Barilla Spa Case Study

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Barilla SpA (A) Case Study

Shayne MacKinnon

June 14th 2016

Table of Contents

Executive Summary……………………………………………………………………………... Page 1

Company Overview……………………………………………………………………………… Page 1

Issues………………………………………………………………………………………………….. Page 2

Alternatives and Options…………………………………………………………………….. Page 4

Recommandations……………………………………………………………………………… Page 5

Target Market…………………………………………………………………………………….. Page 7

Implementation…………………………………………………………………………………. Page 7

Conclusion…………………………………………………………………………………………. Page 8

References………………………………………………………………………………………… Page 9

Barilla SpA (A)

Barilla is the world’s leader in pasta and over the years they have become exasperated with the fact that fluctuating demands for Barilla products was taking a toll on their distribution and manufacturing structure. Director of Logistics Brando Vitalli had proposed a model in attempt to alleviate the stresses of the manufacturing and distribution fluctuations. He proposed the idea of Just in Time Distribution – a method that would forecast and deliver appropriate quantities to their customers, and would allow Barilla to distribute workloads more evenly and efficiently.  

With such an ingenious idea, Barilla could continue to reduce their manufacturing costs, reduce inventory levels and better their relationships with their distributors. However, this was not the response Vitalli had received. In fact – he received major backlash for the idea and now needs to come up with a solution for his customers to give his idea a chance.

Company Over-View

Barilla was founded by Pietro Barilla in 1875 and as of 1990, has become the world’s largest pasta manufacturer. They have an incredibly strong brand image and have a wide range of different products. Barilla has 800 different SKUs that range from fresh pasta to baked goods. Their products ensure the highest of qualities that are supported by innovative marketing programs. These 800 different products are then divided into 2 categories: “dry” and “fresh” goods. Barilla’s dry products have a shelf life anywhere from 10 weeks up to 24 months, whereas their fresh goods have a shelf life ranging from 1 day, to 21 days. Their products are sold to retail markets that are both small and independent shops and also to major supermarkets across the world (both chain and independent).

Issues

During the late 1980s, the company began to suffer from the increasing operational inefficiencies and cost penalties. This resulted in Barilla having large week to week variations in its distributors ordering patterns.

With Barillas original flow of goods and information; the manufacturing plant would send the products to the CDC’s (Central Distribution Centre), then to the GDs/Dos (Grand distributors/Organized distributors), from there the products are shipped to their final destination within the supermarkets and smaller stores.

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Based on this model, the distributor could buy as much or as little product as deemed necessary to meet their needs. If distributors would purchase in larger volumes, they would be offered discounts as well as trade promotions.

Almost all of the distributors had computer supported ordering system, yet few had any forecasting system or any analytical tools to determine order quantities. They had simple periodic review of their inventories, which resulted in a huge fluctuation of demand in Barilla’s products. This had a trickle-down effect onto manufacturing which added pressure to add more inventories to items they did not have. Barilla seemingly does not like the idea of having the distribution centers having control of their own inventory.

Due to the demand fluctuations, it has a massive strain on the manufacturing and logistics operations to name a few. The other negative effects of this are:

-Poor product delivery management

-Increased inventory holding costs

-Impossible anticipated demand fluctuations

-Constant customer change due to lack of storage space and stock-outs

The pasta supply chain suffered from a bullwhip-effect. This means there are very high inventory levels stored at each of the supply chain, stock outs at the distributor level and demand inconsistencies and exacerbated by frequent promotions such as their Full Truck Load (FTL) and other volume incentives. There is also a major lack of information on which to forecast demand.[pic 3]

Alternatives and Options

In order to thwart the effect of the Bullwhip, Barilla has to reduce the uncertainty of demand and centralizing their demand information. Reducing Barilla’s variability by having year round and everyday low pricing is another strategy to alleviate the pressures of the bull whip. This is where Brando Vitalli came up with the solution of Just in Time Distribution (JITD). With this proposed scenario, Barilla would monitor the flow of its products through the distribution’s warehouse and then decide which products were going to ship to which distributor and when.  This would give Barilla the decision making authority for determining their shipments and have the ability to control their inventory and manufacturing.

Barilla plans on implementing this strategy by having their distributors provide their data on their shipments and their current stock levels for each Barilla product they carry. The initial expectation of JITD would benefit both sides of the process – both manufacturing and distribution were to have an added benefit to their system. Manufacturing would benefit by reducing their manufacturing costs, improve their relationships with their distributors and reduce their inventory cycles.

The added benefit to the distributors would allow them to improve their fill rates to retail stores, reduce their inventory holding costs and also to have this additional “service” with no added cost to them. Barilla’s initial excitement was quickly turned down as there was an overwhelming amount of resistance from their distributors – as well as from their internal systems.