Case Study

Barilla SpA (A)

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[PGP/19/125]
[PGP/19/157]
[PGP/19/303]
[PGP/19/083]

Utkarsh
Aditya Chaudhry
Prachi
Ajit Kumar
Rutvik

1. Diagnose the underlying causes of the difficulties that the JITD program was created to
solve. What are the benefits and drawbacks of this program?
The main incentive behind the proposal of Just-in-Time Distribution (JITD) program is to correct
the fluctuation in demand from Barillas immediate distributors. The variation in demand, known
as the Bullwhip Effect, makes it hard for Barilla to meet the actual demand of the endconsumers. The JITD program would be introduced to predict actual demand so that Barilla
could attempt to produce the exact amount of products to meet customers demands.
The large fluctuations in demand are due to a number of factors. First, lets look at the
distributors role. Distributors place orders to Barilla based on retailers orders and the space
available to stock inventory. As a result, distributors might sometimes run out of products or
might overstock their inventory due to the lack of anticipation or real demand. Also, Barilla and
its distributors suffer a high cost in distribution channels caused also by the lack of forecasting
and poor inventory management. The unawareness of the real demand causes distributors to
overstock their inventory and that raises the cost of distribution. The distributors, nor the
retailers, have any forecasting system in place to give them a glimpse at demand. While
forecasting is not 100%, it would, at least, show when a certain pasta is extremely popular due to
a holiday or highlight if demand varies or generally remains steady.
The fluctuations in demand are also caused by Barillas own internal functions. First of all, the
sheer amount of SKUs lead to a much more complex system than just trying to gauge how much
one type of pasta is sold. Being able to anticipate the demand for all of Barillas 800 different
dry good SKUs is absolutely impossible without a robust forecasting system. The matter is
further complicated by the long lead times that it takes for Barilla to fulfill an order from the
distributor, which was usually between 8 and 14 days from when the order is received. Due to
the nature of the tunnel kiln in the pasta-making process, it is impossible for Barilla to change the
order of the pasta production to quickly fill an order of sold out pasta. Last but not least,
Barillas own sales structure is also to blame for the large fluctuations in demand, due to their
heavy use of promotions and discounts which warps the demand curve.
The JITD program is designed to help Barilla be more efficient in executing its operations and
better serve its customers. JITD would be an efficient forecasting tool to predict the real demand
of the end-consumer. Barilla will require its distributers to provide daily sales data so Barilla
could utilize the data to anticipate future demand and arrange production schedule accordingly.
JITD will also minimize the lead-time as manufacturing would be only one step behind the endcustomers demand and Barilla would be able to steadily make the pasta necessary to fulfill
orders, no more, no less. In addition, JITD will help reduce the costs associated with
distribution channels. Distributors would not stock their inventory with Barilla products that
exceed the real demand. Thus, the JITD program would help Barillas partners reduce
distribution costs and allow them to be more efficient. The project also might help improve
Barillas relationship with its partners, as Barilla wont exert pressure on distributors to hold
more finished products than necessary. The implementation of the program will eventually
improve the planning procedures for Barilla and enable the company to provide exceptional
service to its customers at low costs.

On the other hand, the JITD program will not be implemented without costs to Barilla. Although
it is expected to highly benefit Barilla, JITD program would be costly to implement. Barilla
would be responsible to provide its distributers with the technology needed to report daily sales.
Moreover, it might not be possible for some retailers to report daily sales because their stores are
not equipped with point-of-sale technology that captures sales data. Also, distributors might need
to hire new employees in order to be able to prepare sales reports. In addition, implementing
JITD means that Barilla would do the work for its distributors. This might cause a conflict with
some partners as some distributors would not accept others to intervene with their internal
processes.
2. What conflicts/barriers internal to Barilla does the JITD program create?
Before Barilla can implement JITD it must first garner acceptance from the different internal
bodies that make up its distribution framework. There are several internal departments that are
affected by switching to JITD. First and foremost, Barillas sales and marketing department
would be greatly affected by the move. Barillas sales representatives spend significant amounts
of time working with distributors and helping them place weekly orders and incorporating
promotions and discounts into their selling strategies. Sales representatives argue that the JITD
system would eliminate most of the sales representatives responsibilities. Also, the sales
representatives are most likely receiving much of their compensation through commission on
their sales. The JITD system would put a great strain on commission because the sales
representatives will but unable to push Barillas products to the distributors. Not only does the
sales staff have to worry about diminished responsibility and compensation, but a JITD system
may result in job cuts for the sales staff.
The marketing of promotions is also part of Barilla that would be affected by this new process.
Much of Barillas sales come as a result of trade promotions and discounts given to distributors
as an incentive to purchase larger amounts of Barillas products. If the JITD system is
implemented, distributors will no longer be able to take advantage of volume discounts and other
promotions because Barilla will dictate the amount of product purchased by the distributors.
Another concern within Barilla was that a JITD system would leave empty space at distributors
warehouses that could be filled with products from Barillas competitors. Within Barilla there are
worries that if a distributor is overstocked with a competitors product, then the distributor will
push the competitions product to markets and supermarkets in order to alleviate its inventory.
The sheer number of SKUs that Barilla deals with is also a contributing factor. With 800 dryproduct SKUs, its a very complicated adjustment to change the distribution protocol. However,
it can also be argued that Barilla is the only company that could correctly and accountably be
able to create a robust forecasting system that would include its wide variety of SKUs and
pasta.
One of the managers of Barillas largest distributor stated in retaliation to the JITD system that
Barilla could get their orders out to the distributors faster within 3 days. Currently it takes 8-14
days for Barilla to complete an order. The internal distribution process is extremely time
consuming as it is and adding the JITD system might only prolong the process with little to show
to the distributors.

