Case Presentation

Barilla SpA
Introduction
Company & Industry background
• World’s largest pasta producer in 1990
• Pasta Share - 35% in Italy and 22% in
Europe
Channels of Distribution
• Products divided in 2 categories – “Fresh”
and “Dry”
• Fresh Products had 21 day Shelf Lives
• Dry Products had Long ( 18 to 24 Months)
or Medium(10 to 12 weeks) Shelf Lives
• Retail Outlets – Small independent shops
and Supermarkets (Chain and Independent)
The Issue
• During the late 1980s, Barilla suffered increasing
operational inefficiencies and cost penalties that
resulted from large week-to-week variations in its
distributors’ order patterns
Distribution Procedure
• Original flow of goods and
information
PLANT

CDC’s
Barilla run
depots

GD’s DO’s

Chain Independent “Signora

supermarkets supermarkets Maria” Shops

Customers Customers Customers

*CDC = Central Distribution Centre

GD = Grand Distributors
DO = Organized Distributors
Sales and Marketing
• Advertising – Heavy, Brand Positioned as the Highest
Quality
• Trade promotions – Frequent
• Canvass period, 10 to 12 in a year, typical duration of 4 to 5
weeks
• Distributor could buy as much product as desired to meet
present and future needs at the offered discount
• Volume Discounts also given
• Sales representatives used more at DO’s than GD’s
– Merchandise Barilla Products
– Set up In-Store Promotion
– Take note of competitor’s prices, stockouts, new product
launches
– Work out ordering strategies for the retailer etc
• Demand Fluctuations
• Just in Time Distribution
Variability in Demand
• Reasons
– Transportation discounts
– Volume discount
– Promotional activity
– No minimum or maximum order quantities
– Product proliferation
– Long order lead times
– Lack of forecasting systems or sophisticated
analytical tools at Distributer’s end
Exhibit 12: Demand
Fluctuations
Variability in Demand
• Methods employed to counter variability
– Holding buffer FGs to meet Distributor requirements
– Asking Distributors/Retailers to carry additional
inventory
• Impact
– Strained Manufacturing and Logistics operations*
– Poor Product delivery management
– Thinning retailer/distributor margins
– Increased Inventory Holding costs
– Impossible to anticipate Demand swings
– Changing customers due to lack of storage space
Bullwhip effect
• Amplified Variation in demand as one
moves up the Supply Chain (away
from the customer)
order order order

