THE BARILLA CASE

Mr Vijay Kannan

Nora Lakrad
Clarisse Djomkam
Hugo Vandershaegge
David Becquet
 Introduction

Barilla SpA, an Italy based company, is the world’s largest Pasta manufacturer. It
has a 35% market share in Italy and a 22% market share in Europe. In addition to the
family of pastas (macaroni, spaghetti, fusilli, etc.) it also manufactures bread, cookies,
biscuits, sauces, breadsticks, etc. Barilla has a very complex distribution network
consisting of Grand Distributors (owned by large Supermarket chains), Organized
Distributors (independent third party distributors) in addition to its own depots. Due to
such a complex and multi-echelon network, Barilla has been experiencing large amounts
of variability in demand which are resulting in operational inefficiency and increased
manufacturing, inventory and distribution costs.

Brando Vitali, Barilla’s ex-Director of Logistics, had proposed a Just-In-Time Distribution

(JITD) system to counter this demand variation. This system required the distributors to
share their sales data with Barilla, who would then forecast and deliver appropriate
amounts of products to the distributors at the right time in order to effectively meet
demand. This was a radical change from the current and more traditional supply-chain
setup where the distributors were not sharing any data and could place orders at will. In
this report, we will thus first describe the problems that Barilla met and then try to find
some recommendations on how to use the JITD process.
 Problem Description

We will attempt to first list all the problems that are faced by Barilla and the distributors
so that we can better understand them in order to make recommendations on how Barilla
should use JITD program. The main problem in this case is the fluctuating demand and
some of the causes of this fluctuating demand are:

• Promotions: Barilla’s sales strategy relied heavily on the use of promotions, in the
form of price, transportation and volume discounts. They divided the year into 10
to 12 promotional periods, during which different products were offered at
discounts with prices ranged from 1.4% to 10%.
• Sales Representatives: The compensation system for the sales representatives was
that they were rewarded based on the amount of the products that they sold to the
distributors. This was causing problems as the sales reps would try and push more
products during the promotional period to get a bonus and were not able to sell as
much during non-promotional periods. This led to wide variation in demand and
made forecasting very difficult.
• Large number of SKU’s: Barilla’s dry products (the focus of the JITD proposal)
were offered in 800 different packaged stock keeping units (SKUs). These large
numbers led to greater complexity.
• Bad forecasting by Distributors: The distributors did not have forecasting systems
or sophisticated analytical tools for determining order quantities and this resulted
in bad forecasts.
• Long Lead Times: Barilla supplied its distributors between 8 and 14 days after it
received their orders, the average lead-time being 10 days. This was slightly long
and a lot could change in the supply chain during this period, causing rise in
variability.
This leads to many problems for Barilla. Some of them are:

• Production Costs: These costs increased drastically as the demand variation

increased. As Barilla struggled to cope up with the fluctuating demand, the
production costs rose as changeover was costly.
• Scheduling Difficulties: It was difficult for Barilla to schedule its resources and
facilities like Labor, Machinery and Trucks due to demand variations. This was
resulting in increased costs of Labor and maintenance.
• Transportation Costs: As a result of uneven demand, Barilla had to transport more
products to its distributors in periods of high demand in lesser time than when
compared to periods of low demand. The greater number of trucks, etc that it
required in periods of high demand increased its Transportation costs.

Recommendations

After listing out the problems and studying them in detail, we have come up with our
recommendations to reduce uncertainty in demand. In order to do this, the distributors as
well as Barilla’s Sales and Marketing have to be convinced that this proposal do more
good to them than bad.

“How will JITD work?”: The JITD system will work using the following innovative
techniques:
• Collaborative Planning: Barilla and the distributors can work as a team and plan
on different issues to smoothen out the creases in the supply chain.
• Demand Management: Barilla should not only forecast demand but also should try
to shape and influence it. This can be done using market surveys to determine the
needs and expectations of the consumers and designing products to satisfy them.
Forecasting would become much easier and reliable if the demand can be
managed and if techniques were put in place to reduce uncertainty.
 • Aggregate Demand: As Barilla is going to decide order quantities for all
distributors, it can aggregate the demand and thus ensure better forecasts and
reduced costs. This is due to the fact that even if some of the distributors demand
more than what was forecasted, the slack in demand from others would offset this
increase.

Overcoming Internal Resistance: Before trying to convince the distributors, one has to
convince everyone at Barilla that the JITD system will be a success. If everyone within
the company is convinced and they provide a single front to the distributors, Barilla has a
better chance of convincing the distributors. Some of the steps that Barilla will have to
take in this regard are:
• Convince and use the Upper Level Management: if they are convinced of its
feasibility, they will offer full support in trying to convince the Sales department.
It will make a lot of difference if the Upper management talk to the Sales people
than if just their Logistics peers talk to them.
• Involve the Sales Department in all stages: To make the Sales people feel
important and wanted, Barilla should involve them in all stages of the JITD
proposal. They should be made to feel that they would have lots to do even after
the system comes into effect.
• New Compensation System: The Sales department should be informed that they
would still be rewarded for good performance, except that in this case it was the
performance of the entire company as a whole and not just they individually. The
new system would award a percentage of Barilla’s profits to the employees as a
bonus. They should be shown that the reduction in costs due to the JITD system
would ensure greater margins for Barilla that would then be passed on to the
employees.

Convincing Barilla’s Distributors: Barilla has to convince them that the plan will work
and not only benefit Barilla but also the distributors participating in it. Some
recommendations to convince the distributors are:
 • Show them the money: This, as always, is the foremost issue on any business
enterprises’ mind. If an enterprise can be convinced that it will make more money,
it will be ready to change its current practices. The distributors should be shown
that the costs of the system would reduce so much that everyone in the supply
chain would save considerable sums of money.
• Address Trust Issues: This is a major issue between Barilla and its distributors and
to solve this Barilla should work out some confidence building measures which
would prove to the distributors that Barilla was worth trusting and that they were
making the right decision. Some of the steps that could be taken to increase trust
are:
- Barilla should have a transparent policy and should not hide any of its
plans from the distributors.
- Instead of sending the Logistics personnel to talk to the distributors, Barilla
should send the Upper Management. This would make the distributors feel
important and would help in convincing them better.
- Barilla should make compromises in its business in order to help its
distributors.
- Barilla should initiate joint decision-making and planning with its
distributors to show them that it cared for each one of them and wanted
them to be involved in the process.
Other Recommendations: We have some other recommendations that we believe will
help to reduce demand uncertainty and eventually improve overall supply chain
performance. They are:
• JITD in Exports: Barilla has a 22% market share in Europe and this share is
expected to rise as the growth in the export market increases by 20-25% each year.
Barilla could try and implement the JITD system with its distributors, both current
and future, outside Italy. If implemented and successful, this idea would result in
savings for Barilla in its export supply chain.
• Reduce SKUs: Currently, Barilla’s dry products are offered in 800 different SKUs.
This large amount leads to a lot of complexity in the order process, distribution as
well as inventory and thus increases costs and variability.
 Conclusion

Barilla can look forward to a much more efficient and profitable future as a result of
implementing these recommendations concerning the JITD system: their demand would
become more steady and easier to produce and transport, their operating costs will reduce
and these savings would result in better margins and the cycle times would decrease and
the cash flow would become even.