Student Number: 267046

Word Count: 1605

MSc in Logistics and Supply Chain Management

2016/17

Module 1, Supply Chain Concepts

/2017

This report is all my own work and conforms to the Universitys regulations on plagiarism
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How did Benetton achieve a high level of integration with their supplier contractors?

In line with its strategy to develop a flexible and cost effective vertically integrated supply chain,
Benetton kept the technology-intensive steps of the manufacturing process internal, while
outsourced the labour-intensive operations to hundreds of small-sized firms to minimise cost and
enable flexible operation[ CITATION Per08 \l 2057 ]. Although Benetton leveraged its buying power
and payed low prices to its contractors compared to other focal firms, it established mutually
beneficial relationships with its suppliers[CITATION Val16 \l 2057 ]. As [CITATION Ala08 \l 2057 ]
pointed out the effective management of the extended supply chain is dependent on the integration
of intra-firm processes and requires high-level of coordination across the supply network. In order to
achieve this, Benetton developed long-term collaborative partnerships with its contractors[ CITATION
Fil15 \l 2057 ]. Based on Lambert`s partnership model which gives a detailed framework to evaluate
and develop supply chain partnerships, Benetton`s buyer/supplier relationship can be characterized
as a Type III Partnership [ CITATION Lam96 \l 2057 ]. Benetton devised an explicit supplier
development strategy in supporting their suppliers in implementing the required process standards,
especially in production planning, quality control, and also got financial support to acquire modern
technical machinery to reduce their cost-base. Benetton also realised that the more soft
relationship `facilitators` like building mutual trust, commitment to shared goals and compatible
corporate cultures can be easier created by involving their former employers taking up management
and ownership roles with their contractors.
Causes, and implications of Benettons speed problems in the late 1990s in terms of
responsiveness to demand for new products and existing

With radically changing consumer trends in the late 1990s, driven by the constant need to quickly
refresh product ranges (fast fashion), the fashion market has become highly competitive with the
emergence of global competitors like Zara and H&M [ CITATION Mar04 \l 2057 ]. The resulting time-
based competition is characterised by the compound pressures of (1) shortening product life cycles
(and increasing number of seasonal collections beyond the traditional two season per year) (2) highly
volatile and hardly predictable market demand (3) high impulse purchasing (critical need for
`availability`)[ CITATION Mar04 \l 2057 ]. Also, due to the globalisation of the fashion industry, focal
firms increasingly moved manufacturing offshore, resulting in significantly longer lead-times and
consequently longer logistics pipelines[CITATION Mar04 \l 2057 ]. This latter factor has increasingly
become a challenge also for Benetton during the early 2000s as it delocalised its production from
Italy and Europe to Far East.
While competitors like Zara managed to radically reduce time-to-market, Benetton was lagging
behind in identifying sales trends for new products and matching customer demand with the
required speed [ CITATION Mar11 \l 2057 ]. Benetton focused on vertically integrating its upstream
supply chain following a predominantly supplier-facing strategy[ CITATION Fro01 \l 2057 ] to lower
manufacturing cost while maintain high level of product quality. Though it implemented a form of
mass customization strategy through its innovative dying postponement approach, it still operated its
supply chain with average eight month time-to-market for existing products. As majority of its stores
were owned and managed by franchise partners, it had more limited control over the downstream
supply chain. In the absence of an integrated IT system over the extended enterprise, it missed point
of sales data tracking capability within its global retail/distribution network[ CITATION Per08 \l
2057 ]. Consequently, without access to real time sales data, Benetton could not identify emerging
sales trends and new product requirements fast enough in order to maximise new product
availability before the end of the season.

Benetton`s main problem was that within its existing supply chain network setup, it could not
effectively reduce the `lead-time gap` the difference between the logistics lead-time and the
customer`s order cycle time [ CITATION Mar04 \l 2057 ]. Reducing this gap could be achieved either
by shortening the end-to-end logistics lead-time required to produce the product (in case of new
products including the lead-time required for new product design and development) or by reducing
the customer`s order-cycle (by collecting sales data through improved consumer demand visibility)
[ CITATION Mar11 \l 2057 ].

