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Dual supply chain

Push

Pull

Demand Variability

Mfg. Variability

Product Personalization

Economies of scale

Set-up change cost

Lead time

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Innovative model of Benetton allows both

- Push model @ Benetton (80% of orders)

- FebApr: New design proposals & Samples

- MayJul: Elimination by mgmt, agent, retailers, etc

- JunJul: Rough production plan (based on products)

- JulNext may: Firm orders (lead time: 7 months)

- Pull models @ Benetton (20% of orders)

-Flash collection

- Add @ 50 items.

- Based on customer tastefabric, color, style, etc.

- Reassortment

- Addl. Order for rapid delivery (5 weeks)

Dual supply chain

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Transparency => No Bull-whip effect

Other ingredients- Payment terms to facilitate low inventories

- 70% rough ordering during start of season

- Combination of pull models

- No return goods accepted

Transparency in the supply chain

- Control over its distribution channels

- Unusual arrangement with agents in Italy & EuropeAssigned large

territories to encourage development of Benetton retail outlets

- Relationship based on trust

- Similarity in all Benetton outlets

- Agents invited for design presentations

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Innovation in IT application

- Replenishment process is captured and monitored with latest IT tools

e.g. Data like order info from individual stores is captured & aligned electronically.

- Up-gradation plan: Buy Seimens 7865 & Olivetti 5330 for up-to-date info using auto cash

registers

- Production: Knitting machines are magnetically taped to provide intricate knitted

designs Just-in-time

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JIT & Effective Subcontracting

Just-in-time

- Manufacturing only when order in hand

- Replenishment through Agents

- Order to retail lead time- only 5 weeks

Effective subcontracting

- Parallel Empire

- Management of fluctuation in demand

- Lower production cost

- Jobs to relatives of Companys Employees

- Knitting of Wool : 40%

- Assembling Garments: 60%

- Finishing Operation : 20%

- Sufficient time to Negotiate

- In Italian market, this was unique

- It gave Benetton advantage in inventory reduction, by adding flavors prior to

delivery

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Entering the American Market

COST:

Large initial investment- $70000 for each small shop

Higher labor cost(50%)

Cost of promotion ($2 MILLION)

Cost of distribution-$10 million to set up a new plant, loss of inventory savings to set up

new warehouse, increased transportation cost if direct distribution

MARKETING CHALLENGE:

Setting up a distribution channel

Increasing popularity of Italian Brands in U.S.

COMPETITION:

Stronger competition from existing players like Levi StraussStronger media presence of competitors ($100 million on advertising)No brand presence of BenettonAmerican preference for easy-to-care garments, but Benetton core competence is naturalfibersGreater scope in U.S due to large size of market

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