Study of brand H&M

SUPPLY CHAIN AND CASE STUDY OF INTERNATIONAL RETAILER

―Fashion and quality at the best price.‖

―H & M Hennes & Mauritz AB (H&M)‖

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INTRODUCTION Swedish multinational retail-clothing company, H & M Hennes & Mauritz AB (H&M)   is a Swedish multinational known for its fast-fashion its fast-fashion clothing for men, women, teenagers and children. H&M exists in 53 countries and as of 2013 employed around 116,000 people. The first store was opened on the high street of  Västerås, Sweden  Västerås, Sweden in 1947. It had 2,325 stores at the end of 2011 and 2,629 stores at the end of August 2012. It is ranked the second largest global clothing retailer,  just behind Spain-based Inditex Spain-based Inditex (parent company of  ZARA),  ZARA), and leads over third largest global clothing retailer, United States based GAP based GAP Inc. The design team in the company‘s Sweden office controls the steps of production, from merchandise planning to establishing specifications, and production is outsourced to approximately 800 factories in Europe and Asia. These facilities are used for horizontal division of labour, rather than being integrated.

HISTORY In 1946 the company's founder  Erling   Erling Persson was on a trip to the United the United States and came up with the business idea of offering fashionable clothing at attractive prices. In 1947 he opened his first shop Västerås, shop Västerås, Sweden  Sweden "Hennes", which exclusively sold women's clothing. "Hennes" is Swedish and means "for her" and/or "hers". In 1968 the hunting apparel retailer Mauritz Widforss was acquired, which led to the inclusion of a menswear collection in the product range and the name change to "Hennes "Hennes & Mauritz" (H&M). Mauritz" (H&M). In 1998, the company successfully gained control over the initials "HM" for its Internet its Internet domain HM.com. 2012 H&M opens in Bulgaria, Latvia, Malaysia and Mexico, and via franchise in Thailand. COS opens in Finland, Italy, Poland, Hong Kong and Austria, and opens via franchise in Kuwait. The Monki brand grows in China and Weekday opens in the Netherlands. 2013 The first H&M store in the southern hemisphere opens in Chile. H&M also opens in Estonia, Lithuania and Serbia. Indonesia becomes a new franchise market. H&M introduces online shopping in the US. The H&M Other Stories brand is launched in several European countries. COS, Monki, Weekday and Cheap Monday also open in new markets. Weekday and Cheap Monday launches online shopping. A global clothing collecting initiative starts in selected stores.

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MARKETING MIX

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PLACE

Clothing products is very fashionable Offer clothing concept for men, women and children Also sell women footwear and home decor. Known for style and high quality worldwide

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2500 hundred store worldwide in 43 market Aim is to open store in busy area such as popular mall and big cities Soon will sell products online

PROMOTION

Known for chic, stylish clothing for low price Business concept: fashionable and high quality clothing with BEST PRICE. It is quite cheap, rarely you will see in item over $100.00.

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Main way of getting their clothing out in main market is through the H&M magazine Also showcase their clothing through social networking sites like Facebook and twitter Target audience 18-24 (mostly young women) It attracts that target audience because it attracts budget minded customers

ORGANISATIONAL STRUCTURE HEAD OFFICE (Stockolm)

Account

Finance

Expansion

Community

IT

Design

Human

Investor

Security

CSR

Production Offices

Country Offices

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LOCATIONS              

Advertising

Interior

Asia Turkey Middle East Philippines China Hong Kong India Indonesia Japan Malaysia Singapore South Korea Oceania Australia

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Thailand Europe Ireland Lithuania Serbia Croatia The Americas Canada United States Mexico Brazil Chile

Logistics

H & M world ma map  300+ stor es

200+ stores 100+ stores 50+ stores 20+ stores 10+ stores 1+ store Upcoming stores

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H&M SUPPLY CHAIN

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Their approach is to use their influence wherever possible to promote good practice and raise awareness, not only among their suppliers and their employees as well as others along their value chain. H&M believe that working together in partnership is the best way they can make a  positive difference.

H&M supply chain involves a number of processes and people:

Buyers H&M‘s buying office is based in Stockholm, Sweden. Here, their designers, pattern makers and  buyers, together with merchandisers in their production offices, create, plan and purchase their collections.

Merchandisers Based in one of their 15 production offices in Asia and Europe, merchandisers are the link  between H&M‘s buying office and their  suppliers.   suppliers. They identify which suppliers to place orders with.

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Auditors Based on their production offices and sustainability team –  consisting   consisting of more than 80 people –  they monitor suppliers‘ compliance with their Code of Conduct through their  their Full Full Audit Program (FAP) and support progress with actions that go beyond go beyond monitoring.

