United Colours of Benetton - Case Study Example

1 Introduction United Colours of Benetton (UCB) is the largest Apparel Manufacturer and Exporter from Italy with a distinct business model that manufactures only against pre-placed orders received from over 7000 licensed stores spread all over the world. Quantities are committed by each store for 80 % of the requirements, based on demand forecasts, during two fashion cycles of spring/summer, and autumn/winter some 7 to 8 months in advance. The balance 20 % is for orders that arise due to forecast errors, surprise hot sellers or small flash collections. While the normal production cycle is 20 days, these can be supplied in as short as 7-8 days time. Information on sales flows in from all stores on a daily basis through an Electronic Data Integration (EDI) system which forms basis of creation of orders from UCB central office which creates specific Production Planning schedules that keeps all suppliers and sub-contractors in the loop with planned targets. Every one down the line is informed of needs and Monitoring of outputs is done through the Logistics system that keeps tracks of movements of all products. For enabling this made against order concept of marketing, UCB has meticulously planned a supply chain management system that involves the 200 suppliers and 850 subcontractors at the two ends of the spectrum in an Information and Logistics system that keeps the data flowing through the Enterprise seamlessly. The despatch of orders is done from a central warehouse which is a huge facility connected through underground passages to garment units and packaging centres. All products are received from these units or from outside subcontractors through 50 conveyor belts. They are then sorted and packed in reusable cartons which are bar coded to help tracking. The entire facility is computerised and everyday some 15,000 cartons are shipped to 109 countries where UCB outlets function. Another distinctive feature of UCB is that it has outsourced all routine manufacturing to its subcontractors thus avoiding all labour intensive operations like sewing and finishing. It engages itself only in designing, cutting, dyeing and packing and these in-house operations ensure the quality of the final product.(Case Study) 2 Need for Independent Third Party Logistic Company Specific services that are outsourced to a TPL provider are transport, warehousing, inventory management, and value added services like packing, providing information and arranging documentation. The three most utilized services are the first mentioned above. (Andersson D. 1997, Berglund M.1997). With expanding markets it is felt that UCB should now allow an independent Third Party Logistic company to take over its distribution system. This will release precious company resources like finance and warehousing and allow it to concentrate on its core activities of designing, cutting, dyeing and packaging and managing the huge supply chain. There are two main factors that need UCB attention prior to this decision. The existing supply chain system commences with sales information that creates the orders based on sales and demand forecasts. This information then becomes the backbone of Production Planning which informs suppliers of requirements and based on the targets the various sub-contractors perform their jobs that eventually are delivered for packaging and despatch. The introduction of a new party would mean that it would also join this supply chain as the last link and will have an effect on deliveries. Strong linkages will have to be provided to monitor this movement as this will in turn show up as inventories in the stores and the entire cycle will begin again with the movement of goods from the store shelves. Avery capable TPL partner will be required who must be well connected with a robust logistic software system. This will be possible only if excellent and proven integrated software is used and it has to be integrated with the existing supply chain system operated by UCB. Integration of the supply chain has become a vital way for manufacturing to increase competitive advantage. (Bowersox D.J,.et al 1989, Council of Logistics Management 1995). 3 Origin of Third Party Logistics. In the 1980’s globalization spread worldwide forcing some companies to re-think their position in asset building for logistics. As the cost and expertise required was too much and the spread very wide there was a need for outsourcing these activities to specialists who could deliver the result at fixed costs and in an agreed time frame. Since these would leave the company free to concentrate on its core manufacturing and marketing activities, the idea was well received in the market. This gave impetus to companies like DHL and NYK logistics to develop the kind of expertise required for this work. They also had to arrange the assets like warehouses and owned transport to manage these logistics. The range is worldwide and some companies work on segmentation principles, allocating niches for best performance and results. The idea of TPL is derived from Lean Technologies that require a company to have Lean manufacturing operations to remain competitive in the market. The purpose is to keep the company focussed on its core activities that are manufacturing and marketing. Managing deliveries and warehousing involves a lot of unproductive time and heavy investments in assets which take a heavy toll of finances. It also results in uncertain costs and final costing is constantly affected. Very often a logistics company is required for large and regular movements and it is found prudent to engage such a company on regular contract to handle all logistics. These companies are also able to provide packing and warehousing facilities at agreed costs. This makes for an attractive cost package that can eliminate the uncertainties of final costing and makes for better competitive pricing. TPL then becomes a transactional based strategic move and managements are going for more of these arrangements as it is a two way gain for both the company and the contracted logistics services provider. This in effect becomes part of the overall supply chain of the company as it links the suppliers, the company and the final customers. TPL is a combination of services provided by a logistics company to its customer to package and moves its goods from point to point and also warehouse it in between if so required. Such destinations are often pre-determined and the frequencies worked out to manage a movement within set time frames at agreed costs. Typical services that are outsourced are Inbound or Outbound Freight, Custom & Freight consolidations, Ware Housing, Delivery to customers, Distribution Management and Order Fulfilment. Sometimes value added services offered or demanded like repackaging or return logistic management. TPL becomes Integrated Logistics when all the above services are offered by a single firm to the company. This involves a deep understanding and close working between both parties and common understanding of problems and events. Efficient handling a turnaround are the keystones of successes for these operations. Advance planning and close monitoring are needed as well as tracking facilities must be in place to track every single item from its origin to destination. All these form part of Integrated Logistics. 