3. As one of Barillas customers, what would your response to JITD be? Why?
From an independent supermarkets perspective, the JITD proposal offers both advantages and
disadvantages. First off, the primary challenge being faced by independent supermarkets is the
over and/or under stocking of Barilla Products during any given period. With a JITD program in
place more frequent deliveries from the distributer are possible, resulting in an overall store
inventory reduction. Instead of keeping a two-week supply of pasta products retailers could
reduce their inventory overhead quite significantly; thus, reducing their own costs.
Another advantage that JITD provides is the management of product promotions. Under the
current system, independent supermarkets are forced to carry more inventory of promotional
products. Ideally, with JITD in place, Barilla would determine how much promotional products
the independent supermarkets would carry, thus alleviating the stress of being overstocked.
The last advantage that JITD provides for independent supermarkets is based on inventory
tracking. Most independents do not use any tracking such as RFID and rely on hand counting of
inventory and shelf space. Using JITD will help these retailers understand their selling patterns
as it offloads some of the demand estimation up the supply chain, which will eliminate the need
for tedious forecasting.
As a customer of Barilla, one of the biggest concerns would be allowing Barilla to control all
forecasting and supplying of its products. All of Barillas customers would need to disregard all
previous forecasting measures and blindly put faith in Barillas ability to keep the stores stocked
at a proper level. This may obviously lead to certain problems, including being over-stocked or
under-stocked at times. While being overstocked is merely a question of the cost of unnecessary
storage, a retailer being under-stocked can lead to losing customers to its competition. Couple
this perfectly normal concern with Italys pension for labor strikes and the JITD system could
come crashing down, bringing its retailers with it.
Overall, the advantages outweigh the disadvantages for an independent supermarket, because
more frequent deliveries from their distributor outweigh the risk of being under-stocked.
For Barillas JITD system to be implemented, independent supermarkets must make the decision
to trust Barilla and Barillas new distribution structure. If independent supermarkets can get over
the fact that this new system will inherently mitigate their responsibilities, then JITD could be
advantageous for both Barilla and its independent supermarket customers.
4. In the environment detailed in the case, is JITD feasible? If yes, which customers would
you target next? How would you convince them that it is worth trying?
Our Solutions for how to implement JITDs idea:
New Targets:
a) Small shops
The Italian government supports the small shop rather than big supermarket. Small
shops have better growth rate than supermarket, and Barilla didnt get that much
market share in this area.

They are more likely to accept the small quantities of order to reduce their inventory
since they have worse inventory level more than two weeks, longer than
supermarket. And they don not have much resource and power to manage their
inventory.
They are shipped directly through Barillas own regional houses. Barrila could get the
end-user demand information directly without dealing with outside distributors. There
is no privacy issue here.
Based on the above reasons, it is easier to implement JITD in small shops. And we
can use it as good examples to persuade other distributors to join the JITD program.

b) New customers
Because it is easier to get their cooperation during contract negotiation and
reinforce the agreement in the contract.
Convince the customers with our win-win concept
We will convince them that JITD is worth trying because it is a win-win process for all stakeholders by reducing the inventory and accelerating the delivery process through synchronization
and transparency.
Improvements of current JITD Program
The current proposed JITD program at Barilla is not feasible because the crux of problems
lies in its slow delivery speed and rigid production process which are commonly seen within
a traditional functional organization. A fundamental reform need to be taken to improve the
relationships between the sales, advertising and logistics departments through redesign the
performance measurement system.
To motivate the distributors to actively participate in the JITD initiative, a consortium of both
suppliers and the distributors on a supply chain should be formed to discuss the present
problems and come up with solutions. It is always easier to roll out something within the
willing participants than throw something to them arbitrarily.
The latest development in information technology makes Vendor Managed Inventory (VMI)
possible for data sharing and synchronizing.