The code of conduct includes issues such as:         

Legal Requirement A ban on child labour Health and safety Worker‘s right Housing Conditions The Environment Systems approach Monitoring Enforcement

Suppliers H&M‘s first-tier suppliers sign their Code of Conduct before producing for H&M and they monitor their compliance with it. They aim for their suppliers to take more and more ownership for ensuring good working conditions and environmental performance themselves. They support them in a number of ways, including the provision of training and capacity building. They also help them to develop and improve management systems that will avoid non-compliance on an on-going basis. H&M‘s primary focus is on their   strategic suppliers. Strategic suppliers are their best suppliers in terms of the balance between price, lead-time, and compliance with their Code of Conduct, quality and sampling.

A supplier may own different factories. In some cases, suppliers may also subcontract other factories for certain tasks. All factories in which production for H&M takes place, no matter if directly contracted or subcontracted must comply with their  Code of Conduct and are subject to our  Full  Full Audit Program.

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Second-tier suppliers These are the suppliers of their suppliers. They might include fabric or yarn manufacturers for example. In general, H&M has no direct relations with these companies. Accordingly, they have less direct influence. However, they work in various ways to contribute to improvements at this and other stages upstream in their value chain for example through our Mill our Mill Development Programme.

Factory employees Hundreds of thousands of people work in their supplier factories. They think that factory employees should know their rights and be able to claim them. As a buyer, they have a responsibility and an opportunity to contribute to better workplace conditions and to work to raise to  raise awareness of rights at work among both factory employees and managers.

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Designing

Manufacturing

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The actual dyeing and cutting of the garments can then be decided at a later stage sta ge in the production. The later an order can be placed on suppliers, the less the risk of buying the wrong thing. Sub-contractors are used for most labor intensive operations like sewing.

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It stock management primarily handed internally, physical distribution is subcontracted. A large part of the production of the flow of goods is routed from production side to the retail country. Then the goods are inspected and allocated to the stores or to the centralized store stock room. It call as ‗Call -off warehouse‘

Retail • •

Average Size of store is 1300 m2 Aim of their stores is ‗ create a comfortable and inspiring atmosphere in the store that make it simple for customers to find what they want and to feel at home ‘ 11

FACTS ABOUT H&M 

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 fashion and quality at the best price. H&M‘s business concept is to offer  fashion H&M was established was established by Erling Persson who opened the first store in Västerås, Sweden in 1947. Today 1947. Today there are 3,100 stores in 53 countries. H & M Hennes & Mauritz AB comprises six comprises six independent brands: H&M, brands: H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories. 116,000 dedicated people, all people, all passionate about fashion, are employed by H&M. H&M offers everything from the hottest trends to the best in basics for  women,   women, men, teenagers and children complete with shoes, accessories, cosmetics and a home interiors concept. The collections are created by 160 by 160 in-house designers and 100 pattern makers. Sustainability is an integral part of H&M‘s operations and we work actively to ensure a more sustainable chain of design, manufacturing and product handling for both people and the environment. H&M does not own any factories, but instead works with  with  800 independent suppliers, mainly in Asia and Europe. In 2013, the turnover the turnover including VAT increased to SEK 150 billion. 15 per cent per year and H&M‘s growth target is to increase the number of stores by 10 – 15 at the same time increase sales in comparable units. The growth is entirely self-financed. Online shopping is available in several European countries and in the US. H&M sees  potential for online sales sal es in all markets. Quality is key for H&M –  from  from initial idea to final product. Strong, clear values guide the teamwork at H&M. These values comprise the H&M Spirit, which is rooted in a fundamental respect for the individual and a firm belief in each person‘s ability to show initiative

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CASE SYNOPSIS H&M accused of 'having no shame' as latest collection looks 'identical' to high-end designs by Balenciaga, Celine and Kenzo By OLIVIA FLEMING PUBLISHED: 18:44 GMT, 24 May 2013 | UPDATED: 20:23 GMT, 24 May 2013

As H&M sales continue to decline, with a brief reprieve in April as the once-thriving clothing retailer struggles to hold on to customers, it seems to have found an answer in high-end designs once again. The fast-fashion retailer's latest spring offering, a collection called The New Mix, features pieces that have an uncanny resemblance to industry-favourite looks from Balenciaga, Celine and Kenzo. One white jersey bustier, retailing for $19.95, looks strangely similar to Balenciaga's white crop top from the spring 2013 collection - which Kristen Stewart turned heads wearing at last year.

Mirror, mirror: H&M's white jersey bustier, retailing for $19.95 (left) looks strangely similar to Balenciaga's white crop top from the spring 2013 collection, retailing for $1,535 (right)

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The thermoformed crossover top, made of graphic laser cut-outs, retails at Balenciaga for $1,535. At Celine, Pheobe Philo sent out a spring 2013 collection, in store now, of stylish, but slovenly elegant pieces in a mostly black and white offering. One particular dress, the textured Sable dress, was an instant hit with buyers and fashion editors, and H&M seems to have taken note. The brand's $24.95 jersey tank top with mesh at the front 'for a deep V-neck effect,' is a mirrorimage of the Celine dress, which retails for $3,250 in crepe, or $2,900 in silk satin. And taking Kenzo's $255 sell-out Tiger motif to similar heights is a grey sweater from H&M featuring a comparable multi-colour, growling tiger - and customers don't seem troubled that the company appears to be trading in knockoffs. One commenter on live journal, Fashin,  said she believes democratization of high-fashion is a good thing.

