BenettonSupply chain innovation

Dual supply chain

PushPull

Demand Variability

Mfg. Variability

Product Personalization

Economies of scale

Set-up change cost

Lead time

cost

Innovative model of Benetton allows both- Push model @ Benetton (80% of orders)

- Feb – Apr: New design proposals & Samples

- May – Jul: Elimination by mgmt, agent, retailers, etc

- Jun – Jul: Rough production plan (based on products)

- Jul – Next may: Firm orders (lead time: 7 months)

- Pull models @ Benetton (20% of orders)

- Flash collection

- Add @ 50 items.

- Based on customer taste – fabric, color, style, etc.

- Reassortment

- Addl. Order for rapid delivery (5 weeks)

Dual supply chain

Transparency => No Bull-whip effect

Other ingredients

- Payment terms to facilitate low inventories

- 70% rough ordering during start of season

- Combination of pull models

- No return goods accepted

Transparency in the supply chain

- Control over its distribution channels

- Unusual arrangement with agents in Italy & Europe – Assigned large

territories to encourage development of Benetton retail outlets

- Relationship based on trust

- Similarity in all Benetton outlets

- Agents invited for design presentations

Innovation in IT application

- Replenishment process is captured and monitored with latest IT tools

e.g. Data like order info from individual stores is captured & aligned electronically.

- Up-gradation plan: Buy Seimens 7865 & Olivetti 5330 for up-to-date info using auto cash

registers

- Production: Knitting machines are magnetically taped to provide intricate knitted

designs ‘Just-in-time’

JIT & Effective Subcontracting

Just-in-time

- Manufacturing only when order in hand

- Replenishment through Agents

- Order to retail lead time- only 5 weeks

Effective subcontracting

- Parallel Empire

- Management of fluctuation in demand

- Lower production cost

- Jobs to relatives of Company’s Employees

- Knitting of Wool : 40%

- Assembling Garments: 60%

- Finishing Operation : 20%

- Sufficient time to Negotiate

- In Italian market, this was unique

- It gave Benetton advantage in inventory reduction, by adding flavors prior to

delivery

Entering the American Market

COST:Large initial investment- $70000 for each small shopHigher labor cost(50%)Cost of promotion ($2 MILLION)Cost of distribution-$10 million to set up a new plant, loss of inventory savings to set up new warehouse, increased transportation cost if direct distribution

MARKETING CHALLENGE:Setting up a distribution channelIncreasing popularity of Italian Brands in U.S.

COMPETITION:Stronger competition from existing players like Levi Strauss Stronger media presence of competitors ($100 million on advertising)No brand presence of BenettonAmerican preference for easy-to-care garments, but Benetton core competence is natural fibersGreater scope in U.S due to large size of market

THANK

YOU