At H&M Group we are committed to developing responsible purchasing practices that ensure we are a fair business partner. Our purchasing practices should support the textile and garment industry to develop in a sustainable way and offer long-term benefits to garment workers and suppliers.
Responsible purchasing practices
H&M Group – A fashion buyer
Most fashion brands do not make fashion, they are fashion buyers. It’s the same for H&M Group – we design inhouse, but we have outsourced production ever since the company was created in 1947. This means we are customers to locally owned or multi-national garment manufacturers based mainly in Asia and Europe. When we choose to buy from these manufacturers we invest in their workforce, enable local employment opportunities, and support local and national institutions to develop resilient economies and social protection systems.
The factories are not owned nor managed by us, but by independent businessmen and women. Some employ less than ten people while the largest employ tens of thousands of people, the majority of whom are women. We share suppliers with many other fashion and sports brands.
Signing The ACT commitment on purchasing practices
Research and our own experience shows that even though we do not own factories, our buying behaviour and standards can influence conditions and practices at our suppliers. We want to have a positive impact with our business partners, which is why we are a founding member of ACT – Action, Collaboration and Transformation, alongside 18 other brands and the global union IndustriALL. Created in 2014, ACT sets out five commitments for responsible purchasing. We have signed up to all of them:
- Purchasing prices include wages as itemised costs.
- Fair terms of payments.
- Better planning and forecasting.
- Undertake training on responsible sourcing and buying.
- Practice responsible exit strategies.
These commitments help us to design and continually improve our purchasing practices.
Responsible purchasing practices at H&M Group
We have a strong local presence in our sourcing markets, which means we can build genuine partnerships with our suppliers and collaborate closely with them each day. This is a crucial part of being a responsible buyer. For example, we have our own production offices in Phnom Penh in Cambodia, Dhaka in Bangladesh and Shanghai in China. These 16 production offices in Europe, Asia and Ethiopia employ nearly 2,000 colleagues and regularly support about 600 suppliers. By always being close to our suppliers we have developed partnerships built on mutual trust.
Most of our purchasing practices are governed by digital systems and company policies. This ensures we consistently implement our standards and limits the risk of human error or external influence. It also means that many of the commitments we make, like adhering to certain payment terms, occur automatically.
Since 2011, we have used a supplier relationship management system. It helps us to evaluate and develop our suppliers across several business and sustainability parameters. We reward responsible and high-performing suppliers by providing production plans well in advance. This allows factories to plan for, and better manage, peaks and troughs in demand. For the best performing suppliers, we plan our order capacity as long as three to five years ahead, which gives them the stability to invest in their facility and workforce.
Wages as an itemised cost
What we pay suppliers for a garment is split into different cost blocks such as material, labour and product treatments, like printing or washing. To assess the labour cost, we use a costing tool that includes, for example, production time, efficiency and wages of workers. When wages increase, for example through an increase in local minimum wage levels, the labour cost is automatically adjusted in the tool. This detailed costing calculation improves the visibility of labour costs and enables us to separate different costs during price negotiations. Ring-fencing labour costs in this way allows improved wages to be reflected in the prices we pay to our suppliers.
Payment terms can have a big impact on suppliers’ financial resilience and ability to invest. We have standardised payment terms in line with industry practice. In addition, H&M Group has negotiated a factoring agreement on behalf of all its suppliers that gives them faster access to invoice payments. Suppliers can opt to receive payment approximately three days after sending an invoice to H&M Group. Taking this into account, our suppliers on average get paid 15 days after they submit an invoice and hand over goods.
Exiting a supplier relationship
Sometimes we need to end a business relationship with a supplier. For example, a supplier may be phased out if our capacity or capability needs change, the supplier fails to meet our compliance or sustainability requirements, or due to poor quality performance. Whatever the reason, we want to minimise the negative impact of exiting a business relationship.
We do this by following the ACT Responsible Exit Policy. This policy sets out a clear phase-out process during which we conduct a worker impact assessment and create an exit plan in close dialogue with the supplier. We also inform all relevant stakeholders, in particular trade unions or other labour organisations that represent workers in the facility. To limit negative impact, the phase out process takes between six months to 1.5 years, and we monitor and communicate each step verbally and in writing.
Developing our purchasing practices
There are still many challenges we need to address to make sure our purchasing practices do not contribute to any human rights violations on the factory floor. To help develop and improve our practices, we ask our suppliers how they perceive us as a buyer in anonymous surveys. Last year, 98% of our suppliers said that we are a responsible buyer – and we are working hard to bring that number up to 100.
We also complete ACT’s industrywide self-assessment on purchasing practices with our suppliers. In 2021, we scored on average over four out of five in most areas. However, our score for monitoring and evaluating purchasing practices was lower. This means we need to strengthen how we communicate what we do in this area.
We are committed to continuously improving our purchasing practices in all areas. As part of this drive, we are currently rolling out training on responsible purchasing practices to over 500 H&M employees.
Why are responsible purchasing practices important?
Responsible purchasing practices safeguard the fair treatment of garment workers and provide a healthy work environment. It is difficult for suppliers to be good employers if the companies that buy from them are not committed to responsible purchasing practices.
Key questions to find out if you are a responsible buyer include: When will the supplier be paid for the goods produced? What will the price be and what parameters will the price be negotiated on? What is the process for forecasting and placing orders and how is this communicated with suppliers? What are the cancellation terms and how are they regulated in contracts?
For example, the fashion industry is generally seasonally dependent. Customers buy seasonal products when they need them; swimwear in spring and knitwear in winter. This creates an irregular buying and production pattern with peaks and troughs. Good purchasing practices and supplier relationships help to address the challenges related to uneven production. For example, if buyers work with suppliers to plan capacity well in advance, it reduces excessive overtime for factory workers in peak seasons and helps plan for periods with less customer demand.
Buyers are responsible for creating an environment in which working conditions and human rights can be properly respected and implemented. For example, if a buyer pays for products ordered on time, then suppliers can pay their workers on time.
Adequate planning and responsible purchasing practices also reduce the risk of overtime, late wage payments, and health and safety violations. As well as helping to create a healthy work environment and good conditions in the factories.