BARILLA- THE VALUE

OF INFORMATION
By:
Shivangi Jain
Pratap Deshmukh
Shubham S R
Chanchal Digwani
Ayushi Jain
Mrinal Ghosh
Naveen Agarwal
Section B

The Situation
Demand Fluctuation

Too long of a lead time = 10 days

Promotions
10-12 promotions per year
No MIN or MAX caps on order quantities
Bad Forecasting
Just- in- time distribution (JITD)
Internal resistance from Sales and Marketing
Department Unwillingness from customers to share
the order data

Company Background
Founded in 1875 by Pietro Barilla
Differentiated their company with :

-High quality product

-Innovative Marketing Programs
-Large Scale Advertising Programs
Construction of state-of-the-art pasta
plant drove them in debt

Company under W.R. Grace, Inc.

Sold the company to US MNC, W.R. Grace,

Inc.
Benefits :
Bought additional capital investment
Professional Management Practices
Launched an important new mulino
bianco
- line of bakery products
Drawbacks :
Legislation that capped retail pasta price
Increased cost of living allowances

Back to Pietro Barilla

Necessary funds to buy the company

back
Improving market conditions annual
growth of 21 percent
Expansion of existing business in Italy
and other European Countries
Acquisition of new related businesses
By 1990, became the largest pasta
manufacturer

Representation of Market Share

Traditional
(32%)
Italy (35%)
Voiello &
Braibanti (3%)

Market Share
Europe (22%)

Organisation of Divisions
3 Pasta Division
Bakery Product Divisions
Fresh Bread Division
Catering Division
International Division

Industry Background
Per pasta consumption in Italy averaged

nearly 18 kilos per year

Italian pasta market was growing less than
1%.
Semolina pasta & fresh pasta only growth
segments in Italy.
Upcoming opportunity
Export to other European countries expected
to rise by 20%-25% per year.

Competitive Advantage
Extensive networks of plants located throughout

Italy
Maintained state-of-the-art R&D facilities.
Pilot production plant for developing & testing
new products & production processes.
11 production lines produced 9,000 quintals of
pasta each day.
Carefully chosen production sequence:
Minimized the incremental changes in kiln

temperature
Kept changeover costs low
Product quality high

Channels of distribution
Product categories
Fresh products
Fresh pasta- 21 days shelf life
Fresh Bread- 1 day shelf life
Dry products
Included- dry pasta, cookies, biscuits, bread sticks
and dry toasts
75% of Barillas sales
18 to 24 months of long shelf life, 10 to 12 weeks of
medium shelf life
800 different SKUs
Popular products- variety of packaging options

Channels of distribution
Product categories
Fresh products
Fresh pasta- 21 days shelf life
Fresh Bread- 1 day shelf life
Dry products
Included- dry pasta, cookies, biscuits, bread sticks
and dry toasts
75% of Barillas sales
18 to 24 months of long shelf life, 10 to 12 weeks of
medium shelf life
800 different SKUs
Popular products- variety of packaging options

Barilla distribution patterns

Barilla dry product
factories
65%

35%

TL
10%

Barilla CDCs
90%
Grande distribuzione
GD

Chain Supermarkets

TL

TL
18 Barilla-run depots

TL
Distribuzione
organizzata

LTL
LTL

LTL

DO
Independent
Supermarkets

Signora Maria
Shops

TL: Delivery in Truckload quantity, LTL: Delivery is less than truck load quantity

 Barilla run depots- over 2 weeks of inventories

Supermarket- 10 to 12 days of inventories
Average total of 4800 SKUs
Retailers carried only 1 or at max 2 packaging

options for pasta products

Typical distributor- 150 of 800 dry product
SKUs
Supermarkets placed daily orders- received
after 24 to 48 hrs

Sales and Marketing

Advertisements:
Heavily advertised.
Evoked a sense of luxury and sophistication.
Avoided images of Italian folklore
Preferred modern, sophisticated settings.
Themes supported by well known athletes/luminaries

- Steffi Graf, Stefan Edberg, Paul Newman.

Focused on developing loyal relationships with families.
Where there is Barilla, there is a home.

Trade Promotion
A very old fashioned distribution system.
Buyers expected frequent trade promotions
passed along to their customers
Promotional discounts in canvass periods
Products

Semolina
Pasta

Egg Pasta

Biscuits

Sauces

Breadstick
s

Discounts
Offered

1.4%

4%

4%

8%

10%

Also offered volume discount by paying for

transportation.
Sales rep offered a 1000 lire per carton discount, if the
order is minimum 3 truckloads

Sales Representatives
Sales reps spent 90% of their time at store level
Weekly scheduled meeting with distributors buyer
Helped in weekly order, explanation of promotions

and discounts
Settled problems regarding returns and deletions.
Reported at Central Dist. Centers to discuss new
products and prices,
Solved previous weeks deliveries problems
Very small sales force served the GD

Distribution
Average lead time of 10 days ( 8 days to 14 days)
Orders varied from one truckload a week to as many as

five.
Distributors used simple periodic review inventory
system.
Mostly used computer supported ordering systems
Few used had forecasting system or sophisticated
analytical tools

Key Issues
Demand Fluctuation
Highest: 890 qt.
Lowest: 10 qt.
Mean: 300 qt.
S.D.: 227 qt.
Puts unnecessary pressure on manufacturing & logistics operations

Key Issues (Continued)

Stock-Outs
Highest: 8.8%
Lowest: 4.6%
Mean: 5.9%
Stock-Outs can lead to customers switching from one product to other
Retailers can fill their shelf space with competitor products

Key Issues (Continued)

BULLWHIP EFFECT
Time delays in Inaccuracy in
the transition
demand
of information
forecast also
Uncertainty in
up the supply
causes
demand caused chain and time bullwhip effect.
from distorted
delays in
Everybody in
information
the supply
flowing up and manufacturing
and shipping
chain adds a
down the
goods down
certain factor
supply chain
the supply
of safety in the
chain creates
estimated
bullwhip effect
demand.

JITD- Just-In-Time Distribution

JITD is also known as Vendor Managed

inventory concept

Barilla would forecast and delivery the

appropriate quantities at specific times.

Collect data from distributors & make

decisions based on that information.

Reduce enormous stock and ship product

only when needed

Treat orders as unchangeable input into

the process

Data Analysis through JITD

All Barillas JITD would require data
from the distributors about the flow of
different products
This information would be as good as
Point-of-sale data from the retailers

Through JITD the organisation would

be able to determine few factors :
Weekly/Daily Sales
Inventory turnover
Fast and slow selling products

Benefits of JITD..
Benefits to the Company

Benefits to the Distributors

Due to prior inventory turnover

information the cost of
manufacturing new goods would
reduced.

Services offered by Barilla would

increase

Barilla can achieve forward

integration

Proper utilisation of inventory

space
& reduce the Inventory cost as
well

Dependence on distributors also

reduced

Improve the relationship between

Barilla and its distributors

Reduction of Lead time

Reduction of lead time

Problems in implementations JITD..

Sales Representative were against JITD as they feared this
system will diminish their responsibilities
To convince the Distributors for their stock data
Since JITD would be newly implemented this would involve set
cost and with no assured cost reduction
Free Inventory space with distributors for the competitors products

Should JITD be implemented .

JITD Should be implemented as it can reduce the losses due
to unpredictable demand patterns
Barilla should implement JITD on its own warehouse and test it
as a pilot project with the help of the third party consultants (or
with GDs like Marconi)
To attract distributors, more Incentives can be provided to
them along with explaining them how JITD would be mutually
beneficial for both the distributors and the organisation.

Thank You