Barilla SpA (A)

By-
Group A1

Q1. What could be the fundamental reasons for the
demand fluctuation experienced by Barilla? Is it a
reflection of change in customer preferences?

Reasons for demand fluctuation
Variety of SKUs (dry products 800 SKUs, different packaging)
Absence of accurate forecasting tool- Bullwhip effect - amplification of the ordered quantity
Average lead time of 10 days
Distributors sales volume varied simple periodic review inventory systems
Promotions, Volume discounts
Sales strategy of Barilla, pastas sold at market price, discounts observed immediately
Truckload dependent discounts
Promotion might result in increased sales followed by no subsequent rise in sales until the next promotion
Sales incentive for representatives
Different for different products in different periods
Stockouts pressure on manufacturing due to longer lead times and product perishability
Q2. What do you think of the JITD Model? Will it
solve problems Barilla is facing now? Why? Why
not?

JITD Model solution to problems?
Just in time distribution When and how much to ship?
Barillas logistics organization - specify delivery quantities effectively meet demands
Solely focussed on dry products sold through distributors
Distribute workload on manufacturing and logistics systems more evenly
Problems faced
Demand Forecasts - Burden on manufacturing as well as logistic network
Bullwhip effect (Forward buying due to discounts offered may lead to this as well)
Inventory levels high carrying cost- operational inefficiency
Each CDC held about a months worth dry product inventory
Distributors and retailers margin might suffer
Small independent shops and supermarkets held approx. 2 weeks of inventory at store level
Unnecessary worker, equipment usage and truck charges
JITD Evaluation
Advantages
Better planning and promotional activities
management
Reduced inventory level and hence its carrying cost
Increased supply chain visibility
Increased bargaining power
Reduced burden on both manufacturing and
logistics

Disadvantages
Distributors wont be motivated to push
Shift of power to the company
Sharing warehouse figures
Empty shelf spaces might lead to more competition
Lack of sophisticated infrastructure to support the
model may result in stockout

We think that JITD proposal is advantageous and can solve the problems faced by Barilla
Need to establish credibility in the system- get top management convinced first followed by external stakeholders
Run experiments as a pilot followed by full fledged implementation
Effectively demonstrate the advantages of such a system to the distributors improved margins
Information centralization will lead to added advantage in terms of reduced inventory and bullwhip effect reduction

Additional recommendations-
Have a product code to identify the product in the supply chain for efficient tracking

Q3. Do you think JITD is useful for Barilla but risky
for DOs? What explains the resistance to JITD?
JITD Model Useful for Barilla and risky for Dos?
JITD useful for Barilla
Vendor Managed Inventory system will allow Barilla
To have access to actual retail sell-through data
To determine shipment quantity and time to distributors
To eliminate Bull-whip effect from the distribution cycle
To control production quantity, leading to costs reduction
To have high visibility and bargaining power
To strengthen relationships as distributors will be more dependent on Barilla
Risky for Organized Distributors (Dos)
Dos will have to share their sales data figures and relinquish their control over stock decisions
Resistance to JITD Model
Internal resistance
Sales and Marketing department were not ready to experiment with this technique
fearing
Flattened sales
Giving shelf space to competitors deliberately
Increased risks of stock outs due to uncontrollable reasons like strikes
External resistance
Distributors were not ready to share detailed sales data
Barillas increased control over inventory management decisions in warehouses
Q3. What was the mistake of Maggiali? What should
he do now?
Mistakes of Maggiali
Lack of conviction
Could not convince the distributors about managing their stock
Could not convince them about the inability of Barilla to respond to the highly fluctuating demand
within 36 hours after placing the order
Made it look like Barilla had wanted to reduce its own costs only by pushing its products into the
warehouses of the distributors
Non-involvement of all players in the discussion
Maggiali should have involved all the players i.e. distributors and retailers in the in-depth discussion
regarding JITD
Maggiali should have involved top management of Barilla because it was a company effort and not a
logistics one.
Recommendations
He should involve top management and publicize the benefits which Marconi had gotten from the implementation of
JITD. This will reduce the skepticism of the distributors and retailers about JITD.
He should introduce the JITD with Marconi for the trial basis only. The results will automatically convince the Marconi
and its customers that the inventory costs have reduced.
Reduction in lead time would lead to the anticipation of the incoming order by studying the data and thus would
improve customer service
Maggiali should emphasize on the reduction of lead time due to availability of point-of-sale data
Thank you