Barilla Spa Case Report

Barilla SpA (A) Case Report

SCMP Module 5

By

Jamie Brymer

Robert Greene                                                                  February 12th, 2016

Table of Contents

Executive Summary                                                                        3-4

Issue Identification                                                                                5-7

Environmental and Root Cause Analysis                                                8-9

Alternatives or Options                                                                        10-12

Recommendations and Implementation                                                13

Monitor and Control                                                                        14

Exhibits                                                                                Attached

Executive Summary

        Barilla SpA, is an Italian pasta manufacturer and distributor and even with an attractive piece of the market (35% in Italy, 22% in Europe) and diversifying product lines, they are experiencing inefficiencies and rising costs due to irregular and ever changing demand from their distributors.  Giorgio Magialli, the Director of Logisitics, has been tasked with resolving these issues by gaining control over their fluctuating demand.  Barilla currently has in place, a very complex distribution network and has been experiencing increasing variable changes which is not only hitting operations for their inefficiency but increasing costs across the board for inventory, distribution and manufacturing.  After much backlash the first time of trying to implement a Just-In-Time Distribution (JITD), the plan is to regroup and decide whether this time of program can be implemented successfully and if so, which customers they should target with this type of system.  

        The first attempt at implementing the JITD strategy was done by Brando Vitali, the former Director of Logistics, he had proposed that a JITD system would put an end to demand variation and enable their distributors to reduce their inventory on hand, therefore reducing costs, thereby giving them additional service tools at no additional cost.  The only thing required would be that the distributors would need to share their sales data, on hand inventory, etc with Barilla who would then be able to forecast and deliver appropriate amounts of products to the distributors in a Just-In-Time approach.  Meaning inventory should be arriving at their warehouse at the appropriate time to effectively meet the demand of their customers.  However, change is not easy to implement with companies that have been around a long time and are used to one way of doing things.  In fact, Marconi initially was warm to the idea on the first try, however once the idea started to move through the company, resistance started bubbling to the surface.  At the end, the objections continued to pile on and Marconi would only agree to sell the information that Barilla would need, and they would continue to make all decisions on replenishments and when the product would be coming in to the warehouse.

        After examining the situation and reading through the challenges outlined by both Barilla and their distribution network, the recommendation would be to once again attempt to implement the JITD system.  This system will work as it’s based on Barilla’s information that is shared by their distributors when determining their production schedule instead of relying on distributor orders to drive production.  The Just-In-Time Distribution system will also alleviate other issues within Barilla such as decreasing costs in manufacturing, inventory, and distribution as they will be using objective data to plan out production runs.  This will also allow distributors to reduce their inventory and reduce stock outs as inventory will arrive at the same time it will be needed.  In addition to cost reduction and better production planning, a JITD implementation would increase a distributor’s need for Barilla product and should result in a better working relationship between the two parties.

        Once the system is in place, it will be closely monitored to ensure its success, co-operation between Barilla and their distributors will be the key to it succeeding.

Issue Identification

        The underlying issue is that Barilla is facing increasing costs revolving around the requirement to react to their ever changing demand from week to week of product.  Sales data in the 1980’s would simply be not easy to obtain due to technological disadvantages over today.  Reacting to market demand for inventory would be near impossible in an efficient manner.  Due to the fluctuating inventory needs resulting from the distributor’s weekly variations (See attached Exhibit 12 from Barilla SpA Case Study), Barilla finds they have to build up a huge inventory or suffer a low fill rate, neither of which is acceptable or profitable.  There is several reasons for the demand fluctuating as much as it does, and will be outlined below to identify the main causes.

Forecasting - Without a doubt, the largest issue facing Barilla right now, as distributors have mainly been using physical count methods to determine what they should be ordering, this can cause manufacturing and logistics nightmares for Barilla.  With no available POS figures at the customers site, lack of actual sales forecasting from distributors, and no accounting system in place, Barilla are at the mercy of the person doing the counts, which may or may not be accurate at the time but only gives one small piece of the forecasting puzzle.