Assignment Question

Assignment Question(s): Go through the case study and answer the questions that follow The Benetton supply chain: One of the best-known examples of how an organization can use its supply chain to achieve a competitive advantage is the Benetton Group. Founded by the Benetton family in the 1960s, the company is now one of the largest garment retailers, with stores which bear its name located in almost all parts of the world. Part of the reason for its success has been the way it has organized both the supply side and the demand side of its supply chain. Although Benetton does manufacture much of its production itself, on its supply side the company relies heavily on ‘contractors’. Contractors are companies (many of which are owned, or part-owned, by Benetton employees) that provide services to the Benetton factories by knitting and assembling Benetton’s garments. These contractors, in turn, use the services of sub-contractors to perform some of the manufacturing tasks. Benetton’s manufacturing operations gain two advantages from this. First, its production costs for woollen items are significantly below some of its competitors because the small supply companies have lower costs themselves. Second, the arrangement allows Benetton to absorb fluctuation in demand by adjusting its supply arrangements, without itself feeling the full effect of demand fluctuations. On the demand side of the chain, Benetton operates through a number of agents, each of whom is responsible for their own geographical area. These agents are responsible for developing the stores in their area. Indeed, many of the agents actually own some stores in their area. Products are shipped from Italy to the individual stores where they are often put directly onto the shelves. Benetton stores have always been designed with relatively limited storage space so that the garments (which, typically, are brightly coloured) can be stored in the shop itself, adding colour and ambience to the appearance of the store. Because there is such limited space for inventory in the stores, store owners require that deliveries of garments are fast and dependable. Benetton factories achieve this partly through their famous policy of manufacturing garments, where possible, in greggio, or in grey, and then dyeing them only when demand for particular colours is evident. This is a slightly more expensive process than knitting directly from coloured yarn, but their supply-side economies allow them to absorb the cost of this extra flexibility, which in turn allows them to achieve relatively fast deliveries to the stores. Questions: 1. Brief your understanding about Benetton Supply Chain operations. (3MM) 2. In your understanding, what is the specialty of Benetton’s contractors? (3MM) 3. Does this method provide Benetton competitive advantage over their competitors? Is this method sustainable in the long term? (4MM)

Answer

Introduction

Supply chain management plays a pivotal role in the success of organizations across various industries. One remarkable example of a company harnessing its supply chain for a competitive edge is the Benetton Group. This renowned garment retailer has strategically organized both its supply and demand sides to achieve significant advantages. This paper delves into Benetton’s distinctive supply chain operations, emphasizing the role of contractors and their unique contributions. Furthermore, it explores whether this approach provides a sustainable competitive advantage and highlights considerations for Benetton’s future.

• Understanding Benetton’s Supply Chain Operations

Benetton Group, a prominent garment retailer, has established a highly effective supply chain that contributes significantly to its competitive advantage. The company, while manufacturing a portion of its products in-house, heavily relies on a network of contractors for its supply side. These contractors, many of which have ties to Benetton employees, provide essential services such as knitting and assembling garments for the company. Additionally, these contractors engage sub-contractors to perform specific manufacturing tasks.

On the demand side, Benetton operates through a network of agents, each responsible for a specific geographical area. These agents play a crucial role in developing and managing Benetton stores within their designated regions. Some agents even have ownership stakes in the stores under their jurisdiction. Benetton products are shipped from Italy directly to these individual stores, where they are often placed on shelves without extensive warehousing. This limited storage space encourages fast and dependable deliveries to stores, a crucial aspect of Benetton’s supply chain strategy.

Benetton’s distinctive feature lies in its approach to production and inventory management. The company manufactures garments primarily in ‘greggio’ or ‘grey’ form, meaning that they are undyed. The dyeing process only occurs when demand for specific colors becomes evident. While this approach is slightly more expensive than knitting directly from colored yarn, it offers the flexibility to adapt quickly to shifting customer preferences and market trends. This fast response capability is a cornerstone of Benetton’s supply chain operations.

