than fashion day a day.

I.

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II. Operation: In-store retailing operation
Input: Customer with demand and information
Output: Customer with suitable products and feedbacks
Transformation process
Stage 1: Inventories and layout (store environment) prepared
- Supply chain & inventories
- The store should be prepared thoroughly before opening. All factors including
inventories, products shown in the showroom, store environment

Stage 2: Support service

In some circumstances, customers will ask for additional services such as some advice
related to products (form, material, size, etc.) while some others want to try the products on
their own. However, preparation is needed when the situation is needed.
● Staff will be responsible for:
⮚ Introducing their products in detail so that customer can choose the right product.
⮚ Give advice about store promotions that can be benefit to customers.
⮚ Emphasize the features and benefits for customer when buying and using the
product.

Stage 3: Payment
− Perform product payment process, save customer information.

Stage 4: Customer care service

− Customer care after purchasing products related to warranty and return services.

Stage 1:
Stage 2: Stage 4:
Inventories Stage 3:
Support Customer care
and layout Payment
service service
prepared

III. Analysis
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1, Operational Strategy
Because competition in the retail sector has been increasing for years, the
importance of developing an effective competitive strategy appears to be increasing
constantly. Being in the clothing industry, which is both dynamic and highly competitive,
H&M, however, has a business and operations model that help the firm grow to one of the
largest fashion retailers in the world.

H&M core business is to have “fashion and quality at the best price”. A wide range
of product is developed to serve customers' needs, fashion trend of society with good
quality but reasonable price. In order to reach the operational goal is to have the flexibility,
its in-store retailing operation is designed to be as effective as possible, focused on
competitive priorities in time, cost and flexibility.

During the retailing operation, a number of issues were identified and needed to be
addressed. Therefore, building an operational strategy to solve these issues is essential to its
long-term development. The issues that can be addressed here are issues of cost, bull-whip
effect and social changing.

“Time or speed is one of the most important competitive priorities today.

Companies in all industries are competing to deliver high-quality products in as short a time
as possible” (Reid and Sander, 2013). It can be said that one of the first secret to the
Swedish retailer’s success is its application of “fast fashion” – one kind of development
speed, which relies on taking advantage of fashion trends as they appear, evaluating
customers’ demands in order to constantly design, manufacture and deliver the latest styles
into high-street stores as quickly and as cheaply as possible. Since it offers a wide range of
products with temporary characteristics, H&M build a strong marketing team that can
quickly determine what their target demographic desires and implement the necessary
changes into the supply chain. Multiple communication channels are using to promote its
brand awareness and to gain some more loyalty customers as well as let customers involve
in their manufacturing process through giving feedbacks. Some implemented methods that
can be mentioned are featuring well-known celebrities and influencers as their brand

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ambassadors, organizing ad campaigns as well as release coupons offers, special
promotions, etc. Managers while apply this strategy can also solve the problems related to
bull- whip effect and social changing.

Obviously, the fundamental bone of “Fast fashion” is low cost. “Competing based
on cost means offering a product at a low price relative to the prices of competing
products” (Reid and Sanders, 2013). H&M has made effort to reduce cost by carefully
eliminate unnecessary costs. They work focus on outsourcing non-core operation which
eliminate the intermediaries and outsourcing manufacturing process. This activity utilizes
their strengths on design of their clothing and retail experience to meet the needs and
desires of target market. Moreover, H&M's employees are trained to perform multi-
function to maximize their capability and minimize the amount of money that the firm need
to pay for salary to many people. However, low cost does not imply low quality.

