Case Study: 1 Barilla SpA (A)
Supply Chain Management
Name: Tejas Prakash NU ID: 001726316
[email protected]
BACKGROUND Barilla SpA an Italian based company known for manufacturing pasta, is one of the world’s largest pasta manufacturer. Barilla has a market share of about 35% in Italy alone and 22% in Europe. In addition to a variety of pastas it manufacturers it is also known for its other products in bakery such as bread, cookies, biscuits etc. They revolutionized the Italian pasta industry’s marketing practice by creating a strong brand name and image for its pasta, selling pasta in a sealed cardboard box with a recognizable color pattern. Barilla owned and operated an extensive network of plants located throughout Italy, this included flour mills, pasta plants and fresh bread plants. Barilla maintained state-of-the-art R&D facilities and a pilot production plant for developing and testing new products and production process. Barilla offered pasta products under 3 brands: the traditional Barilla brand represented 32% of the market and 3% of the market share was divided between Voiello brand and Briabanti brand. Half of Barilla’s pasta was sold in northern Italy and half in the south. In 1990 Barilla was organized into 7 divisions: 3 Pasta divisions, the Bakery Products division, the Fresh Bread Division, the Catering Division and the International Division. Barilla divided its product line into “dry” and “fresh” product categories, representing 75% and 25% of Barilla’s sales. Most Barilla products were shipped from the plants in which they were made to one of the 2 central distribution centers (CDCs). Products coming to these distribution centers were moved quickly through the distribution system, only 3days worth of fresh product inventory was typically held in each CDCs; in contrast each CDC had 1 months
worth of dry product inventory. Fresh products such as bread which had a shelf life of about a day or 2 did not flow through the CDCs.
ANALYSIS Barilla increasingly felt the effects of fluctuating demand. The demand for dry products was not constant and it kept varying every week, this extreme variability in demand strained Barilla’s manufacturing and logistics operations. Holding sufficient finished goods inventories to meet distributors order requirements was extremely expensive because of the fluctuating demand every week. There was a suggestion to hold additional inventory by the manufacturing personals to the distributors to dampen the fluctuations in their orders. Many of the distributors were against this move as it had its own disadvantages to it. Brando Vitali, then Barilla’s director of logistics had expressed strong feelings to find an alternative way for order fulfillment that is good for both the distributors and the manufacturers. He intended to improve the operations for themselves and the retailers. His plan was to ship products as and when it is needed this would help in reduction of distribution costs, manufacturing costs and the inventory levels. The distributor would provide Barilla with the necessary data on the products that was shipped to the distribution center the previous day. Through forward integration the company aimed to strengthen its competitive advantage in the market. The forecasting system implemented by Barilla had its own drawbacks , they intended to improve their systems based on the data that they receive eventually. Vitali proposed “Just-in-
Time-Distribution. This system proposed was to solve problems such as effects of fluctuating demands and the stock out issue that strain Barilla’s Manufacturing and Logistics operations.
RECOMMENDATIONS The proposal to supply distributors with quantities chosen by Barilla instead of the distributors placing the order is to help end customers meet their demands effectively and the workload distributed evenly in the factory and the logistics department, if this system is implemented the manufacturing and the logistics will not be under pressure to meet a particular order. The JITD system has some disadvantages as well, it will be quite difficult to carry out trade promotions. Sales representatives lose their incentives as the sale becomes predictable. The distributors might hesitate at times to share their sales data which is quite crucial for the company to dispatch the products. The internal conflicts arise in the sales and marketing departments, they figured that the sales representative would be reduced the new system is not flexible enough to respond to the changes. If the shelfs in the distributors unit were half empty this would give the competitors an advantage where they would showcase their product more than that of Barilla’s. You can say that these problems are caused by lack of sufficient flexibility in production, and the reward structure for sales representatives. JITD if implemented should cover the entire company, the manager should make a proposal in such a way that if this system is implemented it would be for the best interest of the company. A view should be adopted that the relationship with the distributors is a one time long term partnership and should be managed in a systematic manner by having multiple points of
contacts and sharing the necessary data to the supplier by the distributor to help improve the system. As a customer of Barilla, there are several aspects that needs to be understood to implement the system in the company, firstly how it will help my distribution establishment, would check how it will help me manage my stocks. The other aspects that would matter is how the system helps in improving the performance measures such as flexibility, reduce delivery time and at the lowest costs. One of the biggest concerns of being their customer of Barilla is by allowing them to control all the forecasting and supplying of products. The advantages outweigh the disadvantages in the system, the supplier and the distributor can work together in helping each other to make the system better and efficient.
