Download - H_M Business Analysis & Decision Making
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Supplier selection and order
allocation for H&M
Andrea Bendandi 774610Carol Bortolotto 774431Marco Cersosimo 773626Alberto Giannone 774434Marta Pozzar 774609
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□Swedish multinational fashion retailer
□Second biggest retailer□Two main collections
per year plus some sub-collections to meet fashion trends
Introduction
H&M does NOT own any factories, but it outsources manufacturing to more than 800 independent suppliers in Europe and Asia
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Problem Identification Supplier selection and order allocation
□ obtain the number of products j ordered from supplier i and delivered with k transportation channels
Train = 1 Ship = 2□ minimizing the total costs and respecting the budget
□ respect H&M’s demand□ respect the production capacity □ not go below the minimum inventory of each supplier,
otherwise penalty costs would be applied□ consider custom fees □ and costs deriving from suppliers’ lead times□ total deliveries by train should not exceed 10%□ at least 20% of products for each category should be ordered
from European suppliers□ suppliers should not exceed the maximum limit of CO2
emissions
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Variables number of products j ordered from supplier i delivered with k transportation channel
𝑢𝑖={1 ,0 ,if the order from supplier is less than otherwise
if supplier is selectedotherwise
if both and are 1otherwise
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Objective function
Product cost
Security cost
Transportation cost
Custom fees Penalty cost
Minimize z =
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Origin Constraint□At least 20% of each product 𝑗 must be
ordered from European suppliers
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Transportation constraint□We decided to consider two types of
transportation means: train and ship. Indeed they are most environmentally friendly and efficient means of transportation
□Transportation by ship is more secure than the train
□Therefore we assumed that no more than 10% of deliveries can be completed via train, while the remaining 90% will occur via sea
∑𝑖=1
𝑛
∑𝑗=1
𝑚
𝑥 𝑖𝑗2−0,1×∑𝑖=1
𝑛
∑𝑗=1
𝑚
∑𝑘=1
𝑝
𝑥 𝑖𝑗𝑘≤0 (𝑡𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛𝑐𝑜𝑛𝑠𝑡𝑟𝑎𝑖𝑛𝑡 )
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Transportation costs□ Since the transportation cost is based on the
volume in m3, we have estimated the total volume for each product.
□ After that we assigned the costs of delivery involved from European and Asian countries
□ Finally, we multiplied each volume of product with the cost of transportation
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Security cost□First component: risk of each supplier multiplied
by the value of the products□Second component: risk of each mean of
transportation multiplied by the cost of transportation
□Finally we added the first with the second component
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Custom fees□Custom fees are applied whenever the firm
imports goods from extra European countries
□Custom fees have been calculated as 12% of the value of goods
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Max n° of Supplier Constraint□ Maximum number of suppliers 𝑖
that can be selected, according to H&M’s corporate policy
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Final Constraints
, ,
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Sensitivity analysis
1. Increasing the limit of trains to 50% increases the amount of products delivered by train.
□ Aim: understand how our variables impact on the order allocation and objective function
Total costs decrease by 1.47%
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Sensitivity analysis2. We ignored the 20% limit of firms in europe - Most of the production would be then allocated
to Asian suppliers- Problem: clashes with the need to have close
production facilities for urgent orders
Total costs decrease by 10.72%
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Sensitivity analysis3. No cap of maximum 8 suppliers and each supplier respects the maximum emissions of CO2- Inefficient order allocations- Penalty costs applied because of orders not
reaching suppliers’ minimum inventory levels
Total costs increase by 6.31%
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Limitations
□ Suppliers produce all the products indifferently and the product offering has been simplified compared to H&M’s actual collection
□ Only 12 suppliers were considered in the model due to technical limitations of Excel
□ Adopting pollution per capita in suppliers’ evaluation, due to the lack of relevant data linked to unitary production emissions
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Strengths of the model□ We tailored our model to H&M’s needs
□ Fast fashion industry companies mainly localize the production of basic items in Asia, whereas seasonal collections come from Europe
□ Sustainability issues that relate to H&M’s environmental standards.
□ The reliability of each supplier in terms of the rate of non delivery toincorporate the qualitative factor of supplier risks
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Thank you!