The Value of Information Barilla SpA

Group 2

Italian Pasta Industry

Italians adore pasta Avg per capita consumption 18kg per yr Limited seasonality in demand, Special pasta for pasta salads, Egg pasta & lasagna for Easter Highly fragmented, 2000 pasta manufacturers

Price sensitive

Italian Market stagnant with 1% Growth Rate

Export Market Rising with 20-25% Growth Rate/Year

Barilla The Company

Founded in 1875 in Parma, Italy

Differentiated through Quality and Innovative Marketing cardboard boxes, large scale advertising

By 1990, Largest Pasta Manufacturer in World

State of the Art R&D facility and Pilot Production Plant

Vertically integrated - flour mills, pasta plants and bakery product factories

Product Type
Fresh Product
Fresh pasta - 21 d shelf life Fresh bread 1 d shelf life 25% of sales

Dry Product
Dry pasta & toasts 18 24 m shelf life Cookies - 10 -12 w shelf life 75% of Sales

Distribution System
Fresh products from CDC to 70 Regional Warehouses by independent agents Dry product mostly from CDC to Supermarket through Distributors own warehouse 3 Types of Retail Outlets Small Independent Groceries, Supermarket Chains & Independent Supermarket Distributors Warehouse keeps 2 week Supply Stores order daily with 24-48 hours lead time Average Lead Time 10 days between Barilla and Distributors

Sales and Promotion

Promotion based Sales Strategy
Use of Trade Promotion to Push Products 4-5 weeks Canvas Period where Distributor can buy as much as wish Volume Discount also offered Sales & Marketing Division has incentive

Reasons For Increase in Variability

Demand is Distributor order driven No sophisticated forecasting System Simple periodic inventory review System

No system of POS data from retailer

Price fluctuations Sales promotions

Coping with variability

Better SC communication (mainly in outbound logistic) such as PoS data Centralized demand information More accurate forecast mechanisms

Curb promotion & trade discount

Lead time reduction i.e. Reduce the no. of SKUs if so possible Vendor Managed Inventory

Impact of transferring demand information across SC

Improved sales planning & forecasting Reduced variability in SC

Improved coordination between manufacturing , distribution & retail systems

Lead time reductions

Rapid resolution of supply problems

VMI strategy to solve operational problems of Barilla

Lets manufacturer maintain inventory at retailer outlet Better coordination & information flow in supply chain

Able to get PoS data at retail level

Reduce operational issues Reduced bullwhip effect

Dealing with conflicting goals of Partners and Facilities

Concern: Sales levels will flatten

Short term phenomenon since push sale will stop Will vanish in the long run considering pull from retailers Distributors will have a minimum safety stock for contingency A longer strike can affect present supply level as well

Concern: Strike or other disturbances

Dealing with conflicting goals of Partners and Facilities

Concern: Supply is Short term issue Trend analysis of different distributors will ensure not flexible adequate supply

Concern: Competitors will use up distributors free space

JITD will not lead to free space since distributors will rather get rid of over stocking Cost saved through JITD can be used for marketing Barilla - biggest player with 35% share of pasta market in Italy

Dealing with conflicting goals of Partners and Facilities

Concern: Instead of JITD, focus on fast order delivery
Order delivery will be faster when exact market demand known and production done accordingly

Concern: Why JITD will reduce distributors cost as well, since barilla will not ask distributors to would over-stock distributors help Barilla reduce its Barilla may pass on a portion of saved cost to the distributors cost