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Learning From Supply Chains: Benetton Group S.p.Aand the
Apparel Industry`
Introduction to the Apparel Industry
May 24, 2007
The history oI the apparel industry is an interesting one. In the past, companies
competed primarily on style, price point, and marketing. These were the Iactors that mattered
most and impacted customer buying habits. As Iashion was seen to change with the seasons,
products were prepared well in advance and new lines were marketed to draw customers. In
current times, these Iacts may still be true, but companies are now incorporating new
operational systems that are dramatically changing the Iace oI the industry. Competing
companies now realize that customer speciIic needs are essential and should be captured in
sales. Costs associated with holding inventory are lowering proIit margins and thereIore
better inventory management policies must be put in place. Lastly, outsourcing has become
critical as companies are Ilocking to low cost manuIacturing locations.
This article is meant to develop a better sense oI the changes in the apparel industry over
time. As many industries are Ieeling similar pressures, we see that the lessons learned here
can be applied to other industries. AspeciIic example is also given to illustrate how one
company has reIined their supply chain process to not only strengthen the company, but also
improve their cost management. Again, this example is one that has been used in many
diIIerent areas oI manuIacturing and thereIore can provide Iurther thoughts to improve many
company's operations.
The apparel industry dates back thousands oI years. It has evolved Irom a high number
oI small local level assembly and manuIacturers serving local demand to an intricate global
supply chain linking many countries. As the complexity has grown two aspects have deIined
the development oI this industry, 1. Subcontracting networks Ior manuIacturing and 2.
Developments in preparing new seasonal Iashion.
Historically, manuIacturing was all done by one Iacility. Acompany would purchase
speciIic Iabric Ior their products, and dyeing, cutting, stitching, and packaging would all take
place under one rooI. By the 1970's this had almost Iully broken down, where individual
processes were Iound to be more eIIective when one Iacility handled them. As a result, each
subcontractor in the network would Iocus on their phase oI manuIacturing, and collaborate
with the group to move products through the entire process. The added eIIiciencies oI this
organization helped to improve the speed oI delivery and save on costs through
specialization. Contracting the work also increased production capabilities and allowed Ior
*Some of the information provided in this article is adapted from the Harvard Business School Case. Benetton
(A), 9-685-014, rev. February 6, 1989.
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greater Ilexibility to create new products or increase the complexity oI a particular
manuIacturing phase iI necessary.
In more recent times preparation Ior two seasonal sales cycles occurred, the spring
collection and the Iall/winter collection. As the apparel industry moved in this direction,
companies began Iorecasting well in advance Iashion trends, required inventory, and process
requirements. For some companies these predictions would begin nine to twelve months in
advance. This allowed a company enough time to choose the Iashion image Ior the Iollowing
year, prepare all the manuIacturing with design layouts, work through prototype
development, and build inventory to ensure the retail outlets were well stocked with new
items.
The Benetton Group S.p.A., manuIactures and markets Iashion apparel in wool, cotton
and woven Iabrics. The company is involved in three distinct segments: apparel, textile,
consisting oI production and sales activities Ior raw materials (Iabrics, yarns and labels), and
semi-Iinished products. Benetton operates over 5,000 stores around the world and has been a
consistent innovator in the industry.
Benetton has consistently reIined its operations and supply chain processes. One
example is a drying method that involved hanging Iinished goods instead oI tumble drying.
Another is a method Ior making wool Iabric easier to Iorm, cut and stitch. These process
improvements were well ahead oI their time in many cases, and helped the company as others
struggled with old technology, systems and ways oI thinking. The same can be said, when
looking at the supply chain improvements Benetton has made throughout the past 30 or so
years.
In the 1990's, Benetton reduced its new product development phase Irom 9 months to a 5
week cycle time Ior most products. At the time, this was unheard oI in the apparel industry and
Iew companies could compete against such speed. More recently in 2002, in-store
replenishment was Iour weeks, and currently the company reports the cycle time is two weeks.
One week replenishment takes place Ior high demand items, which is truly impressive. Most
companies are struggling to deliver products in three months.
Benetton's commitment to supply chain improvements has been a quite lengthy, but
rewarding process. We will now look closer at the companies supply chain model, and two
speciIic areas, which provide insights into the Iactors behind the company's success, 1.
Networked ManuIacturing, and 2. Postponement in Dyeing.
Benetton has changed their supply change model in a number oI ways. Originally the
1he Benetton Croup S.p.A.
1he Benetton Croup S.p.A. Supply Chain Model
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Company outsourced labor intensive production, Ior example tailoring, Iinishing, and
ironing to local manuIacturing networks. What they chose to keep internal were heavy
investment strategies and operations such as weaving, cutting, dyeing, quality control at all
phases, and Iinished goods packaging. Here is a diagram showing the historic supply chain
model Ior Benetton.

