Barilla Spa Case Study Report

A case study

On

Barilla SpA (A) Case Study.

Table of Contents…………………………………………

Executive Summary……………………………………….1

Issues Identification……………………………………….2-3

Environmental and Root Cause Analysis…………………3-6

Alternatives and Options………………………………….7-11

Recommendation…………………………………………11-12

Implementation…………………………………………..12-13

Monitor and Control…………………………………………13

Conclusion……………………………………………………14

Submitted by

Babatunde Ajala

Executive Summary

Barilla Spa, the world’s largest pasta producer is faced with the growing burden that demand fluctuations imposed on its manufacturing and distribution system. Giorgio Maggiali, the Director of logistic has been trying to implement an innovation idea proposed by his predecessor (Brando Vitali) called just-in-Time Distribution (JITD) which was modeled after the popular just-in-time manufacturing concept, to help the company’s logistics organization specify the appropriate delivery quantities to distributors instead of the traditional practice of delivering products to distributors on the basis of whatever orders those distributors placed with the company.

The issue here is the unwillingness of Barilla’s customers to give up the traditional practice of having authority to place orders as they pleased. Some of these customers were also reluctant to provide the detailed sales data which will help Barilla to make delivery decisions and improve its demand forecast. But the most disconcerting is the internal resistance from Barilla’s own sales and marketing organizations which saw the concept as infeasible or dangerous, or both.

In analyzing all the issues raised by Barilla’s customers, distributors and the sales and marketing organization, the option of implementing the JITD will be emphasized and the immense benefits of it will be discussed to convince them that JITD will help to meet the end-customer needs and distribute the workload on Barilla’s manufacturing and logistics system but the focus will be on the implementation in order to determine how effective the JITD will help to eliminates all the issues and identify any grey areas which might pose additional financial commitment in running the JITD smoothly for better operations.

Issues Identification

The growing burden of demand fluctuations imposed on Barilla’s manufacturing and distribution system:

 Barilla’s distributors are used to the traditional practice of placing orders with the company as they pleased thereby making Barilla to keep manufacturing new products based on orders received without getting rid of those already manufactured held as inventory.  

Resistance by the customers, distributor and Barilla’s sales and marketing organization: There is strong resistance to change the existing distribution processes due to historically established traditional practice of distribution, which was based on the Barilla’s Distribution Organizations (DOs) placing orders with the company. Not only DO’s, but also marketing and sales organizations are opposing the plan, they believe it is infeasible, dangerous or both and can limit their responsibilities within Barilla.

High inventory stock-out rates: 

The DOs have experienced high stock-out rates despite their holding a couple of weeks of inventory. The stock-out rates fluctuated from 5% to 9% (see Exhibit 13), due to inefficient distributions organizations internal planning and forecasting.

Periodic-review of inventory system at Distribution Centers. 

Most distribution organizations placed orders with Barilla once a week, and used simple periodic-review inventory system by counting the products on the shelves. The lack of visibility of products that are going on shelves and depleting stock is a disadvantage when it comes to forecasting.  

Lack of space in retail outlets (stores/warehouses):

 The Barilla warehouses currently carry very large inventories according to manufacturers’ request, since manufacturers are continuously introducing new products and they want retailers to display each product on the fronts of their shelves. The same goes for distributors – they are increasing inventory levels of items already stocked and adding new items to their product offerings.

Poor forecasting and planning.

Barilla is having difficulties in forecasting the market demand and matching it with supply accordingly. They are just manufacturing products according to orders placed by the distributors and cannot plan for actual market demand thereby hold high inventory.

Difficult to produce a particular pasta that had been sold out due to unexpectedly high demand is an issue, which is linked to lack of forecasting and planning.

Environmental and Root Cause Analysis

All the above identified issues have long been a major problems confronting Barilla and has not helped in any way to implement the JITD. The burden of demand fluctuations on Barilla’s manufacturing is caused by its sales strategy which relied on the use of advertising and trade promotions to push products into the grocery distribution network. As explained by one of Barilla’s executive, they sell to old-fashioned distribution system where buyers expect frequent trade promotions which they would pass on to their customers. Under this promotional program, distributors could buy as much products as desired to meet current and future needs. This made distributors to continue to place orders in order to receive the trade promotions.

Barilla also offered volume discounts. They paid for transportation to the distributors and offered incentives of 2% to 3% for orders in full truck-load quantities. With this, distributors just placed orders for full truck-load without having demand for it, in order to get the volume discount; this was also the reason for demand fluctuations facing Barilla. To predict market demand more precisely, Barilla should aligned sales, marketing, operations and finance to provide a collaborative platform where all stakeholders can share their forecasting methods, SCM planning methods and assumptions.