4 Logistic Information Systems The Logistics Information System allows us not only to evaluate actual data, but also to create planning data. The Logistics Information System (LIS) is made up of the following information systems: Sales Information System Purchasing Information System Inventory Controlling Shop Floor Information System Plant Maintenance Information System Quality Management Information System Retail Information System Transport Information System Logistic Information Systems are useful for companies that are medium to large size with a wide and complex distribution network and do not consider logistics as their core competency. Of course the appointment of a TPL Partner depends entirely upon the complexity and depth of involvement. Sometimes it is enough to take advantage of the TPL despatch and tracking systems only while retaining the warehousing part. The data comprises of the thousands of transactions that are performed daily. An information system therefore has to access aggregated data in order to gain a quick overview. The information systems in logistics are flexible tools for collecting, aggregating, and analyzing data from the operative areas like Purchasing, Sales, Production, and Inventory. They enable the company to continually control target criteria and to react in time to exceptional situations. The function of the information systems is to allow the viewing of information from the operative area from any perspective desired. 5 Performance Monitoring & Measurement Comparison of planned and actual data plays an essential role in the decision-making process. For this reason, the information systems must give the option of entering planning data, in addition to retrieving and compiling actual data. Without this the whole exercise of Logistic Planning will be meaningless. The integrated system recognizes exceptional situations at any given point in during the transaction (for example, a positive trend in delivery times). Undesirable situations can then be detected and rectified in time. This system also facilitates the selection of potential weak points (for example selection of all of the materials with an order value higher than say $5,000) and taking decisions as required by policy. The information systems in logistics can be used on a variety of levels in the decision-making process as a management, control, and planning instrument. 6 Strategic Planning A characteristic that is common to many people is impatience. In order to sustain attention, people like to see quick outcomes. This includes everyone: managers, executives, planners, and employees in general. However, without Planning the outcome can only be chaos. Planning precedes all activities in Logistics. It calls for critical review of past performances by all departments. This will lead to developing a strategy for the medium term say next one to two years. This may also be split region wise to cater to the specific geographical requirements. This is the appropriate time to work out the details of the manufacturing of each product and decide on sales targets and marketing objectives. However these should be cohesive and must be coordinated with all concerned divisions or departments and properly spread and distributed. There must be clear instructions for each activity. The implementation of the plan is to be determined on the basis of the plan that has been finalised. Important milestones must be highlighted and the route to be taken is to be stated. Responsibilities on each department, and if possible, on individuals, must be set out. Monitoring methods must be put in place and review committees should also be framed to follow through with the activities and suggests improvements or to help out in case of bottlenecks or problems. UCB will need to set up Electronic Data Integration (EDI) links with its all suppliers, for the purpose of electronically exchanging business critical information such as material forecasts, delivery requirements, supplier delivery advices, receipt confirmations and inventory balances. This will force supply chain efficiencies as automated processes replace processes heavily dependant on manual input. The system to be chosen for this activity must meet the following selection criteria: Their solution must be in accordance with the criteria desired by UCB. Proven vendor and solution performance at established user reference sites Strength and appropriateness of support available in all geographies of UCB operations. Price and performance, including fixed and ongoing costs Scalability and flexibility Agreeable design architecture and platform 9 Conclusions It is apparent that UCB has adopted sound policies for manufacturing marketing and logistics management and have adopted various software solutions to assist them in pursuance of these objectives. The strategies have been quite modern and practical. But with expanding geographies of operations in need to concentrate on core competencies of manufacturing and marketing. There is a good case for outsource the distribution activities to one or more TPL partners. This makes both operational and financial sense. However this decisions needs investing in further Integrated Software both to strengthen the supply chain management as well as logistic management. This is important because its absence will cut into the information or data inflow which is the very foundation of the whole system of creation and delivery of orders to the retail stores shelves. Without reliable and proven software it is not possible to despatch and distribute the products in UCB’s business model. 9 Bibliography 1 Case Study by Christopher, M,. Marketing Logistics 1997 2 Andersson D. Third party logistics—outsourcing logistics in partnership. Linko¨ping Studies in Management and Economics, Linko¨ping University. Dissertation No. 34 (Doctoral dissertation), 1997. 3 Berglund M. Third party logistics providers—towards a conceptual strategic model. No. 642 (Licenciate Thesis), Linko¨ping University, Linko¨ping Studies in Management and Economics, 1997. 4 Bowersox DJ, Daugherty PJ, Dro¨ge CL, Rogers DL, Wardlaw DL. Leading edge logistics—competitive positioning for the 1990s. Oak Brook (IL): CLM, 1989. 5 Council of Logistics Management. The challenge of managing continuous change. Prepared by Global Logistics Research Team at Michigan State, 1995. Read More