‫المملكة العربية السعودية‬

Kingdom of Saudi Arabia ‫وزارة التعليم‬

Ministry of Education ‫الجامعة السعودية اإللكترونية‬
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 1
Introduction to Operations Management (MGT 311)
Due Date: 14/10/2023 @ 23:59

Course Name: Introduction to Operations Student's Name:

Management
Course Code: MGT 311 Student's ID Number:
Semester: First CRN: 11718
Academic Year:2023-24-1st

For Instructor's Use only

Instructor's Name: Dr. Swapnali Baruah
Students' Grade: Level of Marks: High/Middle/Low
Marks Obtained/Out of 10

General Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
 All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
 Submissions without this cover page will NOT be accepted.
Learning Outcomes:
1. To understand the global nature of supply chain.
2. To explain the demand and supply side of Supply chain.
3. To understand the completive advantage in the business.

Assignment Question(s):
Go through the case study and answer the questions that follow

The Benetton supply chain:

One of the best-known examples of how an organization can use its supply chain to achieve a
competitive advantage is the Benetton Group. Founded by the Benetton family in the 1960s, the
company is now one of the largest garment retailers, with stores which bear its name located in
almost all parts of the world. Part of the reason for its success has been the way it has organized
both the supply side and the demand side of its supply chain.

Although Benetton does manufacture much of its production itself, on its supply side the
company relies heavily on 'contractors'. Contractors are companies (many of which are owned,
or part-owned, by Benetton employees) that provide services to the Benetton factories by
knitting and assembling Benetton's garments. These contractors, in turn, use the services of sub-
contractors to perform some of the manufacturing tasks. Benetton's manufacturing operations
gain two advantages from this. First, its production costs for woollen items are significantly
below some of its competitors because the small supply companies have lower costs themselves.
Second, the arrangement allows Benetton to absorb fluctuation in demand by adjusting its supply
arrangements, without itself feeling the full effect of demand fluctuations.

On the demand side of the chain, Benetton operates through a number of agents, each of whom is
responsible for their own geographical area. These agents are responsible for developing the
stores in their area. Indeed, many of the agents actually own some stores in their area. Products
are shipped from Italy to the individual stores where they are often put directly onto the shelves.
Benetton stores have always been designed with relatively limited storage space so that the
garments (which, typically, are brightly coloured) can be stored in the shop itself, adding colour
and ambience to the appearance of the store.

Because there is such limited space for inventory in the stores, store owners require that
deliveries of garments are fast and dependable. Benetton factories achieve this partly through
their famous policy of manufacturing garments, where possible, in greggio, or in grey, and then
dyeing them only when demand for particular colours is evident. This is a slightly more
expensive process than knitting directly from coloured yarn, but their supply-side economies
allow them to absorb the cost of this extra flexibility, which in turn allows them to achieve
relatively fast deliveries to the stores.
Questions:

1. Brief your understanding about Benetton Supply Chain operations. (3MM)

2. In your understanding, what is the specialty of Benetton's contractors? (3MM)
3. Does this method provide Benetton competitive advantage over their competitors? Is this
method sustainable in the long term? (4MM)

Note:
 You must include at least 5 references.
 Format your references using APA style.
 Answers

Answer 1

Benetton supply chain operations contain various elements and strategies that have

contributed significantly to the company's success, varying from the production, demand, and

retailing sectors. One of the strategies that the company uses is decentralized production. In the

decentralized production strategy, the company contracts other companies, either wholly or

partly owned by the Benetton family, that knit and assemble clothes on behalf of the Benetton.

The contracted companies may also subcontract other companies that perform various small

manufacturing tasks, further decentralizing the production process. This strategy is good for the

company since it is known to be cost-effective (Nayak et al., 2019). The small companies sub-

contracted have lower costs, producing low-cost garments such as woolen clothes for Benetton.

Benetton's decentralized production strategy is essential to the company as it also makes it easy

to quickly adapt to design changes by taking advantage of the small production facilities offered

by the small subcontracted companies, which perform minor production tasks. This makes it

easy for the company to manufacture custom-made clothes.

Benetton supply chain operations on the demand side use efficient inventory management

to meet its customers' demand. The company has various agents in several locations around the

globe. The company directly ships the required inventory to those agents as demanded, reducing

the cost of holding stock. Benetton uses the Just-In-Time inventory system, where items are

ordered and shipped from Italy to its agents quickly. A just-in-time inventory system reduces the

cost of holding inventory and timely stock delivery (Mohammed, 2019).

