Barilla Spa - Strategic Supply Chain Management & Design

Background

Barilla SpA founded in 1875 by Pietro Barilla started from a small shop in Parma, Italy on via Vittorio Emanuele. And then it evolved from its modest beginnings to a large vertically integrated corporation with flour mills, pasta plants, and bakery-product factories throughout Italy.

In 1960, the sales growth increased exponentially with double digits. To support this Gianni Barilla and Pietro started to build a massive plant in Pedrignano. But instead of profit, they began to produce debts.

In 1971 the company was bought by American multi-national firm W.R. Grace, Inc and began to add capital investment and professional management practices. And then they launched new Mulino Bianco ("White Mill") line of bakery products.

In the 70s, faced by economical crisis and new Italian legislation that both capped retail pasta prices and increased cost of living allowances for employees, Grace was trying to keep the company survive until 1979, Grace sold back the company to Pietro Barilla.

In 1980, after combining capital investments and organizational changes brought by Grace with improving market conditions, Pietro Barilla was able to launch a successful return to the company. And the growth rate is over 21%.

Problems

As a Pasta Manufacturer, Barilla SpA was experiencing some problem on its inefficiency and starting to develop more cost to support the request or distributor's demands. The cost generated from the complex distribution network with independent 3rd party distributors which the company has and also including the multi echlon network, which increase the large amount of variability in demand. And these numbers of variability in demand contributed the inefficiency of operational and increase the cost of manufacturing, inventory and distribution.

How to make more efficient of this supply chain system, Giorgio Magialli, the director of logistics wanted to implement the Just In Time Distribution (JITD). With this idea, Giorgio Magialli proposed this to be implemented in the company. This JITD require the distributor to share their sales data to Barilla and then computed to generate forecast and deliver appropriate number of products to distributors in the right time to meet the efficiency demand.

This method was a revolutionary to the distributor and generate complaints from distributors since they are not willing to share their information and wanted to use the legacy system that they already comfy. The great complaints were not only from the distributors but also from the internal company, Barilla's Sales & Marketing department with a lot of reasons.

The Variability of Demands

A few reasons why Barilla has variability of demands, they are:

* Stock Keeping Unit (SKU). The Barilla's SKU were up to 800 SKU for dry products only.

* Trade Promotions. Using promotion with price, transportation with old-fashioned distribution system and volume discount was generating the variability.

* Sales Representatives generated more information to create more products to the pipeline after they spent 90% on the store level. And eventually, some new products did not meet the sufficient quantity which made the variant wider.

* No sophisticated forecasting system. Only few distributors had sophisticated forecasting system / analytical tools for determining order quantities.

Cost Implication

Due to fluctuating demands from distributors, the production cost was rising rapidly for wide range of SKU and backorders. It also led to production scheduling difficulties and high labor & transportation costs to satisfy the increasing ordering on the promotional periods. All will affect the cash flow to be