Benetton Case

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Benetton relies heavily on the services provided by its contractors that are mostly owned or partly owned by Benetton employees. These contractors also use the services of small sub-contractors for manufacturing purposes. With this structure, Benetton gains several advantages. First, getting their supply from small scale companies allow them to have lower production costs for some products, especially for woolen items, because these companies also have lower costs themselves. Usually, their workers have lower wage rates compared to other factories. This lower cost in production allows them the advantage of being able to offer lower prices for their products against their competitors without compromising their profit margins. Their savings in this aspect could also be redirected and invested in other aspects of the supply chain. Under the principle of the bullwhip effect, variability in orders from retail operations can lead to greater and magnified variability for its distribution agents and can further magnify this variability to its manufacturers and suppliers. By keeping close contact with small scale companies as manufacturers and suppliers, this arrangement gives Benetton the ability to cope with demand fluctuation because they are also able to adjust their supply arrangements without being greatly affected by the fluctuating demand

Producing in greggio or in grey gives Benetton a great advantage in mass customization. Mass customization describes the ability of a company to deliver highly customized products to different customers. This practice also gives the supply side of Benetton a great amount of flexibility. By dyeing garments in a particular color only when the demand for it is evident, they are able to meet the requirement of their stores for fast and dependable deliveries – maximizing sales and profitability because of sure market demand. Though this practice may entail additional costs for Benetton, it is able to offset with the cost advantages that they get with their suppliers (subcontractors and contractors).

Aiming to provide innovative products (products that typically have a life cycle of a few months), Benetton was able to successfully and efficiently set up a responsive supply chain that matches its unique product proposition of unique and distinct product colors that follow the market trends.

3. How well do these three interconnecting sets of operations fit together?

Supply chain management is all about being able to manage all the activities associated with the end-to-end process of transforming a raw material and delivering a finished product to an end user or customer. The supply chain is a joint effort of different sets of operations such as the three mentioned above. Its manufacturing and supply operation provide the goods which Benetton is able to deliver via its physical distribution operations. After its distribution, the retail operations come into play by making sure that it goes into the hands of customers. As such, producing in grey allows the supply side to quickly respond to orders to replenish stocks which in turn helps the physical distribution operation to make fast and dependable deliveries as well for orders from the retail operations.

Additionally, these three functions are connected via the physical flows and information flows within the company. Physical flows is evident in the production, transportation, and storage of Benetton products. Information flows such as the forecasts for demand and supply also needs to be passed alternately among the three segments in order for them to coordinate their production requirements and capacity. This will help them properly anticipate any potential problems such as delays in deliveries, unavailability of deliveries, trend in certain product colors, etc.

By actively managing these three sets of operation to become effective and efficient at all times, customer value is maximized, sales and profit goes up, and a sustainable competitive advantage is attained. Benetton is able to have a holistic advantage in terms of being a cost leader, customer leader, and product leader.