Case De-Brief

Barilla SpA
The Value of
Information
Nitin Lahoti
Situation

 Barilla Product Range

 Pasta, Bakery Products, Fresh Bread,
Catering Products

 Pasta Market Share
 1990 Worlds Largest Pasta Producer
 35% Market share in Italy
▪ 32% Traditional brand Barina
▪ 3% Voiello & Braibanti
 About 50% of its pasta was sold in North
and the rest in south
 22% Market in Europe

Situation
 Barilla Plants Specialized on the Pasta Types
 Pasta Types
 Fresh / Dry
▪ Fresh Products
▪ Have a shelf life of 21 days.
▪ Dry Products had long to medium Shelf Life
▪ Long Shelf life 18-24 months (Eg: Dried Toasts, Pasta)
▪ Medium Shelf Life 10-12 Weeks (Eg: Cookies)
 Pasta With or Without Egg+Spinach
 Pasta - Short (Macaroni / Fusilli) / Long (Spaghetti / Capellini)

 Different Equipment used for different types

 Barilla Pasta Brand Positioning
 Premium Brand for a modern sophisticated man
 About 470 pasta SKUs (Dry Products)
▪ 200 different types of Pasta
▪ Pasta type
▪ Shapes and Sizes

Situation

 Manufacturing
 Mix Flour + Water + {Eggs + Spinach}
(in some cases)
 Produce Sheets
 Extrude through Dies
 Cut into required lengths
 Dry it in the Kilns (4 hours)
▪ Specific temperature & Humidity settings
for each type
 Packaging
Situation
 Distribution of Dry Products
 All the products (except for Fresh Bread and such
others) moved from Factory to Central Distribution
Centers (CDC) - One CDC each in North & South

 CDCs stored
▪ Dry products - about 1 month of Inventory
▪ Fresh Products - Max 3 days.


 Dry Products
▪ 2/3 of the dry products were sold through the Super-
markets. Distributors purchased the Dry products and
then supplied the products to Super-Markets (JITD
proposal was for this)
▪ Remaining 1/3 sold to small shops through 18 small Barilla
owned warehouses

Situation
 Distribution (contd..)
 Super-Market (65% of dry products)
▪ Chains (70% of supermarkets)
▪ Distribution thorough the chains Distribution Organization (grande Distribuzione -
GD)
▪ Independently owned Super-markets (30% of Super-markets)
▪ Distribution thorough the Organized Distributors (Distribuzione Organizzata - DOs)
▪ Typically inventory levels at the store would be in the range of 10-12 days of
Inventory. Super-market ordering frequency was 'daily'. The replenishment
would occur in 24-48 hours after the order was received


 Small Independent Grocers
▪ 35% of Dry Products sold via this route (south 40% and South 30%). Supplied
by Barilla's 18 regional warehouses. Retailers dealt with Barilla through
Brokers.
▪ Stores stored inventory of on an avg - about 2 weeks of demand.


 Ordering for Supermarkets
▪ Both DOs and GDs ordered once a week
▪ Periodic review was done and orders placed if the stocks were below the min
level
▪ Barilla's supply started from the 8th day after the order placement and
 Sales & Marketing
 relied on Advertisements and Promotoions
▪ Promotions
▪ Relied heavily on discounting in the canvas periods
▪ Customers could buy for current and the future
periods
▪ Sales Reps incentive was to maximize sales during
the canvass period
▪ Barilla bore the transportation cost. It provided
incentives of about 2 to 3% to Distributors to
order full truck loads. Further if the
▪ Distributors placed at least 3 truckloads of orders
- the sales rep used to give a further discounts
of about 1000 Lira pre carton.
▪ (Italian Lira was the currency between 1861 and 2002
before Euro was adopted as the official currency.
Around 28 Feb 2002, the conversion was 1 Euro =
Problem

 Problems
 Stock-outs

 High Inventory

 Wildly Swinging demand hurting
Barilla

Problem

 Fluctuation in Demand. So what...?

 Meeting the wildly swinging demand is difficult
▪ May not have capacity to meet the demand. Results
in Stock-outs
▪ One batch of one type of Pasta - min of 5 hours;
Change over time say about 1 hour; 5 to 6 hours
per batch
▪ While meeting a spike in demand, you can have
stock out of another product being produced by
the same plant. Results in Stock-outs
▪ Running Overtime is expensive. Leads to high costs.
▪ Entire system (the facility, suppliers, logistics etc)
have to work harder. Leads to high costs
▪ Accumulation of Inventory in the SC. Raising
carrying costs and risk of obsoletion
 Barilla, Distributors and the Retailers all loose
money.
 All this when the consumer demand at the retail
Solution

 Options…
Solutions
Solution

 Whatcan contribSute to the

problems?
 Time to Order
 Forecasting Methods
 Promotions
 Siloed Decision making / Demand
Visibility

Solution