H benetton's dual supply chain system

Benetton’s‘Dual Supply Chain’

System

1Istanbul, 23th May 2013

OPR-541 Supply Chain Management

Prepaired by: Alper TEKIN

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Learning Objectives Informations about Benetton

Benetton, how to operate its operations

The Problems

Benetton’s Dual Supply Chain System

How was helped the dual supply chain to Benetton

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Backround Notes Of Benetton

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• Italy based clothing company Benetton was founded by Luciano Benetton and his brothers and sister in March 1965.• In 1965, they opened their first store called ‘My Market’

• The first Benetton store was opened in 1968, the first store out of Italy was opened in Paris in 1969.

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Backround Notes Of Benetton• In 1974, Benetton bought the

exclusive rights of Sisley a popular French clothing brand which had been launched in Paris in 1968.• In 1984, United Colors Of Benetton (UCB) slogan emerged. In December 1985, this slogan became the logo of Benetton.• In 1996 Benetton’s largest store was opened in London.

• In 2002, Benetton posted its first ever full year loss and in 2003

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Backround Notes Of Benetton

Source: www.benettongroup.com

• As of 2006, Benetton operated in more than 120 countries and 5000 stores.

Benetton's Renevues By Market (2011)MARKET %

ITALY 915.420.000 € 57 EUROPE (Other Than Italy) 690.580.000 € 22 ASIA 333.000.000 € 16 AMERICAS 80.000.000 € 4 REST OF WORLD 13.000.000 € 1

TOTAL REVENUES 2.032.000.000 € 100

• End of the 2011, Benetton posted EUR 2.032 Billion total revenues .

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Benetton’s Operations

• Benetton operated a three-tier model.

• First Tier consist of• Raw Materials, Unfinished Products,

Production Plants

• Second Tier• had contractors and sub-contractors

• Third Tier• had retail outlets spread across several

countries

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Benetton’s Operations - Design • Benetton has design center and designers

• Design center worked in three groups

• First Group taking care of commercial aspect of the products

• Second Group carrying out research on the fabrics

• Third Group responsible for graphics.• Brands• UCB• Sisley• Killerloop• Playlife

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Benetton’s Operations - Manufacturing • Benetton has been using a vertically

integrated model• technically sophisticated parts were retained

In-house • labor intensive parts were Outsourced

• Benetton had more than 200 contractors and several sub-contractors who worked to produce the gartments

• To built close relationships• To encourage employees to become contractors• To give production planning and technical

assistance to maintain quality

• The Contractors were an integral part of Benetton’s supply chain and played an active role in the work being carried out.

• These arrangement was provided benetton the flexibility to operate in a highly competitive enviroment and labor cost

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Benetton’s Operations - Purchasing

• Purchasing was centralized.

• One of the largest buyers of wool in the world

• Benetton had 180 suppliers who supplied the raw material

• Benetton had gone in for vertical integration its suppliers

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The Problems• To be failed to keep pace because of

• Changing fashion industry

• Changing buyer behavior

• Changing customers- espicially younger

customes• Bright colored clothes which was famed by Benetton was not unique

• They offered about 12 collections a year at affordable price but Benetton presented only 2 collections every year at comperatively high price

• Competitors (like Zara and H&M) was offering the customers than just colorful clothes.

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The Problems

• The company’s lead time to manufacture garments was much longer than its competitors.

• Benetton was far behind the providing new design

• Benetton obtained point of sale data only from few stores and it couldn’t obtain real time data from all its stores.

• The problem is that %93 of benetton’s sales come from franchise operations but in contrast Zara and H&M own their shops

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The Problems

• Revenue growth and profitability declined year by year Benetton Financial Performance

( € Millons) 2004 2003 2002 2001 2000 Revenues 1.686 1.859 1.992 2.098 2.018 Cost Of Sales 929 1.049 1.124 1.189 1.138 Gross Operataing Income 757 810 868 909 880 Contribution Margin 653 696 744 776 740 EBITDA 317 335 376 398 400 Income From Operations 217 232 243 286 309 Net Income / (Loss) 123 108 -10 148 243Source : Benetton Annual Report, 2000-04

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Benetton’s Dual Supply Chain Systems

• A dual supply chain has a better ability to respond to changes in demand and to balance activities like production, sales, and product design

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Benetton’s Dual Supply Chain Systems

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Benetton’s Dual Supply Chain Systems

• Sequential dual supply chain acted on push focused demand. This was generally used for supplying garments which were ordered by the franchisees before beginning of season.• Integrated dual supply chain was used

for clothes that were delivered during season. these items needed to be in the market within a very short timeframe and in this system, the clothes were made taking into account the demand from customers and the inputs from sales team. This was used maninly to top up the existing seasonal collections during the same season and to keep with the latest fashion trends.

• Benetteon used were of two kinds;

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Benetton’s Dual Supply Chain Systems• Using this system

• Production was carried out in different locations depending on the time required to market the market

• Brought out more collections per year

• Maintained the novelty of products by introducing new designs in accordance with the changes in demand.

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The Result• The dual supply chain helped Benetton

offer new products to its customers on time.

• Benetton could maintain the sales momentum even afte the season by minimizing the time to market.

• The dual supply chain offered product based on demand pull.

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• Benetton could devide inventory shipments into smaller lots and built the capacity to ship clothes every two week.

• It could also deliver garments in a week if demand arose.

• Moreover, Benetton was able to balance time to market and cost which hadn’t been possible before.

The Result

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The ResultBenetton Selected Financial Data

Metrics 2006 2005

Revenues 1911 1765

Cost Of Sales 1105 995

Gross Operating Income 806 770

Contribution Margin 669 643

EBITDA 276 285

Operating Profit 180 157

Income Before Taxes 159 134

Net Income 125 112

• Benetton benefited greatly from new system and this led to better sales and profitability.

• Dual Supply Chain System ipmlemented in 2004 and next two years benetton posted best financial performans after many years.

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