Barilla SpA

COMPANY BACKGROUND
Founded in 1875 by Pietro Barilla. Products Range Pasta & Bread. Vertically Integrated corporation with Flour mills, Pasta Plants and bakery Products factories located throughout Italy. Differentiated themselves with high quality product and innovative marketing strategies. By 1990, Barilla was organised into 7 divisions : 3 pasta divisions (Barina, Voiello,Braibanti) The bakery products division The fresh bread division The catering division The international division

INDUSTRY BACKGROUND
Per capita consumption : 18 kilos
3000 Barilla Sales(lire in billions)

per year
Limited seasonality Semolina pasta and fresh pasta: the only growth segments of the

2500 2000 1500 1000 500 0 Barilla Sales(lire in billions)

Ye ar 19 70

19 81

19 83 19 85

19 87

Year

Italian Wholesale Price Index

Italian pasta market Eastern Europe: excellent export

opportunity

140 120 100 80 60 40 20 0

19 89

Italian Wholesale Price Index

19 60

19 80

19 82

19 84

19 86

19 88

Year

19 90

PASTA MANUFACTURING
Similar to paper-making. Water + Flour Dough Continuous Sheet Shape from Die Cut to Length Dried in Dryers The temperature and humidity in the kiln were precisely specified for each size and shape of pasta

To keep changeover costs low and high product quality, it follows a carefully chosen production sequence that minimized incremental changes in kiln temperature and humidity between pasta shapes Barillas pasta plants were specialized by the type of pasta produced in the plant

Sales & Marketing

Advertising : Positioned as the highest quality/Most Sophisticated product available. Support from well-known athletes and celebrities. Where there is Barilla there is a home

Trade Promotion : To push its product into grocery distribution network. Canvass periods

Distribution system
Weekly Inventory check Weekly Inventory check

GDs

ORDER DAY-1

ORDER DAY-1

DOs

DAY-8 - 14

10 DAYS

Mostly Computer supported ordering system Few had Forecasting system or sophisticated analytical tools

10 DAYS

CHANGE PROPOSED - JITD

JITD System

Service allowing distributors to operate with low stocks while

maintaining optimal service standards Decision-making authority for determining shipments from

Barilla to a distributor would transfer from the distributor to

Barilla Rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributors warehouse, and then decide what to ship to the distributor and when to ship it.

CHANNELS OF DISTRIBUTION
Divided entire product line into:

FRESH Products

DRY Products

-Dry products were offered in 800 different packaged SKUs -Pasta was made in 200 different shapes and sizes -Pasta was offered in more than 470 different packaged SKUs

Includes:
Pasta products (21-day shelf life), Fresh bread (one-day shelf life)

Includes:
Dry Pasta, Dried toasts(75% of sales) (18-24 months) Cookies, Biscuits (10-12 weeks)

Fresh Product Distribution

Fresh Products

Northern CDC

Southern CDC

RW

RW

RW

RW

Agents

Agents

Agents

Agents

Agents

Agents

Agents

Agents

DISTRIBUTION PATTERNS
Shipped from plants to 2 CDCs

Fresh product inventory held for 3 days in CDC

Dry products inventory for 1 month
Separate distribution systems for fresh and dry products

Fresh products purchased by Independent Agents from CDCs, And then channeled through 70 regional warehouses

Dry products (65%) purchased by Distributors, who shipped the product to supermarkets

Remaining (35%) distributed through 18 small Barilla owned warehouses mostly to small shops

RETAIL OUTLETS
SMALL INDEPENDENT SHOPS (35% of Dry product sales) -Small grocers (Signora Maria) -Supply from Barilla run depots -Two weeks inventory at the store level SUPERMARKETS (65%) -70% distributed to supermarket chains, 30% to independent supermarkets -Typical 10 12 days inventory held by supermarkets -Most Retailers carry a product in only one packaging option -Chain supermarkets got products from Grand Distributors (GD) -Independent supermarkets got products from Organized Distributors (DO) -Most distributors maintained inventory of 2 weeks in their own -Supermarkets placed daily orders with the distributors - Orders received at the store 24 48 hours after the purchase order

PROBLEMS
What are the reasons for the increase in variability in Barillas Supply Chain? How can the firm cope with the increase in variability? Can the VMI strategy solve the operational problems faced by Barilla?

Why the Logistics Manager failed to Implement the JITD System?

How can the supply chain meet the conflicting goals of the different partners and facilities?

Increasing Variability of Orders up the Supply Chain

Consumer Sales Order Quantity Order Quantity Retailers Order to Manufacture

20
15 10 5 0 Time Wholesalers Orders to Manufacture

20
15 10 5 0 Time Manufacturers Orders to Supplier

Order Quantity

15

Order Quantity Time

20

20 15

10
5 0

10
5 0 Time

Causes of Demand Fluctuations

Demand Forecasting Long order lead times Batch Ordering
Transportation discounts Volume discount No minimum or maximum order quantities

Price Fluctuations
Promotional activity

Product proliferation Poor customer service rates Poor communication

Coping Variability in Demand

Reducing Uncertainty Centralized demand
Information

Effective Forecasting - CPFR Reducing Variability EDLP Strategy & Eliminating

Price Promotions

Lead time Reduction -

Use of Cross Docking & EDI

Strategic Partnerships e.g. VMI

The VMI Partnership

The supplierusually the manufacturer but sometimes a reseller or distributormakes the main inventory replenishment decisions for the consuming organization The supplier monitors the buyers inventory levels (physically or via electronic messaging) and makes periodic re-supply decisions regarding order quantities, shipping, and timing Transactions customarily initiated by the buyer (like purchase orders) are initiated by the supplier instead

ADVANTAGES OF VMI
Resolving the dilemma of conflicting performance measures Having the potential to decrease variation Less buffers of capacity Less inventory for suppliers Smoother workloads Reduced lead-time variability Lower safety stock levels Thus, reduced capital tied up in inventory Reduction in Transportation cost because of efficient truck loading and route planning

 Resistance from the Distributors

JITD - IMPLEMENTATION ISSUES

Operational Independence Manufacturer mainly responsible for delay JITD to help Manufacturer only

Resistance from Sales & Marketing

Sales may Flatten Difficulty in pushing Barilla Products without Sales Promotions & Incentives Competitors products pushed into the freed space Sophisticated Relationship Grocers not properly equipped to record point of Sale data Uncertainty about actual reduction in costs

SOLUTION
Demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels and increasing their returns on assets); Run experiment at one or more of Barillas 18 depots Get top management closely involved - Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort Improvement of existing forecasting systems so as to make better use of data received Trust

THANK YOU
Jayshree Routray 19 Tapan Mishra 21 Pankaj Bagheria 29 P.Seeta Lakshmi 30 Prashant Kumar 31 Gaurav Pattnaik 33