Barilla Case Study

Barilla SpA (A)

Report on Supply Chain

Management Issues

Prepared by: Anna Grinkrug, SCMP

Table of Contents

Executive Summary                                                                                                       3

Introduction                                                                                                                    4

Issue identification                                                                                                        4

Environment and Root Cause Analysis                                                                       5                                                          

Alternatives and Options                                                                                              7

Recommendations                                                                                                        9

Implementation                                                                                                           10

Monitor and Control                                                                                                   11

Exhibit 1: Main Customers’ Concerns Regarding JITD Implementation             12

Exhibit 2: Balanced Scorecard                                                                                   13

Executive Summary

Adherence to traditional distribution system results in inefficient forecasting system and high demand fluctuation that leads to low customer service management. Possible lost sales and potential customer loss requires reviewing Barilla distribution system. Recommended Just-in-Time Distribution program implementation will address high demand fluctuation, stock-outs, information flows and will help to reestablish customers trust as well as decrease inventory cost and improve cash-flow.

Introduction

Director of Logistics Mr. Maggiali has been trying to implement Just-in-Time Distribution (JITD) as a new strategy of supply chain management for Barilla SpA in order to solve both demand fluctuation and customer stock-outs. However, the idea did not enjoy the support neither from customers, nor from Barilla sales representatives. Customers are not interested in sharing their sales data and sales representatives are afraid that their responsibilities will be diminished.

Issue Identification

JITD program implementation is drafted to solve two major challenges that Barilla faces now: demand fluctuation and stock-outs. JITD feasibility is evaluated by addressing the following issues:

• How to gain support with sales department?
• Who is a target customer to implement JITD?
• What are the ways to convince customers to implement JITD?

Environment and Root Cause Analysis

Despite being the industry leader in pasta manufacturing in Italy and one of the biggest exporters of pasta, Barilla faces two major challenges great demand fluctuation and stock-outs. The main causes of demand fluctuation are identified as follows:

• Poor demand forecasting system: Orders are placed occasionally (distributors mainly on a weekly basis). Minimum and maximum of order quantities are not defined. Product proliferation and relatively short product shelf-live only deteriorate the situation making operations planning extremely difficult which results in CDCs holding a monthly production inventory, but still not able to meet customer demand.  
• Communication gap: Sales representative spend about 90% of their time serving DOs. Ordering strategies of GDs and internal customers (CDCs and Depots) are not followed up by sales. Thus, at least 55% of regular purchases are not controlled by sales representatives.  
• Existing system of discounts and promotions: Promotion canvasses make distributors buy product that is sold with a discount rather than products most likely to be sold to the end customer. It results in high manufacturing demand for the same product category leaving no room for operations flexibility. Moreover, it leads to a big amount of urgent orders of small quantities of products that are not discounted at the moment. Sales representatives push GOs to buy discounted product during a canvass to get a bonus.       

High demand fluctuations result in inevitable stock-outs. Product and packaging proliferation makes specialized plants not capable of meeting frequently changing demand without proper forecasting. It results in 8 to 14 days order lead time despite short distance between plants, CDCs and customers. Stock-outs mean lost sales and, eventually, lost customers.  

Long lead times and recurring stock-outs undermined customer trust to Barilla. When JITD program was introduced to distributors as a new planning tool, they were not interested in the program implementation (see Exhibit 1 for main customers’ concerns).

In addition to customer distrust, there is an internal resistance form sales representatives fearing diminishing of their responsibilities and decrease of their incentive bonuses. Sales representatives are key contacts between a company and its customers and they should be motivated to promote Barilla strategy.

Alternatives

A number of alternatives were considered to resolve the two major supply chain challenges:

• Follow traditional distribution model and choose one of the following options in order to improve forecasting system:

• Designate sales representatives to work closer with both internal and external customers in order to get more precise forecast;
• Increase flexibility of manufacturing process and the number of Barilla-run depots;
• Reduce product and packaging proliferation;

• Implement JITD.

Changing pattern of sales representatives’ job will not address manufacturing constrains.

Increase of manufacturing flexibility is a long-term alternative that requires capital investments and should be analyzed separately.

Reducing product and packaging proliferation may hurt Barilla currently strong brand image of a unique and luxury product.

Implementation of JITD program will address demand fluctuation, stock-outs, and information flow. It will help to reestablish customers trust as looking for their cooperation is a key to the company success.