Top tips: H&M's $24.95 jersey tank top with mesh at the front 'for a deep V -neck effect,' (left) is a mirror-image of the spring 2013 Celine 'Sable' dress, which retails for $3,250 in crepe, or $2,900 in silk satin (right)

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'Designer clothes cost tens of thousands of dollars, why pay when you can get the same thing for $40?,' she wrote. 'People like you and I and the rest of the middle class world want to look stylish but don't want to go broke doing it. I get that copying is wrong, though, but it's almost justified given the outrageous prices designers put on their clothes.' H&M has never made a secret of its relentless to chase trends and cater to an ever-widening, insistently competitive fast-fashion market. While the retailer's fashion-designer collaborations and celebrity collections get a lot of media attention, Beyoncé‘s  H&M swimwear campaign being one recent example, its prices - 60per cent cheaper than Zara's but more expensive that Forever 21, have left H&M struggling to  position itself. While customers often bypass 90per cent of the store‘s offerings, stocked heavily with basics such as T-shirts and trousers, many call the remainder - such as look-a-like Balenciaga tops for less than $20, 'an incredible buy.'

Inspired or copied? A grey sweater from H&M (left) takes Keno‘s $255 sell-out Tiger to similar heights (right)

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One woman, referring referrin g to the retailer's frequent turnover tu rnover of styles s tyles that mimic mi mic high-end designs, tweeted: 'I like how it's accessible.' But another commenter, who cherishes the exclusivity of owning a designer piece before it is turned into a reproduced bargain for the mass-market, explained to fellow forum members: 'You like the fact that you can get your hands on similar pieces from the runway at a good price. 'However,' she added, 'now that you can afford it, so can everyone else and that makes the pieces less special.' While a Twitter user, under the name Anon Model, was slightly more blunt: 'H&M is the king of knock off stores. Just saw a Celine bag knock off, Balenciaga top... Have they no shame?!'

H&M Is Getting Slammed For Allegedly Copying An Artist's Design On A Bunch Of Its Own Products

H&M is getting shredded after being accused of stealing an artist's design for its own use without giving her credit or compensation, according compensation, according to Regretsy. Then, as people flocked to its Facebook its Facebook page  page to voice their opinions, H&M started deleting comments, angering them further. In 2008, Tori LaConsay painted a sign in her neighbourhood "You Look Nice Today,' accompanied by a little heart in the corner. Then, a few days ago, her friends showed her something intriguing on H&M's UK website. She was surprised to see what appears to be nearly the exact same design being sold on a  plethora of H&M products -- from fro m doormats to towels to pillows. When LaConsay emailed H&M customer service, it immediately denied everything, according everything, according to Regretsy: 16

We employ an independent team of over 100 designers. We can assure you that this design has not been influenced by your work and that no copyright has been infringed.

As she got the word out about what happened, people began posting about it on the company's Facebook page. The posts were subsequently deleted. This, as we learned with a with a recent debacle involving Chap Stick, is Stick, is rarely the right thing to do. Eventually, H&M halted the purge and issued a "sorry if" pseudo-apology on the page: We apologies [sic] if anyone should think we have copied, which has never been our intention and also not allowed. We have merely been inspired, after seeing many different varieties with different text messages, to create something similar in a different font, with the use of big and  small brackets and the placement of the shaped heart. We are truly sorry if we have led someone to believe that we intentionally should have copied someone else's creation.

That statement contradicts the first one (about the design being 'influenced by' the original work). People were still riled up, and H&M put up a couple more posts as it tried to douse the flames. It apologized for the initial customer service statement, and said that it's working directly with LaConsay to figure things out:

Is it working? Commenters are still filling the threads with support for the artist, with words like "pirates," "scum" and "liars" being thrown around. With the strength of the social web, things can go viral in a heartbeat. And when you contradict yourself, it makes you easy prey, since it looks like you're misleading the public (though at least it acknowledged the mistake of its customer service department). But the PR fallout isn't the biggest issue here. Somewhere along the line, H&M managers decided to use a design that, allegedly, wasn't theirs to use. There need to be checks in place to make sure that it doesn't happen again.

