Operations management

OPERATIONS MANAGEMENT Benetton started small but has succeeded beyond what the founders thought was possible. Its old model that ensured the success of the organization is network organization for distribution. Selling is done through agents who deal with storeowners. Manufacturing is done in a similar manner where small contractors who make supplies to Benetton factories.
Despite past success, the company is facing new challenges brought about by globalization. In the new global world, people do not particular customization. The preference is homogenous products. In terms of operations, the realities brought about by globalization demand that the company adopt by integrating vertically in order to gain from economies of scale.
Considering emerging issues, the main problem with Benetton is dealing with so many actors in its supply chain. These actors include specialized shops, distribution chains, and agents and all except the latter have no direct relationship with the company. in addition, the company to contend with competing with aggressive players in casual wear market and retaining its reputation in sports market.
In order to overcome some of these problems, the company developed high tech production pole. This production unit consolidated production in order to realize economies of scale. Here, production of various product under the company has been brought together in order to benefit from the benefits of many units together. This strategy eliminated the problem of dealing with small production units scattered all over. Logistics of bringing raw materials and taking finished product to the market became easier.
In order to benefit from the low cost of production in foreign countries, the company has take some of production work overseas just like competitors are doing. The cost of production on china and other countries on south, and south East Asia is low. Labor cost is an important cost driver in textile as they heavily use human labor. Labor in Europe is expensive and therefore relocating some of the most labor consuming aspect in the garment production is a smart move by the company.
Another supply chain strategy adopted by the company is the move to integrate vertically. By doing this, the company now has substantial control of supply. Integrating vertically is a good move because ensures that supply of raw materials is guaranteed. In addition, the company has direct control on quality. This was not possible under the old system through which the company operated under.
Traditionally, the company relied on direct retailing to some extent. However, the company realized that it was not sustainable. The general trend is that stores are increasing in size whereas stores that traditionally sold the products of the company have decreased in size. This means that the company ran the risk of being eliminated in the market. The company solved this problem by opening new retail outlets and renting space in large megastores and busy shopping districts. On top of that, the company operates some stores directly.
In summary, the company integrated in order to survive. It now has more control of supplies used in production and selling of the final products. Some of the production process has been relocated overseas. This was done in order to increase the company’s control of the whole supply chain and realized cost savings. Additionally, the strategy change has allowed the company to become more responsive to changes in the market. In terms of supply management, the company is able to manage the supply chain more easily. Under the old system, the company had to deal with so many actors.
References
Camuffo, A., Romano, P., Vinelli, A. (2001) “Benetton Group: The evolution of a network to face global competition” in Johnston, R., Chambers, S., Harland, C., Harrison, A., Slack, N. (2003) Cases in Operations Management, Prentice Hall, pp. 179-191.