Operations Management- a case study of the Benetton group
Introduction
In light of changing business and social climates in the world as well as due to major forces and phenomena such as globalization, it has become increasingly essential for enterprises to adjust and adapt themselves to the new scene. This adaptation ranges from production and manufacturing all the way to retinkng.Right from the production of goods to the moment they are purchased by a consumer and sometimes even after that, enterprises are finding themselves having to embrace new ways of doing things as well as having to invent new solutions for emerging problems or consumer demands. Although Benetton has been a very profitable company since its inception, it has in recent years embarked on a strategy to adjust its operation model so as to adapt itself to the current and future consumer trends. The company has set itself on a course that has seen it re-design its supply networks as well as adjusting its management models and interaction with consumers so as to better address itself to the ever changing conditions of global business. This series of moves though not necessitated by poor financial performances and turnovers have been deemed necessary as a preemptive measure in light of possible future market trends.
The new strategies embraced and currently being implemented by Benetton have resulted in a company that is increasingly different from the old or the traditional Benetton. The conventional Benetton networks are markedly different from its current ones.
Product Design
The first and most fundamental difference lies in the design of the company’s products. In the past the company capitalized on an almost custom-made design model of clothing goods for different markets. Each region had specific kinds of products made for them so as to suit specifications, thereby honoring consumer demand. This kind of design resulted in the creation of geographical-specific image of the company. Different sizes, colors and even fabrics were availed specifically to regions in which they were demanded. However with the new Benetton networks, design of products has been reinvented and adjusted for a more global population so as to achieve a homogenous effect and thus strengthen the brand globally. The need to communicate and establish a uniform image of Benetton globally has necessitated the limiting of the range of products offered by the company to specific regions. Instead, focus is directed on the development of a single range of products that are marketed globally. There is great limitation on the amount of product differentiation in product in relation to specific countries or regions. This new strategy, as opposed to the conventional one has served to create more recognition for the Benetton brand (Camuffo, 2001). By decreasing the number of variations in products, the production team is able to dedicate more time and effort to the selected range of products and thus ultimately provide quality to their customers.teh move also serves to make the company’s products much more easily recognizable to customers as Benetton products and thus create brand awareness and hopefully brand loyalty.
Another difference in product design comes in the form of ‘flash. Collections. The company produces a new line of clothes at different seasons that only last for that season and is withdrawn at the end of that season. These collections are very style conscious and are designed to respond directly to consumer demand. They are aimed at providing consumers with new and fresh products to sample thus remaining ‘fresh’ in the eyes of customers. The United colors of Benetton brand has particularly benefitted from these flash collections as it has improved brand awareness. This new strategy is heavily dependent on the company’s understanding on global fashion and consumer trends (Camuffo, 2001)
Products have also been unified under a single brand regardless of their design and purpose, only now separated within the brand. New strategies as opposed to the more traditional and conventional ones led to increased research for the purposes of the development of superior textile material that are both easy to use and take care of as well as aesthetically more appealing than existing fabrics. The conventional networks did not really place a large emphasis on innovation of new kinds of textiles. This increased need for innovation and creativity in product design has come about due to consumer demand for better clothing products, in style, quality of design and quality of textile material.
The use of state of the art technologies in the achievement of better product design both for the textile products and sports equipment is becoming almost imperative , due to the scope of resources that are made available by technology for design.
Supply and production
The supply and production network of the company has experienced a lot of upstream vertical integration, with the company purchasing most of the small and medium-sized enterprises that formerly supplied it with material and services. In this way, it is able to retain control of all production. The company has turned its focus to doing its own production.
Conventional method in both supply and production for Benetton networks differs from the newer methods. However, the company still retains some outsourcing services especially for labor-intensive production phases. The sub-contractor groups who mainly handle this are often affiliated to Benetton either by current or previous employment. (Skjott- Larsen et al 2007,pp. 95-96).
In regard to supply for its raw materials, the company has for many years relied on small enterprises mainly run by employees or former employees of the company. In many cases the supplying enterprises are partly owned by the company. As such the company has always saved money in supplier overheads, a thing that has become advantageous for Benetton as they are able to provide production flexibility, which is not hampered by fixed cost overheads like its competitors (Skjott-Larsen et al, 2007, pp97). Due to decreased bureaucracy and processes between the company and its suppliers there is reduced transport and logistics costs. The company has in some cases also severe its relationship with certain suppliers in favor of others abroad who offer services and raw materials at cheaper process. Cheaper labor costs are a big incentive in such cases. Despite its aggressive ownership strategy, it has retained some of its outsourcing.
The conventional network relied heavily on the outsourcing of labor for many phases of the production. However new net works have necessitated changes in the same and has led to concentration on high-tech production stations that have proved effective and enhanced production. Technology has improved communication and ease of doing things and has provided an impetus to more efficient production processes. They are also better suited for the growing volumes of production that the company has to deal with in light of global sales. The new model of supply management is also moving further away from decentralized production, where different sections of production are located at different places. The company is now establishing large high-tech centers where all processes of production take place within the same building , although the in different sections.
