Barilla Spa Case Study

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Barilla SpA (Case A)

ABSTRACT: Analysis of the factors contributing to the Bullwhip Effect in Barilla and problems faced by Maggiali, the director of logistics, in implementing his ideas to reduce the fluctuations with JITD model.

By:

Sumitha kamireddy        001748203

Company Background

Pietro Barilla founded Barilla in 1875, started as a small shop in Parma, Italy. It has grown from producing pasta and bread products on a small scale to manufacturing food for global requirement. By 1990, Barilla emerged as a world’s largest pasta producer. It offered pasta products under 3 different brands to the customers, namely the traditional Barilla brand, Voiello brand (Neapolitan pasta), Braibanti brand (Parmesan pasta).  It also had a Bakery Products Division, Catering Division and finally an International Division. The export market also was experiencing tremendous growth especially to other European countries.

Analysis 

As Barilla grew internationally, its product range also became more diverse. It divided its product line into 2 separate categories, “Dry” and “Fresh”. The Dry products mainly consisted of dry pasta and bakery products like biscuits, cookies and bread sticks. These had longer shelf-life. The Fresh products range included fresh pasta and bread, which has limited shelf-life.

Barilla maintained different distribution systems for both the product categories with the difference in perishability in mind. They also used equipment that helped them maintain the right temperature and humidity levels for various products.  As new products get added to the product range Barilla had to design and change its equipment accordingly which was a tedious job.  

Barilla’s product diversity led to complications in its manufacturing and distribution facilities. They could not handle the growing burden of demand fluctuations even though Barilla had a well-organized distribution system with Central Distribution Centers (CDC) distributing the products to Grand Distributors (GD) and Organized Distributors (DO). Barilla’s dry product range had extreme demand fluctuations causing disturbances in the manufacturing and logistics operations. Predicting the demand for its products was one of the major problems Barilla faced.  This effected in high product changeover costs and in turn resulted in inefficient production or excess finished good inventory. It also resulted in higher transportation costs.

Causes of demand fluctuations:

1. Transportation and Volume discounts
2. Promotions / Price variations
3. Not having minimum or maximum order quantity
4. Communication gap
5. Product range proliferation

After having a clear vision of the companies operations and the problems it has been facing, the director of logistics suggested implementing Just-in-Time Distribution (JITD).  They figured that instead of filling orders specified by the distributors, Barilla should monitor the flow of its products at the distributors’ warehouses and then ship new stock when needed.

Implementing JITD has its perks:

1. Improves demand forecasts
2. Decreases manufacturing and transportation costs
3. Reduced inventory carrying costs
4. Improves customer service levels
5. Increase Supply Chain visibility
6. Increases ROI

At this rate they could solve the problem of not being able to predict the demand. But, when put into action, Barilla’s customers were unwilling to give up their authority to place orders and felt that Barilla is interfering too much. Maggiali later realized that there was also much more resistance from Barilla’s own sale and marketing organizations.

JITD had had its drawbacks:

1. Reduction in responsibilities of sales representatives
2. No more Trade Promotions
3. Requirement of sophisticated infrastructure to handle JITD (customer end)
4. Might lead to stock-outs
5. Increased internal inventories
6. Trust issues

Even though JITD could solve many key issues, we cannot oversee the problems others face. It created resistance from both internal and external means.  The sales and marketing department were more concerned about the interruptions in the productions and that the risks of stock-out would increase further. They were also worried that the sales would decrease rapidly as discounts and promotions will no longer be an option. This would mean that the bonus for sales would be negligible.  It would also reduce flexibility to respond no anything new.