Logistics and Outsourcing in China: the Benetton Group S.P.A. Case

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Introduction
The aim of this paper is to analyze the supply chain management, of United Colors of Benetton, in order to understand the key logistic factors that have made this company so successful in the apparel industry. In addition, after an overview of the outsourcing model in China, I analyze the costs and issues that Benetton has faced in moving its operations in Asia. Although there have been problems, Benetton is a clear example of a successful outsourcing process directed to China.

Company overview
Benetton is an Italian manufacturer of men's, women's, and children's casual wear, footwear and accessories founded as a single shop in Belluno, northeastern Italy in 1965. Three years later, the company opened its first store in Paris, as a first step in the international expansion and development program outside Italy, which took place in the 70’s. As a consequence in the next decade, Benetton spread throughout Europe and by 1979 it was established in the United States. By mid-80’s the company was serving 60 countries through approximately 3200 stores, evolving towards one of the main Italian industrial reality in the sector. Benetton Group specializes in the designing and manufacturing of clothing. Nowadays Benetton group consists of the Sisley, United Colors of Benetton, Playlife and Undercolors of Benetton (UCB Kids) brands widely diffused over 120 countries served by 6400 franchised and directly managed stores.

Figure 1. Benetton Sales Distribution by Brand 2011. Group Investors Presentation This huge network of sales points made the group able to experience revenues for over 2 billion euros in the last four years and a net income of 102 million euro in 2010, despite the crisis that strongly affected world performance in the industry.

Figure 2. The Group Profit Analysis 2010. Benetton Investors Report

The importance of Logistics for the Apparel Industry
In the past, the main players in the apparel industry used to compete primarily on style, price and marketing as these factors mattered most for customer buying habits. In current fact, those factors keep being important but new companies are now incorporating new operational systems that are dramatically changing the industry dynamics. Costs associated with holding inventory are lowering profit margins and therefore better inventory management policies must be put in place. Lastly, outsourcing has become critical as companies are flocking to low cost manufacturing locations. Benetton operates in a highly competitive and mature industry characterized by a fickle consumer base demanding an increasing variety of products. The competitive activity can render one's product to be found unfashionable overnight due to the volatility of the market. Product life cycles are planned to be short to maintain consumer interest. In this perspective, the logistic system needs to operate at a high level of competency to support this incessant pace. On the one hand it needs to develop flexibility and speed in order to meet the demands of fashion and the rapidly changing needs of the customer. On the other hand, to compete in the fashion industry it must maintain high levels of efficiency. To achieve these goals Benetton has learned how to rapidly adapt to changing consumer tastes while gaining efficiency through economies of scale. It has done this by understanding the role of logistics in supporting its core business strategy.

Benetton Supply chain management
In the mid-1990's as growth accelerated, Benetton designed a primary center to manage production, logistics and distribution at Castrette, Italy. With the establishment of a consolidated central shipping center, the company is estimated to have saved 20% on transportation costs. In view of the expected increase in the number of items being shipped, in 2007 the group invested around 50 million euro in the Castrette hub with the result of doubling the potential distribution capacity of Benetton....
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