“As a company’s environment changes rapidly, including customer needs and

expectations, the ability to readily accommodate these changes can be a winning strategy”
(Reid and Sanders, 2013). Fashion market is competitive and the constant need to ‘refresh’
product ranges which means there is an necessary move by many retailers included H&M
to extend the number of ‘seasons’, that is, the frequency with which the entire merchandise
within a store is changed (Bhardwaj and Fairhurst, 2010). Along with an efficient forecast
process and the solid relationship with suppliers as strong marketing branch and design
team, variety of collection of fashion products are made depending on what customers want
and kept updated regularly after every new trend, seasons. Moreover, historical data of each
collection is collected so that manager can make decision whether increase or decrease the
amount produced in order to accommodate changes in the demand - so called volume
flexibility.

Franks (2000) suggested ‘sense and respond’ as the key strategy to maintain a
profitable position in the increasingly dynamic and demanding market especially fashion
field. To instantly communicate with customer, H&M can build a mobile app and give
every single customer especially who visit the store an opportunities to evaluate their
shopping experience as well as give advise for help improve the performance.

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To conclude, the changing dynamics of the fashion industry, such as the fading of
mass production, increase in number of fashion seasons, and modified structural
characteristics in the supply chain have forced retailers to desire low cost and flexibility in
design, quality, delivery and speed to market (Doyle, Moore, and Morgan 2006). H&M in-
store retailing operation strategy has work on competitive priorities in cost, time and
flexibility to compete in the market as well as allows H&M to improve the quality of their
products and performance follow buyer-driven chains.

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2, Quality Management
A, Good quality
H&M’s message and philosophy is “Fashion and quality at the best price” through
the same advertisement in all markets. To make this possible H&M has a design and
purchasing department, which makes all the clothing collections. New clothes and
accessories arrive to H&M’s stores almost every day. H&M is able to move a garment from
design to the hanger in just 20 days
H&M focuses on exploring the overall market, for example H&M chooses the
supplier that best fit the production process at a certain time.
H&M buys items ongoing during the year to best fit the items to the market and it is
crucial for H&M to find the right lead-time. H&M’s purchasing depends on what sells well
and what the market situation looks like. H&M’s fashion year is divided into
spring/summer and fall/winter. Fashion that sells in high volumes is ordered about six
months in advance; however, the trendiest clothes must reach the stores within just a few
weeks
B, Service quality
H&M does not own any factories, it outsource all production. However, H&M
remains rather high control of all the outsourced production phases. H&M has 22
production offices in Europe, Asia, Central America and Africa. H&M coordinates
approximately 700 independent suppliers mostly in Asia and Europe. Each and every
production office has the responsibility to make sure that the items purchased have the right
price and good quality, and that they are produced under the right conditions and standards
C, Competitive advantages
To be able to offer the consumers high fashion and quality at the best price, H&M
works with few middlemen. According to H&M, the firm buys the right items in large
volumes from the right markets. The firm has a deep knowledge of design, fashion and
textiles and always tries to work with an economical mind. H&M has established an
efficient distribution channel. Lastly the firm depends heavily on its IT-system to work as
efficient as possible. Also, one of H&M’s most valuable assets is the corporate culture that
promotes flexibility and adaptation.

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Common in the EU clothing industry is to outsource lower value-added activities to
low-wage countries. Lower value-added activities are often labour- and capital intense and
material consuming, for example knitting and finishing. Due to the Swedish home society
and the demands from the firm’s founder H&M turned to work with independent foreign
suppliers. These suppliers could answer and produce to the more regularly orders and lower
price demands. To be worth working with these suppliers it is not enough for them to offer
a low price, the supplier must also be able to meet the need for fashion, quality, quickness,
and punctuality.
For H&M the core activities are to create fashion and quality at the best price.
During the interview the IR-responsible the creation of fashion and quality at best price was
stated as one of H&M’s main competitive advantages. First H&M achieves that by working
with more than 100 designers that are constantly working on creating the latest fashion.
Second H&M has more than 100 buyers that are structuring the range planning. Finally
H&M has local production offices that are handling the practical things such as being in
contact with the local suppliers, buying at the right price and assuring that the item is
produced and delivered at the right time. According to the IR-responsible at H&M the
pressure on short lead- times can trigger increased prices and reduced quality. By using
independent foreign suppliers H&M can concentrate on the above activities that produce
most value for it and outsource the rest.
H&M is active in 28 countries with 1,345 stores and a turnover of SEK 80,081
million. The size of H&M is partly due to its establishment around the world and its high
profitability. The size of H&M is bringing strength to its bargain power and a huge
advantage when working with suppliers. Often H&M does not have to search for potential
suppliers instead the suppliers contact H&M. Therefore, the characteristic size and the
characteristic bargain power are a Complementarity to H&M’s business-model. An
increase in size will be followed by an increase in bargain power, in other words doing
more of one characteristic increase the desire to do more of the other characteristic.
By using independent foreign suppliers and producing internationally firms are able to
lower its costs and prices. Having the production in low-wage labour countries reduces
labour costs immensely. Most of the jobs in the clothing industry are rather low-skilled