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SUPPLY CHAIN AND CASE STUDY OF DOMESTIC RETAILER

―Fabindia (or Fabindia Overseas Pvt. Ltd.)‖

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INTRODUCTION an Indian chain store retailing garments, Fabindia (or Fabindia Overseas Pvt. Ltd. ) is an Indian furnishings, fabrics and ethnic products handmade products handmade by  by craftspeople across acro ss rural India. Established Establis hed in 1960 by John by John Bissell,  Bissell,  an American working for the Ford the Ford Foundation,  Foundation,  New Delhi, Fabindia started out exporting  exporting  home furnishings,  furnishings,  before stepping into domestic retail in 1976, when it opened its first Fabindia retail store in Greater in Greater Kailash, New Kailash, New Delhi. Today it has over 170 stores across India and abroad, and is managed by his son, William Bissell. In 2008, Fabindia had revenue of $65 million, marking an increase of 30% from the previous year. Fabindia sources its product from across India through 17 community-owned-companies; a certain percentage of the shares of which are held by artisans and craftsperson. The products of Fabindia are mainly sourced from villages helping to provide and sustain rural employment in India. They are currently produced by over 40,000 artisans and craftspeople across India. The hand-crafted products also encourage good craftsmanship.

The Vision At Fabindia we celebrate India, and endeavour to bring all that we love about India to customers around the world.

The Mission We will harness the transformative power of a well-run business committed to profitable growth in support of Fabindia‘s Vision. We will strengthen and support our community of customers, designers, artisans, farmers, makers and entrepreneurs inspired by India. We will give our customers products that delight them by interpreting our rich heritage and traditional knowledge, while protecting the natural environment.

Values & Guiding Principles To remain true to our company‘s history and our founder‘s original Vision: "In addition to making profits, our aims are constant development of new products, a fair, equitable and helpful relationship with our producers, and the maintenance of quality on which our reputation rests."  John Bissell  –  John 

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To ensure that we delight our customers with our products and service, and always make them feel that they are getting great value for their money. To design, make and sell products with intrinsic worth that comes from the original designs, knowledge, care and skill with which these are made. To be true to our commitment and history as an ethical and trust-worthy brand promoting a stake-holder based community model of inclusive capitalism. To constantly share our Vision with our employees, suppliers, business associates and customers, so that we collectively ensure that all our actions are in service of our Vision, Mission and Guiding Principles.

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HISTORY

LOCATION Fabindia has 172 retail stores across India, 3 stores in Mauritius, 2 stores in Dubai and 1 store each in Italy, Nepal and Singapore. India: • • • • • • • • •

Agra Ahmedabad Delhi Amritsar Chennai Bangalore Coimbatore Goa Imphal 20

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Dehradun Mumbai

Foreign countries • • • • •

Italy Mauritius UAE Singapore Italy

The FabIndia Ecosystem

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Fabindia enjoys a Network of 167 stores across India‘s 35 top towns. Its supply chain is based on Supply chain based on inclusive capitalism: co-option of 22,000 artisans and making them into shareholders through an elaborate communityowned model. Designers and business experts are directly employed by Fabindia. Few of the designers work with the artisans while others form the product selection committee. The key responsibility of this committee is to select new artisans and weavers and ensure that the quality standards are met before ordering the products. Fabindia created a fund, Artisans Micro Finance Private Limited (AMFPL), a fully owned subsidiary of Fabindia that would bring these artisans into regional supplying companies spread across the country. By creating private limited companies it became easier for these companies to borrow money from banks against orders from Fabindia. Over the years, Fabindia has added several new product lines to its business  —   from apparel to furniture, jewellery and personal care products and even organic food. But it kept adding new SKUs (stock keeping units) in the existing space with the result that many of its stores are now packed to the brim. 21

SUPPLY CHAIN: FABINDIA

FabIndia‘s suppliers are predominantly from rural India. The supply chain has 2 suppliers, the artisans and the fabricators. The artisans are the weavers or painters from a rural background so the designers are the ones who are responsible for communicating with the artisans and making them aware of urban needs and trends. The designers have a deep knowledge of textiles as well as the urban sensibilities. Since most of the FabIndia artisans are poor and illiterate there are few written contracts that exist and govern supplier behaviour. Each potential supplier comes through a reference from an existing supplier. Initially the supplier is given a trial order and based on the performance of the supplier, they get regular orders. The FabIndia supply chain has moved on from a centralized warehouse model to a more decentralized model. To shorten the supply chain and incorporate the artisans within the process in a greater way, FabIndia introduced the concept of community owned companies. The weaver approaches the Supply regional company i.e. SRC with. At the SRC level the designer steps in to help artisans produce something relevant to the target market. The design is then approved by the PSC or the product selection committee. Here the fabrics and the quality of factors like colour fastness are determine and compared to the company set benchmarks. One the product is selected by the PSC the order is placed after price negotiation with the weaver. The orders are completed by the weaver and brought to the company warehouse. The fabric is delivered in the form of thaans. However there is no uniformity in terms of the length of fabric 22

