Annual Report 2020

Sourcing and production

  • Strategic focus on increasing the efficiency and flexibility of the supply chain
  • Own production capacity in Izmir expanded to casualwear
  • Further digitization enables closer cooperation with suppliers

The sourcing and production of high-quality products is crucial in order to meet the exacting customer expectations in terms of design, comfort, fit and longevity. In addition to ensuring and implementing these quality features, HUGO BOSS is constantly striving for best-in-class solutions to further increase the efficiency and flexibility of its supply chain. In this context, speed is a key element, in order to react promptly to changing market requirements and to better meet customer demand. For the first time in 2020, the Company was able to develop and launch a capsule collection with selected casualwear styles within eight weeks only. This was made possible primarily by the increased use of digital technologies in product development and the targeted stockpiling of components and materials for rapid production. In addition, at the end of 2020, HUGO BOSS made further progress in strengthening the connection between the Company and its suppliers, by launching a digital platform that enables an efficient and quick exchange of product information. Already in 2021, the platform is expected to be part of the Company’s regular operations.

In 2020, the Group also made progress in streamlining its internal development and sourcing organization, optimizing the supplier portfolio and further accelerating the digitization of its processes. The ongoing optimization of sourcing and production processes is also intended to result in savings in cost of sales over the next years. The further reduction of complexity in the BOSS and HUGO collections also plays an important role in this regard. To achieve this, the Company is focused on streamlining the product range, reducing the component and material complexity and partially extending product life cycles, such as through a greater share of never-out-of-stock products. Group Strategy

In terms of value, 17% of the total sourcing volume was produced at the Group’s own facilities in 2020 (2019: 17%). The remaining 83% comprises products sourced from independent contract suppliers or sourced as merchandise (2019: 83%). Own production is used, among other things, to be able to respond quickly and flexibly to changing customer requirements and to obtain important know-how for the further development of production technologies and quality standards. The Group’s four own production facilities are located in Izmir (Turkey), Metzingen (Germany), Radom (Poland) and Morrovalle (Italy).

Formalwear products, such as suits, jackets, shirts and coats, as well as womenswear are manufactured in Izmir, by far the Company’s largest own production site. The transformation of the location into a "smart factory", which has been stepped up over the past few years, has largely been completed. As a result, the location is characterized by highest levels of digitized processes and operations. The focus at the Izmir location is now mainly on further increasing the flexibility of production in order to be able to manufacture casualwear beyond formalwear and further tap into the global trend of casualization. Consequently, the first casualwear styles of the jersey product range, including trousers and jackets, had already been produced in Izmir in 2020. The production site in Metzingen, in turn, primarily manufactures tailored suits of the "BOSS Made to Measure" range, as well as prototypes and samples. At an early stage of the COVID-19 pandemic in 2020, production was temporarily switched to the production of face masks, which were then donated to public institutions. The Radom and Morrovalle sites mainly produce business shoes and sneakers.

HUGO BOSS attaches great importance to the careful selection of suppliers, and the establishment of long-term strategic partnerships. In addition to economic criteria, social and environmental aspects also play an essential role. The basis of cooperation is respect for human rights, adherence to applicable working standards and occupational health and safety. The HUGO BOSS Supplier Code of Conduct, which forms the basis for all supplier relationships, is an important framework for the structure of business activities. The Company verifies compliance with the Code of Conduct in the form of regular audits at the production sites and supports its suppliers with specific training on various topics. At the same time, the Company is involved in the further development of international standards and takes an active role in external cooperations to design sustainable textile supply chains. Combined Non-Financial Statement, Respect for Human Rights

HUGO BOSS works with a network of experienced and specialized suppliers to ensure excellent processing quality and optimum availability of its products. In 2020, the number of suppliers continued to decline, reflecting the further optimization of the Company’s supplier portfolio. At the end of the year, HUGO BOSS sourced finished goods from a total of 156 external suppliers (2019: 171) producing in 185 production sites (2019: 198). The Company sourced raw materials from 315 external suppliers (2019: 309) producing in 338 production sites (2019: 325).

The increase in sourcing volume in Asia, compared with the prior year, resulted from the higher share of casualwear and athleisurewear in the product mix, primarily sourced as merchandise. Within Asia, China is the most important sourcing market, accounting for around 20% of the Company’s global sourcing and production volume. As in the prior year, within Eastern Europe, Turkey accounts for the largest part of the global sourcing and production volume at 23%. The own production site in Izmir accounts for around 13% of the global sourcing and production volume.

Fabrics and trimmings sourced by HUGO BOSS are mainly outer materials and lining fabrics, buttons, yarns and zippers. For products made under contract, HUGO BOSS provides suppliers with the fabrics, trimmings and the required patterns. The suppliers, which are mainly based in Eastern Europe, primarily produce formalwear requiring high levels of production expertise and technical equipment. Including the Group’s own production sites, the proportion of the sourcing volume accounted for by products made under contract was below the prior year level at 32% (2019: 36%). This development mainly reflects the overall decline in demand for formalwear in the wake of the COVID-19 pandemic. The merchandise sourced by the Group is primarily composed of athleisurewear and casualwear products. While suppliers are provided with the relevant pattern, they source the required fabrics and trimmings independently. At 68%, the proportion of merchandise in the sourcing volume was above the prior year level (2019: 64%) and resulted from the higher share of casual and athleisurewear in the product mix compared with the prior year.

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