Barilla Spa Case Study

Module 1

Written Case Study 2: Ford Motor Company

Tracy Finch

Member ID # 10067861

March 13th, 2018

Instructor: Romeo Callegaro

Table of Contents

Executive Summary

Issue Identification

Operating Environment

Root Cause Analysis

Alternatives And/Or Options

Recommendations

Implementation

Monitor and Control

Appendix A

Appendix B

Appendix C

EXECUTIVE SUMMARY

Barilla has always been committed to providing a sophisticated, high quality product.  Over the past number of years, they have experienced amplified levels of inefficiencies and rising costs due to the unstable and fluctuating demand from it’s distributors despite the fact that pasta consumption was relatively stable throughout the year.  

Through thorough investigation, several factors were examined to determine the root cause of this fluctuating demand.  In order to address these issues, it is the recommendation that Barilla implement a JITD system in a structured and timely fashion.

Although there will be considerable initial reluctance both internally and externally, the benefit of reduced costs and the ability to sustain further growth far outweigh and initial misgivings.  By managing timelines, expectations and continuing collaborative problem solving by all parties, Barilla will be able to control the supply chain while minimizing inefficiencies and maximizing profits and growth.

ISSUE IDENTIFICATION

There are several issues that must be addressed in considering how Ford should use emerging information technologies and ideas from high-tech industries:

1. The complexity of relationships with suppliers and dealerships is a long term issue which is brought about by
2. Lack of modern and common IT infrastructure with all tiers of suppliers
3. Lack of direct control over end users
4. Purchasing dominance
5. Accuracy of forecasting  

OPERATING ENVIRONMENT

Based in Italy, Barilla is a very large, vertically integrated corporation.  It is the largest pasta manufacturer in the world with at 35% market share in Italy and a 22% market share in Europe.  Growth was expected to continue as the overall economic outlook was promising and pasta consumption was on the rise globally. The company was organized into seven divisions, three of them being pasta.  Over the past number of years, they have experienced amplified levels of inefficiencies and rising costs due to the unstable and fluctuating demand from it’s distributors despite the fact that pasta consumption was relatively stable throughout the year.

Barilla owns and operates its own network of plants throughout Italy.  In addition to the pasta plants, they also had plants for their fresh and specialty products.  It followed a very strict and controlled production sequence to ensure a high quality of product.

They operate through their own central distribution centres (CDCs) as well as a chain of distributors including Grand Distributors (GDs) which are owned by large supermarket chains, and Organized Distributors (DOs) which are third-party independent suppliers. Nearly 2/3rds of their dry products are destined for Supermarkets which are shipped to them via the distributors.

Barilla’s name was synonymous with high quality and sophistication linking them with Italian families and forging loyal relationships, thanks in price, volume, and shipping discounts. Throughout the year they have ten to twelve periods in which distributors can save anywhere from 1.4% to 10% from buying in large quantities (full truckloads) or purchasing particular SKUs at a discount. These promotions increase sales while increasing extensive demand fluctuations. These discount were passed on to the end consumer.

Internally, Barilla's sales representatives are compensated in direct correlation to their sales. They were also responsible for helping stores determine their order strategies, explaining promotions and settling disputes.  A portable computer was used to input distributor orders.

Within their dry pasta line alone, Barilla offers 800 different packaged varieties.  Orders were placed by GDs and Dos by checking inventories and placing orders once a week.  The average lead time was 10 days.  While distributors had computer supported ordering systems, there were no such systems to determine the quantity of products to order, rather they relied on simple review of inventories.

ROOT CAUSE ANALYSIS

Without a doubt, the main issue facing Barilla is the variability in demand.  This singular issue is responsible for many operational inefficiencies as well as increased costs in manufacturing, distribution and inventory.

Such extreme demands from week to week (see Exhibit A) strained operations.  Without the ability to predict demand, Barilla suffered at stock out rate at over 5% and fluctuating inventory at the distribution centres.  This resulted in a direct loss of revenue due to lost sales as well as increased inventory holding costs.

As result of the uneven demand, transportation costs increased during high demand periods followed by low demand periods.  This would also directly impact scheduling of resources such as labour and machinery.  Due to the nature of the production plants, there is an inability to efficiently and quickly respond to these changes.  

Adding to the already stressed system are the long lead times, large variety of products and promotional practices.

ALTERNATIVES AND/OR OPTIONS

OPTION 1

The first option available to Barilla would be to leave the system status quo in terms of allowing distributors to place orders weekly based on their own perceived needs.  Barilla would control the impact of fluctuating demand internally by instituting the following: