Supply Chain Management Benetton Spa - Case Study Example

Benetton Spa - an introduction Benetton is a company that was started 25 year ago by the four siblings of the Benetton family Giuliana, Luciano, Gilberto, and Carlo. Today, the company has reached a $1 billion in world-wide sales. Benetton was formally incorporated in 1965 as Maglificio di Ponzano Veneto dei Fratelli Benetton'. The small enterprise consisted of Luciano, Giuliana, and their younger brothers, Gilberto and Carlo. Gilberto was placed in charge of financial issues, while Carlo headed the production system (Martnez, 1999) . The company developed and grew gradually as the years passed on. In 1983 Benetton had sales of $351 million, from 2600 stores in Europe. Task 1 Motivation by the Benetton family into the retail Supply Chain Supply Chain Management - An Overview The supply chain can be described as the network, covering the various stages in the provision of products or services to customers (Monks, 1996). It includes not only manufacturers and suppliers, but also transporters, warehouses, distributors, retailers, etc. The number of stages in the supply chain depends on the customers' needs, and the role each stage plays in fulfilling their needs. Supply Chain Management (SCM) integrates procurement, operations and logistics to provide value added products or services to customers. Effective management of the supply chain helps organizations meet customer requirements on time, with the desired quality specifications, in a cost-effective manner, through the coordination of different activities which transform raw materials into final products or services ((ICMR), Operations Management, 2003). Supply Chain Management can provide both tangible and intangible benefits to an organization. Tangible benefits include revenue growth, improved facility utilization, optimized inventory management, etc. Intangible benefits include improvement in quality, improvement in customer satisfaction, and enhanced customer and supplier techniques (Dilworth, 1992). Business Drivers in Supply chain Performance Supply Chain Management has become on of the key areas that organizations are focusing on to reduce costs and improve the efficiency of the production process (Chopra, 1992). Four key drivers of supply chain performance are inventory, transportation, facilities and information. They help determine not only the responsiveness and effectiveness, but also the strategic fit of the supply chain. Inventory - Inventory includes raw materials, work-in-progress, and finished goods in the supply chain. Inventory exists in organizations due to a mismatch between demand and supply. Inventory is also maintained to increase the responsiveness of organizations to sudden increases in customer demand. Transportation - Organizations use transportation to move components and products between the different stages of the supply chain. Transportation decisions are made on the mode of transportation and route to use in the transfer of products from one point to another. Facilities - Facilities are the locations in the supply chain where the raw materials and finished goods are stored, and where work-in-progress materials are assembled or fabricated, and from which finished goods are distributed. Facility's capacity and location has significant affect on the performance of the supply chain. Information - Sometimes, the value of information as a supply chain driver is undermined due to its abstract quality. However, in reality, it is one of the key drivers affecting the performance of the supply chain. As the supply chain is made up of various entities, proper coordination is the key to improving the efficiency of the supply chain system. The flow of information also affects the performance of other drivers. With proper information, organizations can predict the quantity to produce, when it is needed and where it is needed. This makes the supply chain more effective and responsive to market demand. In order to service the needs of customers and fulfil their expectations and to meet the organizations' growth and profitability objectives, managers focus on improving the effectiveness of the supply chain. If an organization follows the principles of supply chain management, it can attain a balance between customers' expectations and its growth and profitability objective. The principles of Supply Chain Management are as follows: Segment Customers Based on Service Needs - Most organizations segment customers based on the industry, product or trade channel without differentiating their specific requirements. In order to serve customers properly, organizations should segment markets based on the specific customer needs. In the case of Benetton, the company segmented its distribution channel geographically. In the Europe, the company marketed its woolen wear only through specialized knitwear stores whereas in the United States of America, Benetton had small boutiques in super markets and hyper markets. Customize the Logistics Network - Companies usually design their logistics system either to meet the average service requirements of all customers or to satisfy the toughest requirements of a single customer (Ernst, 1998). The new robotized warehouse in Castrette was the main symbol of Benetton's high technology; it became fully operational in February 1986. With a cost of over 42 billion lire (about $32 million) to build and outfit, the warehouse was a huge automatic box run by a DEC minicomputer that directed several robots via remote control. The robots could read bar codes on boxes, and then sort and store them. The operation of the warehouse was totally automatic and there was no human handling in the whole process. A staff of five specialists just monitored the movements via computer (Martnez, 1999). Plan Based on Market Demand - Traditionally, each department in an organization makes demand forecasts for the same set of products independently. But the assumptions and measures made by each department differ significantly from those of other departments. Therefore, their forecasts also vary widely. The company used a production plan that is a widely publicized one - the dyeing of assembled garments rather than yarn, for single-colour garments. Up to then, it was the yarn that was dyed, and then the parts knit and the sweater assembled. They thus avoided overproduction of sweaters in non-appealing colours and ensured they could meet demand for the best hits' of the season. Enhance Ability to Meet Customer Requirements - Organizations traditionally set their productions goals on the basis of demand forecasts (Schonberger, 1997). They also kept a cushion of extra inventories of finished products to offset forecast errors. They assumed that the lead-time to convert raw materials into finished goods was constant. They could also cut costs by reducing their set up time, and by using just-in-time techniques, etc. The operating cycle of Benetton consisted of a number of steps. Firstly, the preparation of final designs; then the assembly of a few samples of each of the 600 items in the total collection. Upon receipt of the first orders, the planning department exploded' a rough production plan for the season, by fabrics and styles; purchases were made according to this plan, and capacity with the subcontractors negotiated; finally, production was started and deliveries begun just in time for the selling season. The company bought raw materials (fabrics) from 80-90 different suppliers. The company centralized all the purchasing activities as this was perhaps the main source of economies of scale in the industry. Improve relationships with the Suppliers - Companies can derive significant cost advantages if they maintain strong and long-term relationships with their suppliers. Organizations should demand the highest level of service from their suppliers, but they should not forget that their suppliers also play a significant role in reducing cost. On the basis of market positions and industry structure, manufacturers can decide how to approach suppliers - invite competitive biddings, enter into long-term contracts, make strategic alliance, outsource etc. Have a Supply Chain-Wide Technology Strategy - There is a need to adopt enterprise-wide systems and replace inflexible and poorly integrated systems. Through electronic connectivity, organizations can improve the supply chain considerably. Benetton's success formula was based on the company's ability to combine fashion with industry, using advanced technology. Devise a Complete Supply Chain Performance Measure - Instead of just having inward-looking performance measures, organizations should develop a comprehensive system to measure overall performance of the supply chain system. Motivation Motivation is a psychological state. Understanding motivation can help in understanding individual behaviour ((ICMR), Introduction ot Organizational Behaviour, 2003). In general, the causes of behaviour are regarded as motivation. In addition to the perception, personality, attitudes and learning that characterize an individual, motivation is a phenomenon which helps in understanding human behaviour. People also tend to consider motivation as a personality trait, although this is not really true. They believe that some people have this trait, while others lack it. Motivation depends on the individual as well as on the situation. Every individual has different motivational drivers, but the situation also plays an important role in determining a person's motivational level. Stephen P. Robins defines motivation as "The willingness to exert high levels of effort towards organizational goals, conditioned by the efforts' ability to satisfy some individual need (Moorhead, 1999)." Continuous research that was done by many researchers in the field of Organizational Behaviour, Motivation and People Management, over years has yielded different kinds of theories related to work motivation. Some of them are discussed below (Frederiksen, 1982). The Different Theories of Work Motivation The content theories of motivation attempt to identify and prioritize the needs and drives that motivate people at work. They deal with the goals and incentives that people strive for in their work environment (Newstorm, 1997). Maslow's Hierarchy Need Theory, Herzberg's Two Factor Theory and Alderfer's EG Theory are some of the Content Theories of Motivation. There are also other theories which are known as the process theories of work motivation. Vroom's expectancy theory and the Porter Lawler Model are two such process theories. Next are the contemporary theories of work motivation. Equity and Attribution theories are the two contemporary work motivation theories. In the case of Benetton, during the early stages of the company's evolutions itself, the management used a retailer motivation technique which was unusual of time in those days itself. The technique the company used was to offer 10% discount to the retailers who paid cash on the delivery of the company's product. Benetton was pretty successful by making use of this technique. In order to handle the increasing complexity with relevance to the ever-expanding network of stores, production volumes, material flows and employees, the company started to recruit professional managers into the organization and started transforming the traditional organization into a formal organization. The Benetton siblings and the newly recruited GM formed the Board of Directors for Benetton. Although the Benetton siblings did not play the conventional, distant role of members of the board, they yet took part in many day-to-day decisions. Although it did not appear in the organization chart, most of the senior functional managers had two reporting relationships: a formal one to Aldo Palmeri, and an informal one to a member of the Benetton family. This way the company created a comfort level to the old employees of the organization and hence motivated them in order to increase productivity. Task 2 Innovation by Benetton Family The major driving forces of any innovative supply chain is the focus of he business and the synergy from an integrated functional approach which the business generates over a period of time. It is the responsibility of the line managers leading the supply chain to explore innovative strategies and opportunities and make use of all the available opportunities. Though the concept of innovation is not an unknown or new concept for many of the organizations, the old fashioned strategies that were adopted in the olden days may not suit to today's business environment. In order to improve the performance and profitability, today, organizations are required to involve in the most