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H&m Rea Term Project

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                 REA Model Project[pic 2]

           Instructor: Dr. Anamitra Shome




Yilin LI






Table of Contents



Value System3

Value Chain5

REA Model of Sales/ Collection Process7

Query/Relational Database10



The REA model is an important accounting framework to explore an organization’s business activities including resources, events, agents and their interrelationships. By storing both financial and non-financial data in the same central database, the model provides more relevant and reliable supports for management decision making.

In this project we choose H&M, a Swedish multinational retail-clothing company, known for its fast-fashion clothing for men, women, teenagers and children, as our project topic and use the REA Approach to develop a simplified database. The project can be divided into five scenarios as follows.

First scenario is introduction of H&M’s background. Second, we will state the value system of the company. In addition, we will indicate the value chain of the company; after that, we will discuss the business process on REA concepts in its Sales/Collection process of H&M. Finally, we will design a simplified Microsoft Access database based on REA model information for H&M.


H&M is a Swedish multinational retail-clothing company. It is famous for its fast-fashion clothing for men, women, teenagers and children. In 2015, H&M has over 3,700 stores in 61 countries and has employed around 132,000 people. It is ranked the second largest global clothing retailer, just behind Spain-based Inditex (parent company of Zara), and leads over the third largest global clothing retailer, United States based Gap Inc.

In 1946, the company was founded by Erling Persson, who came up with a new business idea to provide fashionable clothing with attractive prices for customers. In 1947 he opened his first shop Västerås, Sweden "Hennes", which exclusively sold women's clothing. "Hennes" means "hers" in Swedish. 21 years later, in 1968 Persson acquired the hunting apparel retailer Mauritz Widforss, which led to the inclusion of a menswear collection in the product range and the name change to "Hennes & Mauritz" (H&M).

Value System

Before the discussion of specific business process, it’s necessary to analyze the value system level REA model of H&M as shown in Chart 1, which focuses on the resources that are exchanged between H&M and its various external business partners. The external business partners mainly include shareholders, creditors, suppliers, employees, customers and government.

1. Shareholders provide funds to support H&M, and they get dividend as return;

2. Creditors provide funds to the company, and H&M pays interest to them;

3. Suppliers deliver raw materials, components and machinery to H&M, and company   pays cash to purchase these;

4. Employees contribute their labor, including design, technique, fitting service and sales to the company, and H&M pays salaries and other forms of compensations to them;

5. Customers make payments to H&M for satisfactory products and services from the company.

6. Government may provide some policies to the company, and gather taxes from H&M.

Chart 1

[pic 3][pic 4]

Value Chain

Chart 2, the value chain, represents and focuses on the internal resources flows within H&M. It includes five main processes which are Financing process, Payroll process, Acquisition process, Conversion process and Revenue process.

The chain begins when H&M acquires capital and receives funds through cash receipts from its shareholders, creditors and customers in the financing process, so cash resource is a stock outflow to pay for purchasing raw materials, components and machinery as well as labor in acquisition process and payroll process.

Second, in Payroll process, H&M hires employees including design, technique, fitting service, and sales to provide labor to support operation in conversion process. The cash inflow resource from financing process is used to produce labor as an outflow resource.

Through the acquisition process, H&M uses the cash inflow resource from financing process to purchase raw materials, and components machinery, which are outflows resources and used in conversion process.

In the next step, raw materials, components, machinery, and labor are transformed to conversion process. Therefore, there are three duality relationships between production and labor operation, machine operation, raw material and components operation separately.

Eventually, revenue is collected by providing and selling products in revenue process, which uses up sales and services as inflow resource to produce cash outflow resource. The generated cash transfers to refinance H&M in financing process and become to cash inflow resource.

All five processes circulate again; however, the value chain model only represents the resource stock flows within internal processes. It doesn’t show the cash outflows in Payroll process and Acquisition process to H&M external partners.

Chart 2

[pic 5]

[pic 6][pic 7][pic 8]

Business Process [pic 9][pic 10][pic 11][pic 12][pic 13][pic 14][pic 15][pic 16][pic 17][pic 18][pic 19][pic 20][pic 21][pic 22]

The revenue process (selling in stores and online stores) is the business process chosen to illustrate in the REA model for H&M. REA model is an ontology model that shows integrated enterprise systems by using real business activities and entities as the foundational building blocks.



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