1. Benetton
Supply chain innovation

2. Dual supply chain
Push
Pull
Demand Variability
Mfg. Variability
Product Personalization
Economies of scale
Set-up change cost
Lead time

3. Innovative model of Benetton allows both
- Push model @ Benetton (80% of orders)
- Feb – Apr: New design proposals & Samples
- May – Jul: Elimination by mgmt, agent, retailers, etc
- Jun – Jul: Rough production plan (based on products)
- Jul – Next may: Firm orders (lead time: 7 months)
- Pull models @ Benetton (20% of orders)
- Flash collection
- Add @ 50 items.
- Based on customer taste – fabric, color, style, etc.
- Reassortment
- Addl. Order for rapid delivery (5 weeks)
Dual supply chain

4. 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 & Europe – Assigned large
territories to encourage development of Benetton retail outlets
- Relationship based on trust
- Similarity in all Benetton outlets
- Agents invited for design presentations

5. 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’

6. 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 Company’s 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

7. 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 Strauss
Stronger media presence of competitors ($100 million on advertising)
No brand presence of Benetton
American preference for easy-to-care garments, but Benetton core competence is natural
fibers
Greater scope in U.S due to large size of market