Operations Management- a Case Study of the Benetton Group
Operations Management- a Case Study of the Benetton Group
Introduction
The new strategies embraced and currently being implemented by Benetton in order to adjust and adapt itself to the new global business scene, 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. This case study focuses on the new and innovative measures being undertaken by the company so as to adjust itself to the ever-changing business climate in the industry. The study explores Benetton’s conventional supply chain management networks and contrasts them to those the company is currently implementing. Production and distribution systems are examined and new innovative ways to do the same by the company are also studied. Product design and retail networks are examined and their levels of efficiency are examined in contrast to the company’s conventional ones. The study further examines the characteristics of the new strategic moves being made by Benetton in redesigning its supply chain networks and management models.
Differences between the Conventional and the New Benetton Networks
Product Design
Different strategies in product design have been necessitated by a market pull force in the form of constant changing demands of customers in the industry. Customers are increasingly demanding superior design and quality in 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 of the product and thus strengthen the brand globally. The need to communicate and establish a uniform image of Benetton products 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 and the improvement of their quality (Anderson, 2004).
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 lasts 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 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). In its earlier and more conventional strategy products were not availed in seasons, but rather were sold in stores until there was no more demand for them.
Products have also been unified under a single brand regardless of their design and purpose, and only differentiated within the brand. The company’s conventional strategy sold Benetton products under several different brands.
The use of state of the art technologies in the achievement of better product design both for the textile products and sports equipment is also an approach used in production that was not used before , 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 most of its production. Production was done by different contracted enterprises in the conventional supply chain network strategy.
In regard to supply of its raw materials, the company has conventionally relied on small enterprises mainly run by employees or former employees of the company. In its new strategy however, Benetton has in some cases also severed its relationship with certain suppliers in favor of others abroad who offer similar services and raw materials. Cheaper labor costs are a big incentive in such cases. The company has also purchased many of the small enterprises that previously supplied it with raw materials and services so as to increase ownership. Despite its aggressive ownership strategy, Benetton has retained some of its outsourcing.
The conventional networks relied heavily on the outsourcing of labor for many phases of the production. However new net works have led to concentration on internally-run 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 (Skjott-Larsen et al, 2007).
The new model of supply management is 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 embraced increased overall ownership and control of its supply chain assets. Outsourcing is only done where economies of scale make it unavoidable (Camuffo et al., 2001, 52).The company retains control of its 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 internationally in the form of contracted production centers that are fully controlled and managed by contractors on behalf of Benetton. As such global trends are put into serious consideration during production (Slack, Chambers & Johnston, 2007).previously focus remained in few places where markets were already established, notably in Italy.
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 (Camuffo, 2001). Direct retailing was therefore largely left to third parties. However 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 products 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 entail 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. The company has also embraced internet related methods of sales in response to accelerated ICT development all over the world.
Characteristics of Benetton’s Innovative Strategy
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, 2001,49). 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 succinct 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 (Galbraith, 2000).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 seeks 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., 2001,50).
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 & 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 provides 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 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. Centralization allows for much more efficient management of the company’s contractors and allows for better supervision of its supply chain networks.
In the redesign of the company’s supply chain management, the replication of its core capabilities has been effected in most stages of its network. In its supply and production phase, the company’s aggressive ownership strategy has resulted in an ability of the company to control its production activities thus making it easy for the company to replicate the same in new countries where it expands to.
In the company’s new strategy for distribution is characterized by a more aggressive focus in customer contact with company personnel. This is done to make customer feedback possible, which could lead to improvement of product and could also provide other beneficial insights ( Gadde, 2001). Such feedback is valuable knowledge when the company wants to replicate its core abilities in new regions. The company has replicated its centralization strategies in countries like Hungary, Portugal, India, Bulgaria, Romania, Korea, Egypt, Ukraine and the Czech Republic. The main focus of production is decided by the company’s production headquarters in Italy. However, specifics of the production are left to the center. Articles produced in these centers are then shipped back to Italy and delivered to customers. Foreign production centers focus on the production of a particular thing making use of locally available skills ( Camuffo et al, 2001).
Where the company has outsourced its production, it has established and continues to establish production centers from which affairs of the company in that particular country can be run. This new system 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). The company has also been able to effectively replicate its core capabilities by the establishment of production poles overseas in countries such as Singapore and India, which function like the main center in Italy. This has led to the expansion of the company’s markets. It has also saved the company money which would have otherwise gone into transport and export logistics.
Out Sourcing
Benetton 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. The company has turned its focus to doing its own production. Benetton still retains some outsourcing services especially for labor-intensive production phases. This outsourcing is however done from countries which are able to provide goods and services a lower price (Camuffo, 2001) or where economics of scale make it more feasible. 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 (Anand and ward , 2004). This strategy has saved the company money in terms of supplier overheads, transport and logistics costs and allowed to control flexibility in production. Outsourcing is done from countries like Hungary, Spain, Portugal, Tunisia, Croatia and India ( Camuffo et al , 2001). In these countries Benetton has set up production centers which it contracts to handle production in those countries. In many cases these production centers also have sub-contracted centers that supply labor and raw material to them. 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 in countries like Hungary, Spain, Portugal, Tunisia, Croatia and others. Any outsourced services and materials are directly controlled by overseas production centers and then over all by Benetton head quarters in Italy (Camuffo, 2001).Benetton outsources the production of various parts of its products . Different foreign production centers deal with different parts or products. Some centers deal with the production of various sports equipment while others deal with the production of garments for the company’s Playlife and Killer Loop sports wear collections. The main item of outsourcing however is labor. This is done in places where labor is cheaper than in Italy, and where the necessary local skills complement the production needs of the company. Cheap labor for instance outsourced from India where the company works in partnership with DCM to form DCM Benetton India limited, where production of some of the companies sportswear is done .
Outsourcing is in tandem with the company’s strategy to expand its operations and internationalize its brand. It helps to create new business relations in the countries from which it outsources. Outsourcing facilitates breaking into new markets, especially for the sports products which are already dominated by other companies in the industry.
Conclusion
The new strategies embraced by Benetton are designed to ultimately improve its supply chain management systems so that they are able to handle any eventuality in the ever changing market. Since focus has been set on efficiency of operations, product quality and customer satisfaction, it is likely that this new strategy will prove beneficial to the company and assure increased revenues.
Fig 1: Benetton’s new network management strategy
Fig 2:Benetton’s Conventional Network Model
Fig 3: Benetton’s control structure for production.
Fig. 4 Market pull inspiring product re-design
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