Research Korner: Logistics Infrastructure Examples

International Logistics Management of United Colors of Benetton

International Logistics Management of United Colors of Benetton Company Background             Benetton is an international apparel manufacturer and retailer present in 120 countries around the world. United Colors of Benetton is a fashion brand with a strong Italian character whose style, quality and passion. United Colors of Benetton has an international style that combines color, energy and practicality to offer a complete everyday look. All these key elements find their expression in the brand’s core value: Passion for Quality.             Benetton is popular for its excellent logistics and supply chain strategies. Benetton’s logistics and supply chain remain as a top competitive advantage for the company over its competitors. The company according to Fernie and Sparks (2004) has always been at the forefront of technological efficiency, from garment design, production and automated warehouses to the invoicing and transmissions of orders by EDI. Benetton’s long-term investment in logistics efficiency has been repaid with the fastest cycle times in the industry, no excess work in progress, little residual stock to be liquidated at the end of each season, and near perfect customer service. Logistics Management             Logistics management is defined as the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements (Simchi-Levi, et al 2005). According to Swamidass (2000) logistics management can be defined as the management of the movement and storage activities performed by the firm. A logistics system is made up of different components that add to the competitive advantage of the company such as facility location, forecasting and order management, transportation, inventory, warehousing and packaging.             Benetton’s manufacturing network was famed for its flexibility. It produced 20 percent of orders by quick response, with the remaining 80 percent scheduled to maximize capacity utilization. Those operations (such as design, cutting, dyeing and packing) that brought cost efficiencies through economic of scale, or were deemed essential to product quality, were performed in-house. All other manufacturing was completed by a local network of several hundred suppliers and subcontractors, most of which were small family businesses (Martin & Peck, 2003).             The company’s operations business model is composed of European and Mediterranean plants, Asian plants and independent suppliers. These plants and suppliers supply products to the European (Castrette, Italy) and Asian (Hong Kong) logistics hub which transport the products to Benetton’s global store network (Benneton, Organization and Know How, 2009).             In terms of logistics, the company holds a tight control of the logistic phase. The company invested heavily on modeling, organization and automatization of logistics in order to completely integrate the entire production cycle, from customer orders, to packing and delivery. The foundation of the company’s excellent logistics management system is its state-of-the-art logistics operations at Castrette, Italy. The automated hubs capable of handling individual orders for Benetton’s over 6,200 shops worldwide. From the automated hubs in Castrette, garments are sent through a one-kilometer tunnel to the Automated Distribution Center. This is where the inventory and distribution of products take place. The distribution center has a total capacity of 800,000 boxes and can handle 80,000 incoming/outgoing boxes a day with a workforce of only 26. In order to support the European platform, Benetton developed production hubs in Asia. The automated hub in Hong Kong supply Benetton’s worldwide network while hubs in Taiwan and Shanghai supply domestic market (Benetton, Logistics, 2009).             Different Benetton hubs all over the world handle different logistics components. Apparel Sites in Castrette, Italy handle wool dyeing and packaging. Textile business sites in other parts of Italy handle dyeing, spinning, and weaving. The site in Tunisia is responsible for cotton apparel, laundry and dying. Production locations in Croatia handle wool apparel, dyeing and weaving. Production location in Romania deals with quality control while cotton apparel is the responsibility of the Indian production site. The operational organization relies on the outsourcing of the labor-intensive phases of production, such as tailoring, finishing, and ironing, to small and midsize enterprises directly controlled by the Italian and foreign production sites (Benetton, Industrial Flexibility, 2009). Logistics Management Strategies of Benetton 1. Integrated Supply Chain – integrated global supply chain is very important for global organizations today. Benetton, sources raw materials from thousands of locations around the world and distribute finished products to thousands of other locations. This critical coordination and value center can enable the enterprise to synchronize many simultaneous unfolding material and informational flows on a worldwide basis – and help the whole enterprise to contain costs through more efficient utilization of assets and greater overall productivity (Boyson, et al 1999). Integrated supply chain enhances Benetton’s retail offer. Benetton draws heavily on lean production techniques. The company’s manufacturing operation is flexible, involving a network of subcontractors and, suppliers are in close proximity to the factory (Waters, 2007). 