Barilla Spa Case Study

Barilla SpA

February 14, 2017

Barilla SpA

Attn: M. Manfredi, C.E.O.

Dear Mr. Manfredi

Find attached the report as requested.

Yours truly,

Ravi Raval

Barilla SpA

Executive Summary

The most critical issue Barilla SpA faces is the unexpected fluctuation in DOs’ demand and demand pattern. To date company is heavily relying on its sales and marketing for promoting its product in market. Even though Barilla is world’s largest pasta producer, it does not have proper forecasting system in place and always rely on DOs to place orders whenever needed. Moreover, company’s manufacturing plants are finding it extremely difficult to meet the demand of DO on several occasions an at the same time on the other hand CDC & DO sees stock out at their location which result into not only lost sales but lost customer to competitor as well.

To overcome these issues, company need to implement better system which not only provide better forecasting of its customer’s demand but also give company more power to decide where they should divert products. Company must implement JITD as soon as possible but company is facing resistance not only from sales & marketing team but also from distribution centres as well. The company can either implement JITD or can reject the plan and come up with new developed plan. Rather than DOs place orders with us, they should give us their sales data from customers and we should decide the inventory needed at each DC. Using this data which Distribution centres got from retail stores, we can determine the demand and can accurately forecast as well and can plan the production based on this. This will certainly help to eliminate the demand fluctuation and existing inability of planning the production. By implementing JITD, we will have broader idea about the inventory levels required for DOs and will be able to provide additional value added service for no extra cost which subsequently will help to reduce inventory levels, reduced manufacturing cost and reduced transportation cost and increased supply chain visibility. The new strategy will help to reduce no. of SKU for production and will help plants to produce less SKUs with higher return on them.

All these time, we will offer new and improved incentives to both sales team & distributors which will help us to gain their trust and will bring more trust and reliability in SCM.    We will discuss the details of this report in detail on 16th Feb 2017 (i.e. Thursday)

Barilla SpA

Table of Contents:

Issue Identification:

1. Demand Fluctuation:  During late 1980s, Barilla suffered increasing operational inefficiencies and losses which resulted from large week to week variations in order patterns from its distributors and customers. (Exhibit 12)
2. Just In Time Distribution: Barilla SpA faced big challenges both within & outside of organisation when they implemented JITD. Sales people were especially unhappy with most aspects of JITD program.  
3. Stock Outs : On and average, Barilla sees 7% of stock out on their products in stores which results into back orders, lost sales, & lost customers as well.
4. Distribution Structure: Barilla products were shipped from the plants in which they were made to two of the CDCs. Barilla maintained two different channels for dry & fresh products due to their differences in parishability & demands by different types of customers. (Exhibit 8)
5. Bullwhip Effect: Information flow from downstream to upstream causes the bullwhip effect with which manufacturing plants was finding it hard to come up with.
6. Communication : At Barilla, distributors were used to have full control of the orders and many a times a situation arose where it was difficult to deal with a situation in which supplier and customers are two separate entities and  
7. Operational Inefficiencies:  Barilla has much operational inefficiency which led to high inventory carrying cost.
8. Lead Time:  Barilla supplied its distributors between 8 to 14 days after it received the orders. There was 10 day lead time from order to delivery of products from plants to retail stores which was longer then industry standard.
9. Large No. of SKUs:  Barilla has more than 800 SKUs for dry products which again comes in different packages and has 200 different shapes and size of pasta which again comes in 470 different packages
10. Promotions:  barilla has more than 1o – 12 promotions round the year which created more variable demand and inventory at distribution centre.
11. Absence of Proper Forecasting System:  Barilla did not use proper forecasting system and just heavily relied on replenishment ordering which led into miscalculation of ROP & Safety Stock.
12. High Inventory Levels : Currently Barilla carries 1 month of inventory at its 2 CDCs and its DOs carries inventory for 2 weeks which causes Barilla not only to produce more but also subsequently is likely to spoiled since its perishable item

Root Cause Analysis:

Barilla’s Statement of Vision / Purpose / Vision:

Barilla SpA recognizes its responsibility to the broader scope of stakeholders impacted by its operations including the community, customers, employees, planet, shareholders and suppliers. As Founder Pietro Barilla said Barilla SpA strongly believes in his words, “Give the people food that you would give your own children.” And follows the motto of “Good for you. Good for the planet.”The company aims to be #1 choice of brand and product for people by building brand that creates emotions and meaning by always putting quality first. The company believes in fulfilling the local consumer and customer needs through customisation.