H&M uses double supply chains to balance efficiency and cost, and ZARA competes with the fast supply chain. This is a big fight for the fashion industry.

H&M strives to find a profit balance between efficiency and cost

On the exterior wall of Jialidu Commercial Building on Huaihai Middle Road in Shanghai, H&M's huge posters attracted the attention of every passer-by. The fashion retail giant from Sweden will open its first flagship store in the Mainland. Nanjing West Road, a few stations away from the subway, H&M's rival, the flagship brand ZARA of Spain's Inditex Group is selling. The area of ​​ZARA is about 1,500 square meters. This year's Spring Festival has set a record of more than one million yuan in sales per day.

Setting up a store in a prime location, being adjacent to a luxury product, and having a bright storefront, adopting the concept of “a small amount, a variety of models, and parity” and responding quickly to fashion are the common features of ZARA and H&M. With these strategies, they have grown rapidly in the past few years: In 2003, ZARA became the world's third-largest clothing retailer. In fiscal year 2004, its global operating income reached 4.6 billion euros, and its interest rate was as high as 9.7%, exceeding the US’s largest apparel line. The profit rate of chain brand GAP is 6.4%. As the largest clothing retailer in Europe, H&M has increased its turnover by 100% over the past five years, increased the number of branches by 75%, and increased its earnings per share by 262%. The total profit before tax for the fiscal year 2005 was SEK 13.553 billion. (About 118.859 billion euros).

“Being a follower of fashion, not a creator,” means that lead time (ie, the time from design to sales of the product) must be effectively controlled. According to statistics, the lead time of ZARA is 15 days, the lead time of H&M is 20 days at the fastest, and the usual lead time of domestic apparel companies is about 90 days to 120 days.

ZARA and H&M, this is a pair of rivals often mentioned by the fashion industry at the same time, they fight in front of the stage is bright, after the fight is the supply chain. ZARA is proud of its fast supply chain. Even if it opened stores in China, which is far from Spain, it miraculously maintained the speed of 15 days. H&M, which believes in the combination of time, quality, and price, adopts it. Two supply chains strive to find a profit balance between efficiency and cost.

Double supply chain

Compared with ZARA, H&M's fastest lead time is 5 days later. However, the cost of these five days has given H&M a cost advantage - "It's clothes are 30%-50% cheaper than ZARA."

ZARA hits the world with "speed" supply chain

In the "three-in-one" concept promoted by H&M, the cost has the highest priority, so its production area always shifts to areas with good labor, low wages and high-quality production. From the mid 1960s to the 1970s, H&M successively set up production sites in Northern Europe, Southern Europe and East Asia. Instead of owning its own factories, H&M outsourced its production to 700 independent suppliers distributed in 22 countries in Europe and Asia. Business.

How to establish close ties with these distributed suppliers? H&M has adopted a strategy of setting up production offices in production sites to coordinate the relationship between internal procurement departments and suppliers and to develop new suppliers. “The production office needs to ensure that it finds the right supplier and ensures that the product is produced at a low price with good quality,” said a staff member at H&M in Shanghai.

Based on purchasing cost considerations, H&M places 60% of production in Asia and the rest in Europe. In general, conventional styles of fashion and children's clothing are produced in Asia, with small quantities and strong popularity, usually to European suppliers.

“Not all products lead time as short as possible. Our lead time ranges from two to three weeks or even to six months. In fact, the quick lead time is not necessarily the most favorable, and the appropriate lead time will help us in the price. Finding the best balance between time, quality and quality.” When ZARA was committed to creating the myth of speed, CEO & CEO Hörmann Eriksen revealed its unique business strategy.

This strategy exemplifies a classic story of time and cost. Thus, H&M designed two supply chains: the high-efficiency supply chain that controls Asian production, and the rapid-reaction supply chain that controls European production. H&M internally uses an information system called OFS (Offer Followup System) to track the supply chain's production plan. For the Asian suppliers who produce the basic styles, H&M's efficient supply chain strategy is to minimize the cost while satisfying the product supply. Therefore, the communication between the suppliers and the suppliers is often performed via email. In this supply chain, more work is done by the employees of the production office to monitor with standardized processes.

"H&M has given us very low prices for OEMs, but the volume is very high!" said Hu Hongxia, general manager of Shanghai Huayuan Knitting Fashion Company. Huayuan has joined the H&M supplier list since 1994. Unlike other foreign brand OEMs, H&M only works with suppliers who join its directory. The establishment of a threshold helps to ensure quality and coordinate relationships. Huayuan mainly provides OEM sweaters for H&M. According to Hu Hongxia, H&M gave them at least 10 tens of thousands of pieces of business per single transaction. In general, it takes at least two months for tens of thousands of orders to be taken from clothes to samples. “H&M sent the design drawings to us by email. We first need to confirm it with samples. After the comments are returned, we start to produce sales samples, which are generally more than 20 pieces. Once we have confirmed again, we will proceed with mass production. ”