exciting innovative experiments. This would definitely help them create a nice future for the organizations failing which they may not be able to compete with the increasing competition and other innovative competitors. Though most of the companies believe that innovation is one of the factors that help the organization perform and achieve huge profits, it is revealed through a recent study that only 25% of the organizations across the world believe in innovation being the key strategy for the organization's success. Actually, this approach should not be followed. The organizations and all the employees of the firm are required to give the highest priority to innovation in order to sustain the competition and achieve higher profits and also to perform better. Now-a-days, organizations are adopting innovative technologies in their manufacturing processes to improve productivity, reduce labor cost, provide safe work environment for their workers, improve material handling and manage inventory better. Benetton has also followed certain innovative technologies in its organization. The company was divided into three divisions: wool, cotton, and jeans. Benetton utilized three different kinds of raw materials. In the wool division the raw material was basically thread, no matter whether it was acrylic, cotton, or actual wool. In the other two plants, the raw materials were basically fabrics. The wool division's technology was mainly knitting, while the other two divisions' technology was essentially cutting. A number of significant developments have taken place in various fields in the recent past, which include the digital computers, improvements in data-storage technology, sophistication of software, advances in sensor and optical technology, artificial intelligence and many more. All these developments have contributed in the progress of operations technology. Investment in technology needs careful consideration, because the costs involved are very high and organizations may sometime have to alter their current processes to make them compatible with the new technology. Technological up gradation is essential for an organization to remain contemporary and competitive in the market. Hence, many organizations today have adopted advanced technologies in both product development and production methods. As part of the introduction of innovative technologies into the organization, today Artificial Intelligence is being extensively used by many organizations all over the world. Computers are substituting humans in many organizations because of their ability to process data and perform logical and mathematical calculations much faster than the human brain, and without any fatigue. They are considered to be smart alternatives to human effort in performing many tasks. Currently, Robots are extensively used in manufacturing operations. These operations can be broadly divided in to three categories: Material Handlin, Processing Operations & Assembly and Inspection. The new robotized warehouse in Castrette was the main symbol of Benetton's high technology; it became fully operational in February 1986. With a cost of over 42 billion lire (about $32 million) to build and outfit, the warehouse was a huge automatic box run by a DEC minicomputer that directed several robots via remote control. The robots could read bar codes on boxes, and then sort and store them. The operation of the warehouse was totally automatic and there was no human handling in the whole process. A staff of five specialists just monitored the movements via computer. The use of computers can improve the process of designing a product i.e. analyzing, evaluating and presenting a design for a product. The process of designing a product with the help of a computer is generally referred to as Computer Aided Design (CAD). Computer Aided Design is a technique used for designing product and process on a computer terminal. Computer assists in the creation, modification, analysis and optimization of a design. A Computer Aided Design (CAD) system incorporates computer graphics and computer - aided engineering systems. The physical attributes of the process or products can be illustrated using computer graphics while computer - aided engineering systems can highlight the operational capabilities of the proposed design. The designer working with a Computer Aided Design system creates the lines and surfaces that form the object i.e. the product, part, structure etc., and stores this model in the computer database. Once the design procedure is completed, the CAD system generates detailed drawings required to create a product or process. Using a CAD system, a designer can generate model (illustrates the outline of the product structure in 3D space) are sued to represent the parts in desirable forms. The use of CAD systems in product design enables production engineers and marketing personnel to view the items and suggest changes in the design before the commencement of production. For production, Benetton used numeric control knitting machines linked to Apricot (a British firm) computer-aided-design (CAD) personal computer terminals. Designers using the 10 CAD terminals could play around with knitwear colours and patterns on a video screen. Once a designer decided on a particular pattern, the computer prepared a tape that would direct the knitting machine to automatically produce the fabric, in an easy-to-assemble form of pieces. Since 1980 they had also used a Gerber Camsco CAD system that they had connected to a Spanish-made Investronica automatic cutter, turning the system into a CAD-CAM (computer-aided design and manufacturing) unit. The CAD-CAM system's automatic cutter followed pattern pieces stored in the computer's memory, which turned out 15 000 full garments every eight hours, wasting less than 15% of the cloth. References 1. (ICMR), I. C. (2003). Introduction ot Organizational Behaviour. Hyderabad: ICFAI Center for Management Research (ICMR). 2. (ICMR), I. C. (2003). Operations Management. Hyderabad: ICFAI Center for Management Research (ICMR). 3. Chopra, S. (1992). SCM - Strategy, Planning and Controls for Manufacturing & Services. McGraw Hill. 4. Dilworth, J. B. (1992). 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Schonberger, R. J. (1997). Operations Management - Customer Focused Principles. Irwin publications. Read More