THE BENETTON SUPPLY CHAIN – CASE STUDY

Retail operations – main objectives

Benetton‟s core business is in the manufacturing, production and sale of

casual and sportswear, which accounts for 95% of total revenues (Camuffo et
al, 2001: 47). The company has a market presence in over 120 countries and
has consistently generated revenues exceeding $2 billion throughout this
decade (Industry profile, 2007: 15). It has 5,000 retail outlets around the
world, the vast majority of which are run by independent managers as part of
a franchise arrangement whereby the licensee‟s of those outlets sell products
which carry the Benetton brand name (Skjott-Larsen et al 2007: 94).

A key objective of Benetton HQ (based in Treviso, Italy) has always been to

retain overall control on every aspect of product sales, thereby ensuring that
the Benetton “total look” is adhered to. The company is renowned for having
a distinctive philosophy which is espoused through controversial advertising
techniques (Dapiran 1992:8).

Its global network of sales agents each holds responsibility for their own
geographic area. They work closely with franchise operators in the sale and
distribution of its goods, as well as overseeing all aspects of merchandising
(Camuffo et al 2001: 47). A global information system unites every link in the
supply chain.

Stiff competition has forced Benetton to radically change its retail strategy
(Economist: 9 November 2004). To that end it has introduced over 100
„mega-stores‟ and, whilst the majority remain under the franchise system,
the company has decided to take direct ownership and control of a few as it
seeks to form a closer relationship with its clientele; the logic being that this
will facilitate a deeper understanding of customer preferences (Camuffo et al
2001:50). One expert has stated that Benetton – a former market leader – is
lagging behind its competitors, not through any defects in its supply chain,
but more because it is “less good at seeing the opportunity”, inferring that
the franchise system is to blame because it creates a barrier between
company and customer. Zara, on the other hand, is proving to be far more
successful because of it has adopted „agile‟ supply chain practices (Cane
2007:1).

Diversifying into new product ranges such as the sportswear market, as well
as an added emphasis on its lifestyle branding is a key pillar of the new
approach. Its Fabrica, Killer Loop and Playlife brands are all geared towards
capturing a large slice of the youth market (FT: 9 May 2003). As the
Managing Director explains, “we want the market to know that Benetton is
about more than just colourful sweaters. It‟s a lifestyle concept” (Hargrave-
Silk 2003:1). The Asian markets are vital to Benetton‟s future retail
operations objectives, recording a 35% profit rise in Russia and 50% rise in
India in 2007 (Women‟s Wear Daily: 14 November 2007). Although Europe
remains Benetton‟s largest market it has recently refocused its attention
towards building brand awareness in the emerging markets of Asia, the
Middle East and the Far East (Evans 2004:1).

One insider sums up the Benetton retail philosophy, when (s)he states that
“we do not want to start with high prices to attract people later on with high
discounts, but we want our customers to appreciate every time of the year
that there is the right ratio between quality and price” (Evans 2004:1).

Physical distribution operation –main objectives

The company describes itself as „vertically de-integrated‟, meaning that its

core functional activities such as design and global strategy are still
centralized. Nonetheless it is willing to outsource those activities where it is
unable to achieve in-house economies of scale. Its logistics operation has
always been directly controlled, in large part owing to the integral part it
plays to the companies overall success.

Key to effectiveness is the rapid flow of market intelligence between customer

and factory. This is achieved through maximising the benefits of EDI
technology which facilitates direct flow of communication between the agent
networks representing the 5000 retail outlets. EDI information allows Distribution
Benetton manufacturers to delay the dyeing process up until a clear
understanding is reached on market requirements. This eliminates the build
up of wasteful inventories, thereby reducing costs, slashing cycle times and
maximising efficiencies. Once this information is relayed to the centre,
Benetton is able to arrange bulk delivery of products from its regional
distribution centres which are highly automated and thus able to cope with
demand. The company describes their strong track record in distribution as
being down to its „360 degree vision; in other words a recognition from the
outset as to the strategic importance of logistics through integrating
suppliers, manufacturers and retailers in a value chain that thrived on speed,
efficiency and flexibility (Dapiran 1992:9-11).