incorporate in each of the thaan. It varies from 20m to 50m. The stock then moves from the SRC warehouse to the regional warehouse. The issue that FabIndia faced in the initial stages was orchestrating the supply chain which would cater to the large volume of supplies as well as maintain quality. To resolve this, the model of SRC s was introduced. The SRC are in direct contact with the artisans and serve as interfaces to the urban markets. The SRCs are also responsible for getting the artisans credit and capital that they require. 17 SRCs have been setup in different parts of the country to deal with suppliers across the length and breadth of the country. The artisans have a 26% stake in the SRCs and the rest is owned by the investors and the FabIndia. Once the order has been received at the SRC warehouses it becomes a part of the FabIndia online inventory system. The levels of stock and orders for a particular product can thus be monitored online by the retailer. As and when the retailers place their orders the products are moved from the SRC warehouses to the regional warehouses and distributor points. At each regional warehouse a continuous review model for inventory of products is followed. On the retailer side, each retailer orders as a single entrepreneurial entity. For various kinds of products  bins or wallet sizes are defined and the retailer is allowed to stock up only up to a given giv en wallet size. SRCs have evolved the supply chain of Fabindia from a centralized model to a regional supplier companies. Benefits of this novel approach: Enabling it to create 100,000 sustainable rural jobs across India Access to working capital –  the  the main hurdle to capacity building Direct interface with artisans Closer to sourcing –  shortening  shortening the supply chain, better quality and pricing  Enables the purchase of materials in bulk so as to get the best price    

USE OF TECHNOLOGY IN FABINDIA’S SUPPLY CHAIN In 2005, FabIndia decided to transform and strengthen its Supply Chain with the goal to increase monthly revenues from 8 crores per month to 20 crores per month. A major step in this effort was to automate a major portion of the ordering process. As a result two distinct modules were created.

B2C Module This was nothing but the website www.fabindia.com which was transformed to an online shopping website where the entire range of products in Fabindia was contained. This website was linked with domestic and international courier companies who would pick up the ordered item from the warehouse in Delhi and deliver it to the e-customer. The B2C module served domestic ‗click ‘ customers and international customers, who wanted Fabindia products but did not have access to a store.

B2B Module This was the software developed to connect Fabindia stores to the SRC warehouse. This allowed store managers to independently order from each of the SRCs. This would allow for streamlining of order and delivery. The B2B module would also help to project future growth by also acting as a forecasting tool.

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INVENTORY MANAGEMENT MANAGEMENT FOR AN INDIVIDUAL STORE Wallet To understand how an individual store manages its inventory, it is vital to understand the concept of the ‗Wallet‘  which is unique for each store. This is the maximum amount of inventory a store is allowed to own at any given time. The maximum value of the Wallet is a function of the monthly sales. For example N-14 in New Delhi, which is FabIndia‘s largest store, has a wallet size of 1.5 crores (monthly sales) * 3 months = 4.5 crores. That is N-14 is allowed to hold only 3 months ‗worth of inventory. When the store manager places an order to the SRC through the B2B module the wallet decreases by that amount. As the stock is sold and invoiced  by the store, the wallet opens up and more stock can be ordered. Seasonal items need to be ordered 3 months in advance because of large volumes that are required whereas perennial items need only a month‘s lead time.

Dual order process flow for perennial items The distinction between FabIndia and other garment retail chains is that FabIndia does not return excess inventory to its supplier. This is due to their philosophy of uplifting rural craftsmen and artisans. To prevent overage, FabIndia stores follow a dual order strategy  –   Bulk Order and Backup Order.

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Between the 1st and 5th of a month the store manager prepares an excel sheet with expected demand for each item. This is calculated form previous sales. This excel sheet represents 70% of the next month sales. The store manager then mails this sheet to the SRC. By the 20th of the month, the SRC returns this sheet with the available products highlighted as per the order. It also mentions alternatives for items which are stocked out. On the 21st the store manager specifies her final order on the B2B depending on product demand and availability. The stor e‘s e‘s wallet then decreases by this amount. The order is delivered by the SRC from the SRC warehouse to the market region warehouse. From there it is transported to the store by the 1st of the next month.

Backup Order Meanwhile on the 15th of the same order ing ing month after selling a percentage of the month‘s stock, the store manager calculates how much inventory is required for the rest of the month. She uses the remaining 30% of the wallet to place the back-up order on the B2B after checking the availability with the SRC. As the order is a much smaller one, it is delivered to the Store by the 25th of the same month. The back-up order is only placed in times when the demand is high and cannot be served by the initial bulk order. The dual order system allows for a greater accuracy in ordering as the demand for the first 15 days is noted and is used to place the backup order. This system allows the store to reduce overage and decrease inventory holding costs especially since individual stores do not have large storage space.

