Barilla Spa Case

Barilla SpA is a large, vertically integrated, family owned pasta company based in Italy. It maintains a leadership position (35% SOM in Italy in 1990) among a field of thousands of Italian competitors producing and distributing brand-name pasta. Its operations are divided among 3 product divisions and two distribution channels, based on product shelf life. Dry Pasta contributed 75% of Barilla sales and Wet Pasta 25% of sales. Distribution was further divided between two central distribution centers (CDCs), based on geography.

Customers were divided into three primary segments: Small retail shops; Large independent supermarkets; and Large supermarket chains. Distribution to small retail shops was direct from the CDCs. Distribution to the supermarkets went through intermediate distribution centers, either owned by the chain, or operated by a third party representing multiple independent supermarkets. Fresh product was distributed through a network of brokers.

Inventory levels in the supply chain, managed via periodic-review inventory systems, were high, with larger levels of safety stock held for dry pasta (which had longer shelf-lives) than for fresh pasta. The CDCs carried approximately a 1-month supply in inventory, and supermarket distributors maintained a 2-week supply, yet stock outs still occurred frequently. These high inventory levels were in part a result of heat control issues in the production process making it difficult to respond quickly to shortages, so increased safety stock was the preferred response to demand variability.

The pasta supply chain suffered from the following problems: high inventory levels stored at each level of the supply chain; stock outs at the distributor level; demand variability magnification up the chain, and exacerbated by frequent promotions, Full Truck Load (FTL) and other volume incentives; and a lack of information on which to forecast demand. There was also a problem of high lead time between order placement and delivery (ten calendar days). All these issues led to thinning margins and increasing costs.

Increasing product variability worsened all of these problems. Barilla maintained over 800 SKUs of dry pasta alone.

To combat these problems, the Director of Logistics desired to implement a Just In Time Distribution method by which Barilla would attempt to forecast demand based on buyer behavior and this data would determine their pattern of supplying to distributors. In essence Barilla wished to have control over their inventory as well as distributors' inventory for mutual benefit. However they faced many challenges, both internal as well as external with regard to implementation of JITD.