These have resulted in:
- Operational Inefficiencies
- High inventory at each stage
- Poor service levels
- High lead times
Question 1b) What are the Benefits and Drawbacks of JITD?
The director of logistics suggested the implementation of Just-in-Time Distribution (JITD), with Barilla’s distributors to address the problem of demand fluctuations. Under the proposed JITD system, decision-making authority for determining shipments from Barilla to a distributor would transfer from the distributor to Barilla.
Specifically, rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributor’s warehouse, and then decide what to ship to the distributor and when to ship it.
The benefits of JITD are:
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Reducing uncertainty : Because each stage possesses information about actual customer demand
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Reducing Variability: If the variability of the customer demands as seen by the CDC is reduced then even if “Bullwhip Effect” occurs, the variability of demand as seen by channel members will be greatly reduced.
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Reduction in inventory levels of Barilla, Distributors as well as Retailers : The inventory levels shall be managed by Barilla which will decide it depending upon its more accurate forecast based on actual customer demand
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Improvement in Fill-Rates of Stores and Reduction in Stock out Rate. This will be a result of better co-ordination and information sharing.
- Better Manufacturing and Logistics Planning
- Improved service levels.
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Better Supply Chain Relations between channel partners due to mutually beneficial relationships, and also due to better service levels.
So we see that information serves to lessen the effect of variability. If a firm is striving to meet a given level of stochastic customer demand, then it can use information, capacity, and inventory as substitutes. Better information leads to lesser need for inventory, or allows the firm to operate with less capacity. Thus, sharing of information reduces the total supply chain cost.
The drawbacks of JITD are:
- The entire chain is a ‘Push’ system. For JIT concepts to be effective, ‘Pull’ needs to run the entire supply chain
- Information Systems would need to be installed. This would entail significant costs for both the channel partner and Barilla
- Sales / Marketing people would feel that they are losing a power battle to the logistics team. This would bring in strong opposition from them
- Lack of forecasting systems may mean that even with centralized information, stock-outs may occur
- Loss of control for the channel members may mean that they would not be very enthusiastic about the entire initiative
Question 2a) Internal barriers to JITD implementation; and their causes
Resistance from the Distributors – They might raise the following points
- “Managing stock is my job; I don’t need you to see my warehouse or my figures.”
- “I could improve my inventory and service level myself if you would deliver my orders more quickly; I would place my order and you would deliver within 36 hours.”
- “We would be giving Barilla the power to push products into our warehouse just so that Barilla can reduce its costs.”
Resistance from Sales and Marketing – They might raise the following points
- “Our sales levels would flatten if we put this program in place.”
- “How can we get the trade to push Barilla product to retailers if we don’t offer some sort of incentive?”
- “If space is freed up in our distributors’ warehouses, the distributors would then push our competitors’ product more than ours.”
- “It seems that the distribution organization is not yet ready to handle such a sophisticated relationship.”
- “We run the risk of not being able to adjust our shipments sufficiently quickly to changes in selling patterns or increased promotions.”
- “We increase the risk of having our customers’ stock out of our product if we have disruption in our supply process.”
- “We wouldn’t be able to run trade promotions with JITD.”
- “It is not clear that costs would even be reduced.”
Question 2b) How to deal with these barriers?
Resolving of Conflict:
- Demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels and increasing their returns on assets); Run experiment at one or more of Barilla’s 18 depots
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Promoting its as a Selling Tool as an aid to sales department
- Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort; Get top management closely involved
- Showcasing successful implementation of such kind of program in other companies
- Information dissemination regarding JITD across the organization as well as distributors in terms of :
- cost benefit
- inventory reduction benefit for barilla as well as distributors
- facilitation of better planning procedures
- improving barillas visibility with the trade
- helping in offering customer better service at no additional cost
- Provide incentive to make customer’s demand data available
- Lastly, trust is very important
Question 3) Our response to JITD as a Barilla customer and reasons.
