1

SUPPLY CHAIN AND CASE

STUDY OF
INTERNATIONAL
RETAILER

Fashion and quality at the best price.

H & M Hennes & Mauritz AB
(H&M)


2

INTRODUCTION
H & M Hennes & Mauritz AB (H&M) is a Swedish multinational retail-clothing company,
known for 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 Vsters, 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 (parent company of ZARA), and leads over third largest global
clothing retailer, United States based GAP Inc.
The design team in the companys 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 Persson was on a trip to the United States and came up
with the business idea of offering fashionable clothing at attractive prices. In 1947 he opened his
first shop Vsters, 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 & Mauritz" (H&M). In 1998, the company successfully gained
control over the initials "HM" for 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.





3

MARKETING MIX


PRODUCT

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

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


PRICE

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.

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












4

ORGANISATIONAL STRUCTURE



LOCATIONS

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



HEAD
OFFICE
(Stockolm)
Finance
Design
Human
Production
Offices
(16)
CSR
Country
Offices
(16)
Security
IT Community Investor
Logistics
Account
Expansion Interior
Advertising
Thailand
Europe
Ireland
Lithuania
Serbia
Croatia
The Americas
Canada
United States
Mexico
Brazil
Chile

5




H&M world map
300+stores
200+ stores
100+ stores
50+ stores
20+ stores
10+ stores
1+ store
Upcoming stores








6

H&M SUPPLY CHAIN




7




8

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&Ms 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&Ms buying office and their suppliers. They identify which suppliers to place orders
with.




9

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

The code of conduct includes issues such as:
Legal Requirement
A ban on child labour
Health and safety
Workers right
Housing Conditions
The Environment
Systems approach
Monitoring
Enforcement
Suppliers
H&Ms 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&Ms 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 Audit Program.
10


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 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 awareness of rights at work among both factory employees and managers.







11

Designing


Manufacturing

Distribution
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 m
2

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
The actual dyeing and cutting of the garments can then be
decided at a later stage 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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FACTS ABOUT H&M

H&Ms business concept is to offer fashion and quality at the best price.

H&M was established by Erling Persson who opened the first store in Vsters, Sweden
in 1947. Today there are 3,100 stores in 53 countries.

H & M Hennes & Mauritz AB comprises six independent brands: H&M, COS, Monki,
Weekday, Cheap Monday and & Other Stories.

116,000 dedicated 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, men,
teenagers and children complete with shoes, accessories, cosmetics and a home interiors
concept.

The collections are created by 160 in-house designers and 100 pattern makers.

Sustainability is an integral part of H&Ms 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 800 independent suppliers,
mainly in Asia and Europe.

In 2013, the turnover including VAT increased to SEK 150 billion.

H&Ms growth target is to increase the number of stores by 1015 per cent per year and
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 in all markets.

Quality is key for H&M 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 persons ability to show initiative





13

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)


14

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 mirror-
image 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)


15

'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, Beyoncs 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 stores 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 Kenos $255 sell-out Tiger to similar heights (right)

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One woman, referring to the retailer's frequent turnover of styles that mimic 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 to Regretsy.
Then, as people flocked to its Facebook 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 doormats to towels to pillows.
When LaConsay emailed H&M customer service, it immediately denied everything, according
to Regretsy:
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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 recent debacle
involving Chap 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.


18




SUPPLY CHAIN AND CASE
STUDY OF DOMESTIC
RETAILER




Fabindia (or Fabindia
Overseas Pvt. Ltd.)


19

INTRODUCTION
Fabindia (or Fabindia Overseas Pvt. Ltd.) is an Indian chain store retailing garments,
furnishings, fabrics and ethnic products handmade by craftspeople across rural India. Established
in 1960 by John Bissell, an American working for the Ford Foundation, New Delhi, Fabindia
started out exporting home furnishings, before stepping into domestic retail in 1976, when it
opened its first Fabindia retail store in Greater 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 Fabindias 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 companys history and our founders 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
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.


20

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
21

Dehradun
Mumbai
Foreign countries
Italy
Mauritius
UAE
Singapore
Italy

The FabIndia Ecosystem



Fabindia enjoys a Network of 167 stores across Indias 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 community-
owned 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.
22

SUPPLY CHAIN: FABINDIA


FabIndias 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
23

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 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 main hurdle to capacity building
Direct interface with artisans
Closer to sourcing 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 FABINDIAS 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.






24

INVENTORY 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 FabIndias 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 months 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.

Bulk Order
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 stores 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 ordering month after selling a percentage of the months
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.





25

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 FabIndias 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
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
26

compatibility since the current supply chain is not build to handle the pinpoint accuracy and
perishability of products required in organised 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
FabIndias 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 Fabindias 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.



Typical Order Flow between Stores, SRC and Artisans / Producers

27

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 in addition to their responsibilities to earn a fair return 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". Social responsibility is an
organizations 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 in addition to their responsibilities to earn a fair return for investors
and comply with the law. A traditional view of the corporation suggests that its primary, if not
28

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 that it produces a positive impact on society. However, CSR requires
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 Indias 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 todays 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 Indias managing director William Bissel, who conceived and steered the model, says that
unlike many Indian companies he doesnt 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 weavers who were disappointed not just by no rain or no water but by
disappearance of the demand of their cherished fabric Chanderi. They were then introduced to
the concept of becoming owners of shares in a community owned company .They were unsure
29

but bought shares because they thought that it could change their lives in some ways. That way
has been paved by Fab India, a retail outfit that has grown from one store in mid-1990s to 85.
Dabbling in fabric, apparel, handicrafts and other products, it began an experiment with
community 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 company .The
investment by these four categories of investors provides the paid up capital .The company
promotes the sales of its artisan community to Fab India, which is the principal buyer. Walk into
any of Fab Indias 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 stores
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 1960s 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 Indias 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
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 thats not
cooperative. A cooperative imposes many restrictions upon them and doesnt give them much
in return, if you get together, you must create something thats bigger than the sum of its parts.
Fab Indias 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
30

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 of Indians," clarifies Bissell.
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 Indias 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 Indias community-owned companies are converting artisans into assets while sharing the
benefits of growth with them .Explain?
5. Would Diversification in some other areas helps Fab India to provide better to its
shareholders- the artisan community?
31

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