Factory Distributor Wholesaler Retailer

Order
Variation
The Causes of Bullwhip Effect
• Demand Forecast
• Long lead times
• Order Batching
• Price fluctuation (Promotional sales)
• Inflated orders in high estimated
demand scenarios
Counteracting the Bullwhip
Effect
• Reduce Uncertainty
- POS
- Sharing Information
- Centralizing demand information
• Reduce Variability
– Year round or Everyday low pricing
• Reduce Lead Times
- Information lead times: EDI
- Order lead times: Cross Docking
• Strategic Partnerships
– Quick Response
– Continuous Replenishment
– Advanced Continuous Replenishment
– Vendor managed Inventory (VMI)
Just-In-Time Distribution
(JITD)
• Vendor-Managed Inventory Concept
• Treats end-customer as the Input
• Aims at managing the Input filter that Produces
the Orders
• Decision-making authority for determining
shipments in hands of Barilla SpA
• Barilla would monitor the flow of its products
through the distributor’s warehouse, and then
decide what to ship to the distributor and when to
ship it
• Distributor provides Data on the shipment and
current stock levels for each Barilla SKU
– Sell-through Info one step behind POS Data
Expected Benefits of JITD
• Manufacturer
– Reduced manufacturing costs
– Better Relationship with Distributors
• Increased supply chain visibility
• Increase Distributor’s dependence on Barilla
– Improvement in manufacturing planning using objective
data
– Reduced inventory levels
• Distributors
– Improved fill rates to Retail stores
– Additional service without any extra cost
– Reduced Inventory Holding costs
JITD - Internal Resistance
• Sales Representatives feared reduction in
responsibilities
• Flattened sales levels
• Risk of Inability to adjust shipments quickly
to stock-outs
• Lack of infrastructure to handle JITD
• Increased competitor shelf space at
distributor
• Inability to run Trade promotions
• Unsure about the cost benefits
JITD – External Resistance
• Unconvinced Distributors
• Not willing to share warehouse data
• Perceived power transfer to Barilla
• Lack of faith in Barilla’s inventory
management
Possible methods to counter
Resistance
• Demonstrate that JITD benefits the
distributors
– Run experiment at one or more of the
distributor sites
• Maggiali needs to look at JITD not as
a logistics program, but as a
company-wide effort
– Get Top management closely involved
Experiments at Dry-product
depots
• Barilla spa ran first JITD experiment at its
Florence depot
• During the very first month of the program
– Inventory dropped from 10.1 days to 3.6 days
– Service level to retail stores increased from
98.9% to 99.8%
• Depot’s staff was not comfortable working with
such low inventory levels
– Inventory levels finally allowed to increase to 5
days
• One of the arguments against JITD was that it will
lead to waste empty spaces in the ware houses
Experiments at Dry-product
depots
• In Florence case
– Barilla growing at rapid rate in the region
– Plans to expand warehouse
– Existing warehouse able to accommodate the
increased requirement
– Substantial investment on expansion was
avoided
• JITD next tried at Milan Depot
– Similar performance improvement as Florence
• These experiments established the credibility of
JITD system
Implementation at D. O.
Cortese
• The decision to implement JITD in Marchese DC
of Cortese involved
– Barilla: Director of Logistics, Executive vice
president of sales and Manager in charge of
JITD implementation
– Cortese: Nine managers including Managing
director, new services manager, logistics
manager and logistics, purchasing, marketing
and sales personnel from Cortese’s Marchese
DC
• Consultant Claudio Ferrozzi was roped in
– Neutral party trusted by both the groups
Implementation at D. O.
Cortese
• For six months, Barilla team analyzed daily shipment data of
the DC
– Created the data base of DC’s historical demand pattern
– Simulated shipments with JITD in place
• The implementation yielded phenomenal results
– Prior to JITD
• Stock out rate : 2 to 5% ( Occasionally as high as 10
to 13%)
– After JITD
• Negligible stock out rate of less than.25%(Never
exceeded 1%)
• Average inventory level also dropped
Adaptation to different
distributors
• With new confidence they
approached other customers
• Customers apprehensive about JITD
repeating the same success as Cortese
for them as they had varied systems
• Barilla’s team developed capacity to
translate customer’s standard’s into
internal standards
Adaptation to different
distributors
• Developed a protocol which could be used
to communicate with all customers
• Each SKU identified with three different
product codes
– Barilla’s code
– Customer’s code
– EAN (European article numbering system)
barcode – Most common barcode standard in
Europe
• Advantages of the coding system
– Information can be received through any code
– Reduce impact of internal changes in product
or code on client’s system
Communication with
consumers
Customer each day sent following
information to Barilla via EDI:-
1. Customer code number to identify itself
2. Inventory for each SKU carried by DC
3. Previous day’s “sell through”-All shipments
of Barilla products out of DC to consumers
on the previous day
4. Stock outs on previous day for every Barilla
SKU carried by DC
5. An advance order for any promotions that the
customer planned to run in the future
6. Preferred delivery carton size
Lessons learnt
• One needs to prove credibility of any new
performance initiative for others to buy his/her idea
• Best place to experiment with an idea is within the
organization
• To succeed in a new initiative, involvement of top
management is imperative
– Barrilla could finally succeed in implementing JITD with
Cortese. Whole of top management from both sides was
involved in the decision making. Which never happened
earlier
– Sometimes roping a consultant helps
• Market is ever growing. If performance measures
seem to create spare time/capacity instead of
chucking them, look out for ways to increase the
market.(Like in Florence depot warehouse case)
THANK YOU