Factory & suppliers – main objectives Manufacturing

Benetton‟s manufacturing processes are characterised by strong upstream

vertical integration which entails significant output at its own production
centres (22 in Italy and 10 abroad), as well as outsourcing the more labour-
intensive tasks such as tailoring and ironing (Camuffo et al 2001:49). The
Treviso HQ has overall control over design activities. CAD technology is fully
utilised to maximise opportunities for the speedy bringing to market of mass
produced garments. This is achieved through the effective usage of 500 sub-
contractors who work in the vicinity of the companies HQ and production
Sourcing
base. The sub-contractor group, often themselves former Benetton
managers, organise the second tier of small factories who undertake the
labour-intensive processes (Skjott- Larsen et al 2007: 95-96). A pyramid
analogy has been used to describe the hierarchical nature of this relationship,
with Benetton at the apex, the sub-contractors forming the second tier and
the army of small workshops forming the bottom layer (Harrison 1993: 160)

Benetton directly controls the supply of raw materials thereby achieving cost
savings in supplier overheads. It has a very close relationship with the sub- Sourcing
contractor base, thus ensuring that the factories under their control are able
to satisfy market trends at short notice. This is a distinct advantage to their
competitors who do not enjoy such flexibility and are hampered with fixed-
cost overheads (Skjott-Larsen et al 2007:97).

Consider the following statistic: in 1990 90% of Benetton garments were

produced in Italy. Now it is only 30% and within a few years it is expected to Production
fall to only 10% (Economist: 8 February 2007). Such is the dramatic impact
of globalisation. Benetton has responded by remaining true to its philosophy
of tight central control by replicating its Treviso production model on a global
basis. For instance Benetton Hungary has production oversight of 7 countries
within the region (Camuffo et al 2001: 49). This is in keeping with the
underlying company philosophy of creating global brands which transcend
national boundaries.

How well do these three interconnecting sets of operations fit

together?

For decades Benetton has consistently demonstrated that getting the right
mix of the 3 supply chain functions is critical if market success is to be
achieved. Its franchise network has proved to be adept at communicating
critical market trend information via its EDI system to HQ who alerts the
manufacturing side to the real-time needs of the market. Use of sophisticated
CAD/ CAM technology has enabled Benetton to gain the upper hand on its
competitors by being quick and flexible at this point in the production process
(Dapiran 1992:9-10.
Benetton has successfully exploited I.T. advantages from an early stage. Its
Geis global integrated network has enabled agents to forward customer order Technology
to help in
details to the 500 sub-contractors based in the Veneto heartland where the production
company manufacturing capability has historically been located. Within days
they are able to receive multiple orders from various country agents and
rapidly set in motion the manufacturing work by fully exploiting the vast
network of sub-contracted labour. The system is also connected to Benetton
manufacturing plants worldwide (Johnston 1994: 2-3). Dyeing postponement in
production
Benetton is famous for using „postponement‟ tactics at the actual sequencing
point of the production process, whereby dying of the garments is not
completed until the agent network have provided market intelligence on what
particular products are in demand in which locations. Tang points out the
advantages of postponement when declaring that it has “proven to be a cost-
effective mass customisation tool to handle regular fluctuations under normal
circumstances” (Tang 1996: 38). Franchise and ownership

Camuffo has demonstrated that in recent years Benetton has successfully

risen to a more challenging market environment by opting for a strategy that
involved increasing its overall ownership and control of supply chain assets
and only outsourcing those areas where the company was not in a position to
achieve economies of scale. He points to the paradox of tighter centralized
control over the whole supply chain, yet at the same time being able to
achieve sufficient flexibility to rise to market challenges (Camuffo et al 2001:
52). There can be no doubt that Benetton prefers quite rigid control over
processes, despite the tendency to opt for sub-contracting relationships with
suppliers.
Comparison
It remains to be seen whether or not Benetton can sustain its competitive
edge, particularly in the emerging markets of Asia, where much of its energy
is now focused. The early signs are good, however it has been shown that
competitors who are able to display more „agile‟ working practices can edge
out established brands in a very short space of time. Zara is a case in point.
SUPPLY CHAIN DIAGRAM

