Fast Clothes

For its part, Benetton got a CFO who knows a lot more about supply chains than the average finance chief. "I'm not a supply-chain expert by any means," Foà insists. "But I do have the right level of knowledge to raise the right questions." For that he has Burberry to thank. In his early days at the £850m (€1.1 billion) fashion house, there wasn't anyone overseeing the global supply chain at headquarters, so the role landed with him by default.

He didn't mind. The area needed urgent attention — Burberry threatened to become a victim of its own success as it churned out more and more products every year without centralised direction. As Foà tells it, the company had grown into "a confederation of autonomous, successful entities, with lack of consistency from production to sourcing to financial processes to supply chains."

Critically, CFO Stacey Cartwright assigned him to the Atlas Project, a five-year, £50m IT and supply-chain transformation programme launched in 2005. The programme ran alongside another restructuring plan designed to "build in new group processes without sacrificing speed, the passion, the entrepreneurial spirit, and without becoming bureaucratic," as Foà describes it.

Chain Reaction
Little did he know then that those projects would be a good training ground for Benetton. Foà's work over the past 12 months has fallen into two categories: finessing the supply-chain work started by his predecessors; and supporting Alessandro Benetton in making sweeping changes to the way the company runs — that is, how decisions are made, targets set, performance assessed, capital allocated and so on.

On the supply chain, Foà rejects suggestions that Benetton is playing catch up with the fast-fashion pace-setters. "Everybody says, 'You're following what Zara did.' My view is that Benetton didn't do as Zara or H&M did," he asserts. "Benetton did — a bit later — what consumers around the world wanted: newness in store more often." (See "Rapid Response" at the end of this article.)

Foà says Benetton has spent the past three years greasing its supply chain, increasing the number of garments produced, from 110m in 2004 to more than 150m in 2007, and accelerating lead times, from more than six months to a few weeks for certain products. At the same time, the group has been reducing its reliance on manufacturers and suppliers in Italy, which accounts for around half of Benetton's sales, in favour of offshore facilities and outsourcers in low-cost countries such as Tunisia and Cambodia. (See "Supply and Demand" at the end of this article.) It's a move that Foà approaches with caution. "You definitely have benefits in terms of lower costs and being closer to markets, but by the same token you are buying higher risk — country risk and currency risk," he says. "And you are getting into a more complex and more costly flow of merchandise around the world."

And it's a move that makes Benetton more reliant than ever on the management of relationships up and down the supply chain. For suppliers, Foà is introducing a financing programme similar to that used at Burberry — "a win-win-win for them, for us and for the banks." Meanwhile, Benetton has been experimenting over the past year with a web-based tool that allows most of its stores to order basic merchandise around the clock for delivery within one week to shops in Italy and two weeks abroad.

While this could leave Benetton sitting on unnecessary buffer inventory, "last year our stock increased less than sales volume growth over the prior year, which means that we managed the whole thing properly," Foà says. What's more, "the quality [of the garments] has been the same, which is one of our key values, while sales and margins have increased, and working capital (with the exception of something technical on payables) was all under control."

The other component of Benetton's turnaround — reducing management layers and changing processes while increasing accountability — is more difficult to measure. But this, too, is an area where Benetton has a lot to learn from rivals. "If you look at H&M, its organisational structure is extremely light at the top, so local management are held to account," says PI-Ideas's Hoyer. "It's mind-boggling that it hasn't happened before [at Benetton]."

Better late than never. Foà says he and CEO Dominioni are spending a lot of time untangling an organisation that has grown too complex under a matrix-like structure. While they reduce management layers among regional and brand units, they've also been redefining who is in charge of which targets and giving them direct responsibility over P&Ls. These business heads now report to a single international director, with the exception of a handful of emerging markets with very high growth potential — China, India, Turkey, Latin America and Russia — which report directly to Dominioni.

Limited Levers
Foà expects the process redesign to soon bear fruit in one important area: capital allocation. During the annual budgeting process, for example, brand and market heads must now compete for a central budget, building business cases that fulfil a pre-agreed, group-wide set of criteria. "We are now much more rigorous and fact-based when it comes to capital allocation," he notes. "There's a healthy tension."

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