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26/04/2017
Barilla Case Study - Background
The company was founded in 1875 by Pietro Barilla.
By 1990 Barilla is the worlds largest pasta manufacturer, capturing 35% of
Italian pasta sales and 22% of all European pasta sales. They also hold a
29% share of the Italian bakery-products market.
Sales are divided by product lines: dry 75% and fresh 25%. The majority of
the dry sales are distributed through the two company owned central
distribution centers, one in Pedrignano and the other in Naples.
Increasingly throughout the 1980s, the company suffered from volatile
demand with wild weekly fluctuations in orders for dry products straining
Barillas manufacturing and logistics operations.
In 1987 Brando Vitali, then Barillas director of logistics proposed a JITD
program as a resolution to the demand volatility. This proposition has met
with both internal and external opposition.
Barilla Case Study - Objective and Goals
Analysis of the Bullwhip Effect on Barilla SpAs supply chain
Specifying risks and costing issues
Demonstrating supply issues with concepts learned from the class readings
Summarizing implementation challenges and solutions
Agenda
Barilla SpAs Supply Chain Diagram
Demand Fluctuations vs. Consumer Demand Pattern
Underlying Causes of the Ordering Pattern
Principle Cost Categories Impacted by the Order Pattern
JITD as a Mechanism to Reduce Supply Chain Costs
Underlying Causes of Internal Resistance to JITD
Distributor Response to JITD
Recommendations to mitigate Internal and External JITD resistance
Barilla SpA Supply Chain
Raw Materials Barilla SpA Operations Distributors Retail Outlets
Suppliers
Manufacturing Distribution GD Supermarkets
Dry ~150 SKUs, ~2 Chains
Durum Wheat 800 Dry SKUs 65% all dry inventory Weeks dry inventory 45.5% of dry
Dry 18 24 Months/10 12 weeks 2 wks dry inventory
Fresh 21 days/1 day bread 10 day lead time to GD/DO
products
DO ~10 12 days of
Tender Wheat ~150 SKUs, ~2
inventory
Northern CDC Weeks dry inventory
Pasta Plants Independent
Eggs Independent Agents Supermarkets
Flour Specialty Southern CDC (Concessionari) 19.5% of dry
products
Spinach Meal Mill Plants 70 warehouses throughout Italy
~10 12 days of
Depot inventory
Bread Plants 35% all dry inventory
Small Independent
Grocers
35% of dry products
2 weeks inventory
Fresh
Demand Fluctuations vs Consumer Demand Pattern
A Cause for Concern Wild Demand Fluctuations Put a Strain on the Supply Chain
Variance in orders placed to the CDC and sales from the DC Demand fluctuations Vs. Consumer demand pattern
Shortage Gaming
Transportation discounts
There is high volatility in the demand signals received at the central distribution centers .
This is evidenced by the wide fluctuations in weekly orders from the downstream distributors
documented in previous slides. This inefficient order pattern has a negative cost impact over
the entire supply chain.
Manufacturing Costs-Increase
Transportation Costs-Increase
Principle Cost Categories Impacted by Order Pattern
Profitability-Decrease
Conflicts internal to Barilla
The current method of promotion and discount policy :
Currently Barilla divides each year into 10 or 12 "canvass" period with each corresponds to a
promotional program. The incentives for the Barillas sales representatives lie on achieving
sales goal for each canvass period. Therefore they are actually welcoming distributors to buy
as much as possible. Besides, one of the representatives sales tools is volume discount
larger volume orders. This, to some extent, encourages distributor to order less frequently
with larger order quantity every time.
With JITD implementation,
The decrease in Barilla's CDC inventory level at current period, the distributor's inventory
level will increase considerably. And, if distributors are ordering more at a time and less
frequently, it will cause pilling up of inventory if there exist less demand leading to demand
fluctuations.
