Barilla SpA - Case Report

Another cause of these problems was the large number of SKU's that Barilla's dry products division produced. There were over 800 different SKU's, many of which were the same pasta in different packaging, and this added to the already high inventories.

The biggest cause of the inefficient in the supply chain, in our opinion, was that very few of the distributors had forecasting systems or any type of sophisticated analytical tools. These systems are an integral part of having a supply chain that runs smoothly and efficiently and without being able to produce accurate and detailed forecasts, a "bullwhip effect" is inevitable.

The benefits of the program are multifarious, as Barilla would try to smooth the demand swings and be able to distribute the workload more evenly. This would increase the efficiency of their manufacturing as well as increase the visibility in the supply chain.

The "bullwhip" situation is easily remedied by adding visibility in the supply chain, which this system clearly does. Barilla would also reduce distribution costs because they would be able to plan to make fewer shipments with fuller trucks, instead of sudden LTL shipments to try to make up for a swing in demand. Also manufacturing costs could possibly decrease because the numbers of change-overs would be reduced due to the smoothing of the demand swings.

The JITD system will eliminate the fixed costs in ordering for distributors through an effective centralized system through out the supply chain and for Barilla, they can improve their production scheduling and reduce the labor and transportation costs.

The drawbacks of the process were also in force.

There was massive resistance in the sales department. They felt that if this system were to come into play their responsibilities and importance would be greatly reduced, so they were very much against it. And seeing as these sales representatives have direct contact with the distributors and customers, it would be very easy for them to poison the customers against JITD as well. The sales representatives also mentioned that if Barilla rationalized the shelf space of the distributors then they could carry competitor products with the shelf space created.

Also, the distributors were very much against it. They felt like they didn't need Barilla to be telling them how to do their job and also did not like the fact that they had to share data with them. They did not feel that would be benefiting from this and that only Barilla would see the benefits. Also they felt that through this system they would become over dependant on this system as proposed by Barilla and Barilla would then use this system to stock up the distributors with their own products.

What conflicts or barriers internal to Barilla does the JITD programme create? What causes these conflicts? As Giorgio Maggiali, how would you deal with these conflicts?

The JITD programme created the following concerns amongst the sales and marketing staff of Barilla:

. Sales levels would flatten - supply to distributors inventory fixed by Barilla

2. Sales representative responsibilities diminished - fear of possible retrenchment

3. Risk of not being able to adjust shipments to changes in selling patterns/increased promotions - sporadic weekly demand from distributors

4. Distributors not ready to handle sophisticated relationship - used simple periodic review inventory systems

5. Inventory shortage at distributor end may be substituted by competitor's products - distributor's main aim to push products once bought

6. Increased risk of stock-out at customer end - disruption in supply process due to strike/disturbance

7. Impossible to run trade promotions with JITD - can't push Barilla products without incentive

8. Costs may not be reduced - if organized distributor (DO) decreased stock, Barilla would have to increase own inventory by changing rigid production schedule

As Giorgio Maggiali, we would deal with these concerns as follows:

. JITD is a selling tool -not a threat to sales. It would free 2 weeks' inventory at distributors end to cater to increase in sales

2. Sales representatives spent 90% time at store level - all JITD changes only at distributor level

3. Distributors would provide data on previous day's shipments to retailer as well as current stock level of each Barilla SKU

4. Nearly all distributors have computer-supported ordering systems - others using forecasting tools/sophisticated analytical tools for determining order quantities would adapt computerized systems subsequently

5. JITD does not cause inventory shortage - it frees up 2 weeks' inventory to cater to increase in demand for Barilla products

6. Risk of strike/disturbance lower as distributors develop a close relationship and increase dependence on Barilla

7. New trade promotion incentives like percentage cut on total sales instead of volume discounts to distributors

8. DO stock reduction is only due to JITD - not a reflection of decrease in demand-definite cost reduction in inventory

As one of Barilla's customers, what would your response to JITD be? Why?

Customers has been distributed into two categories -

) Small Independent shops. (not included under the JITD scheme)

2) Supermarkets. (included under the proposed process)

The product line was distributed into two categories -

) Fresh Products with short shelf life (1-21 days shelf life)

2) Dry Products with long shelf life (18-24 months)

JITD would allow the distributors to make more money and be able to service their customers at a level that they were happy with. The customers would see less stock outs and have reduced inventories which would increase their earnings as well. The customers did not see it that way though. They did not want to relinquish control of their inventories to Barilla and were very leery about letting them see all of their sales data. They did not see the benefits in this situation to outweigh the inconveniences they foresaw and basically told Barilla they would never let JITD happen.

As customers the main expectations from Barilla would be the following -

) Least amount of wastage of inventory.

2) On-Time delivery, which would minimize the excess inventory.

3) Maintain an ideal EOQ model.

4) No stock-outs.

5) Maintain JITD model, which would encompass all demand variations throughout the demand period.

6) Reducing cost from distribution channel without compromising on service.

Variations in distributors order requirement caused the maximum amount of operational inefficiencies. This variability factor was the major contributing item in Barilla's channel management to be unique.

The expected channel management of Barilla would require Barilla to be in charge of the channel between the CDC's & the distributors & decide on timing & size of shipments. Barilla's own logistics would determine the deliverable quantity. Such a model is called Vendor managed inventory (VMI).

Production options that Barilla has to meet the expectations of its customers -

•Orders come directly from point of supply.

•Rationalization of production plants (cost cutting).

•Split production lines: mass prod & small specialities.

•Too many SKU that increase references and shortage: Reduce SKU and do the packaging operations on demand & at the end of the process.

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 the Barilla's operating system faces?

In order to condense the Bullwhip effect being experienced by Barilla, their supply chain would have to be centralized. We will follow a two-pronged approach - targeting the internal customers (the sales force) and also the external customers (the GD's and DO's) that supply to the supermarkets.

Internal Customers: -

The real key to getting JITD to go over well is the sales force. They are the front line of contact with the customers so if they like it and believe in it then they will be able to sell the customers on the idea. Once real savings are achieved and there is actual data from the test distributor to back it up, it will be much easier to convince the customers to implement such a huge change.

Given the facts from the case, the sales representatives spend an estimated 90% of their time at the store level, taking note of stock outs, in-store promotions and ordering strategies. Thus, they can be used to tap the actual retail sell-through data, which will provide an accurate estimate of stock out levels at point of purchase.

External Customers: -

To try to counter the resistance from the distributors, we would try to implement the program in just one distributor at first. Given, that the initial effort through the GD's (Marconi) was not successful due to the chain supermarkets baulking due to concerns regarding the replenishment quantities and timing. Thus, we propose that a pilot implementation at the DO level, using an independent supermarket, be carried out and the results tabulated.

Then after it had been fully implemented and some savings had been achieved, we would use that distributor as an example to show the GD's how exactly they would be saving money and how it would work. We believe that once they see REAL results and not just proposed savings, they will jump right on the bandwagon. Also, this would help with the sales representatives. Instead of diminishing their responsibilities, you could have them sell JITD. They would be going from distributor to distributor convincing them to implement the new system instead of trying to convince them to buy pasta. This would make them feel like they were still needed and lessen their resistance to the idea.

Barilla SpA - Case Report

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