Hugo Boss Case Analysis

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Hugo Boss has become known as an industry trend setter for its high quality men’s and women’s fashion apparel, shoes, and accessories. Product leadership, intimate knowledge of their market and customers, and operational excellence are what distinguish the company from others in the luxury fashion goods industry. From an operational perspective, the variability that exists as a result of designing and manufacturing short run fashion products is high. This perpetual shifting of demands and preferences makes it difficult to maintain accurate industry forecasts that result in high risk actions as manufacturing products with no guarantee of sale leading to large scale inventory systems.

The CEO had to walk a fine line between supplying his customers’ orders promptly, or tying up his production partners with orders that may or may not be placed. Skilled management of the design, planning, and operations of the supply chain impact the success and overall profitability of the operation. As is clearly stated in chapter one of Chopra, “The goal during the operation phase is to exploit the reduction of uncertainty and optimize performance within the constraints established by the configuration and planning policies.” •Body wear NOS SKU’s are functional products because they do not change seasonally, including style, color, or fabric, and remain constant year after year for a period of three years. •Some important factors to consider for the business strategy related to NOS items are: oHugo Boss guaranteed delivery within 48-hours for NOS replenishment orders. oForecast demand for NOS items is made six months in advance. oPlanners seek to keep on-hand inventory level of 3.5 months of forecasted demand. oProduction lead time for NOS items was eight weeks, and current transportation lead time by sea was two and a half weeks. Total lead time from the factory to the warehouse was ten and a half weeks. oThe cost of holding inventory ranged from 9% to 12%.

oStockouts in 2004 resulted in lost revenue of 1.1%
oStockouts often occurred during key retail replenishment periods like December.

The supply chain’s primary purpose for this type of product is to supply predictable demand efficiently at the lowest possible cost. Therefore, the recommended supply chain strategies for these products are:

1.Approach to choosing suppliers: Select primarily for cost and quality. The supplier was the same. However, it is important to highlight that it seems that the selection of this supplier is aligned to the strategy. Delta Galil has 13,000 employees and operates in a low cost labor and tax-free area (Cairo). In addition, this supplier is a leader provider of ladies intimate apparel and men’s underwear and hosiery, giving it the ability to create economies of scale and obtain low cost manufacturing due to its large production. Also, the reputation of the supplier is for good quality. 2.Manufacturing cost: maintain high average utilization rate. •Since the manufacturing process was changed to smaller batches, the lead time was reduced at the supplier’s factory and WIP inventory was reduced. This helped to the manufacturing process to have a leaner production system. •There was a deep assessment and negotiation with the supplier Delta Galil to avoid any negative effect in production planning and procurement process that erode economies of scale with the new weekly order process. •In addition, logistic and transportation cost reductions of 9% were achieved due to more frequent shipments and smaller containers. Therefore, the manufacturing and logistic processes were improved. Objective achieved through the SCO initiative: YES

3.Product-design strategy: Maximize performance and minimize cost The SCO initiative was not focused in product design change to improve operation efficiency and performance. Therefore there may be an opportunity for improvement in this area. WHY? For example, if the product design can be changed in...
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