Sourcing and production

Around 18% of sourcing volumes produced at the Group’s own facilities

In terms of value, 18% of total sourcing volumes were produced at the Group’s own facilities last year (2016: 20%). The remaining 82% comprises products sourced from independent contract suppliers or procured as merchandise (2016: 80%). The increase in external sourcing volumes reflects the rising demand for casualwear and athleisurewear. HUGO BOSS primarily sources these products from independent suppliers.

Group’s own production mainly focuses on highquality businesswear products

The Company derives important expertise in the ongoing development of production technologies and quality standards from its own production facilities. The four Group’s own production facilities are located in Izmir (Turkey), Metzingen (Germany), Radom (Poland) and Morrovalle (Italy). Of these, Izmir is by far the largest and primarily produces high-quality businesswear products such as suits, blazers, shirts and coats as well as the full range of womenswear. The Technical Center in Metzingen is mainly used to develop and produce prototypes such as sample and material testing pieces. It also addresses the rising demand for made-to-measure and full-canvas suits as well as the trend towards personalized products. The Company’s own specialists at the Radom and Morrovalle facilities chiefly produce high-quality business shoes.

Systematic orientation to strategically important partners

HUGO BOSS attaches key importance to the careful selection of suppliers and the establishment and maintenance of long-term strategic relationships. In addition to economic criteria, strict observance of environmental and social standards is of crucial importance in this respect. Product quality also undergoes extensive analysis in advance trial orders. Last year, HUGO BOSS procured finished articles from 175 external suppliers (2016: 182) using 202 production facilities (2016: 210). Raw materials were sourced from 357 external suppliers (2016: 353) operating 371 production facilities (2016: 372). In the interests of risk mitigation, the Company ensures a balanced distribution of sourcing volumes as far as possible. Thus, the largest independent supplier accounted for only 9% of the total procurement value sourced in 2017 (2016: 9%). Sustainability Report on Risks and Opportunities

Most fabrics are sourced in Europe

The raw materials procured by HUGO BOSS mostly entail fabrics and trimmings such as the inner lining, buttons, yarns and zippers. The most frequently used materials are cotton, wool and synthetic fibers. The Group purchases most of the raw materials it requires from suppliers in Europe. Fabrics are predominantly sourced from long-standing partners in Italy. For products made under contract, HUGO BOSS provides suppliers with the fabrics, trimmings and patterns required. The suppliers, which are mostly based in Eastern Europe, primarily produce businesswear requiring high production expertise and technical equipment. The merchandise sourced by the Group is primarily composed of athleisure and casualwear products. In this case, the suppliers, which are mostly based in Asia, Eastern Europe and Africa, only receive the patterns and source the materials and trimmings themselves.

Izmir is the largest own production site

Within Eastern Europe, Turkey accounts for the largest proportion of sourcing and production volumes. Of the sourcing and production volumes in Eastern Europe, roughly one third is attributable to the Group’s own production facility in Izmir. China is by far the largest sourcing market in Asia.

Successful digitization of production processes in Izmir

The Group’s own production facility in Izmir is a forerunner in the digitization of production processes in the clothing industry. Back in 2015, HUGO BOSS started transforming the facility into a “smart factory”. Further important milestones were passed in 2017. Thus, all production machinery, employees, processes and products are now digitally connected and the data can be analyzed via a central IT system. In this way, it is possible to track the completion of a product and other production data in real time. A full-scale “digital twin” of the facility is expected to be ready by the end of 2018, making it possible for the first time to simulate the production process before it actually starts. Moreover, HUGO BOSS is working on a system for forecasting technical defects in machinery and potential production errors before they occur.

Izmir facility a forerunner in digitization

Numerous awards testify the pioneering role of the facility in Izmir on its road to becoming a “smart factory”. Thus, the market research and consulting company International Data Corporation ranked the facility top in the categories “Internet of Things” and “Big data and artificial intelligence”. In particular, it stressed the pioneering role being of HUGO BOSS in data analytics and in the forecasting of production errors and machine defects.

Numerous quality assurance measures implemented

HUGO BOSS sets highest standards for the quality of its products. Numerous initiatives are leveraged to establish a continuous quality audit and improvement process. Thus, members of the Managing Board and product managers meet for monthly round tables and regular quality walks to discuss a wide range of different quality aspects. The purpose of the round tables is to analyze products exhibiting quality shortfalls and to incorporate the potential for improvement identified in future product development. The quality walks evaluate individual product groups in terms of workmanship, fit, design, material and trimmings with the aim of identifying further potential for optimization. In addition, wearing tests are an important tool for testing products under real conditions and for obtaining direct customer feedback. The tests last over several months and are backed up by regular feedback talks. Customer surveys are also used to compare the Company’s quality expectations with customer perceptions.

High quality standards in suppliers’ facilities

HUGO BOSS issues its partners with standardized quality, workmanship and process manuals to ensure that they meet the Company’s high quality standards. In addition, HUGO BOSS regularly conducts trainings on aspects such as cutting and production management and technology at the suppliers’ production facilities. Compliance with production standards is monitored by controls that are integrated into the production process as well as regular samplings. Quality criteria are also included as a fixed part of the semi-annual supplier assessments.