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therefore it is easy to teach new workers in the developing countries how to perform the
work

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3, Inventory
H&M has 7 stores in Vietnam market, 4 in Hanoi, 3 in Ho Chi Minh City. H&M
currently has a main business space at Vincom Dong Khoi shopping center (District 1, Ho
Chi Minh City), 2,200m2 wide and located right next to its direct competitor, Zara.

According to the company's inventory management strategy, factories only produce

80% of total output and retain 20% of the remaining items to timely meet the new fashion
trends in the market, in order to reduce “lead-time” (production time) and warehousing
costs and H&M also owns many modern IT infrastructures that reduce production time by
up to 20% compared to other competitors, which is an The product line continues to be
added to meet global buying needs.

H&M products are always circulated and not stored in stores because of the
diversity in the fashion ecosystem that the company creates, every time the fashion season
comes, H&M will launch the New collections and clothing models have been researching
to find fashion trends at that time, at which time people will wear, because of the business
flexibility that H&M has created so many new products. Strange, driving customers'
curiosity about new products when they are launched

Vietnam is the 68th market globally and is the 4th market in Southeast Asia of
H&M. Unlike many other fashion brands that have their own factories, H&M doesn't own
any factories or factories. H&M products are purchased from about 800 independent
suppliers and have around 21 production monitoring centers mainly in Europe and Asia.

Vietnamese textile enterprises have also produced products for H&M since 2011.
HM is working with about 30 suppliers and over 40 factories in Vietnam to expand the
ecosystem in the fashion industry. "Eat immediately". Suppliers in Vietnam supply H&M
with key products such as fashion accessories, shoes, jackets, woolen, knitted ... Although
there is no own factory, their products are always guaranteed. In terms of materials, designs
and durability, and diversify all models of goods according to each trend and seasons.

H&M has up to 30 international supply partners and inventory management

software at each distribution center to help effectively control inventory, factory systems
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and warehousing areas, H&M is one of a handful of corporations have their own logistics
operations team, controlling all processes in the chain from import and export, distribution
center management to warehousing and inventory, when the number of too much inventory
leads to overload, they will immediately be shipped to H&M global branches by sea, in
order to reduce the burden of storage in a certain area of H&M system.

H&M does not ship goods directly to the store but instead uses a worldwide
distribution network. Whenever they arrive, they are checked and then sorted and
distributed to local and regional stores according to each sales trend, the term is called "Call
of Warehouse".

H&M's inventory storage area is relatively large, meets hygiene standards and is
always closed, because packaging always meets high quality standards to limit storage
errors of product goods not worth it. H&M's fashion items are stored and preserved in huge
quantities, with an estimated $ 4 billion in H&M global inventories proving that the
company has produced an ecosystem. Fashion giant, diverse models but also poses
challenges for brands is how to build a product supply chain effectively, constantly bring
new products to market. Ensure there are sufficient goods in the store for customers to test
and do not overproduce, leading to inventory backlog.

