Benetton Strategy

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United Colors of Benetton

Case Study 62kshay Subramaniam

84itin G 90ratheesh CK

101hangaraj V- 105inodh H

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Agenda

History & Financials

Benetton Brands

Operations Model

Production & Distribution

WIDE

Retailing & Franchisee Operations

Success Factors & Innovations

Challenges & Solutions

Dual Supply Chain4/21/12


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Benetton - History

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Financials

In particular, the Group generally defended itsperformance in Italy, which continued to be itsprincipal market accounting for 48% of revenues.

The rest of continental Europe accounted for 34%of revenues.

In Asia, excellent results were achieved on theKorean 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 theItalian market, Benetton sold its products in 124 countriesthrough 5800 mono-brand stores, 95% of which are infranchising

The apparel segment reported 1,947 million in revenuesfrom third parties, representing 95% revenues.

The textile segment increased its revenues from thirdparties 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

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

2 &Tier Contractors Sub Contractors

3 Tier Retail OutletsFranchisees and Agents

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Operations

Designing and Innovations remained with the Headquarters at aDesign 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

Top Designers taking clues from fashion shows

CAD, Computer aided garment cutting & Assembly, Designs storedin a Video Format

Design data sent togarment cutters

Neutral color fabriccut using design

prototypes

Cut unstitched fabricsent to contractors

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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 wassmooth

Employees encouraged to be contractors

Contractors received planning support, technical assistance,financial assistance and hence there was high flexibility and lowcost

Sub Contractors performed stitching, finishing and ironing Weaving, Cutting, Dyeing, Quality checking were in house

Centralized purchasing, vertical integration to consolidate suppliersand ensure quality

Contractors collectmaterial with aspecific order

number

Execution and returnof the product

Quality Checks

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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 atunnel (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 transportedusing high speed conveyors to the transport area

Shipments sent through road, rail and air4/21/12


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@other locations

Subsidiary, partially or fully owned butdirectly managed

Subsidiaries principally coordinated the

contractors Hungarian subsidiary looked after contractors

in Hungary, Czech Republic, Ukraine,Romania, Poland, Bulgaria and Moldova

Model Benetton decides what was to be

produced under each subsidiary The subsidiaries decided upon the

allocation of the tasks to the contractors Foreign plants specialize in one type ofproduct

Items produced in these locations shippedback to Italy and then distributed to final

customers

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WIDE

Worldwide integrated distributionenterprise

To manage international forwarding andcustomer clearance

Previous problems

Several problems from freight forwarders and

custom brokers

Consignments without adequate papers

Wide dealt directly with air carriers

Eliminated the need for frei ht4/21/12


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Retailing

Licensor Licensee relationship

Agents obtained licensee fromBenetton to sell its products

Agents recruit retailers, processingretail orders, selecting retailerlocations, training and trendidentification

Agents Commission 4% of totalsales

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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

Franchisee stores were very much small compared to BenettonsStores

hird Party direct sellingmodel 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

Franchisee Operations

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vSupply Chain

LocalManufacturi

ng

InformationFlow

Retail Store

Informationand MaterialFlow

Material

Flow

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vSupply Chain

LocalManufacturi

ng

RegionalPole

Retail Store

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model

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Supply Chain

Innovative ProductsPull Supply ChainPOS data collectedfrom Benetton outlets

and Franchisees

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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 individualproducts

The strategy of Total look was implemented with the introduction, , ,of products such as shoes spectacles perfumes watches andjewelry

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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 stockof unpopular colors

Used the technique of postponement were knitting is,done first dying is done at the end after gettinginformation latest color trends are provided from the

.retailers Postponement strategy delayed the decoupling point

and increased the efficiency and effectiveness of thesupply 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 anhierarchical control.

Benetton decides the prices and is the only client of itssub contractors

Established long-term relationships based oncooperation and trust.

Sub contractors received assistance from Benetton

Changed Strategy 80s

Entering directly into the upstream stages of the clothing

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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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O li S i


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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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L i f h S d


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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 ProductPositioning

Even though Benetton vertically

integrated the upstream inefficientdownstream strategy involvingfranchises reduced competitiveadvantage4/21/12


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Thank You4/21/12

Benetton Strategy

Documents

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