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MM 6041

SUPPLY CHAIN DESIGN


Barilla SpA (A) Case Analysis, A Supply Chain Perspective

MBA YP 52 SYNDICATE 4
Ishak Firdauzi R.

(29114333)

Marthin Lukas P.

(29114341)

Brian Lee

(29114350)

Teja Pramesya A.

(29114389)

MASTER OF BUSINESS ADMINISTRATION


SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2016

Introduction
Giorgio Maggiali, director of logistics for the worlds largest pasta producer, Barrila SpA. At
that time (Arround 1988 to 1990) he was faced by the problem in fluctuated demand of the
company that affected the companys manufacturing and distribution system. Based on the
idea proposed by Brando Vitali which served as Barillas director of Logistic before
Maggiali, the idea was to implement Just-in-Time Distribution (JITD), an improvement of
Just-in-Time manufacturing concept. Vitali used this method instead the traditional practice
of product delivery to meets the appropriate delivery quantities that will be effective in
meeting the consumers needs. Maggiali have spent two year to implement vitalis proposal,
though until the spring of 1990 there were little progress that have been made. Many
consumers were reluctant in providing the detailed sales data. There were also internal
resistence inside Barillas sales and marketing division.
Company Background
Barilla was founded in 1875 by Pietro Barilla where it was a small shop in Parma, Italy on
via Vittorio Emanuele. The store was also a place for Pietro to make the pasta and bread
products to be selled. Pietros son Ricardo led the company through the companys growth
until 1940 the company was passed to Ricardos sons, Pietro and Gianni.
As time goes by, there were over 2,000 italian pasta manufacturers. Pietro and Gianni Barilla
differentiated their company with a high quality products with the support of innovative
marketing programs. The programs have created strong brand image with good packaging
and large-scale advertising program. In 1968, Pietro and Gianni Barilla began to construct a
1.25 million square meter pasta plant in pedrignano, 5 km outside of Parma.
The cost of building the largest and most sophisticated advance pasta plant in the world have
led the Barillas deeply in debt. In 1971, they sold the company to the American multinational firm W. R. Grace, Inc., which brought additional capital investment and professional
management practices to the company and also introduced new line of bakery products the
Mulino Blanco (White Mill). Grace struggled to make the acquisition to be payed off despite
the 1970s economic condition and new italian legislation that both capped pasta prices and
increased cost-of-living allowances for employees. In 1979, Grace sold the company back to
Pietro Barilla.
In 1990, Barilla was the largest pasta manufacturer in the world making 35% of all pasta sold
in italy and 22% of all pasta sold in Europe. There were three brands which 32% of the
market was the traditional Barilla brand and the remaining 3% market share was consisted

with Voiello brand (high-priced segment Neapolitan past) and Braibanti brand (a high-quality,
traditional pasta made from eggs and semolina). Barilla held a smaller market share in the
south of Italy than in the north, although the market were larger. Barilla held a 29% share of
the Italian bakery-products market. Barrila have organized seven division, three pasta
division (Barilla, Voiello, and Braibanti), the Bakery Products division (Manufacturing
medium to long shelf-life bakery products), the Fresh Bread division (manufactruing very
short shelf-life bakery products), the Catering Division (distributing cakes and frozen
croissants to bars and pastry shops), and the International Division.

Fig 1. Barilla Group Structure

Fig 2. Barilla Organization Chart, 1990

Corporate headquarters were located adjacent to the Pedrignano pasta plant.

Industry Background
Per capita pasta consumption in Italy averaged nearly 18 kilos per year, exceeding other
western European countries. There were also limited seasonality in pasta demand, special
pasta types were used for pasta salads in the summer and egg pasta and lasagna were very
popular on Easter day.

Fig 4. Per Capita Consumption of Pasta and Bakery Products, in Kilograms, 1990

In the late 1980s, the Italian pasta market was relatively flat, growth only less than 1% per
year. By 1990, the market was estimated at 3.5 trillion lire. Semolina pasta and fresh pasta
were the only growth segment of the italian pasta market. Export market was experiencing
record growth and was expected to rise as much as 20-25% per year in the early 1990s.
Barilla management estimated that two-thirds of the increase would attributed new flow of
exported pasta to Eastern European market as export opportunity with the the potential to
encompass a full range of pasta products.
Plant Network
Barilla owned and operated several plants in Italy that includes large flour mills, pasta plants,
specialty product plants such as panettone (christmas cake) and croissants. Barilla maintained
state-of-the-art Research and Development facilities and a pilot production plant in
Pedrignano to develop and test new product and production process.