HQ,
Treviso

Agent
network
EDI system
Production
hubs (32
worldwide;
Outsourced
factory
22 in Italy)
production

Global distribution system

Franchise operators

Mega
stores 5000+ Retail outlets
References

Camuffo, A., Romano, P and Vinelli, A (2001) „Back to the future: Benetton
transforms its global network‟, Sloan Management Review Volume 43(1)

Cane, A., „Agility: flexibility takes over from planning‟ Financial Times 20
November 2007. Available from http://ft.com [Accessed 15 February 2008

Dapiran, P., (1992) „Benetton- Global logistics in action‟ International Journal

of Physical Distribution & Logistics Vol.22, Issue 6 Available from:
http://www.boku.ac.at [Accessed 16 February 2008]

Evans, D., „Benetton in Greater China push to build brand awareness‟, Media:
Asia's Media & Marketing Newspaper, 16 January 2004, Available from
Business Source Premier [Accessed 15 February 2008]

„Growth in India, Russia spurs Benetton profits‟, Women’s Wear Daily, 14

November 2007, Vol 194, Issue 104. Available from: Business Source Premier
[Accessed: 15 February 2008]

Hargrave-Silk, A., „Benetton overhauls HK stores' strategy‟, Media: Asia's

Media & Marketing Newspaper,9th May 2003, Available from: Business Source
Premier [Accessed: 14 February 2008]

Harrison, B., (1993) „The emergence of hierarchy within a district based

production network: The United Colors of Benetton‟ in ‘The Italian industrial
districts and the crisis of the cooperative reform: Part II’ European Planning
Studies, Vol. 2, Issue 2

Infantswear industry profile: Italy, December 2007. Available from Business

Source Premier [Accessed: 16 February 2008]

Johnston, M., „Electronic commerce speeds Benetton business dealings -

Benetton Group SpA's use of General Electric Information Services' value-
added network services‟ Software Magazine, January 1994, Available from:
http://www.//findarticles.com/ [Accessed: 15 February 2008]

Skjott-Larsen T., Schary P.B, Mikkola J.H & Kotzab H., (2007) ‘Managing the
Global Supply Chain’ Copenhagen Business School Press. Available online:
http://www.google.com/books [Accessed 15 February 2008]

Tang, C.S.(1996), „Robust strategies for mitigating supply chain disruptions‟

International Journal of Logistics: Research & Applications, Vol 9, Number 1

„The other colours‟, Economist, 9th November 2004, Vol. 372, Issue 8392
Bibliography

Benetton company website (Press release section) Available from:

http://www.production.investis.com/ben_en/releases/2006-07-20/
[Accessed 15 February 2008]

Kaiser, A., „Benetton‟s abrupt exists: CEO, CFO both depart, shares fall 8.5
percent‟, Women’s Wear Daily, 14 November 2006, Vol 192, Issue 102.
Available from: Business Source Premier [Accessed: 15 February 2008]

Kouvelis, P., Chambers C., & Wang, H., (2006) „Supply chain management
research and productions operation management: review, trends and
opportunities‟ Production and Operations Management, Vol.15, No.3

„Material fitness‟, Economist, 25 February 2006, Vol. 378, Issue 8466

Slack, N, Chambers, S. and Johnston, R. (2007) Operations Management,

London, FT Prentice Hall

Thomas, D.,„Benetton takes lead on RFID‟, Computer Weekly, 20th March

2003. Available from Business Source Premier [Accessed: 14 February 2008]

END OF PAPER