Barilla SpA Case Solution[1]

8/8/2019 Barilla SpA Case Solution[1]

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Case PresentationBarilla SpA


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Introduction

Company & Industry background

Worlds largest pasta producer in 1990

Pasta Share - 35% in Italy and 22% in

EuropeChannels of Distribution

Products divided in 2 categories Fresh

and Dry

Fresh Products had 21 day Shelf Lives

Dry Products had Long ( 18 to 24 Months)

or Medium(10 to 12 weeks) Shelf Lives

Retail Outlets Small independent shops

and Supermarkets (Chain and

I

ndependent)


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The Issue

During the late 1980s, Barilla suffered increasing

operational inefficiencies and cost penalties that

resulted from large week-to-week variations in

its distributors order patterns


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Distribution Procedure

Original flow ofgoods and

informationPLANT

CDCs

GDs DOs

Signora

Maria Shops

Independent

supermarkets

Chain

supermarkets

Customers Customers Customers

Barilla run

depots

*CDC = Central Distribution CentreGD = Grand DistributorsDO = Organized Distributors


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Sales and Marketing

Advertising Heavy, Brand Positioned as the HighestQuality

Trade promotions Frequent

Canvass period, 10 to 12 in a year, typical duration of 4 to

5 weeks Distributor could buy as much product as desired to meet

present and future needs at the offered discount

Volume Discounts also given

Sales representatives used more at DOs than GDs

Merchandise Barilla Products

Set up In-Store Promotion

Take note of competitors prices, stockouts, newproduct launches

Work out ordering strategies for the retailer etc


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Demand Fluctuations

Just in Time Distribution


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Variability in Demand

ReasonsTransportation discounts

Volume discount

Promotional activity

No minimum or maximum order quantities

Product proliferation

Long order lead times

Lack of forecasting systems or sophisticated

analytical tools at Distributers end


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Exhibit 12: Demand

Fluctuations


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Bullwhip effect

Amplified Variation in demand as

one moves up the Supply Chain

(away from the customer)

RetailerWholesalerDistributorFactory

orderorder order

Order Variation


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The Causes of Bullwhip Effect

Demand Forecast

Long lead times

Order Batching Price fluctuation (Promotional sales)

Inflated orders in high estimateddemand scenarios


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Counteracting the Bullwhip

Effect Reduce Uncertainty- POS

- Sharing Information

- Centralizing demand information

Reduce Variability Year round or Everyday low pricing

Reduce Lead Times- Information lead times: EDI

- Order lead times: Cross Docking

Strategic Partnerships Quick Response

Continuous Replenishment

Advanced Continuous Replenishment

Vendor managedInventory (VM

I)


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Just-In-Time Distribution

(JIT

D) Vendor-Managed Inventory Concept

Treats end-customer as the Input

Aims at managing the Input filter that Produces

the Orders Decision-making authority for determining

shipments in hands of Barilla SpA

Barilla would monitor the flow of its productsthrough the distributors warehouse, and then

decide what to ship to the distributor and whento ship it

Distributor provides Data on the shipment andcurrent stock levels for each Barilla SKU Sell-through Info one step behind POS Data


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Expected Benefits of JITD

Manufacturer Reduced manufacturing costs

Better Relationship with Distributors

I

ncreased supply chain visibility Increase Distributors dependence on Barilla

Improvement in manufacturing planning using

objective data

Reduced inventory levels

Distributors Improved fill rates to Retail stores

Additional service without any extra cost

Reduced Inventory Holding costs


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JITD - Internal Resistance

Sales Representatives feared reduction in

responsibilities

Flattened sales levels

Risk ofInability to adjust shipments

quickly to stock-outs

Lack of infrastructure to handle JITD

Increased competitor shelf space atdistributor

Inability to run Trade promotions

Unsure about the cost benefits


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JITD External Resistance

Unconvinced Distributors

Not willing to share warehouse data

Perceived power transfer to Barilla Lack of faith in Barillas inventory

management


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Possible methods to counter

Resistance Demonstrate that JITD benefits the

distributors

Run experiment at one or more of thedistributor sites

Maggiali needs to look at JITD notas a logistics program, but as a

company-wide effort

Get Top management closely involved


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Experiments at Dry-product

depots Barilla spa ran first JITD experiment at itsFlorence depot

During the very first month of the program

Inventory dropped from 10.1 days to 3.6 days

Service level to retail stores increased from98.9% to 99.8%

Depots staff was not comfortable working withsuch low inventory levels

Inventory levels finally allowed to increase to

5 days One of the arguments against JITD was that it

will lead to waste empty spaces in the warehouses


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Experiments at Dry-product

depots In Florence case

Barilla growing at rapid rate in the region

Plans to expand warehouse

Existing warehouse able to accommodate the

increased requirement Substantial investment on expansion was

avoided

JITD next tried at Milan Depot

Similar performance improvement asFlorence

These experiments established the credibility of

JITD system


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Implementation at D. O.

Cortese The decision to implement JITD in Marchese DC

of Cortese involved

Barilla: Director of Logistics, Executive vicepresident of sales and Manager in charge of

JITD implementation Cortese: Nine managers including Managing

director, new services manager, logisticsmanager and logistics, purchasing, marketingand sales personnel from Corteses MarcheseDC

Consultant Claudio Ferrozzi was roped in

Neutral party trusted by both the groups


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Implementation at D. O.

Cortese For six months, Barilla team analyzed daily shipment data

of the DC

Created the data base of DCs historical demandpattern

Simulated shipments with JIT

D in place The implementation yielded phenomenal results

Prior to JITD

Stock out rate : 2 to 5% ( Occasionally as high as

10 to 13%)

After JITD Negligible stock out rate of less than.25%(Never

exceeded 1%)

Average inventory level also dropped


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Adaptation to different

distributors

With new confidence they

approached other customers

Customers apprehensive aboutJITD repeating the same success as

Cortese for them as they had varied

systems

Barillas team developed capacity to

translate customers standards into

internal standards


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Adaptation to different

distributors Developed a protocol which could be used

to communicate with all customers

Each SKU identified with three differentproduct codes Barillas code

Customers code

EAN (European article numbering system)barcode Most common barcode standard inEurope

Advantages of the coding system Information can be received through any

code

Reduce impact of internal changes in product

or code on clients system


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Communication with

consumersCustomer each day sent following

information to Barilla via EDI:-1. Customer code number to identify itself

2. Inventory for each SKU carried by DC

3. Previous days sell through-Allshipments of Barilla products out of DC toconsumers on the previous day

4. Stock outs on previous day for every BarillaSKU carried by DC

5. An advance order for any promotions thatthe customer planned to run in the future

6. Preferred delivery carton size


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Lessons learnt

One needs to prove credibility of any newperformance initiative for others to buy his/heridea

Best place to experiment with an idea is within

the organization To succeed in a new initiative, involvement oftop management is imperative Barrilla could finally succeed in implementing JITD

with Cortese. Whole of top management from bothsides was involved in the decision making. Which

never happened earlier Sometimes roping a consultant helps

Market is ever growing. If performance measuresseem to create spare time/capacity instead ofchucking them, look out for ways to increase themarket.(Like in Florence depot warehouse case)


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THANK YOUTHANK YOU

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Barilla SpA Case Solution[1]