In the mid-1990's as growth accelerated, Benetton designed a primary center to manage
production, logistics and distribution. This Iacility is located near the company's
headquarters in Italy and is reIerred to as the central pole. With the establishment oI a
consolidated central shipping center, the company is estimated to have saved 20 on
transportation costs.
As this Iramework developed Iurther, Benetton set up other similar regional poles
around the world in its manuIacturing centers. With this model, the head production pole in
Italy now concentrates on the Iashion design and electronically sends the product
speciIications to the regional poles. The regional poles then identiIy the production needs and
source to a speciIic local manuIacturing network. Once complete the Iinished products are
sent back to the central pole Ior Iinal shipment preparation and distribution to the retail
outlets. In total, Benetton maintains 32 total productions centers, 22 in Italy, and 10 abroad.
The Iollowing diagram represents this new supply chain orientation.
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Local ManuIacturing
Retail Store
InIormation and

InIormation Flow
Material Flow

Logistics and
Distribution
Center
Material Flow
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Through this model, Benetton has realized signiIicant eIIiciencies through
coordination, increased control, improved speed oI production, and reduced inventories. In
general, the company merely acts as an inIormation transIer to the manuIacturing networks
through the regional poles. Once the product is complete, only then does it come back
through the company's direct operations, where quality can be assessed, and direct
distribution to the retail outlets takes place.
Atimeline oI supply chain developments highlights some oI the major events that have
taken place at Benetton Irom 1999-2007(Table1).
Now that we have a better understanding oI the supply chain model Benetton uses, we
can look more closely at the two aspects oI the model that contribute to the companies
success. The Iirst is Networked Manufacturing where groups oI manuIacturers collaborate on
speciIic orders that are targeted to their capabilities, batch size, Ilexibility in operations, and
lead time to the central pole. The second is Postponement in Dyeing, which was a process
improvement step Benetton created, which redeIined common manuIacturing processes in the
industry.
The Networked Manufacturing system Benetton developed is an interesting
Aetworked Manufacturing
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Local ManuIacturing
Retail Store
InIormation and
InIormation Flow
Material Flow
Material Flow
Central Pole
Distribution Center
Regional Pole
Regional Logistics
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Table1
conIiguration. Benetton had strict policies that stated manuIacturing oI products would not
begin without an actual order in hand Irom a retail store. 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 Ior better quality control
oI materials and logistics management in the Networked Manufacturing system. The system
itselI however is where the power lies.
As the company actively seeks manuIacturers Ior speciIic product segments, Ior
example higher batch size or stitching type, they look Ior and require highly integrated groups
oI manuIacturers that combine their eIIorts and work together closely. What this means is
each part oI the manuIacturing process, cutting each piece oI the clothing, stitching,
assembly, adding accessories, and packaging is all coordinated among the members oI the
manuIacturing network so that each has a deIined role and responsibility. In the 1990's,
contracted networks conducted 40 oI wool knitting, 60 oI assembly, and 20 oI Iinishing
oper
The process oI deIining the capabilities Ior each group is critical and very specialized.
II one group Ior example is strong in wool, undyed sweaters, then this network will handle the
production oI these products, while other highly specialized groups Iocus on say jeans. This
allows clear guidelines to manuIacturers, lowers setup costs without having to switch
machinery, improves speed and ensures proper resource utilization.
Another important key to the Networked Manufacturing is the coordination among
manuIacturers whose responsibility is similar. For example, iI there are two companies that
1
ations.
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Overview
Moved to a more
vertically integrated
system
Reduced product line
under two brands
Controlled 85 oI all
raw material
Integrated
technology that links
local stores to the main
pole in Italy
Increased
manuIacturing
capabilities in
volume production
Implemented RFID to
track all products
Estimated to
improve in-store sales
by 5 due to better in-
store availability
Improved RFID
logistics in supply
chain.
Incorporated
licensing oI new brand
Ior manuIacturing.
3 distribution centers
in China to sort not
accumulate
Increase in sales oI
15-20 due to
Asian sourcing

