Supply Chain Optimization at Hugo Boss

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Supply Chain Optimization at Hugo Boss

Nicole DeHoratius University of Portland dehorati@up.edu

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Supply Chain Optimization at Hugo Boss
by

Nicole DeHoratius University of Portland
Relationship between Product Availability and Sales
Product Availability and Sales
Costs of Poor Availability
systematic under-stocking of items in high demand
(Agrawal & Smith, 1996)

Product Availability and Sales
Consumer behavior
Abandon purchase, shop elsewhere, substitute
(McKinnon et al. 2007, Fitzsimmons 2000, Emmelhaiz et al. 1991)

Theory Predicts….
• Demand depends on inventory levels • Greater availability leads to greater sales • little empirical evidence, substantial anecdotal evidence)

reduced customer satisfaction and brand loyalty
(Sloot et al. 2003)

Impacts current & future orders
(Anderson et al. 2006)
Sales

1.09% of retail sales, 3.34% of gross profit
(DeHoratius & Raman, 2008)

Improved Availability generates more sales
Improving product availability from 9698% yields a 2% increase in sales Product Availability

Customer Loyalty (repeat purchase behavior) generates sales
Execution = product availability, timeliness of delivery, ease of return (Heim & Sinha 2001)

1

2

3

Research Context and Methodology
Research Setting: Hugo Boss
European Fashion Manufacturer
Business wear, Leisurewear, Shoes & Accessories

Supply Chain Optimization Project
Natural Experiment
SC Change Better In-Stock Retail Sales Financials Stock Mrkt. Perfm.

Supply Chain Change – What Happened?
Original Order Frequency
Monthly for Treatment Group Monthly for Control Group

New Order Frequency
Weekly for Treatment Group Monthly for Control Group

Entailed changing the order frequency for 45 SKUs (representing 17% of sales) in body wear category monthly to weekly

Advantages of Weekly Ordering
Lower Inventory Levels Improved Forecasting Increased Responsiveness 5 6

Control group of 269 SKUs within same category
retained monthly ordering pattern

4

Results and Consequences for Manufacturers
Product Availability Over Time
25000

Implications
Broader Hugo Boss assortment
Substitution away from other brands for Hugo Boss Increase variety given popularity of other products so elect to purchase entire collection

32% increase in SCO Sales 9% decrease in nonSCO Sales

100

20000

Units Sold

15000

% in stock

95

Increase in forecast accuracy
both at Hugo Boss and its retail partners Stockouts increase forecast error (Wecker 1978), thus better availability should lead to better forecasts

10000

90

Decrease in lead-time
The longer the order-to-delivery pipeline, the harder to keep an in-stock position on the items customers want to buy (Agrawal and Smith 1996).

5000

0

85
30 32 34 36 38 40 42 44 46 48 50 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Reduction in SS at retailer
Weeks

Weeks

Items with high optimal service level (and hence large SS) benefit most from increasing the frequency of orders from DC to stores since more frequent deliveries allow for decrease in SS (Nahmias & Smith, 1994) 8 9

4

8

30

34 38

42 46

12 16

50

20 24

28 32

36 40

44 48

52

6

10 14

18

7

22 26

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