Supply Chain Optimization at Hugo Boss (A)

6 Pages   |   1,360 Words
Table of Contents
Introduction & Problem Identification. 3
Strategic Alternative 1. 4
Strategic Alternative 2. 5
Strategic Alternative 3. 5
Recommended Action Plan. 6
 

Introduction & Problem Identification

Hugo Boss, being a global player in the world of fashion for men and women, realizes that in order to compete with other global brands such as Tommy Hilfiger, Prada, and Pierre Cardin, it needs to have a responsive supply chain, which at the same time should also be efficient. Hence, Hugo Boss does not want to compromise on its brand’s responsiveness to customer orders at the cost of efficiency (minimizing costs).
The problem presented in the case is due to the product range offered by Hugo Boss, with different customer requirements, and some of which are supposed to be Never out of Stock (NOS). These are fashion apparels, which are regularly bought by the customers without each time spending a large amount of time in the purchase decision. Although, Hugo Boss maintains around 97% product availability of NOS throughout the year, it wishes to achieve a 100% as the retail customers may switch to substitute products or all together switch to a competitor in case a product is not available. The dilemma that the company now faces is which product ranges should go in the optimization phase, considering the pros and cons for each of the choices available.

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Strategic Alternative 1

The first alternative that the division director and the head of operations and procurement face is about applying the optimization strategy only on one area of their business. This alternative has both its pros and cons. Firstly, the benefit of such an approach would be that the body wear and hosiery wear division have already been run through a successful pilot. Hence, the company knows that it can attain success by focusing on optimization of one of its divisions, as one division that underwent the pilot achieved 99.9% product availability.

Secondly, with only one area being chosen to go for supply chain optimization, it will be easier for the manufacturer and supplier, such as Delta Galil to meet the requirements set by Hugo Boss. There will be improved communication, focus, and goals can be aligned much more easily between the manufacturers and its customer (Hugo Boss).

However, choosing only one division or one area for implementation would also mean that the company is on the back foot and not being optimistic about its operations. The company should also keep its manufacturers on toes and give them a bigger challenge for mutual benefits. Focusing on one area of the business only could mean potentially lost sales and profitability which could arise with more areas of the business undergoing optimization. Hence, the company is in a greater dilemma when choosing to decide for one area’s supply chain and procurement modifications. It will be caught up in deciding to go with a more aggressive approach than just utilize one area of business.

Strategic Alternative 2

The second alternative for the company is to expand the procedure of optimization to all their product ranges. This would mean that company divisions and classifications, such as Boss Orange, Boss Green, and the “unconventional and progressive” Hugo would be also going through changes in relation to their supply chain. The advantage of such an approach would be that the company shall be viewed as a dynamic organization that is not resistant to change in an effort to improve on its operations.

Secondly, such an investment in its supply chain would have a long-run impact for the organization where the beneficiaries could be future employees and customers. Hence, optimization of all the product ranges should be looked at as a long-range investment. Even if all divisions do not perform well, the success achieved by some of the divisions can compensate for other divisions.

However, the problem with such an approach would be that the company will be asking for too much from its global suppliers and contract manufacturers. It will be difficult for manufacturers to live up to the challenge as they are not vendors to only Hugo Boss, but also supplying material and finished goods to many other fashion brands. Moreover, Hugo Boss will also have to check on its internal capacity for such a way forward. For example, does it have accurate forecasting techniques available to facilitate its manufacturers? It will be difficult for the company to recover, in times of rising competition, from a failure of many of its products in terms of product lead times, controlling its holding costs, and product availability.

Strategic Alternative 3

One last alternative for the senior management is to implement the new procedures on a select range of products, and not on all of the product ranges. The main advantage to this approach is that similar product ranges can be utilized to implement changes. Hence, the success of one division would most likely result in the success of other divisions, which can later be expanded to include other divisions of the company as well for supply chain optimization.

Secondly, this approach seems more practical than the other two because when the company can take chances with one area of its business, it can also subject a similar product range, with similar production schedules, to go through the same optimization.

However, the drawback of this approach is that it would be again requiring more efficient and diligent contract manufacturers to be able to respond to the challenge. Moreover, the company will have to involve more manufacturers in the process to minimize its risks and to check on the capabilities of more than one vendor. This could be a time-consuming process. With more than one area of operation undergoing an optimization approach, the results of the change plan have to be a lot more in favor as opposed to optimization of just one product area in order for the optimization approach to be feasible to be continued in the long run.

Recommended Action Plan

It must be kept in mind that any recommendation plan of action for Hugo Boss should satisfy and result in improvement on at least some of the following factors, if not all: lowering of inventory holding, improved product availability, less inventory obsolescence, lower lead time, improved forecasts, and reduced transportation costs per item. Hence, the whole purpose of this exercise is to improve the supply chain for the company on the above identified factors. With the factors of product availability and cutting down on inventory holding (carrying) costs being realized as the most crucial for the success of the supply chain, Strategic Alternative 3 seems the most convincing of all three.

What this means is that the company should go for implementing new procedures on some of its product ranges or divisions: those closely linked to the body wear and hosiery division- which has already undergone a successful pilot. The reason why this approach is more suitable is because it tends to pose the minimum risk for the company. It is likely that some of its divisions would perform better than others; hence, the company can either choose more successful divisions or those which require a push towards improvement to ensure a responsive supply chain.

The way forward to implementation would be that initially Hugo Boss should approach and discuss the action plan with its one or two most reliable suppliers, such as Delta Galil and see how much capacity they can meet for the company in this regard. In case of shortfalls at one or two major suppliers, including their availability of a fleet of transport, more vendors can be approached. The purpose is to stick to lesser manufacturers for better control and communication so that goals of both the entities can be aligned. In the long run, the company should target a supply chain approach where it tries to keep both its Inventory levels and product availability to a low level. This is because as shown in the company exhibits, there comes a point when a larger availability of products does not lead to increased sales as a point of saturation and stagnation is reached.

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