 On the retailing operations, Benetton agents use store layout and merchandising to

display their clothes. After Benetton products are shipped from Italy, they are arranged on the

shelves as most agents don't have a storage space, adding ambiance to the store's appearance.

Answer 2

Benetton's uses contractors in their process of production. The contractors are divided

into two: the main contractors, whose businesses are owned wholly or partly by the Benetton

family, and subcontractors, contracted by the main contractors. Benetton's main contractors are

responsible for knitting and assembling clothes for the company. They are the ones responsible

for knitting clothes in various designs. The company requires contractors to quickly adapt to

changing fashion trends to meet consumer preferences. Using contractors in decentralized

production offers the firm flexibility (Gawas, 2021). The contractor's flexibility is essential to

Benetton's since it gives the company an added competitive advantage.

To enhance their flexibility and reduce production costs, the main contractors subcontract

other small contractors to perform various small manufacturing tasks. The small tasks involved

in manufacturing garments include cutting and sewing different garments, dyeing and printing

textile colors, knitting some parts of garments, and manufacturing fashion accessories such as

belts and packaging (Gawas, 2021). Those are the tasks the main contractors subcontract other

small companies to perform.

Benetton's contractors' specialty is essential to the company as it helps the company

reduce the cost of producing goods; hence, the company gains an advantage over its competitors

since garments like woolen items are priced below their competitors' prices. Also, it helps in risk
mitigation, such as mitigating the risk of fluctuating demand (Chen et al., 2020). Through

contractors and subcontractors, the company can effectively absorb the ever-fluctuating demand,

making it easy for the company to adjust to supply arrangements.

Answer 3

Benetton's decentralized production operations provide various competitive advantages to

the company. Through decentralized production operations, by hiring contractors who, in turn,

subcontract other companies, Benetton significantly saves on production costs. This is due to the

efficient allocation of resources to the contractors with various skill sets in a decentralized

production system (Gawas, 2021). The smaller company subcontracted by Benetton's main

contractors has a lower cost of production, evident in the low-cost woolen items than its

competitors in Benetton's case study.

The decentralized production operations are also vital to Benetton since the company can

adjust rapidly in response to new fashion trends, giving the company a competitive advantage

over its competitors. Fashion trends change quickly, and companies must adjust production

processes efficiently (Gawas, 2021). Benetton hiring contractors makes it easy for the company

to adjust its production process and rapidly respond to the changing fashion trends efficiently. In

adapting to production processes, the company maintains its low-cost production since it's not

required to change to new production methods that might be costly, but instead, contract a

company with the required skillsets. This makes it hard for companies who change their

production processes, which include changing to new costly production methods, to compete

with Benetton in pricing their garments.

 The method of decentralized production is sustainable in the long term as it offers the

company flexibility (Nayak et al., 2019). Benetton's flexibility in adopting new fashion trends

due to decentralized production has contributed to its thriving in the fashion industry. In addition

to that, decentralized production acts as a way of reducing the risks that are involved in demand

fluctuations, as those directly affect their contractors most (Fung et al., 2021). Hence, Benetton

can operate using lesser costs during low-demand periods.

In conclusion, the decentralized production operations implemented by Benetton lower

production costs and help the company adapt to rapid changes in fashion trends, competing well

against its competitors. This method is sustainable in the long term as it offers the company

flexibility and mitigates the risks due to fluctuating demand.

 References

Chen, Y., Chung, S. H., & Guo, S. (2020). Franchising contracts in fashion supply chain

operations: models, practices, and real case study. Annals of Operations Research, 291,

83-128.

Fung, Y. N., Chan, H. L., Choi, T. M., & Liu, R. (2021). Sustainable product development

processes in fashion: Supply chains structures and classifications. International Journal

of Production Economics, 231, 107911.

Gawas, T. (2021, March 24). Benetton Supply Chain: Differentiating the Brand. The Strategy

Story. https://thestrategystory.com/2021/03/24/benetton-supply-chain-strategy/

Mohammed, A. (2019). Just-in-time inventory management: A comprehensive guide. Cash Flow

Inventory. https://cashflowinventory.com/blog/just-in-time-inventory-management/

Nayak, R., Singh, A., Panwar, T., & Padhye, R. (2019). A review of recent trends in sustainable

fashion and textile production. Workforce, 13, 11-12.