Pasta Manufacturing
The materials are flour and water (and for some products include eggs, and/or spinach meal).
All of them were mixed to form dough then rolled into a long continuous sheet by pairs of
rollers set at increasingly close tolerances. The dough sheet was forced through a bronze
extruding die screen; which make a distinctive shape. The pasta then be cutted into a specific
length. The cut pieces then were hung over dowels (or placed onto trays) and moved slowly
through a long tunnel kiln that snaked across the factory. The temperature and humidity in the
kiln were specified for each size and shape of pasta and tightly controlled to ensure high
quality. In keeping high quality with low cost of changeover. The drying process took fourhour long, the pasta then weighed and packaged. Raw ingridients were transformed to
packaged pasta on fully-automated 120 meter long production lines. In the Pedrignano plant,
11 lines produced 9,000 quintals of pasta each day.
The plants were varied based on the special specification of the product. Producing pasta that
was composed with or without eggs or spinach and whether it was sold as fresh or dry pasta.
Non-egg pasta was made with flour ground from grano duro (high protein hard duru
wheat) the highest quality flour. For egg based pasta and bakery products, Barilla used flour
ground form grano tenero (tender wheat), such as farina. Short pasta product such as
macaroni and fusilli and Long products such as spaghetti or capellini were made in seperate
facilities due to different sizes of equipment required.
Channels of Distribution
Barilla divided its entire product, into two general categories : Fresh and dry. Fresh product
were moved quickly through the distribution system (only three days of fresh product
inventory was typically held in each of the CDC but dry product held about a months. Barilla
Product were distributed through three types of retail outlets: small independent grocers,
supermarkets chains and independent supermarkets.
The distributors order pattern is caused by the lag in distributors response in placing their
orders. There will always be delays in placing orders with Barilla SpA. However, distributors
have different levels of delay. Some of the distributors have longer delays. This condition is
problematic because delays lead to greater fluctuations in orders. For example, even a small
delay in a Grande Distribuzione (GD or large distributor) leads to significant fluctuations in
orders at Barilla SpA because a large distributor carries a big inventory and delivers
truckloads of Barilla SpA products to large supermarket chains.

Sales and Marketing


Barilla have a strong brand image in Italy with combination of advertising, promotion and
sales representative. Heavy advertised, its mean positioning as highest quality, most
sophisticated like jewels and luxury. Barilla avoided images of traditional italian folklore.
And then engaged with famous athletes and celebrities from many countryto strengthening
loyal relationships with Italian families to get images as Where there is Barilla, There is a
home. Promotion based strategy, its mean divided 1 year to 12 canvas period,
corresponding a promotional program with different product in each program. At this time,
buyers could buy as many as possible. Incentives were given to those achieving sales target.
Offering volume discount and paid for transport if buyer buy truckload quantities. Sales
representative offer 1000 lire per carton discount, if they buy a minimum of 3 truckloads.
Sales Representatives
90% of Barilla Sales representative working time were spent at the store level. Sales
representative job tasks are: merchandising Barilla product and setting up in-store
promotions, taking note of other competitors information such as prices, stock outs, and new
product introductions. The representative usually discuss the Barilla products and ordering
strategies with store management. Usually, sales representative activities are weekly meeting
with distributors, assisting the weekly order placing by the distributor and setting up
promotions and discounts. They also have responsibility to resolve any problems with
previous delivery such as returns, deletions and any other possible disputes. They are also
involved in discussing the projection of new products and prices.
Distribution: Distribution Ordering Procedures
Majority of GDs and DOs of Barilla are constantly checking their inventory levels and placed
orders once per week. The arrival time of Barilla products delivery is around day eight till
day fourteen after the placing order. The average lead time of Barilla products was ten
calendar days. It can be illustrated as:

Fig 5. Illustration of the Ordering Process

The sales number of distributors is varied, for small distributors they usually order only one
truckload per week and the largest quantity of delivery is five truckload per week. The
majority of distributors used simple periodic-review inventory system. For example, a
distributor would do a weekly review (on Tuesday) on inventory levels of Barilla; the
distributor would then place orders for the products bellow the reorder level.
Impetus of JITD Program
During 1980s, Barilla experienced the uncertainty of fluctuating demand. This uncertainty
has put Barilla into mismanagement of manufacturing and logistics operations. As they
operate in food industry, Barilla found it difficult to hold the sufficient finished goods
inventories to meet distributors order requirement because it was considerably expensive
when weekly demand has fluctuated and has been difficult to predict.
The customers were changing. Their demands were fluctuating, yet the space in retail outlet
remained the same. At the same time, manufacturers were continuously introducing new
products, and they wanted retailers to display their new products in front of the shelves.
Meanwhile, the distributors had also the same pressure, when they had to increase inventory
items that they already stocked as well as add new inventories to their list.
Then, Brando Vitali, Barillas Directors of Logistics, envisioned an idea to change the way of
product delivery by having day-to-day logistics service. Therefore, rather than sending the
product to distributors internal planning processes, Barilla chose to manage their delivery
service by sending the product only when it is needed at the stores. By using this method,
Barilla could improve operations for themselves and their own customers if Barilla were
responsible for creating their own delivery schedules by examining the all shipment data.
The method would be processed as follows: Everyday, distributors would provide Barilla the
data on what Barilla products it had shipped out of its warehouse to retailers during the
previous day, as well as the current stock level for each Barilla SKU (Stock Keeping Unit).
Then, Barilla could look all of data and make replenishment decisions based on their own
forecasts. However, Barilla needed to improve its own forecasting systems. They need to
develop a set of decision rules that can be used to determine new forecast.
However, there are some risks on implementing JITD method. The sales level will flatten if
this JITD method is implemented. The adjustment for shipment might be insufficient due to
quick change of selling pattern. Since Barilla decided to manage the delivery by itself, the
company shall have an issue of relationship with distributors. Meanwhile, If Barillas product

decreased, while there is empty space in distributors, the distributors shall push the
competitors product in their shelves. Trade promotions should be impossible with JITD
method.
Nonetheless, JITD method can offer the customer additional service at no extra cost and will
improve Barillas visibility with the trade and make distributors more dependent to Barilla.
Therefore, this will improve the relationship between Barilla and distributors, as well as the
information from distributors such as warehouses, shipments can provide objective data that
would improve the planning procedures of Barilla.