Supply Chain Management Assignment#2 October 4, 2011

Presented by: Ahsan Khawar Fahd Iqtidar Mir Nabeel Siraj Umair Babar Chishti

Q1. Difficulties faced by Barilla: Barilla has an extremely complex distribution network which comprises of several distributors, which include independent distributors and owned distributors for supermarket chain. Besides having a complex distribution channel, Barilla has been experiencing large amounts of variability in demand which are resulting in operational inefficiency and increased manufacturing, inventory and distribution costs. Furthermore, due to the temperature and humidity requirements of the kiln, Barilla has a specific production sequence. Making changes to the sequence to cater for the fluctuating demands means excessive costs for Barilla. The main reasons that have led to extreme fluctuation in the demand can be linked to promotions, sales reps policies, the huge number of SKUs that Barilla offers and wrong forecasting practices. Barilla used trade promotion periods and volume discounts to improve trade. This led towards batch ordering and hence pressure on the production lines. Furthermore, by offering incentives to sales reps for sales during the promotional periods, Barilla made its sales reps push more products into the pipeline during promotional periods. As a result the sales went down in no promotional periods, hence leading to further fluctuations in demand. Another reason for incorrect demand forecast was the fact that Barillas distributors had full control over the orders they placed and most of them had no sophisticated forecasting techniques in place. This meant gaming in order placement and as a result fluctuation in demand for Barilla. Benefits and Drawbacks of JITD: The JITD promises to offer several benefits to Barillas production process. From improving the demand forecasting to reducing production costs, this program promises to reduce the production and delivery lead times by a great percentage. Most importantly, Barilla would become much more responsive to its customers changing and fluctuating demands. With JITD in place, Barilla would be able to affectively make use of its production sequence, it would be able to improve demand forecasting and also be able to control stock outs that its distributors were facing. Yet, at the same time JITD offered some drawbacks. Most importantly, the JITD meant that Barilla would face strong opposition from its distributors and there was a chance that several of them would be unwilling to continue working with Barilla incase JITD was introduced. The drawback being that JITD would take away the autonomy from Barillas distributors of inventory management. So there is a lack of trust between the two.

Another drawback was that by reducing inventory levels at its distributors warehouses, Barilla was giving a chance to its competitors of having a more shelf space and consequently increasing their distribution. JITD also meant that incase of any disruptions in Barillas production due to plant outages or employee strikes, the whole distribution of Barilla products would be severely halted. With small amounts of inventory levels at its distributors warehouses, production outages would lead to immediate stock outs. Also no trade discounts mean a reduction in overall sales, at least in the short-run.

Q2. Some of the main issues that Barilla would face internally due to JITD were related to the organizational structure and the incentive system of the Sale reps. Firstly, Barillas sales reps felt that with introduction of JITD the requirement of sales reps would go down. Since, most of them were responsible for inventory management, sales promotions and order processing from the distributors. With JITD in place, the need of sales reps would reduce and hence this is an issue that needs to be dealt with before implementation of the program. Another issue linked to this is the incentive based payment system. Sales reps felt that with the introduction of a pull based system, their need of pushing products into the market would fade out and hence their compensations would face huge dents. This means that Barilla would need to introduce a different compensation plan for the employees. To deal with these issues, Maggiali would need to gain confidence of the employees and help them understand JITD to a better extent. By improving their understanding of the JITD program and giving them confidence that their need would still remain in the company, Maggiali would be able to reduce the internal resistance being faced. Barilla could use some sort of training programs for its employees in which it practically demonstrates the usefulness of JITD, to make them realize the usefulness of information sharing and JITD. The sales force could be given additional responsibilities for market development and building distributor linkages so that they dont feel alienated from the company after introduction of JITD. Also, the compensation system could be modified by making it somewhat more lucrative and also by linking it to market development and to creation of new distributor linkages. This would give incentives to the sales force for converting to the JITD program.

Q3. As a customer of Barilla, I would implement the JITD Plan. This is mainly due to the following reasons: The cost of periodically ordering stocks from Barilla would be finished. This job would now lie with Barilla itself, and the freed up resources that were being used in ordering can be used elsewhere resulting in lower costs. I would have more space in my warehouse, as no excessive inventory for Barilla would be carried, hence new products can also be added to my warehouse resulting in more business partners and profits. My relationship with both Barilla and the end retailers would improve, and it would be a chance to form long term formal relationship with them. Since very few other distributors are willing to accept the JITD, I could use this as a negotiating point, and get more margins on Barilla Products. The prospect of facing stock outs would be decreased, and even if such a case arises, the whole onus would be on Barilla as they would now supply the stock according to their prediction. But I will first ask Barilla to explain me the whole process and incorporate my input and some of my reservations. Also I will explain to them that if this system does not work I am at full liberty to go back to the original. Q4. The environment in which Barilla operates is not the best for a JITD program. There is lack of communication as the organizations operated independently, lacked sophisticated forecasting techniques, faced internal and external resistance, but if some steps are taken the program would be both feasible and effective as it addresses the majority of issues in the current supply chain. First the company needs to establish trust within the organization, as well as with the distributors. For this meet with all the stakeholders, explain them with a detailed cost-benefit analysis and project this notion that though it may not be as cost effective in the short term but its long term benefits will outdo the costs. Perform test runs for a short period of time to demonstrate the benefits of this program; start from the company run supply chain, and show it to them. Barilla should reduce the price of its products to account for the lost sales in trade promotions and volume discounts. It should target regional customers first to see the impact of the system and move to a bigger territory once it s been accepted locally. To convince new customers, relate the success of JITD with the areas where it has already been implemented.