In the final analysis, in the 1990s Benetton failed to keep pace with the changing fashion industry
because its supply chain with an average eight month time-to-market was not responsive enough
to deliver products for emerging trends within the season [ CITATION Per08 \l 2057 ].

Examine the changes that Benetton has made in its supply chain and explain the
approaches that make it lean and the approaches that make it agile

To improve its financial performance and regain its market-driven position Benetton decided to
reshape its operations strategy through implementing a more agile approach, focusing on speed,
flexibility (to improve time-to-market and to capture volume changes) and quality [ CITATION Fil15 \l
2057 ]. Under growing profit pressures due to high manufacturing costs, Benetton also decided to
delocalise its subcontractor network partially to (1) Eastern Europe led by the management of its
existing Italian supplier network (thereby utilising the same supplier partnership model with the new
suppliers) and to (2) Far East, relying on a different supply integration strategy using suppliers with
full package production capability (covering broader range of tasks, including design-completion,
raw material sourcing, and some elements of logistics) [ CITATION Fil15 \l 2057 ]. Benetton also
increased the integration of its downstream supply chain with opening up new Benetton-owned
megastores and implementing an integrated IT system through its retail network. With setting up
centralised Product Development Units connecting the operations and sales units and also a
centralised Retail Units to connect and coordinate the various distribution organisations, it created a
highly integrated `customer-facing` distribution channel.

In order to capture the new market trends, Benetton needed to complement its product portfolio to
reflect the high variety, small order size, limited period and frequently changing product mix
demanded by its fast fashion driven customers. While its product portfolio originally based on a basic
clothes range made up in good quality materials and priced at a medium level, it needed to upgrade
its product line with a trendy and low-priced portfolio to be worn for perhaps only one season
[ CITATION Val16 \l 2057 ].

To be able to fulfil customer requirements of the new product segments, Benetton implemented a
new supply chain strategy based on hybrid, dual supply chain concept that integrates elements of
both of the lean and agile philosophy. On the one hand, it involves a pull-driven and flexible
integrated supply chain with close production locations in East Europe and North Africa enabling
short time-to market for the fast collections (Just-in-Time collection), and a more push-driven,
sequential supply chain with offshore locations in Far East for the more standardised Contemporary
product range [ CITATION Per08 \l 2057 ], [CITATION Chr01 \t \l 2057 ]

Benetton retained direct control of the outbound logistics segment of the supply chain and has
invested heavily in automating logistics processes (including sorting, pick and pack) to achieve end-
to-end integration within the production cycle, from customer orders to packaging and delivery.
[ CITATION Fil15 \l 2057 ] This new system provides a flexible and integrated solution to cover the
high volume and highly variable product mix, and makes it possible to optimize quality, service, and
product delivery times. Also based on an automated solution it will be able to sustain desired growth
in production over the coming years. These transformations in the companys logistics and
operations enabled the increase the number and variable demand-profile of collections and also
provided the flexibility to manage larger volume of smaller sized retail customer orders.
Industry analysts were of the opinion that, before the dual supply chain, retail
management was the weakest link in Benettons supply chain

Industry analysts are right in pointing out that retail management was the weakest link in Benetton`s
supply chain: Due to the limited control Benetton could exercise over its downstream supply chain
involving predominantly franchise partners, and therefore blocking downstream integration of the
supply chain. However, there was at least another negative factor affecting supply chain
performance: e.g. the relatively late strategic move to offshoring its manufacturing processes
resulting in higher than average manufacturing costs compared to its competition [ CITATION Fil15 \l
2057 ]. Another challenge concerns Benetton`s supply chain orchestrating (management) capability
when it comes to coordinating a much more longer pipeline in a more heterogeneous supply
network used to be based on the old partnership model, while the increasing volume of offshore
production is managed through a more autonomous full package production model.
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