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FUTURE SUPPLY CHAIN As has been mentioned, the primary reason as to why FabIndia has been so successful has been its ability to draw in the artisan community into the supply chain by making them joint owners in the of the networks. This not only gave them a constant source of income through consistency of orders but also gave them a market for their products and dividends from the performance of the supplier companies. However, FabIndia has come a long way since its William Bissel took over in 1999. FabIndia currently has a turnover of c. Rs. 500 crore and plans to double this number in another 4 years.2 Fabindia currently runs around 170 stores in India and it plans to add another 25 - 30 every year, focusing primarily on smaller cities. The current structure of the supply chain will be insufficient to cater to the growth requirements of the firm. This is especially important since the supplier companies function as independent entities who are free to supply to other companies. On the off chance that demands become too high, there is a chance of supplier migrating to other retailers. Some of the key issues being faced right now which would require a revamp of the supply chain are: 1. Scaling The present set of supplier companies are ill equipped to handle the increase in revenues being targeted by FabIndia. This is all the more important given that FabIndia maintains a large set of SKUs (2.5 lakh on average). Since a large number of these require a large processing time (products like silk scarfs go up to six months), it would require significant amount of flexibility and speed to produce. Also, since the networks are localised there are issued related to logistics since multiple products go through various hubs before they get delivered to the required outlet, which again increase go to market time. 2. Standardisation FabIndia has been known to be historically focused on quality of its products. This usually translates into issues related to standardisation of products across suppliers at various nodes. Since the material and competency in handiwork can change significantly across various parts of India, maintaining the same level of quality has become increasingly difficult for FabIndia. This has also related in suppliers competing with each other for the FabIndia‘s nod more aggressively. There are also issues related to lack of modern equipment which governs standardisation of  products. This restricts the extent to which supplier companies can rectify issues related to standardisation. Lack of standardisation has further repercussions as repeat purchases usually happen when a benchmark quality is guaranteed. 3. Capacity and capital constraints constraints The scale of operations of supplier companies has increasingly become a huge bottleneck since the above issues require investment in new age infrastructure. Since the cost of most machines run into a few lakhs, most supplier companies find it difficult to find the capital required to increase capacity significantly. This lack of capital has already resulted in a couple of supplier companies merging together with larger companies in order to justify the capacity increases. This merger has resulted in the avoidance of middlemen and has significantly reduced delivery times at stores. This is important in order to maintain low levels of inventories which otherwise will need to be offered at discounted prices. 4. Future product launches FabIndia has acquired Organic India, a small firm which provide organic foods in order to further grow in this segment. In the coming months the company plans to launch these products, using its supply chain network, in standard retail outlets. However, this might present issues of

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compatibility since the current supply chain is not build to handle the pinpoint accuracy and  perishability of products prod ucts required in organised organ ised retail of foods. 5. Tax issues The changes in tax laws have dealt a body blow to the existing warehousing and supply chain system of FabIndia. Not only have transfer pricing guidelines become more complicated but so has the tax calculation and maintenance of the supply chain network. In order to overcome these issues, the company is pursuing a strategy of integration through the merger of the upstream entities in which case stakeholders of the SRCs will be given shares of the parent entity at a pre-determined swap ratio. There are several advantages of this integrated model as opposed to their existing supply chain.

SUPPLY CHAIN OPTIMIZATION The integrated supply chain has been proven to be superior capabilities as opposed to standalone supplier and retail entities. AS we already know, some of this has been already built in through FabIndia‘s stakes in SRCs. A complete integration of the SRCs will lead a greater degree of control over the supply chain and better align the motives of FabIndia with those of the artisans. This will lead overall greater order quantities and hence a greater amount of profits Ease of expansion: Bringing the SRCs under its gamut brings with it the advantage of ease of access to company capital and also helps artisans raise money much more easily. This leads to an easier expansion of capacity Quality Control: The integration of the supply chain results in controlling delivery times more easily through centralized processes using technology and also helps in a greater degree of standardisation and defects in the raw material procured and used. It also helps ensure a benchmark quality which ensures that a problem of non-repeat of purchases does not occur In 2012 with more than 160 stores across India. Fabindia is planning to expand its overseas operations. Fabindia has already emerged as one of the leading exporters in ready to wear segment with the image of Indian brand. The segments below would try to answer the questions pertaining to Fabindia‘s expansion strategy to leave a global footprint and whether the Indian brand can gain significant attention in international market at a time when it is becoming a fashion element in the elite customer segment. 

