Barilla SpA (A) Case Module 1

Instructor: Perry Davidson Student: Sergiy Tereshchenko # 066577131 Date: 10.21.2013

Table of Contents

Executive Summary Issue Identification and Root Case Analysis Alternatives and Options Recommendations and Implementation Monitor and Control Exhibits

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Executive Summary

The tremendous fluctuation that occurred from week to week in the number of Barilla dry products being ordered by the distributors and the extreme demand variability seriously strained Barillas manufacturing and logistics operations. Barillas highly automated manufacturing system was not designed to accommodate large fluctuations in demand nor, was it designed to accommodate sudden changes in demand or product. Brando Vitali, Barillas director of logistics, proposed the idea of Just-In-Time Distribution (JITD) in the 1980s as an alternative to Barillas traditional practice of delivering products to their distributors . The problem is increased by the fact that the customers are not willing to cooperate and they are not willing to provide a detailed sales data to ease the delivery decision by Barilla. In spite of the reluctant reaction from distributors, as a decision maker, Giorgio Maggiali, I should promote the JITD initiative and change their attitude to this program. I should convince the sales organization to view JITD as a selling tool, and not a threat to sales. The JITD program offered additional service to the customer at no extra cost. It also would improve Barilla's visibility with trade and make distributors more dependent on Barilla. The JITD program could improve the relationships between Barilla and the distributors rather than harm them. Information gained from the program would provide Barilla with objective data to improve their own planning process.

Issue Identification and Root Case Analysis

Bullwhip effect Barilla allowed its distributors to purchase large amounts of inventory turning canvass periods into forward buying incentives that actually become costly for them to carry the additional supply in their warehouses. The extreme demand variability seriously strained Barillas manufacturing and logistics operations. Barillas highly automated manufacturing system was not designed to accommodate large fluctuations in demand nor, was it designed to accommodate sudden changes in demand or product. The JITD initiative would solve this fluctuation and more evenly distribute the workload on Barillas manufacturing and logistics systems. The variability that was created between the customers to the producer in the supply chain indicates a lack of synchronization among the supply chain members, otherwise known as the bullwhip effect. If Barillas supply process becomes imbedded through advanced technology and the establishment of a mature supply process, Barillas distributors will become more response to the JITD program. Retail inventory pressure Both retailers and distributors were carrying too much inventory. They were suffering from thinning margins. Barilla had to hold a lot of inventory and do a lot of scrambling in their manufacturing and distribution operations to meet distributor demand. The JITD approach was a way to reduce an inventory level by delivering only required quantity. It would radically change the way in which the logistics organization managed product delivery: Instead of sending product to the distributors and retailers according to their internal planning processes the JITD program would analyse all of the distributors and retailers shipment data and send only what is needed at the stores. Stockouts The lack of coordination and information gap between Barilla and distributors resulted in stockouts the DOs used to experience each year. These stockouts were to their competitors advantage: They could fill empty shelves in stores with their products. The JITD would improve operations both for Barilla and its customers. Barilla could be responsible for determining the quantities and delivery schedules and be able to avoid the mentioned stockouts or overstocking
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their customers warehouses. This would help to reduce distribution costs, inventory l evels and ultimately Barillas manufacturing costs if the company didnt have to respond to the volatile demand patterns of the distributors. New product means bigger inventory As a manufacturer, Barilla used to continuously introduce new products and wanted their retailers to display each product on the fronts of their shelves. Distributors felt similar pressure both to increase inventory of items they already stocked and to add new items they currently did not carry to their product offerings. Benefits to the JITD program include delivering only what was needed to the distributors to avoid large inventories, limiting the variation in order swings from week to week for dry products, and improving operations to determine quantities and delivery schedules. They could respond to the ultimate demand (from the end-consumer), by using the consumers input to produce orders. Barillas replenishment decisions would be based on forecasts created from actual daily demand from each distributor. In the end, the distribu tors cost would be lowered because they wouldnt need to carry as much inventory (they would only receive what they needed to supply their retailers from the manufacturers) and Barillas strain on their logistics and manufacturing processes would decrease. The JITD program would also allow distributors and retailers to carry more variety with fewer inventories. Distributors resistance to the JITD initiative When the JITD initiative was firstly presented to the distributors they were vocal in resisting it. Distributors viewed the JITD program as Barillas attempt to dump inventory and the cost of carrying it on them to absorb the fluctuations in demand. Barilla should only ship when needed (from inventories in distributor warehouses) to meet demand and absorb the pressure on production. This approach was not acceptable to the managers of the GDs or DOs. The DOs that served the independent markets, were not able to devote storage to compensate for the inflexible production system at Barilla. Giorgio Maggiali's response to the conflicts being created within Barilla to the JITD Program would be for the sales organization to view JITD as a selling tool, and not a threat to sales. The JITD program offered additional service to the customer at no extra cost. It also would improve Barilla's visibility with trade and make distributors more dependent on Barilla. Maggiali felt the JITD program could improve the relationships between Barilla and the distributors rather than harm them. Information gained from the program would provide Barilla with objective data to improve their own planning process.

