In this thesis a comparison is made between the H&M Group and Inditex to measure the differences in overall performance of outsourcing and in-house production in the apparel industry. Outsourcing is often discussed in the literature as the perfect solution to cost reductions however the literature lacks results on the actual performance; this article measures the performance obtained through outsourcing and in-house production. H&M is studied because it has a fully outsourced production, where Inditex mostly produces its products in-house. Performance is measured by the follow variables: costs, agility, asset utilization and product quality. Costs and asset utilization were measured using an independent samples t-test; comparing costs of goods sold salary expenses and overall expenses as a percentage of the revenue, asset utilization is measured by comparing the return on assets ratio. Agility is studied by an in-depth analysis and product quality based on a survey on consumer perception.
The results show that H&M has significantly reduced its costs by outsourcing, while Inditex with higher costs is able to keep a very short lead-time. H&M has been successful in increasing return on assets and product quality is perceived equal for both companies. This article contributes to the field of research by showing that outsourcing does lead to cost reduction, however in-house production leads to better performance in agility.
Table of Contents
Introduction
1.1 Motivation
1.2 Definitions & Problem statement
1.3 Preview of the paper
2. Background
2.1 Fast fashion market
2.2 Inditex
2.3 H&M
2.4 Model: Measure sourcing performance
3. Methodology
3.1 Data collection
3.2 Unit of analysis
3.3 Methodology
3.4 Validity
3.5 Reliability
4. Analysis and Results
4.1 Costs of goods sold
4.2 Salary expenses
4.3 Overall expenses
4.4 Findings
5. Quality
6. Lead-time
7. Asset utilization
8 Conclusion
8.1 Limitations
8.2 Future recommendations
Research Objectives & Topics
This thesis investigates the performance differences between the vertical disintegration strategy (outsourcing) employed by the H&M Group and the vertical integration strategy (insourcing) used by Inditex. The central research question aims to determine to what extent business performance—measured by costs, quality, agility, and asset utilization—differs based on these opposing supply chain models.
- Comparative analysis of supply chain strategies: Outsourcing vs. Insourcing.
- Financial performance measurement through cost efficiency, salary expenses, and overall operational expenses.
- Assessment of agility and responsiveness via lead-time analysis in the fast fashion industry.
- Evaluation of product quality based on consumer perception metrics.
- Analysis of asset utilization through Return on Assets (ROA) to assess the impact of asset-light business models.
Excerpt from the Book
2.1 Fast fashion market
In the past the fashion industry was known for ”haute couture” where the focus was laid on unique design for its customers usually only available for customers with a lot of money. Since the 1980’s the fashion industry has seen changing dynamics in the market, and is now referred to as the “fast fashion industry” (Tokatli, 2007). Instead of putting large investments into design, trends are copied from promising clothing lines in fashion shows, merged with information gathered from consumers (Reinach, 2005). The trends are converted into clothing lines ready for production, set to the market with the lowest possible lead-time (Ferdows, Lewis & Machuca., 2004; Reinach, 2005).
The fast fashion market is marked by short-life cycles, high volatility (unstable demand), low predictability and high impulse purchasing. (Christopher, 2004) To be competitive, clothing retailers should have stores all over the world to sell on a global scale and obtain the demand for economies of scale (Tokatli, 2007). An effective information system to match the costumers demand with their production and distribution ( Thomassey, 2010). A short development cycle for new clothes combined with short lead times enable to produce different sets of cloths, combined with a highly responsive supply chain which can be easily adjusted to produce different types of clothes (Bhardwaj & Fairhurst, 2010) and with continuous price pressures from competition, production costs should be kept at a minimum level, this is often done by relocating production facilities to low cost labor countries.
Summary of Chapters
Introduction: Outlines the shift toward globalized apparel supply chains and introduces the comparative study between H&M and Inditex regarding sourcing efficiency.
Background: Provides context on the fast fashion industry and details the specific business models of Inditex (vertical integration) and H&M (vertical disintegration).
Methodology: Describes the multiple case study approach, the collection of secondary financial data, and the metrics derived from the "House of Sourcing" model.
Analysis and Results: Presents the quantitative comparison of costs, salaries, and overall expenses between the two retail giants, testing hypotheses on cost-efficiency.
Quality: Examines perceived product quality based on consumer survey data, contrasting the effects of outsourcing versus in-house production.
Lead-time: Analyzes the impact of supply chain strategy on agility and the competitive advantage gained through short production cycles.
Asset utilization: Evaluates how different levels of asset ownership affect the Return on Assets (ROA) for the two companies.
Conclusion: Synthesizes the findings, confirming that while H&M excels in cost reduction and asset utilization, Inditex maintains a superior competitive edge in market responsiveness and agility.
Keywords
Outsourcing, Insourcing, Vertical Integration, Vertical Disintegration, Fast Fashion, Inditex, H&M, Supply Chain Management, Lead-time, Cost Efficiency, Asset Utilization, Performance Measurement, Apparel Industry, Competitive Advantage, Return on Assets.
Frequently Asked Questions
What is the primary focus of this research paper?
The research examines and compares the operational and financial performance of the H&M Group's outsourcing strategy against Inditex's in-house production model within the global apparel industry.
What are the main thematic areas covered?
The paper focuses on four key metrics: cost efficiency, product quality, agility (measured by lead-time), and asset utilization.
What is the central research question?
The study aims to determine to what extent performance differs between the vertical disintegration strategy of the H&M group and the vertical integration strategy of Inditex.
Which scientific methods are applied in this work?
The author conducts a multiple case study using secondary financial data (2004-2013) and applies independent-samples t-tests to statistically verify differences in costs and Return on Assets between the two companies.
What topics are discussed in the main body?
The main body includes a literature-based background of the fast fashion market, a comparative analysis of financial ratios, an evaluation of consumer-perceived quality, and a detailed look at how production strategy impacts supply chain agility.
Which keywords characterize this paper?
Key terms include Outsourcing, Insourcing, Vertical Integration, Fast Fashion, Supply Chain Management, and Cost Efficiency.
How does the outsourcing strategy affect H&M's asset utilization?
Because H&M operates a vertically disintegrated supply chain and owns fewer production assets, the research finds that it achieves a significantly higher Return on Assets (20%) compared to Inditex (13%).
Does Inditex's in-house production lead to better lead-times?
Yes, the study concludes that Inditex's strategy allows for a significantly shorter lead-time of 7 to 15 days, providing a competitive advantage in responsiveness compared to H&M.
Are there significant differences in product quality between the two companies?
The analysis indicates that the overall perceived product quality is roughly equal, although the companies excel in different sub-dimensions like product features versus reliability.
- Citar trabajo
- Rob Nijmeijer (Autor), 2015, A Comparison of Sourcing Strategies in the Apparel Industry. Case Study of the H&M Group and Inditex, Múnich, GRIN Verlag, https://www.grin.com/document/310193