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Typical Order Flow between Stores, SRC and Artisans / Producers

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CASE STUDY: Corporate Social Responsibility at FabIndia GFJMR Vol. 3 July-December, 2011 Jeswal Ruchika, Asst. Professor, Institute of Management Studies, Gaziabad Corporate Social Responsibility (CSR) can be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time". The concept of corporate social responsibility means that organizations have moral, ethical, and  philanthropic responsibilities respon sibilities in addition addit ion to their responsibilities responsi bilities to earn a fair return retu rn for investors and comply with the law. Fab India works closely with artisans by providing various inputs including design, quality control, access to raw materials and production coordination. Fab India is trying to work with its artisans closely and is trying to maintain a supplier base. Today Fab India has a number of retail outlets selling several products and trying to pass the benefits to its artisans. CSR can be viewed as the key to not only overcoming competition but to ensuring sustainable growth. This case study aims to explore the concept of CSR at Fab India Pvt. Ltd and how it has been turned to the strategic advantage of the same. CSR-Asia defined Corporate Social Responsibility as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. Howard Schultz, the CEO of Starbucks once described corporate social responsibility as ―trying to achieve a fragile balance of creating the necessity of  profitability and the balance of having a social conscience". conscience ". Social responsibility is an organization‘s obligation to engage in activities that protect and contribute to the welfare of society. Social responsibility is a matter of intense debate. At one extreme, there are those who strongly believe that organizations are in business solely to produce goods and services that societies want  –   be they atomic weapons, legal advice, or lifesaving drugs –   and that they are entitled to make profits in return. For these people, social responsibility is, simply not an issue. At the other extreme, there are those who believe that organizations should be allowed to do  business only if they do not harm, help solve social problems, and put some of the profits they earn back to work for society. CSR is becoming a complete business strategy that aims to ensure the long-term viability of the business, by assuming an active role in the development of the community, the economy, and the environment through good business practices. The key drivers of corporate responsibility in Indian companies tend to revolve around ethical considerations and aim to strengthen the brand, as opposed to economic considerations, which drive corporate responsibility investments globally.

CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility (CSR) may be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time". The concept of corporate social responsibility means that organizations have moral, ethical, and  philanthropic responsibilities respon sibilities in addition addit ion to their responsibilities responsi bilities to earn a fair return retu rn for investors and comply with the law. A traditional view of the corporation suggests that its primary, if not 27

sole, responsibility is to its owners, or stockholders. Corporate Social Responsibility is the responsibility of the business towards the society that it takes from. It is the management of the  business in a manner such suc h that it produces produ ces a positive impact on society. However, However , CSR requires req uires organizations to adopt a broader view of its responsibilities that includes not only stockholders,  but many other constituencies as well, including employees, suppliers, customers, the local community, state, and federal governments, environmental groups, and other special interest groups‟. Today, in this competitive business environment, it is viewed as the key to not only overcoming competition but to ensuring sustainable growth. CSR initiatives by organizations have become tools to pass the message of sustainable consumption among consumers, employees and society at large. It is gradually becoming a complete business strategy that aims to ensure the long-term viability of the business, by assuming an active role in the development of the community, the economy, and the environment through good business practices.

COMPANY PROFILE Fab India was established by John Bissel in 1960 in order to amalgamate the best aspects of East/ West collaboration. He was determined to showcase Indian handloom textiles while  providing equitable employment to traditional artisans and also to develop India‟s export  potential in its emerging textile industry. Over the years the focus of Fab India's marketing shifted from exports to the local Indian retail market. What started as an export house has today  become a successful retail business presenting Indian textiles in a variety of natural fibers, and home products.

CASE BODY Fab India was founded with the strong belief that there was a need for a vehicle for marketing the vast and diverse craft traditions of India and thereby help fulfill the need to provide and sustain rural employment. They blended indigenous craft techniques with contemporary designs to bring aesthetic and affordable products to today‘s consumers. Their endeavour was to provide customers with hand crafted products which help support and encourage good craftsmanship. Their products were sourced from villages all over India. Fab India works closely with artisans by providing various inputs including design, quality control, access to raw materials and production coordination. The vision continues to be to maximize the handmade element in their products, whether it is hand woven textiles, hand block printing, hand embroidery or handcrafting home products. Fab India‘s managing director William Bissel, who conceived and steered the model, says that unlike many Indian companies he doesn‘t  believe in setting up a department to promote corporate social responsibility(CSR) .He created an air of hope ,anticipation and excitement in the sleepy village of Chanderi in the Ashok Nagar district of Madhya Pradesh .The local people include about 1000 – odd odd weavers who were disappointed not just by no rain or no water but by disappearance of the demand of their cherished fabric – Chanderi. Chanderi. They were then introduced to the concept of becoming owners of shares in a community owned company .They were unsure 28