At the outset, the benefits of JITD might be more apparent when we look from the position of Barilla. As a customer of Barilla, one has to evaluate the JITD system from the point of view of a distributor of Barilla products (in this case only dry products). Thus there is a need to look at the Pro’s and Con’s of JITD system to a distributor. The benefits of the program seem to supercede the drawbacks. In the present market scenario of decreasing margins, increasing competition, increasing customer awareness and their ever increasing expectations, cost cutting is a must for survival. Since, JITD aims at the reduction of the costs of the entire supply chain, there is a strong case in going in favor of this program. Another way this can benefit a distributor is that the information management system which will be in place once JITD is implemented can be easily extended for other in-house products and lead to better management for those products as well. One more important positive side effect of JITD will be identifying areas where cost reductions in operations can be achieved. This will be possible by having an interchange of ideas between the various partners.
The major form of assistance or co-operation that a distributor can provide is by the way of sharing data relating to the movement of materials with the manufacturer. This will. Among other things, also improve inventory management practices of distributors’ own stocks and will also be useful for other manufacturers’ products that a distributor might be dealing with.
The various disadvantages of JITD for distributors that have been listed out can be debated upon. E.g., loss in bargaining power and control is not as acute as it has been made out to be. One may argue that the distributor becomes the most important source of market information for the company. It is this very information that forms the core of the all JITD activities. In that sense, a distributor shall assume all the more importance for Barilla. Again, price promotions can be introduced in alternate forms where all the channel members may be benefited and the schemes are passed onto the retailers as well.
Question 4) Which customers would you target? How would you convince them that the JITD program was worth trying? If not, what alternatives would you suggest to combat some of the difficulties that Barilla’s operating system faces?
There are three types of retail outlets for “Dry Products”, namely; Small independent stores, Independent supermarkets and Supermarket Chains. Small independent stores account for 35% of Barilla’s dry products which are distributed by internally owned warehouses to brokers and passed on to the retail outlet. These are small outlets which do not have the relevant technology to keep the company informed of the demand status on a real time basis. So, they cannot be targeted for JITD.
Independent supermarkets account for 30% of sales of dry products through supermarkets and the products are channeled through DOs which act as a central buying agency for a large number of independent supermarkets. Dry products for supermarket chains on the other hand are distributed through the chains own distribution organization called GD. Both DOs and GDs purchased products from Barilla’s CDCs and maintained two weeks inventories in their own warehouses. These are the main customers of Barilla and serve the dominant supermarket stores and handle the major portion of retail and end-customer demand. Thus,
Target Customers
1st Phase: Target GDs which account for 70% of the dry products channeled through the supermarket chains. They are served by a very small sales force which rarely visits their warehouses. They would be easier to convince as there would be limited sales force influence (trying to stall the implementation of JITD) and they are not answerable to other supermarkets.
2nd Phase: Target DOs who would have witnessed the success of 1st phase and thus would be willing to adopt JITD.
Before trying to convince the customers the sales force’s fear of job loss needs to be mitigated. They need to be convinced that the JITD program will not diminish their responsibilities but help the company to reduce its logistics cost.
In order to convince the GDs and DOs that JITD program is worth trying:
- Provide assurance that if they are uncomfortable they can opt out of the program
- Provide Incentive to them to make customer’s demand data available in terms of some kind of free schemes with products
- Convince them about the inventory reduction, cost benefit, increase in retail service level that JITD proposes to bring about
- Inform them about the benefit of Strategic Partnership that participation in JITD will entail for all the channel partners which will reduce the supply chain cost that can be appropriately distributed among the channel members. The Bullwhip effect can be completely eliminated by following JITD and so the logistics costs are much lower
Alternatively
1. The retailers can be made to participate along with the distributors in passing up the actual demand data periodically i.e. having the retailer pass this information up the supply chain through Electronic Data Interchange (EDI) and Computer Assisted Ordering (CAO). The Centralised Information system will reduce the uncertainty due to bullwhip effect.
EDI will also lead to reduction in Lead Time in.
- Order Processing
- Paper Work
- Stock Picking
- Transportation Delays
and would enable retailers
- to better serve customers by offering tools for locating desired items
- to react and adapt to supply problems more rapidly
2. It can also reduce the bullwhip effect by following EDLP strategy and not going in for schemes that it currently offers in a major way. It would reduce shifts in demands caused by promotions.
