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Case

Presentation
Barilla SpA
Introduction
Company & Industry background
• World’s largest pasta producer in
1990
• Pasta Share - 35% in Italy and 22%
in Europe
Channels 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
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
Distribution Procedure
• Original flow of goods and
information
PLANT

CDC’s
Barilla run
depots

GD’s DO’s

Chain Independent “Signora


supermarkets supermarkets Maria” Shops

Customers Customers Customers

*CDC = Central Distribution Centre


GD = Grand Distributors
DO = Organized Distributors
Sales and Marketing
• Advertising – Heavy, Brand Positioned as the
Highest Quality
• 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 DO’s than
GD’s
– Merchandise Barilla Products
– Set up In-Store Promotion
– Take note of competitor’s prices, stockouts,
new product launches
– Work out ordering strategies for the retailer
etc
• Demand Fluctuations
• Just in Time Distribution
Variability in Demand
• Reasons
– Transportation 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
Distributer’s end
Exhibit 12: Demand
Fluctuations
Variability in Demand
• Methods employed to counter variability
– Holding buffer FGs to meet Distributor
requirements
– Asking Distributors/Retailers to carry
additional inventory
• Impact
– Strained Manufacturing and Logistics
operations*
– Poor Product delivery management
– Thinning retailer/distributor margins
– Increased Inventory Holding costs
– Impossible to anticipate Demand swings
– Changing customers due to lack of storage
space
Bullwhip effect
• Amplified Variation in demand
as one moves up the Supply
Chain (away from the
customer)
order order order

Factory Distributor Wholesaler Retailer

Order
Variation
The Causes of Bullwhip
Effect
• Demand Forecast
• Long lead times
• Order Batching
• Price fluctuation (Promotional
sales)
• Inflated orders in high
estimated demand scenarios
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 managed Inventory (VMI)
Just-In-Time Distribution
(JITD)
• 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
products through the distributor’s
warehouse, and then decide what to
ship to the distributor and when to ship
it
• Distributor provides Data on the
shipment and current stock levels for
Expected Benefits of JITD
• Manufacturer
– Reduced manufacturing costs
– Better Relationship with Distributors
• Increased supply chain visibility
• Increase Distributor’s 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
JITD - Internal Resistance
• Sales Representatives feared
reduction in responsibilities
• Flattened sales levels
• Risk of Inability to adjust
shipments quickly to stock-outs
• Lack of infrastructure to handle
JITD
• Increased competitor shelf space
at distributor
• Inability to run Trade promotions
• Unsure about the cost benefits
JITD – External Resistance
• Unconvinced Distributors
• Not willing to share
warehouse data
• Perceived power transfer to
Barilla
• Lack of faith in Barilla’s
inventory management
Possible methods to
counter Resistance
• Demonstrate that JITD
benefits the distributors
– Run experiment at one or more
of the distributor sites
• Maggiali needs to look at JITD
not as a logistics program, but
as a company-wide effort
– Get Top management closely
involved
Experiments at Dry-
product depots
• Barilla spa ran first JITD experiment at
its Florence 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
from 98.9% to 99.8%
• Depot’s staff was not comfortable
working with such 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 ware houses
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 as
Florence
• These experiments established the
credibility of JITD system
Implementation at D. O.
Cortese
• The decision to implement JITD in
Marchese DC of Cortese involved
– Barilla: Director of Logistics,
Executive vice president of sales and
Manager in charge of JITD
implementation
– Cortese: Nine managers including
Managing director, new services
manager, logistics manager and
logistics, purchasing, marketing and
sales personnel from Cortese’s
Marchese DC
• Consultant Claudio Ferrozzi was roped in
– Neutral party trusted by both the
groups
Implementation at D. O.
Cortese
• For six months, Barilla team analyzed daily
shipment data of the DC
– Created the data base of DC’s historical
demand pattern
– Simulated shipments with JITD 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
Adaptation to different
distributors
• With new confidence they
approached other customers
• Customers apprehensive
about JITD repeating the same
success as Cortese for them
as they had varied systems
• Barilla’s team developed
capacity to translate
customer’s standard’s into
internal standards
Adaptation to different
distributors
• Developed a protocol which could
be used to communicate with all
customers
• Each SKU identified with three
different product codes
– Barilla’s code
– Customer’s code
– EAN (European article numbering
system) barcode – Most common
barcode standard in Europe
• Advantages of the coding system
– Information can be received through
any code
– Reduce impact of internal changes in
product or code on client’s system
Communication with
consumers
Customer 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 day’s “sell through”-All
shipments of Barilla products out of
DC to consumers on the previous
day
4. Stock outs on previous day for every
Barilla SKU carried by DC
5. An advance order for any
promotions that the customer
planned to run in the future
6. Preferred delivery carton size
Lessons learnt
• One needs to prove credibility of any
new performance initiative for others to
buy his/her idea
• Best place to experiment with an idea is
within the organization
• To succeed in a new initiative,
involvement of top management is
imperative
– Barrilla could finally succeed in implementing
JITD with Cortese. Whole of top management
from both sides was involved in the decision
making. Which never happened earlier
– Sometimes roping a consultant helps
• Market is ever growing. If performance
measures seem to create spare
time/capacity instead of chucking them,
look out for ways to increase the
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