 but bought b ought shares s hares because they thought th ought that it could co uld change ch ange their lives l ives in some ways. wa ys. That way has been paved by Fab India, a retail outfit that has grown from one store in mid-1990‟s to 85. Dabbling in fabric, apparel, handicrafts and other products, it began an experiment with community  – owned owned companies nine years ago in an attempt to include artisan in the wealth creation process. Fab India had created a fully owned subsidiary Artisans Micro Finance, a venture fund .It was owned 49 per cent by the fund, 26 per cent by the artisans, 15 per cent by  private investors and 10 per cent by the employees of the community – owned owned company .The investment by these four categories of investors provides the paid up capital .The company  promotes the sales of its it s artisan community communit y to Fab India, which is the principal buyer. bu yer. Walk into any of Fab India‘s high end retail outlets in major cities across India, and around the world - the unique clothing and furnishing collections seem to be tempting, surprised by the store‘s relentless focus on the customer and anybody would probably walk out with a big bag in hands. However, one would never guess that the profits made from that store and many others across the country are partly distributed among the weavers, about 20,000 of who are ‟shareholders‟ of subsidiary companies floated by Fab India. The artisans gain in many ways .The value of their shares goes up .They earn dividends when the company is in a position to declare them. Eventually the company will try and offer loans to the artisans, arranged through banks. The loans can be used to buy new looms or expand production of other products. Although the villagers see it as a gamble they are convinced that it would work. William Bissel is convinced that involving artisans and sharing benefits of growth with them is the most sustainable of all models. The shares offer the artisans a divisible asset class and community owned companies help convert FabIndia's artisan base into an asset. But the model is not desirable from a social point of view alone. Fab India has moved from being a primarily export house in the 1960‟s to a turnover of Rs 300 crore, of which 90  per cent is domestic sales. Its aim is to be a ―lifestyle alternative to mass produced ― Artisans Microfinance Director Smita Mankad Quit ABN Amro to do something she believed was worthwhile. „If you want grow at the pace we have grown, you have to carry your supplier  base with you,‖ she says, emphasizing that Fab India‘s  growth will be hampered unless the artisans grew with it. If FabIndia is changing the way the artisans work, the new model is changing the way FabIndia works .The typical central warehouses owned by community – owned owned companies from which goods travel directly to stores across India, This reduces logistics costs and minimizes the role of Middlemen. While the system seems to be working for all concerned, challenges remain .One of them is developing secondary markets so that the companies can stand on their own feet. Critical to that will be introducing a consciousness of the design element in the artisans so that their products have a wider appeal. Bissel says the model will depend on the artisans beginning to understand the benefits of joining together in something that‘s  not cooperative‖. A cooperative imposes many restrictions upon them and doesn‘t give them much in return, if you get together, you must create something that‘s bigger than the sum of its parts. Fab India‘s entry made the biggest difference as it began to source fabric worth Rs 1 crore a year from Chanderi. Fab India sources its products from over 15000 craft persons and artisans across India. They support the craft traditions of India by providing a market and thereby encourage and sustain 29

rural employment. Today they have retail outlets in all major cities of India - 85 at last count - in addition to international stores in Rome, Italy; Dubai, UAE and Guangzhou, China. Today FabIndia has expanded beyond textiles into furniture, stationery, pottery, organic foods and body care products. All merchandise is sold under the single FabIndia brand and the company owns all its stores as Bissell feels this helps the brand to maintain its identity. FabIndia works closely with artisans and villagers to develop designs and colour palettes and to optimize  production techniques and raw material inputs. For the textiles, mostly natural fabrics and vegetable dyes are used. "We attract a specific type of customer and decided we want to give that customer the spectrum of products," Bissell says of the product diversification strategy, adding that Fab India's customers do not fit an age or demographic profile, but are a loyal base of people who want to support craft. But Bissell is also candid in admitting that some of the diversifications have had unexpected  problems. For example, Fab India's range of organic foods, which it launched in 2004, has a limited audience and as it is perishable has a shorter shelf life than other FabIndia products. FabIndia recently forayed overseas and has had some early success. For example, its store in the Gulf has been quick to take off. But this has only reinforced Bissell's conviction that it is the Indian Diaspora that makes FabIndia a profitable business. Penetrating overseas markets is a "focus but not a large focus", says Bissell, who sees customers in India as the mainstay. The  business derives 90% of its revenues domestically. "Our global expansion will be targeted at  places where there are a large number numbe r of Indians," clarifies Bissell. Biss ell. Bissell is clear that it is the firm's decision to stay focused over the decades of its existence that is responsible for its success. "We have consistently operated in the niche we identified initially," sums up Bissell, explaining the firm's philosophy. "We are like a restaurant which serves only one kind of cuisine." And with takers abounding for that one type of cuisine, it is clear Bissell is on to a good thing.

QUESTIONS: 1. What is the relationship between Fab India, the parent company and the subsidiaries - If the subsidiaries have a claim on Fab India‟s profits or just act as a supplier unit? 2. What do you think of the model that Bissel has proposed? 3. Would Fab India really is able to transfer the benefits to its artisans as they have proposed? 4. Fab India‘s community-owned companies are converting artisans into assets while sharing the  benefits of growth with them .Explain? .Expl ain? 5. Would Diversification in some other areas helps Fab India to provide better to its shareholders- the artisan community?

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