Merchants of Prato: Supply Chain and Knowledge Management

Introduction

Prato is located in a socially and economically homogeneous geographical area in Tuscany, in north-central Italy approximately 30 kilometers northwest of Florence (Kiman et al., 2004). This region is historically known for its wool industry, which originated in the customs of sharecropper farmers—the mezzadri—who supplemented their agricultural income through sheep shearing and wool processing (Kiman et al., 2004).

This case study analyzes the Prato textile district with respect to its supply chain structure, the potential role of information technologies within that structure, and the feasibility of a knowledge management (KM) initiative suited to the region's unique social and industrial character. The analysis draws on the Handfield and Nichols supply chain framework for comparison and considers Virtual Enterprise models as a basis for IT and KM recommendations.

Organization and Commercialization of Prato

The wool industry in Prato began with modest resources but soon evolved into an extensive network of a large number of small firms, each specializing in a distinct stage of the process of converting raw wool into finished cloth products (Kiman et al., 2004). As wool supplies became scarce, the industry innovated by procuring used cloth, recycling it into raw materials, and reintroducing it into the production cycle. As a result, the city became known as the città degli stracci—the "city of rags" (Kiman et al., 2004).

Following the 1930s, under Mussolini's government, the trend in the region shifted toward centralization under what was referred to as an "autarchic" policy. However, when democracy was restored in 1948, family-run businesses regained momentum. The Prato system is fundamentally one of "production through a network of small specialized firms" (Kiman et al., 2004). Statistics published by the Financial Times in 1994 reported approximately 8,500 small firms in the district; 47% employed fewer than 10 people, and another 40% employed fewer than 50. The survey further noted that "Prato is the single biggest agglomeration of textile manufacturing facilities in Europe, with a turnover close to ItL 6,500 billion (US$4.65 billion)" (Graham, 1994, as cited in Kiman et al., 2004).

Today, the Prato industry focuses on the high and middle segments of the fashion market and no longer relies on cloth recycling, instead using natural and synthetic fibers. Innovation and flexibility are central to the industry given the rapidly changing demands of the global fashion industry. Computer-aided design (CAD) is widely used throughout the district. The Prato production system functions as a type of value chain that also incorporates the concept of "value-added partnerships." Family-owned businesses market their goods through small coordinating companies known as impannatores, and the value chain is distributed across firms in the region. The impannatore can post and modify production orders rapidly, adding or removing production capacity as needed, and serves as the primary provider of access to global markets (Kumar, 1996).

Comparison with Handfield and Nichols Supply Chain Models

The Handfield and Nichols text depicts a system with an external downstream supply chain that encompasses all downstream distribution channels, processes, and functions through which a product passes before reaching the customer. The supply chain models in figures 1-2 and 1-3 are relatively steady, reliable, and predictable. The Prato system, by contrast, functions as a "closed management system" in which the impannatores are well-identified firms that manage the relationships of final marketing. The impannatore holds the authority to alter the flow and content of orders at a moment's notice.

Of the two figures, figure 1-3 more closely resembles the Praetorian system because it incorporates new forms of interorganizational relationships. This model is considered to represent an "ideal" system in the context of knowledge systems and is therefore the more appropriate analogy for Prato's networked industrial structure.

Conclusion

Due to the deep social and economic integration of Praetorian society, a knowledge management solution for the Prato district must address both the social and economic dimensions of the region simultaneously. The Virtual Enterprise framework and XML-based tools such as Moda-ML offer technically appropriate starting points, but their successful implementation will depend on how well they accommodate the culturally embedded nature of business relationships in Prato. There are many ongoing research initiatives concerning the unique economics of this industrial district, and they are likely to refine these recommendations further.

References

Chiarvesio, M. (2003). Reinventing regions in the global economy: Innovation and internationalisation of Italian districts. Paper presented at the Regional Studies Association International Conference, Pisa, April 2003.

Graham, G. (1994). As cited in Kiman et al. (2004).

Katzy, B. (1999). The virtual enterprise: Thriving on turbulent change. Barcelona Management Review.

Kiman, et al. (2004). The Merchants of Prato case study. MIS Quarterly.

Kumar, K. (1996). As cited in Kiman et al. (2004).

Kumar, K., & Bielli, D., et al. (1998). The merchant of Prato—revisited: Toward a third rationality of information systems. MIS Quarterly, 22(2).

Dirksen, V. (2001). The cultural construction of information technology. Journal of Global Information Management.

Weaving the fabric of B2B communication. IST Results. Retrieved from http://istresults.cordis.lu

The local merchants of Prato: Small entrepreneurs in the late medieval economy. (1999). Baltimore and London: Johns Hopkins University Press. ISBN 0-8018-6057-1.

Researchable directions for ERP and other new information technologies. (2000). MIS Quarterly, 24(1).