ManuIacturing and
Distribution
Operations
Retail Operations
1999 2001 2003 2005 2007
ncreased Asian
operations
Developed sales
network
RFID used to track
entire product supply
chain.
Increased control
over supply chain and
logistics systems.
Reteail store
chnges to
Move to larger
store models Benetton
owns and operates
RFID tags leIt on
products aIter sales to
monitor returns
Interest to increase
Asian retail
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Both supply collars Ior a particular shirt, but one runs into problems, Benetton doesn't have to
ask the other supplier Ior an increased order size. This may negatively impact quality, and
hinders the resources the supplier may have available. Instead the networking increases
communication among all suppliers, so that the supplier who cannot produce the product will
provide the order to another capable manuIacturer. In the case oI wool products, this saved
Benetton an estimated 85 in costs when compared to its competit
In the apparel industry, the process oI dyeing or coloring a product commonly begins
with a purchaser or manuIacturers buying pre-dyed raw materials, cotton or other Iabrics.
With pre-dyed materials the only steps are manuIacturing, assembly and Iinished product
distribution. What Benetton realized however, was iI this process were moved to the end oI
the manuIacturing cycle, once the product was completed without color, the company would
realize greater Ilexibility in their demand production and could lower their inventory
signiIicantly. This strategy is what is commonly reIerred to as Full Postponement Strategy,
described in Janus D. Pagh and Martha C. 'Supply Chain Postponement Strategies: How to
Choose the Right Strate
With the addition oI postponement to the logistics system, Benetton gained many
signiIicant competitive advantages in the industry. Instead oI preparing an entire seasons
product line, and holding a large saIety stock, the company could produce smaller batch sizes
to initially stock stores and adjust to customer preIerences as the season went on. In the old
model low volume colors would be marked down in price to clear inventory. In the new model,
the same inventory is prepared in lower sizes so once the low volume product is gone, there is
more retail shelI space Ior higher demand products and Benetton can produce these colors as
needed. The company generally would use the Iirst 5-10 oI seasonal sales to project this into
the postponement strategy Ior continued manuIacturing during the season.
Benetton also began to use 10 oI its production line Ior what the company calls the
'Flash Collection. These 50 or so products are designed as customer demand is identiIied
early in the season, primarily by highly desired colors and styles. Benetton limits the
production oI this line, but with the Ilexibility oI the postponement strategy, these products
can be produced and designed in less than 5 weeks. ManuIacturing and shipping takes only 1
week. The next time a customer enters the store, the product is there just as they imagined.
This process improvement has helped to increase customer satisIaction and improve
the lead time Ior new product introductions. Postponement has also decreased the risk
signiIicantly that a new product will Iail and the inventory costs oI these Iailures will hurt
proIitability across all products. The investment in adding dyeing machines was well worth
the costs saved in lowering the inventory holding cumulatively among all the retail outlets.
Now retail outlets maintain a greater level oI selling Iloor space, and are able to receive new
2
ion.
3
gy.
Postponement in Dyeing
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Shipment, which go directly to the shelI Ior purchase.

Bradley A. Feuling is currently the CEO oft Kong and Allan, LLC, based in Shanghai, China.
Kong and Allan is a unique consulting firm speciali:ing in supply chain operations and
corporate expansion.
1
Harvard Business School, Benetton (A), 9-685-014, rev. February 6, 1989.
2
Ibid.
3
Pagh, Janus D., and Martha C. Cooper. "Supply Chain Postponement Strategies: How to Choose the Right
Strategy." Journal oI Business Logistics 19.2 (1998): 13-33.