Internal conflicts Causes of the internal conflicts came from the sales representatives fear of losing its traditional power and influence with the distributors. They felt their relationship with the distributors would be weakened and considered the JITD program a huge threat to their sales. Mr. Maggali should first convince his sales staff to implement the JITD program. Once he convinced sales staff of the JITD program benefits, he could utilize sales representatives to positively promote the program to the distributors and retailers. Mr. Maggali would also need to convince the sales/buyers at the distributors that the JITD program would save them money and make their job more efficient before approaching the logistics people. The logistics people seemed most willing to try the JITD program when Maggiali approached them in 1988. Once buyers became aware that the JITD program was designed to save them money, and the objections created by sales staff's and the distributors were overcome, JITD would become a feasible program. The key to making this effort successful is to obtain the inventory and sales data for Barilla to accurately forecast the demand for their products.

Alternatives

Lack of communication and information exchange: As an alternative to the JITD program there should be a plan how to improve communication between Barilla, retailers and distributors. Barillas production managers should meet with retailers and distributors on the regular basis in order to work together and share information between each member of the supply chain. This synchronization step between all tiers of the supply chain would help to reduce the bullwhip effect and resolve the mentioned issues. As an example, Barilla should explain distributors and retailers a process of pasta production in order to show how long it takes to produce the requested product and the volume of finished products. This would help distributors to understand the manufacturers side and plan future orders and trade promotions. After that Barilla would guarantee to produce requested volumes of products in time and avoid stockouts or overstockings. This information exchange would help to minimize weekly fluctuations, reduce inventory levels and eventually improve profit margins of all parties in the supply chain.

Recommendations and Implementation

The JITD program implementation should be gradual. Firstly, Mr. Maggiali should get top managers closely involved into the program and convince both sales reps and marketing department to promote the program. The independent supermarkets served by the DO's are an excellent place to collect data, while at the same time convincing them of the JITD program benefits. Sales representatives spent 90% of their time working at the store level setting-up in store promotions, discussing products and strategy with store management, and inputting distributor orders. The sales representatives could also visit the GDs that distributed products to supermarket chains. The GDs were rarely visited by the sales force yet, could be valuable for buy-in to the program. By reaching out to the DOs and GDs, Barilla could gather the data they need to better assist the distributors in serving their customers. Barilla could also demonstrate to the distributors how the JITD program would work and save them money. The JITD program should need to be linked to volume discount incentives for distributors and promotion discounts for retailers in order to receive buy-in from the distributors, sales, and marketing organizations. To be truly successful, the JITD program needs to be an end-to-end strategy that could respond to a composite demand signal at all stages in the value chain from sourcing, to production, distribution, marketing, sales and retail.

Monitor and Control

There are several aspects to the monitor and control functions within Barilla. The first one is the successful implementation of the recommendations above. This process can be completed by timely checks in regard to what has to be completed, by whom and when. Secondly, Barilla should monitor and control flow of its products through the distributors warehouses. The third aspect is to use provided below metrics to measure the performance of Barilla: Change of weekly fluctuations Inventory level both in DCs and at the customers warehouses Fulfillment of orders Number of orders waiting in queue weekly Lead time Flexibility Total number of customers Total revenue Revenue Return on investment Revenue and profit growth

Exhibits

Exhibit 1 JITD program step by step:

Barilla obtains sales data from distributors Barilla analyses data and plans delivery Barilla decides what to deliver and when

Exhibit 2 JITD Advantages

Reduce fluctuation (bullwhip effect)

Distribute the workload on Barillas manufacturing and logistics systems

Mitigate inventory pressure on distributors and retailers

Reduce distributor costs by lowering inventory levels

Eliminate outstockings and overstockings

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