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4, Facility layout:
Operations management textbooks define process as “the basic building block of
operations … consisting of a set of activities that need to be performed by consuming some
resources and time” (Mahadevan, 2010). Thus, process design essentially means the
scheme by which an outcome—in this case, goods and services—are produced,
manufactured, assembled, and/or provided. Designing a process takes into account the
resources required to produce a product—that is, your goods and services. Specifically,
process designers consider how much it will cost to produce the product, in terms of time,
effort and equipment. Designers will also consider whether such process will make
productive use of available resources and how much profit will be retained after taking into
account all of the costs

H & M Vietnam-first Vietnam store, located at the popular shopping destination

Vincom Center Dong Khoi in downtown Ho Chi Minh City on two floors, the 2,200 sq m
flagship store is a dedication of inspiration for fashion fans in Vietnam. Set in the heart of
Ho Chi Minh City’s most desirable shopping environment, the flagship store boasts a full
assortment of fashion and accessories for the savvy and the stylish.

Process layout:

Step 1: Gather information

H&M stores offer a variety range of styles to allow each individual customer to find
their own personal style and aim at everyone that has an interest in fashion.  H&M
collection is always thought with the customer in mind.

Step 2: Develop alternative blocks plans

The common misconception in practice is that process design takes a backseat to

product design and process execution (Lu and Wood, 2005), but Pisano and Wheelwright
(1995, as cited in Lu and Wood, 2005) argue that inefficiencies in process design result in
either delays in the product launch or impedes the commercial success of the product. The
store is H&M’s most important place for meeting customers, which is why the right store

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design is the be-all and end-all. Guidelines for store design and display windows are drawn
up at Head Office. The store and its display windows are the most important
communication channel H&M has with its customers, and that’s why their design is so
important. 

Step 3: Develop detailed layout

The layout of the front entrance has a big window display that changes every week
to keep up with ‘fast fashion’ the demand for new current trends. The window reflects the
trend of capes and the nude browns by blocking up similar styles and featuring objects to
link to the theme and creating the right balance of color trend and details. Each season they
feature models with different looks, styles and cultural background linking back to the
customer by showcasing different sized models and style.

When entering the store is floor is very spread out making it easy for people to
move around and has clear split areas modern basics to tailored essentials, sportswear to
high end fashion collections. The front section links to the windows display selling all the
garments from window and other garments linking to the color, style and theme. They
highlight prices with cards on specific items and on the rails are laid out for inspiration for
an outfit inspiring the customer.

The problem arranging equipment, workstations and other resources the most
efficient is called the facility layout problem. Its main concern is to reduce material
handling as much as possible, as poor materials handling generates a lot of business
problems such as lower productivity, material damage and accidents, and inefficient use of
storage, among others. Canen and Williamson (1998) “postulated that a good facility layout
helps improve any company’s business performance and lends to its competitive
advantage”.

Therefore, the solution given below will temporarily overcome the weaknesses in
the layout process: Improving methods of design for robust and adaptive layouts, focusing
on facility layout problems of the manufacturing realm; Reduce investment costs for
unnecessary materials; Reduce operating costs (save electricity for lighting but still ensure

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store identity ...); Reduce inventory costs; Maximize the use of space, allowing the display
of delicate products simply, attract customers, easy to identify when entering the store.

