Purchasing decision: An Analysis of Make or Buy Alternatives. The Benetton Group case study

In such a dynamic and unpredictable environment as the fashion industry, one of the most crucial strategic decisions organizations face concerns the choice between producing goods and services in-house or outsourcing these activities to third-party suppliers. Historically, companies in this industry have found economic benefits in outsourcing the production phase to less industrialized countries with low labor costs. In recent years, after the Covid-19 pandemic, some fundamental aspects of corporate structure have been challenged, reversing the trend from outsourcing to insourcing. The question I have been asking has been: is it better to keep production steps outsourced to continue to benefit from cost reduction and operational efficiency, or to reintegrate part of the production process internally to better control quality and reduce cycle times? In this thesis I will describe how Benetton Group, a market leader and one of the best-known Italian companies in the world, where I did my internship, quantitatively and qualitatively evaluated the benefits and risks associated with the two alternatives: outsourcing the dyeing phase by outsourcing it to third-party suppliers, Buy’s alternative, or internalizing the weaving phase by investing in the creation of a weaving department, Make’s alternative. The objective of my paper was to develop the quantitative analysis of a case study considering the first 14 fabrics sorted by quantity produced in 2023, analyzing the industrial costs that would be incurred in the two alternatives. I then went on to evaluate all other costs involved such as transportation costs, costs of closing the dyeing department, costs of opening the weaving department and then went on to evaluate the qualitative aspect related to risks and benefits.