2. Quick Response – the aim of quick response (QR) is to link the manufacturers closely to the actual demand at the retail level. The emphasis is on time compression and the opportunity for the manufacturer to redesign production operations to allow for a little and often approach to resupply. Short production changeovers and small batch sizes enable the manufacturer to respond to changes in demand in a very short timescale. Quick response has allows Benetton to offer an extremely responsive supply to its retail outlets to reflect fast-changing nature of the fashion industry (Rushton, et al, 2006).   3. Networked Manufacturing – the networked manufacturing system Benetton developed in an interesting configuration. Manufacturing garments in Benetton starts when orders are placed from retail stores. Once the order was placed, Benetton would purchase the raw materials and ship directly to the Networked Manufacturing groups. As time went on, this system became highly centralized and allowed for better quality control of materials and logistics management in the networked manufacturing system. The system is a strong pillar in the success of Benetton. As the company actively seeks manufacturers for specific product segments, they look for and require highly integrated groups of manufacturers that combine their efforts and work together closely. What this means is each part of the manufacturing process, cutting each piece of the clothing, stitching, assembly, adding accessories, and packaging is all coordinated among the members of the manufacturing network so that each has a defined role and responsibility (www.kongandallen.com).  4. Postponement - Benetton was one of the first retail companies to apply the principle of postponement to its operations, whereby semi-finished garments were dyed at the last possible moment when color trends for a season became apparent from EPOS data at the stores. So rather than manufacture stock to sell, Benetton could manufacture stock to demand (Waters, 2007). Benetton was one of the first fashion retailers to revolutionized the supply chain and logistics of garments. It was typical for apparel retailer and manufacturers before to order pre-dyed raw materials which will be manufactured, assembled and distributed. What Benetton realized was postponing dyeing to the last step of the production process will give the company more flexibility and will lessen inventory. Through postponement, Benetton achieved logistics excellence which resulted to different advantages. Instead of preparing an entire seasons product line, and holding a large safety stock, the company could produce smaller batch sizes to initially stock stores and adjust to customer preferences as the season went on. Postponement also enables Benetton to re-stock high demand high demand products and stop distribution of low-demand products instead of marking down their price. The application of postponement results in greater customer satisfaction as products that they find in stores are what most of them want. Postponement also decreases the risk that new product will fail and the inventory costs of these failures will hurt profitability across all products (www.kongandallan.com). 5. Investments in Logistics Technology – the logistics management strategy of Benetton will never be a success if the company does not invest in technology. The company is known to be among the biggest investor in logistics technology. Investments in logistics technology support the core business strategy of Benetton. The key investment of the company is information systems technology. Information technology links the market place with the manufacturing process. Electronic Data Interchange (EDI) allows Benetton’s agents in each country to regularly transmit orders to Benetton’s head office. This knowledge of the market updated every 24 hours allows Benetton to carefully track and react to demand by manufacturing only those garment styles, colors and sizes required. Communications technology has allowed Benetton to eliminate the filters between the customer and production and to link the customer directly to the factory. Benetton has been forced to innovate in the manufacturing process to take advantage of the market knowledge made available through EDI. Communications technology has been integrated to CAD/CAM systems to give Benetton the speed and flexibility which it needs to compete effectively in the fashion market. Computer-aided design (CAD) of garments along with computerized garment cutting and assembly is the secret to a fast and flexible manufacturing operation. The process starts with in-house garment design using sophisticated CAD technology. Video disc storage of all past clothing ranges allows designers to call up previous styles and colors. State-of-the-art-on-line software allows designers to create designs using 250-color palette screens. Data representing these designs can be transferred directly to computer-controlled garment cutters and knitting machines. The garment assembly is carried out by subcontractors. Any fabric and garment dyeing is carried out by Benetton while subcontractors are again used for finishing operations. Clothing manufacture is a mix of high technology and high labor. By retaining ownership of the high technology production elements, Benetton can take advantage of the economies of scale inherent in volume manufacture (Dapiran, 1992).             