Benetton has been able to adjust itself to a more competitive market by embracing increased overall ownership and control of supply chain assets. Outsourcing is only done where economies of scale make it unavoidable (Camuffo et al, 2001, pp.52).The company retains control of these high-tech production centers and runs every aspect of production. This is different from the conventional method where the company was mainly paying small and medium –sized enterprises for different sections of production and thus did not entirely control the production process. Production has also been expanded to foreign countries in the form of contracted production centers that are fully controlled and managed by contractor on behalf of Benetton. However the company retains ultimate control of the activities of these production poles. These contractors are then able to obtain services from subcontracted small enterprises. This forms a sort of pyramidal analogy for Benetton’s supply chain management. The company has established such centers I countries like Hungary, Spain, Portugal, Tunisia, Croatia and others. Any outsourced services and materials are directly controlled by overseas production centers and then over ally by Benetton head quarters in Italy (Camuffo, 2001)..
Production is geared towards a global market as opposed to previously when it was aimed at specific countries. As such global trends are put into serious consideration during production (Slack, Chambers and Johnston, 2007).
Distribution and Retailing
The new retailing and distribution networks at Benetton are moving more towards a downstream vertical integration .The company is making more efforts to control more of its retail outlets. In the past, Benetton operated under a system where the company’s products would be distributed to retail outlets all over the country by third parties. The company did this by the use of agents, as well as private shops and retailers who would obtain a form of license to sell Benetton product. Direct retailing was therefore largely left to third parties.
However due to the need for more brand awareness as well as the need to engage more directly with the customers so as to better understand customer preferences as well as to match up to the competition Benetton is moving more toward direct retailing. It is doing the same through the establishment of megastores designed to sell Benetton products directly to customer without third party involvement. The company is investing in stores that are larger \ in size so as to ensure that the company is able to display and sell all its range of product s across all ages. This is also important in keeping up with other brands such as GAP who are in competition with the company (Boyce, 2001).
The establishment of product-specific stores is also a retailing method used in the new networks where the establishment of megastores is not possible. This may for instance entails the sale of only men’s clothes .Benetton distribution networks also involves the establishment of stores in major streets so as to assert its market presence and promote brand visibility awareness and ultimately brand loyalty. Ultimately the new network seeks to establish a permanent direct sales network to replace its former system which will be centrally managed by the company at its headquarters.
The overriding goal of Benetton in its design and management of its global supply network is to be able to acquire more and better good and services from suppliers at affordable costs so as to ultimately result to superior products that meet consumer demand and preferences. Benetton has found itself in a position where new global supply network management solutions need to be found with increasing globalization. Some of the main characteristics of the company’s strategy for optimized networking is discussed below.
The company has also embraced internet related methods of sales in response to accelerated ICT development all over the world.
Question 2
Supply network re-organization
Vertical integration- upstream
In a bid to achieve this objective the company has embarked on upstream vertical integration, which is a major characteristic of Benetton’s strategy. Benetton has bought either partly or fully many of its supplying SMEs. This has resulted in the company’s control of a significant percentage of its production output (Camuffo, 2001, pp.49). In this way it is able to reduce production costs .The decreased costs that come about as a result of avoided supplier overheads eventually result in reduced product costs. This gives the company a competitive advantage in the market which is fiercely competitive. It also gives the company flexibility in terms of production which is provides competitive advantages.
Vertical integration- down stream
Benetton has also undertaken vertical integration downstream, where the company has focused on taking an active role in its retailing processes. Increased competition has resulted in its radical change of retail strategy (Economist: 9 November 2004).the company has decided to focus on a strategy of ownership of its retail stores. It has increased both the number of directly owned stores, as well as their size to accommodate changing market structures and consumer demand. Although many of its retail stores remain under independent enterprises run through a licensing system, the company seek to own more of its assets so as to increase their direct contact with the end user of their products and thus better understand consumer preferences (Camuffo et al 2001,pp.50).
Ownership and control of assets
Benetton has embarked on a focus of ownership of its key assets and the control of all its operation processes. This is being done through the establishment of primary control centers that are able to control directly owned assets as well as control contradicted ones. These contracted ones in turn control sub –contacted enterprises, which forms a pyramidal structure of network management (Anand and ward, 2004).
Diversification
The diversification of the company’s product range to include sports ware and equipments also part of its innovative strategy. It improves brand respect among customers and provide a wider market base for Benetton. The production of a lifestyle range of products also expands its market.
Replication of its core capabilities
The company has focused its energies on an innovative and creative strategy where through the use of modern technology and improved communication it has presented opportunities for the company to be able to maintain a better control of the company. The centralization of production and the management of the same enable the company to run its processes more efficiently since it is able to have everything under a single roof.
Where the company has outsourced its production in different countries it has established and continues to establish production centers from which affairs of the company in that country can be run. This new stem is powered by a primary center that manages production, logistics and distribution activities. In this way it is able to control all its activities in a more organized way ( Anderson,2002).
Out sourcing
The company does not outsource as much as its competitors. However there is still a fair amount of outsourcing in the new network of supply chain management. This outsourcing is however done from other countries which are able to provide goods and services a lower price (Camuffo, 2001). It is also largely involves labor-intensive production. Outsourcing is also mainly done where economies of scale make it more business-savvy to outsource instead of undertake in-house production. This strategy has saved the company money in terms of supplier overheads, transport and logistics costs and allowed to control flexibility in production.
Fig 1: Benetton’s new network management strategy
Fig 2.
Benetton’s conventional network model
Fig 3: Benetton’s control structure for production.
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