Conflicts internal to Barilla
The current method of promotion and discount policy :
Currently Barilla divides each year into 10 or 12 "canvass" period with each corresponds to a
promotional program. The incentives for the Barillas sales representatives lie on achieving
sales goal for each canvass period. Therefore they are actually welcoming distributors to buy
as much as possible. Besides, one of the representatives sales tools is volume discount
larger volume orders. This, to some extent, encourages distributor to order less frequently
with larger order quantity every time.
With JITD implementation,
The decrease in Barilla's CDC inventory level at current period, the distributor's inventory
level will increase considerably. And, if distributors are ordering more at a time and less
frequently, it will cause pilling up of inventory if there exist less demand leading to demand
fluctuations.
Barillas customers concern:
As one of Barillas customer, the response to Barillas JITD proposal would be a combination of the following
emotions:
Sense of burden. Barilla requires us to report to them our inventory level and sales amount everyday, which
contradicts our periodic/weekly review policy and will add extra burdens to our staff. Will Barilla pay for the
extra cost incurred? We might require Barilla to pay for the extra staffing cost. Besides, since information is
money, Barilla needs to pay for our regularly provided information.
Sense of distrust. It seems that Barilla thinks that it can do a better job than us in managing our inventory.
Their greatly reduced shipping amount to our company indicates that they think our predictions in the past are
not correct. As a counter action, we might refuse to provide past sales data to Barilla so that they will have
difficulties in predicting the market demand
Barillas customers concern:
Sense of defense. How could Barilla demand sales data from us which are considered confidential? Does
Barilla have the authority to do this? Are they intending to monopoly the supply chain? If we release our sales
data to Barilla, will this information go to our competitors? These doubts will result in defensive actions such as
procrastination in responding to Barillas request or refuse to cooperate.
Sense of losing control. If it is left for Barilla to decide how much we need and how much should be shipped to
us, we will lose control of our inventory. Besides, Barilla will base its daily distribution amount to us on the
information of our sales amount and inventory level as well as similar information from our peer distributors.
This does not seem to be a robust approach because their criteria for quota distribution is vague and
subjective. It is easy to cause unfair treatment. What if we need to order more due to a sudden market surge?
Will we be granted more shipment? As a protection, we might intentionally alter sales data and inventory level
reported to Barilla whatever is advantageous to us.
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.
Improvements of current JITD Program(contd):
It will have following advantages :
Decrease the Total Inventory in the Whole Supply Chain: JITD helps to reduce inventory held at the distributors.
Theoretically, it eliminates the needs for each distributor to hold it own Safety Buffer. Therefore, it benefits the
distributors through releasing their inventories space and cost
Better Customer Fill Rate both in Barilla and the Distributors: JITD emphases quick response. Since the
inventory data and delivery pattern are controlled by Barilla, their central factory and CDCs are therefore easier
to schedule their production and deliveries to meet the customer demand. For the distributors, since their
flexibility and reaction speed have all been increased due to the lowered inventory level, they surely could have
better customer fill rate and less stockouts rate than before.
Further Distribution and Manufacturing Cost Reduction based on Scheduled Production : The less interruption,
the more cost-efficient. But this is only true for bottleneck machines. This is also true for distribution cost. In
contrast to the fluctuating due to unknown situations in the past, a better delivery schedule could be built by
using complete data obtained from the end-users.
Improvements of current JITD Program(contd):
New Targets:
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.
New customers
easier to get their cooperation during contract negotiation and reinforce the agreement in the contract.
JITD as a Mechanism to Reduce Supply Chain Costs
Adoption of the new JITD strategy would incorporate fundamental changes in the
current supply chain allowing for improved overall efficiency.
Reduce Costs
Brando Vitalis proposed J ITD program did not receive universal acceptance within
Barilla. It met with significant resistance specifically from the from two different
groups internally
Data Security
Recommendations to Mitigate Internal JITD
Internally Maggiali has encountered resistance to his plan to implement
JITD as a solution to the distribution challenges facing Barilla. It is essential
that he mitigate the internal resistance before attempting to convince the
distributors of JITDs value as a supply chain strategy
Any
Questions?