Benetton also invested on a “robotic” distribution center worth $50 million (Dapiran, 1992). The storage area alone of the DC measures 170 metres long b 80 metres wide by 20 metres high; a third of this height is below ground level to minimize the impact on the surrounding landscape, in keeping with the Benetton concern for the environment. Twenty loading and unloading bays service the building. Inbound garments from the production areas arrive below ground level. The garments are already packed in one of two standard boxes which are bar-coded and pre-addressed to customers. The bar-coded cartons are delivered by high speed conveyors from the receipt bays to rail-guided transporters in the storage area. Each transporter can transfer up to 24 cartons at a time to and from the racking. Simultaneous put-away and retrieval occurs to maximize efficiency. The storage zone has a capacity of 250,000 boxes sorted randomly. The DC handles 12,000 boxes a day. equivalent to 6,000 consignments a day, representing some 60 million garments a year. The high level of automation allows the DC to operate on three shifts with six operators to a shift. Shipment is directly to one of 6,000 retail stores in 83 countries. Distributors, wholesalers and regional centers are not used. To achieve high levels of response all exports are air freighted (Dapiran, 1992).             In 2008, the company invested 50 million euro in the automated hub Castrette (Benetton Annual Report, 2008). This investment resulted in increased in capacity, functionality, effectiveness, efficiency of the company’s operations and logistics. This new investment allowed the distribution capacity of Benetton to almost double. Castrette is considered as one of the most advanced industrial logistic complexes in the world (Benetton, Business, 2009). The said investment is instrumental to the future and success of Benetton as it serves as a coordinator of the company’s whole production system. Assessment of Logistics Management Strategies             In general, the logistics management strategies employed by Benetton has been successful. The company earned a competitive advantage over its competitors in terms of the speed at which its products are manufactured and delivered. The vast network of suppliers, contractors, manufacturing sites, distribution hubs, and stores that Benetton possess aid in the efficient logistics of products. Comparing the distribution strategy of Benetton with the distribution of Zara, another fashion retailer with excellent logistics, Benetton has a more effective distribution strategy. Zara (a Spanish brand) has a Spain-centric production and distribution while Benetton has production and distribution centers in Italy and Hong Kong. This makes logistics more efficient in Benetton as the Hong Kong distribution center supplements the Italian distribution center.             Benetton, invests heavily on technology, one proof to this is the 50 million euro distribution hub in Italy. The company can also make use of the internet as a complimentary sales channel. Catalogues can also be used as a complimentary sales channel. Benetton can choose to grow in thee sales channels – stores, internet and catalogue. Although the stores are Benetton’s primary sales channel, internet and catalogue sales can strengthen Benetton’s profile and increase the level of service to customers, thereby making Zara even more accessible.             The quick response strategy of Benetton is also very useful and advantageous for the company. Quick response helps the company to gather information about consumer preferences which will help in the company’s production, logistics and distribution strategies. The quick response strategy of Benetton relies on information, which is gathered through the company’s state-of-the-art information and communications systems, making transmission and transformation of sales data efficient. The QR strategy of Benetton links all activity to real time demand. References Boyson, S et al 1999, Logistics and the extended enterprise: benchmarking best practices for the manufacturing professional, John Wiley and Sons, New York. Christopher, M & Peck, H 2003, Marketing logistics, Butterworth-Heinemann. Dapiran, P 1992, “Benetton – global logistics in action”, International Journal of Physical Distribution and Logistics Management, vol. 22, no. 6, pp. 7-11. Fernie, J & Sparks, L 2004, Logistics and retail management: insights into current practice and trends from leading experts, Kogan Page. Rushton, A et al 2006, The handbook of logistics and distribution management, Kogan Page Publishers. Simchi-Levi, D, Bramel, J & Chen, X 2005, The logic of logistics: theory, algorithms, and applications for logistics and supply chain management, Springer. Swamidass, PM 2000, Encyclopedia of production and manufacturing management, Springer.

International Logistics Management of United Colors of Benetton

International Logistics Management of United Colors of Benetton Company Background Benetton is an international apparel ...