Benetton (A)

Prof. A BhardwajDr. B R Ambedkar National Institute of Technology Jalandhar

Company Background

Leader in knitted overwear. (cotton and wool)Sold 26.9 million units in 1982 (80+ million

now)1900 exclusive shops (7000 now in 110

countries)Purchased 9 million pounds of wool (highest

in the world)200 suppliers, 80 agents, 850 subcontractors

( Note: current numbers)

Benetton

Entrepreneurial Innovator Dominant in its chain

creates value for its partners sets rules for them and helps build capacities structures and strategize for the whole chain

Global Strategy The same garments are sold throughout the world the same small boutique-style shops,

merchandised within strict corporate guidelines, and supported heavily with print media using identical

advertisements worldwide

Benetton

Benetton operates in a highly competitive, mature industry characterized by a fickle consumer base demanding an increasing variety of products

Benetton’s vision

To put fashion on industrial level

The Challenges

The design patterns The colors Competition location of demand lead time of suppliers Quality of the product supplied Demand and supply fluctuations high cost of lost sales and obsolescence must have the capability to have entirely new

collections in stores every few months short product life cycles and increased variety

Basic Issues

Understand why Benetton is so successful? Benetton beats Asia’s core competencies in

garment production by high productivity, innovative logistics and technology. It supplies garments to Asia produced in Italy while most companies outsource garments from Asia to Europe and North America.

How different elements of Benetton’s strategy fit together and work?

The Supply Chain

The components of the global supply chain of Benetton are: Raw material suppliers Subcontractors Factories of Benetton The warehouse Agents Retail outlets

Manufacturing at Benetton

Clothing manufacture is a mix of high technology and high labor.

Thus, Benetton has blend of high labor cost third-party and high-technology in-house operations

This gives flexibility at a low cost

Postponement

Postponement suggests that value should be added in the supply chain as late as is consistent with meeting customer needs.

Traditionally, knitting follows dyeing. But, Knitting is slow high inventory needed for maintaining customer service

expectations

Benetton knits first and then dyes. This led to cost savings by delaying addition of expensive dyestuffs;

better customer service by matching supply and demand;

increased sales by having customer desired stock available; and

Marketing at Benetton

It’s customers are its shops. Unlike normal franchise systems, the shops pay no royalties and Benetton accepts no returned stock.

Product DevelopmentPricing DistributionPromotion

Logistics at Benetton

ships 80 million items directly to 7000 stores in 110 countries

Most items are shipped from a single warehouse in Italy

Even with just one worldwide group of products, the number of Benetton's stock keeping units is huge: 7,000 styles that come in 40 colors and 15 sizes.

order cycle time is as little as 7 days The speed and flexibility of the entire system is such

that it is capable of filling a retail shop replenishment order mid-season within two to four weeks. This includes the time to manufacture the garments.

remark

"Benetton's real product is the system," says Chiodini. "We have a supply chain where every member--the suppliers, the subcontractors, the store owners--listens to each other.”

Giancarlo Chiodini, head of Benlog, the Italian apparel company's logistics arm says running an efficient global business operation is like running a happy family. "You need well-defined roles, mutual esteem and a willingness to give up individual desires for what is best for the whole family.”

remarks contd...

Chiodini says logistics is an entrepreneurial activity, not merely an administrative function. "Logistics allows a company's strategies to measure up to marketplace demands."

Benetton describes itself as "vertically de-integrated". This is the process of centralizing those processes which add the highest value and decentralizing the rest.

Benetton sees itself as a "clothing services company" rather than a retailer or a manufacturer.

In-house vs. outsource

CAD/CAM design, cutting, knitting, dyeing: high tech, high capital, scale economies possible: do in-house.

Garment assembly, finishing: no scale economies possible, large high cost labor force needed which could reduce flexibility: outsource to sub-contractors.

Raw material purchasing: scale economies possible; do in-house.

Mass distribution: scale economies possible, fast cycle times needed to meet customer expectations with minimal inventories: do in-house.

In-house vs. Outsource contd...

International transportation: scale economies not possible with Benetton volumes: outsource to international carriers.

Freight forwarding: scale economies became possible with increasing volumes, service improvements possible: change from outsourcing to in-house through joint venture.

Global communications network: scale economies not possible with Benetton volumes: outsource to GE Information Systems.

Retail stores: high capital needed, potential labor cost and motivation problems, high customer service levels needed: outsource to licensees.

Inhouse vs. outsource illustrated

Raw Material Suppliers

Finished Products Warehouse

Wool Production Plant

200 ext. prod. units 150 Ext. Prod. units

Cotton Production Plant

Jeans Production Plant

Raw Material Suppliers

Raw Material Suppliers

Lessons from Benetton example

Develop a logistics vision Evaluate the possibility of using the concept of

postponement. Increase reaction speed and reduce cycle times. Develop a clear understanding of the distribution channels

of which the organization is part. Develop a customer-oriented manufacturing process; one

which is flexible and responsive to customer demand.

Understand the customers' total need.

Determine the right blend of in-house competencies and outsourcing.

Use appropriate tech. to measure cust. demand, develop fast response times, flexibility & responsiveness to market.