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5. Forecasting
Forecasting predictive action of something in the future, based on past experience
and data in order to make decisions.  Forecasting methods can be classified into two
groups: qualitative and quantitative.  Qualitative methods based on human judgment,
opinions and non - mathematical.  On the other hand, quantitative methods based on
mathematics that makes use of historical data.  H&M is a fashion clothing company, where
there are constant changes in trends and changing customer needs.  To maintain business
operations and governance, H&M has applied forecasting methods.  In this case, H&M
should use quantitative forecasting methods based on their historical datasets.  There are
bunch of techniques in quantitative forecasting methods which are trend series model,
Seasonality time series model, classification and clustering model.  In this case, we will
discuss all the techniques that we mentioned and give recommendation for H&M.  The first
forecasting methodology is trend time series model.  H&M can see the trend line of pattern
increasing or decreasing for period of time.  The pattern in this case can be the sale, product
categories, product items, or the number of customers.  H&M store manager can gain data
from their invoices as the input of forecasting model.  For example, H&M want to see the
trend line of new dress item, they have to store the number of items was sold each day
(each hour).  Then the trend line tend to increase or decrease based on this new items sold
increase or decrease.  It is actually beneficial for manager to make decision about should
produce more this items or reduce plan production.  Another example is the trend line of
customers.  Manager want to know the number of customers increase or decrease from
Monday to Sunday

Forecast methodology is seasonality time series model that the demand of

customers are changing in different seasons. H & M doing their business internationally.
Seasonal factor is essential in operation management. H & M have to produce their product
that suitable for each seasons in each countries. For example, H & M have to supply
suitable product for four seasons in Vietnam. They want to forecast the demand of product
items based on seasons. Input data of number of product for each items sold based on
spring, summer, fall, winter. There are five step to calculate output based on this method.
The first step should be calculating the average demand per season. The next step is

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calculating a seasonal index for each season of each year. Hence, calculate average the
indexes by season. The fourth step is forecasting demand for the next year and divide by
the number of seasons. The last step is multiplying next year average seasonal demand by
each average seasonal index. This forecasting by seasonal can be beneficial for manager
making decision and preparing plan for material purchase, design, production and
marketing activities for upcoming season. The next forecasting model is causal model.
Causal models establish a cause-and- effect relationship between independent and
dependent variables. When producing new product item, they can use linear regression in
order to predict price. The price is dependent variable and the independent variables can be
the production cost, the marketing cost, material cost, labor cost, etc. It will calculate the
weight for each independents variables. Another example for linear regression is predict
store (location) fee. The location cost is dependent variable. The independent variables are:
number of floors, number of storefronts, the squares, etc. This activity can select the most
suitable location when expanding their business.

  Last forecasting model using clustering algorithm. In order to make

customers satisfaction, H & M spending a lot of effort in customer services operation
management. They have to store customer historical data and cluster the whole customer
into smaller groups. It can save a lot of cost for marketing, customer services. If they do not
cluster whole customer into smaller group or customer class. They have to do marketing
campaign for all customers. It cost a lot of money for customer who do not have demand.
When using clustering or classification, they can do their customer services and marketing
campaign in effectiveness way. The input data can be age, gender, income, the money
spend for H & M, the frequency, job, location of customer. The output of this model is
customer group (card member: green, black, red card).

  In conclusion, in the field of fashion, H & M should make use of their

historical data in order to forecast their sale, product trend, predict prices for new product.
We are recommending 4 effective forecasting model for H & M which are trend time
series, seasonal time series, causal model with linear regression model and predicting
customer using clustering or classification model. All four forecasting methodologies are
quantitative method. The more data they have, the more accuracy H & M gain. Using

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forecasting, H&M will reach closer with customer needs, customer requirements and
customer demands.

TOTAL WORD:

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BIBLIOGRAPHY

Reid, R.D. and Sanders, N.R. (2013) Operations Management: An Integrated Approach, 5th
Edition, Kentucky: Quad Graphics-Versailles.

Bhardwaj, V. and Fairhurst, A. (2010) “Fast fashion: response to changes in the fashion
industry”, The International Review of Retail, Distribution and Consumer Research Vol. 20, No.
1, February 2010, 165–173

Doyle, S.A., Moore, C.M. and L. Morgan. (2006) “Supplier management in fast moving fashion
retailing” Journal of Fashion Marketing and Management 10, no. 3: 272–81.

Franks, J. 2000. “Supply chain innovation” Work Study 49, no. 4: 152–6

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