BARILLA CASE STUDY
Q1) Summarize the causes of information distortion faced by Barilla . i) 1) -
Variability in demand : Reasons Transportation discounts Volume discounts No minimum or maximum order quantities Lack of forecasting systems and sophisticated analytical tools at distributors end Long order lead times
2) -
Impact Strained manufacturing Poor product delivery management Increased inventory holding cost Demand swings cannot be anticipated
ii)
Bullwhip effect:
Causes - demand forecast - long lead times - order batching - price fluctuations - Inflated orders
QUESTION 2. What conflicts or barriers internal to Barilla does the JITD program create? What causes these conflicts? As Giorgio Maggiali, how would you deal with these conflicts? SOLUTION Conflicts internal to Barilla
The current method of promotion and discount policy :
Currently Barilla divides each year into 10 or 12 "canvass" period with each corresponds to a promotional program. The incentives for the Barilla’s sales representatives lie on
achieving sales goal for each canvass period. Therefore they are actually welcoming distributors to buy as much as possible. Besides, one of the representatives’ sales tools is
volume discount larger volume orders. This, to some extent, encourages distributor to order less frequently with larger order quantity every time. With JITD implementation, The decrease in Barilla's CDC inventory level at current period, the distributor's inventory level will increase considerably. And, if distributors are ordering more at a time and less frequently, it will cause pilling up of inventory if there exist less demand leading to demand fluctuations.
The sales representatives’ role in the DO system:
With the current system, the sales representatives are playing important roles in DOs, which take about 20% (0.65*0.3) of Barilla’s dry product sale. They coordinate among DOs, CDCs and distributor buyers to solve problems and settle disputes. The sales representatives will be concerned that their responsibilities would be reduced if JITD is put in place.
As Giorgio Maggiali, solutions that can be thougth of are :
Instead of giving discount for big order volume, its better to give discount for stable long-term orders . By doing so, there exists many reliable long-term orders to fill the market demands, and the fluctuation could be reduced considerably.
Since each representative carries a portable computer for imputing the distributors’
orders, a system can be installed by which more information at the distributor's warehouse level could be collected by the sales representative working at the front
line. By doing so, the sales representative will still play an important role in the new system, meanwhile saves the distributors’ work in implementing the JITD, and therefore encourages them to participate in JITD.
QUESTION 3. As one of Barilla’s customers, what would your response to JITD be? Why? SOLUTION Barilla’s customer’s concern:
As one of Barilla’s customer, the response to Barilla’s JITD proposal would be a combination of
the following emotions:
Sense of burden. Barilla requires us to report to them our inventory level and sales amount everyday, which contradicts our periodic/weekly review policy and will add extra burdens to our staff. Will Barilla pay for the extra cost incurred? We might require Barilla to pay for the extra staffing cost. Besides, since information is money, Barilla needs to pay for our regularly provided information.
Sense of distrust. It seems that Barilla thinks that it can do a better job than us in managing our inventory. Their greatly reduced shipping amount to our company indicates that they think our predictions in the past are not correct. As a counter action, we might refuse to provide past sales data to Barilla so that they will have difficulties in predicting the market demand
Sense of losing control. If it is left for Barilla to decide how much we need and how much should be shipped to us, we will lose control of our inventory. Besides, Barilla will base its daily distribution amount to us on the information of our sales amount and inventory level as well as similar information from our peer distributors. This does not seem to be a robust approach because their criteria for “quota” distribution is vague and subjective. It is easy
to cause unfair treatment. What if we need to order more due to a sudden market surge?
Will we be granted more shipment? As a protection, we might intentionally alter sales data and inventory level reported to Barilla whatever is advantageous to us.
Sense of defense. How could Barilla demand sales data from us which are considered confidential? Does Barilla have the authority to do this? Are they intending to monopoly the supply chain? If we release our sales data to Barilla, will this information go to our competitors? These doubts will result in defensive actions such as procrastination in responding to Barilla’s request or refuse to cooperate.
Question 4. What would be the role of a salesperson, a logistics person, a top manager, and a distributor. In the environment in which Barilla operated in 1990, do you believe JITD (or a similar kind of program) would be feasible? Effective? If so, which customer would you target next? How would you convince them that the JITD program was worth trying? If not, what alternatives would you suggest to combat some of the difficu lties that Barilla’s operating system faces?
SOLUTION Sales Person: With the current system, the sales representatives are playing important roles in
DOs, which take about 20% (0.65*0.3) of Barilla’s dry product sale. They coordinate among
DOs, CDCs and distributor buyers to solve problems and settle disputes. Logistic Person: the management of the flow of goods, information and other resources,
including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers.
Top Manager: Controlling the departments of manufacturing, logistics and sales. Distributer : rather than Barilla delivers products to barilla distributors on basis of whatever
orders those with the barilla, barilla’s logistics and manufacturing team provides order quantities those that would meet customers requirement and as well as distribute work load within logistics and manufacturing.
Improvements of current JITD Program
The current proposed JITD program at Barilla is not f easible because the crux of problems lies in its slow delivery speed and rigid production process which are commonly seen within a traditional functional organization. A fundamental reform need to be taken to improve the relationships between the sales, advertising and logistics departments through redesign the performance measurement system.
To motivate the distributors to actively participate in the JITD initiative, a consortium of both suppliers and the distributors on a supply chain should be formed to discuss the present problems and come up with solutions. It is always easier to roll out something within the willing participants than throw something to them arbitrarily.
The latest development in information technology makes Vendor Managed Inventory (VMI) possible for data sharing and synchronizing.
It will have following advantages :
Decrease the Total Inventory in the Whole Supply Chain: JITD helps to reduce inventory held at the distributors. Theoretically, it eliminates the needs for each distributor to hold it own “Safety Buffer. Therefore, it benefits the distributors through releasing their inventories space and cost Better Customer Fill Rate both in Barilla and the Distributors: JITD emphases quick response. Since the inventory data and delivery pattern are controlled by Barilla, their central factory and CDCs are therefore easier to schedule their production and deliveries to meet the customer demand. For the distributors, since their flexibility and reaction speed have all been increased due to the lowered inventory level, they surely could have better customer fill rate and less stockouts rate than before.
Further Distribution and Manufacturing Cost Reduction based on Scheduled Production : The less interruption, the more cost-efficient. But this is only true for bottleneck machines. This is also true for distribution cost. In contrast to the fluctuating due to unknown situations in the past, a better delivery schedule could be built by using complete data obtained from the end-users.
New Targets:
a) Small shops
The Italian government supports the small shop rather than big supermarket. Small shops have better growth rate than supermarket, and Barilla didn’t get that much market share
in this area.
They are more likely to accept the small quantities of order to reduce their inventory since they have worse inventory level – more than two weeks, longer than supermarket. And they don not have much resource and power to manage their inventory.
They are shipped directly through Barilla’s own regional houses. Barrila could get the enduser demand information directly without dealing with outside distributors. There is “no privacy” issue here.
Based on the above reasons, it is easier to implement JITD in small shops. And we can use it as good examples to persuade other distributors to join the JITD program.
b) New customers
Because it is easier to get their cooperation during contract negotiation and reinforce the agreement in the contract.
Convince the customers with our win-win concept
We will convince them that JITD is worth trying because it is a win-win process for all stakeholders by reducing the inventory and accelerating the delivery process through synchronization and transparency.
