United Colors of Benetton

Case Study
Akshayedit Master subtitle style Click to Subramaniam 62 Nitin G 84 Pratheesh CK 90 Thangaraj V 101 Vinodh H - 105

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Agenda

History & Financials Benetton Brands Operations Model

Production & Distribution WIDE Retailing & Franchisee Operations

Success Factors & Innovations Challenges & Solutions

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Dual Supply Chain

Benetton - History

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Financials

In particular, the Group generally defended its performance in Italy, which continued to be its principal market accounting for 48% of revenues. The rest of continental Europe accounted for 34% of revenues. In Asia, excellent results were achieved on the Korean market with strong double-digit growth, consolidating 14% of revenues.

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Financials(Contd.)

About half of the Benettons production was sold in the Italian market, Benetton sold its products in 124 countries through 5800 mono-brand stores, 95% of which are in franchising The apparel segment reported 1,947 million in revenues from third parties, representing 95% revenues. The textile segment increased its revenues from third parties by 8 million to 102 million forming 5% of revenues

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Brands of Benetton

Sales of core products by brand

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Benetton Brands

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Three Tier Operation Model

Tier 1- Suppliers Raw Material, Unfinished Products and Production Plants

Tier 2 Contractors & Sub Contractors

Tier 3 Retail Outlets Franchisees and Agents

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Operations

Designing and Innovations remained with the Headquarters at a Design Center at Ponziano, Italy Designer Group 1- Commercial Aspects of products Designer Group 2 - Fabric Research Designer Group 3 Graphics Customer Preferences

In store Surveys & Customer Testing Design Samples to Sales Force

Design data sent to Neutral color fabric Cut unstitched fabric garment cutters taking clues from fashion shows cut using design sent to contractors Top Designers prototypes CAD, Computer aided garment cutting & Assembly, Designs stored in a Video Format

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Vertically Integrated Model

Technically intensive processes such as design retained in-house Labor Intensive processes were outsourced Close relationships with contractors and hence coordination was smooth Employees encouraged to be contractors Contractors received planning support, technical assistance, financial assistance and hence there was high flexibility and low cost Sub Contractors Contractors collectperformed stitching,return Execution and finishing and ironingChecks Quality material with a of the product Weaving, Cutting, Dyeing, Quality checking were in house specific order number Centralized purchasing, vertical integration to consolidate suppliers and ensure quality

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Production and Distribution

Till the 80s High Volume and Low Varieties Advanced production plant in 1986 AT CASTRETTE, ITALY

Automatic sorting system, can sort 130 million garments for 5000 outlets System sorted, packed into boxes and sent to distribution through a tunnel (1km long)

Distribution

Can handle 40000 boxes,6000 consignments per day Garments sent to 5000 outlets globally The DC was highly automated and operated for three shifts Storage area for 250,000 boxes Finished Garments packed, addressed, barcoded and transported using high speed conveyors to the transport area
4/21/12 Shipments sent through road, rail and air 4/21/12

Production & Distribution @other locations

Subsidiary, partially or fully owned but directly managed Subsidiaries principally coordinated the contractors Hungarian subsidiary looked after contractors Model Benetton decides what was Ukraine, in Hungary, Czech Republic, to be produced under each subsidiary The subsidiaries decided and Moldova Romania, Poland, Bulgaria upon the

allocation of the tasks to the contractors Foreign plants specialize in one type of product Items produced in these locations shipped back to Italy and then distributed to final customers

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WIDE

Worldwide integrated distribution enterprise

To manage international forwarding and customer clearance Previous problems

Several problems from freight forwarders and custom brokers Consignments without adequate papers

Wide dealt directly with air carriers

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Eliminated the need for freight

Retailing

Licensor Licensee relationship Agents obtained licensee from Benetton to sell its products Agents recruit retailers, processing retail orders, selecting retailer locations, training and trend identification Agents Commission 4% of total sales

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Franchisee Operations

No formal agreement No written contract between Benetton and franchisees No license fee or Royalty Supplies were on a No Return Basis Only Benetton products to be sold Follow guidelines on pricing Stores

Third Party direct selling Franchisee stores were very model much small compared to Benettons

Benetton was of the view that more stores will get more advertisement But to repel competition Benetton followed two strategies Provide a wide range in its stores Focus on only one range in small stores

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Evolution of Benettons Supply Chain

Information Flow Local Manufacturi ng

Material Flow

Retail Store

Information and Material Flow

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Evolution of Benettons Supply Chain

Retail Store

Regional Pole

Local Manufacturi ng

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Benettons Operations model

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Position of Benetton in the Supply Chain

Innovative Products Pull Supply Chain POS data collected from Benetton outlets and Franchisees 4/21/12 4/21/12

Success Factors

Product Innovation Process Innovation Organizational Innovation

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Product Innovation
In the seventies Benetton competitive advantage was based on the use of bright colors

Target towards the younger generation

Focused on a strategy of Total Look rather than individual products

The strategy of Total look was implemented with the introduction of products such as shoes, spectacles, perfumes, watches and jewelry 4/21/12 4/21/12

Process Innovation

In traditional approach, knitting is followed by dying. Knitting takes a longer time than dying and therefore requires maintenance of high inventory levels. Out of stock in popular colors and huge unsold stock of unpopular colors Used the technique of postponement were knitting is done first, dying is done at the end after getting information latest color trends are provided from the retailers. Postponement strategy delayed the decoupling point and increased the efficiency and effectiveness of the supply chain reducing costs through less expensive Inventories and a smaller unsold stock and developing a rapid response to the fashion market.

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Organizational Innovation

Quasi vertical integration 70s Strategy

Company controlled the whole value chain, Though various activities not organized through an hierarchical control. Benetton decides the prices and is the only client of its sub contractors Established long-term relationships based on cooperation and trust. Sub contractors received assistance from Benetton

Changed Strategy 80s

Entering directly into the upstream stages of the clothing value chain 4/21/12 4/21/12

Challenges Faced

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Solutions

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Dual Supply Chain (1/2)

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Dual Supply Chain (2/2)

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Results

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Online Strategies

United Songs of Benetton United Blogs of Benetton Benetton News Store Locator Its My Time A global fashion Community

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Learnings from the Study

Sources of Competitive Advantage for Benetton

Efficient Supply chain in terms of Sourcing & Manufacturing, Retailing Consumer Focus and Right Product Positioning

Even though Benetton vertically integrated the upstream inefficient downstream strategy involving franchises reduced competitive advantage 4/21/12
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Thank You
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