Barilla Spa - Jitd

Diagnose underlying causes of the problems that the JITD program was created to address. What are the benefits and drawbacks of this program?

JITD was created to solve the problems of effects of fluctuating demand (Bullwhip Effect) which was caused by:

* Long Lead Times: Barilla shipped their products to their distributors between 8 and 14 days after ordering, making the average lead time of 10 days.

* Product variability: Barilla offered a wide range of products - both fresh and dry with different shelf lives and large number of Stock Keeping Units (800 SKUs), complicating the channels of distribution.

* Distributors' inaccurate forecasting: Most distributors used simple periodic review inventory systems and only few had forecasting systems or sophisticated analytical tools for determining order quantities.

* Sales Representatives: The compensation system for Sales personnel made them push more products into the pipeline during promotional periods. Not being able to sell sufficient quantities during non promotional periods created wide variation in demand patterns.

* Promotions and volume discounts: Barilla used a sales strategy that relied on promotions to push its products into the grocery distribution network. They divided each year into 10 to 12 canvass, in which they offered different discounts.

The JITD program was created to address the amount of inventory being held at Barilla's CDCs, Dos, GDs and retailers. Inventory levels of some distributors were too low resulting in high-stock out rates when attempting to fill retailer orders. On the other hand, some other distributors and retailers carried too much inventory. The program was designed to look at the distributors' shipment data and send only the required quantity to the stores. Barilla would be able to ship products as needed, rather than build huge stocks in their facilities. The problem was also aggravated by the complex manufacturing sequences of pasta production which made it very difficult to produce particular types of pasta that had been sold out due to unexpected high demand. Pasta of different shapes and sizes were made in different plants with special equipments based on the type of pasta produced. This limited Barilla's production flexibility to shift plant locations as needed to meet product demand. JITD would use Barilla's own logistics organization to determine the product quantities to distribute that would most effectively meet end-consumers needs.

It was extremely expensive to hold large inventories at Barilla's CDCs to meet distributors' order requirements, especially when weekly demand fluctuated to such a large extent. JITD would save manufacturers and retailers money due to thinning margins by taking costs out of the distribution channel without compromising service. Barilla would use forecasting systems and analytical tools to determine product quantities. They would look at data provided by the distributors and make decisions based on their forecasts. The process would be very similar to using point-of-sale data from retailers.

Benefits:

* Make better delivery decisions and improve demand forecasts.

* Meet end-consumer's needs more effectively and accurately.

* Distribute the workload on Barilla's manufacturing and logistics systems more evenly.

* Reduce Barilla's own distribution costs, inventory levels and manufacturing costs.

* Reduce distributors' and retailers' inventory.

Drawbacks:

* It would be difficult to run trade promotions with JITD.

* If forecasts were not correct, it might aggravate the stock-out problem.

* The implementation required customers to share their data and improve their computer systems.

* Free shelf space in inventories could result in giving competitors more of the distributor's shelf space.

* Sale people would lose their incentives because the sale would be predictable or flat.

What conflicts or barriers internal to Barilla does the JITD program create? What causes these conflicts? As Giorgio Maggiali, how would you deal with these?

The JITD program was met with a lot of resistance from Barilla's sales and marketing organizations.

The company's