• Specialty of Benetton’s Contractors

  The specialty of Benetton’s contractors lies in their ability to provide cost-effective and flexible manufacturing services to the company. These contractors, often with close ties to Benetton employees, are well-integrated into the company’s supply chain. They offer several key advantages:

  a. Cost Efficiency: Benetton benefits from lower production costs, especially for woollen items, compared to some competitors. The small supply companies that serve as contractors have inherently lower operating costs, contributing to cost savings for Benetton.

  b. Flexibility: Benetton’s contractors, including their sub-contractors, enable the company to adjust its supply arrangements swiftly in response to fluctuations in demand. This flexibility allows Benetton to adapt to changing market conditions without suffering the full impact of demand volatility.

  c. Expertise: Contractors often possess specialized knowledge and expertise in garment manufacturing, further enhancing the quality and efficiency of production.

• Competitive Advantage and Long-Term Sustainability

  Benetton’s supply chain strategy has undeniably provided the company with a competitive advantage in the fashion retail industry. Its ability to offer a wide range of colorful and fashionable garments with relatively short lead times and cost-effective pricing has set it apart from competitors.

  However, the sustainability of this method in the long term depends on several factors. While the flexible ‘greggio’ production approach allows Benetton to respond quickly to changing customer preferences, it may entail slightly higher production costs. The company must continue to balance these costs with consumer demand and market competition.

  Additionally, the reliance on contractors, particularly those with close ties to Benetton employees, may raise questions of transparency and ethical considerations in the supply chain. Benetton must ensure that its contractors adhere to ethical and labor standards to maintain its reputation and sustainability in the long run.

  In conclusion, Benetton’s supply chain operations have been a source of competitive advantage, primarily due to their flexibility and cost-efficiency. However, as market dynamics evolve, Benetton must continue to adapt and address ethical considerations to ensure the long-term sustainability of its supply chain strategy.

Conclusion

In conclusion, Benetton’s supply chain strategy has been instrumental in shaping its competitive position in the fashion retail industry. By leveraging contractors and their flexibility, cost-efficiency, and expertise, Benetton has managed to offer a wide range of fashionable garments while adapting swiftly to market fluctuations. This approach has undoubtedly provided a competitive edge. However, as market dynamics evolve, Benetton must remain vigilant, balancing the benefits of flexibility with potential higher production costs. Additionally, ethical considerations and transparency within the supply chain should be integral to the company’s long-term sustainability. Benetton’s supply chain journey serves as a compelling case study, demonstrating the importance of innovative supply chain strategies in maintaining a competitive advantage in today’s dynamic business landscape.

References

Ellram, L. M., Tate, W. L., & Petersen, K. J. (2020). Offshoring and reshoring: An update on the manufacturing location decision. Journal of Supply Chain Management, 56(3), 14-22.

Pagell, M., & Shevchenko, A. (2018). Why research in sustainable supply chain management should have no future. Journal of Supply Chain Management, 50(1), 44-55.

Sodhi, M. S., Tang, C. S., & Son, B. (2021). Sustainable supply chains: Challenges, best practices, and research opportunities. Business Horizons, 64(2), 239-251.

FAQs

1. What is Benetton’s approach to supply chain management, and how has it contributed to its competitive advantage?
   • Benetton has a unique supply chain strategy that combines in-house manufacturing with a network of contractors. This approach has allowed the company to achieve cost efficiency and flexibility, contributing to its competitive advantage.
2. What role do contractors play in Benetton’s supply chain, and why are they considered special?
   • Contractors are essential in providing manufacturing services to Benetton. They are often associated with lower production costs and offer flexibility in responding to demand fluctuations, making them valuable contributors to Benetton’s supply chain.
3. How does Benetton maintain a competitive edge over its rivals, and is this approach sustainable in the long term?
   • Benetton’s ability to offer a wide range of colorful and fashionable garments with relatively short lead times and cost-effective pricing sets it apart from competitors. The sustainability of this approach depends on various factors, including market dynamics and ethical considerations.
4. What are the advantages and disadvantages of Benetton’s ‘greggio’ production approach, and how does it impact the supply chain?
   • The ‘greggio’ production approach involves manufacturing garments in an undyed form and then dyeing them based on demand. While it offers flexibility, it may entail slightly higher production costs. This approach affects supply chain responsiveness and inventory management.
5. How does Benetton balance cost efficiency and ethical considerations in its supply chain strategy?
   • Benetton must strike a balance between cost efficiency and ethical considerations as it relies on contractors, some of which have close ties to its employees. Maintaining transparency and adherence to ethical and labor standards are crucial for the company’s reputation and long-term sustainability.

 

 

 

 

 

 

 

 

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