Benetton case
Notes on Q3 of Benetton case
Question 3. How well do these three interconnecting sets of operations fit together?
Very well indeed. Think about it this way.
•
The use of contractors and sub-contractors saves Benetton cost because they have lower wage rates than in their own factories. This cost saving can be invested in the ‘dyeing in grey’ process (which is more expensive than knitting the garments from colour yarn).
•
The flexibility which the dyeing in grey process gives allows operations to respond quickly when it gets orders to replenish stocks in its warehouse. •
The ability to replenish warehouse stocks quickly allows the physical distribution operation to respond quickly to the orders placed by the retail operation.
•
Fast response allows the retailers to operate without storerooms, keeping all their (limited) stock on the shelves.
•
This has a number of effects. Most particularly it saves the storeroom space so that all the shop space can be used for selling. This gives good space productivity. It also means the staff do not have to frequently return to the storeroom to check on stock, this gives good staff productivity. Also because there is relatively little stock kept in the shop, the shop owner does not have to fund the working capital to keep the stock therefore gets good stock productivity.
•
Also the image of the store itself is enhanced by having all products on display (the United Colours of Benetton).
•
This enhances the brand image.
Of course there are other issues as well. The quality of the products and the quality of service is important and the cost of transportation likewise.
However, the thread which runs through the three stages of the supply chain is to do with the movement of materials. Although Benetton have good factories, efficient physical distribution and good retail operations, their real strength lies in the way these three stages fit together seamlessly.
Question 3. How well do these three interconnecting sets of operations fit together?
Very well indeed. Think about it this way.
•
The use of contractors and sub-contractors saves Benetton cost because they have lower wage rates than in their own factories. This cost saving can be invested in the ‘dyeing in grey’ process (which is more expensive than knitting the garments from colour yarn).
•
The flexibility which the dyeing in grey process gives allows operations to respond quickly when it gets orders to replenish stocks in its warehouse. •
The ability to replenish warehouse stocks quickly allows the physical distribution operation to respond quickly to the orders placed by the retail operation.
•
Fast response allows the retailers to operate without storerooms, keeping all their (limited) stock on the shelves.
•
This has a number of effects. Most particularly it saves the storeroom space so that all the shop space can be used for selling. This gives good space productivity. It also means the staff do not have to frequently return to the storeroom to check on stock, this gives good staff productivity. Also because there is relatively little stock kept in the shop, the shop owner does not have to fund the working capital to keep the stock therefore gets good stock productivity.
•
Also the image of the store itself is enhanced by having all products on display (the United Colours of Benetton).
•
This enhances the brand image.
Of course there are other issues as well. The quality of the products and the quality of service is important and the cost of transportation likewise.
However, the thread which runs through the three stages of the supply chain is to do with the movement of materials. Although Benetton have good factories, efficient physical distribution and good retail operations, their real strength lies in the way these three stages fit together seamlessly.