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Alexander Kabusk

SCM 450W Barilla SpA Case Study


30 September 2014

Barilla Case Study

The principal problem facing Barilla today is unnecessarily large fluctuations in demand
within the supply chain. This is caused by a lack of strategic visibility along the supply chain
and inefficient or non-existent flow of critical information. Barillas distributors not sharing
their inventory levels with Barilla and visa versa. In addition, distributors are forward buying,
that is, purchasing more than needed in order to take advantage of Barillas price promotions and
then canceling any unnecessary orders, resulting in large unnecessary production spikes (Singha,
10). Forecasts along the supply chain are currently based on data inflated by the bullwhip effect,
so the whole supply chain is sitting on more inventory than necessary, cutting profit margins in a
very competitive and low-margin industry and placing undue burdens on Barillas manufacturing
and distribution (Ozuolmez, 2&3).
In order to transition to a lean Supply Chain, my value proposition is Barilla switches to a
Vendor Managed Inventory Model or VMI, in addition to eliminating most promotions and
implementing an everyday low price strategy in addition to creating cross-firm and crossfunctional teams to simplify and speed the flow of information. These three steps will stabilize
demand, cut costs, increase service levels, reduce lead time, and boost supply chain visibility.
First, Barilla should switch from the traditional supply chain inventory approach to
Vendor Managed Inventory or VMI, otherwise known as Just-In-Time Distribution. According
to Anantharamans slide deck, VMI allows distributors to operate with low stocks while
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maintaining optimal service standards (5). In a VMI or pull based system, Barilla will collect
point-of-sale data from distributors, and base its forecasting and production planning on those
numbers. This system will be more accurate than the current push based strategy
supplemented by promotions. Distributors will send Barilla their inventory levels, stock-outs,
advance orders for promotions, and preferred delivery carton size, all of which Barilla will
analyze and then individually customize orders to meet each specific distributors needs.
Instead of the current costly strategy of combating large demand fluctuations with large
quantity of inventory to avoid costly stock-outs that damage brand equity, VMI seeks to reduce
the inventory in the Supply Chain, thereby shrinking administrative and carrying costs. VMI is
far more adaptable and will lead to a lower standard deviation from the mean versus the
traditional ordering process; however, it is runs on collaboration and takes lots of time and effort
to implement. In the original case, Professor Janice Hammond created a flow chart mapping
Barillas supply chain (17). I have created my own process chart for reference in the appendix.
VMI is a win-win scenario for all the supply chain partners involved. For Barilla, with
the information provided by VMI, they can reduce their manufacturing costs by implementing
better production planning to avoid the dreaded idle machine or idle worker. It reduces their
inventory cycle time and drastically cuts carrying costs because of the decrease in excess
inventory that clutters up the supply chain. It also allows Barilla to take advantage of a
centralized and highly technical forecasting system with easy to understand decision rules to
simplify the process. For distributors and retailers, a VMI system reduces their inventory
carrying costs because they hold less of Barillas products, freeing them to have a wider
selection. It also reduces their administrative costs because they are relived of the burden of
forecasting, a highly technical and expensive process (Anantharaman, 7).
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Secondly, Barilla should shift to as everyday low price strategy. Currently, Barilla relies
on promotions to push their products and meet sales targets. Pasta, even gourmet pasta, is a
functional product with slim margins and an inelastic price. If Barilla minimizes promotions,
and converts to an everyday low price strategy, they can minimize order spikes because
distributors wont try to game the system during promotional periods. Campbells had great
success with the everyday low price strategy as evidenced by their ability to reduce their
distributors days of inventory from four weeks to two weeks (Fisher,112).
Finally, strategic cross-functional teams from Barilla must work in cross-firm teams with its
distributors, reinforcing one of the key principals of lean: collaboration. Real collaboration is
necessary; symbolic busywork will not accomplish the job. Strategic cross-functional teams
from Barilla must collaborate in cross-firm teams with its distributors in order to oil the amazing
machine that is VMI. A second lean concept that will be improved by implementing VMI is
eliminating waste. With VMI, Barilla and its supply chain partners will be able to reduce
inventories, one of the biggest and most frustrating wastes for business. Inventory has many
costs associated with it such as: holding, carrying, disposal, etc; therefore, cutting inventory will
result in exponential profit growth.
On the flip side, two risks associated with my value proposition are distributors not being on
board with a VMI system because they do not understand how it can profit their business and
partial or complete failure of VMI. Understandably, Barillas distributors will be wary of VMI
because they are handing over confidential business information to Barilla, and more
importantly, they are transferring the responsibility and locus of control over a portion of their
business to Barilla. To mitigate this risk, Barilla must walk the distributors management teams

through the pros and cons of VMI and complete a limited test run for six months to a year while
doing a thorough analysis to examine the first, second, third, and fourth order effects.
If VMI doesnt work, or there are major delays and complications in implementation, there
will be high stock-out levels, millions of dollars in lost revenue, and a damaged brand reputation!
In order to combat this problem, Barilla must create several metrics and evaluation criteria,
training teams, and contingencies plans along the process of conversion to analyze if the VMI
test runs are successful, train the relevant people on the new system, and to have a set plan in
case of a major failure. This will mitigate the risks associated with a sudden and total switch,
and provide valuable forecast and production data if Barilla decides to implement VMI
throughout its entire Supply Chain.
Barilla can reduce its unnecessarily large fluctuations in demand by implementing lean
principals, switching to a Vendor Managed Inventory (VMI) system, and increasing strategic
communication with its supply chain partners. In addition, Barilla should eliminate most
promotions and implement an everyday low price strategy in addition to creating cross-firm
and cross-functional teams to simplify and speed the flow of information. If implemented
correctly, these changes will stabilize demand, cut costs, increase service levels, reduce lead
time, and boost supply chain visibility.

Works Cited
Anantharaman, Akshay Bhardwaj, Jaimin Parikh, and Rohit Shahane. "Final Scm Presentation."
Final Scm Presentation. Slideshare, 28 Mar. 2010. Web. 30 Sept. 2014.
Askin, Gulcin, Michelle Donovan, Kivanc Ozulmez, and Peter Templeman. "Barilla SpA HBS
Case 9-694-046." Barilla. Slideshare, 24 Mar. 2013. Web. 30 Sept. 2014.
Hammond, Janice H. "Harvard Business School." Barilla SpA (A) - Case -. Harvard Business
Review, May 1994. Web. 30 Sept. 2014.
Himadri, Rishi, Tarun, Manish, and Vikas. "Barilla Spa: A Case on Supply Chain Integration."
Barilla Spa: A Case on Supply Chain Integration. Slideshare, 17 Apr. 2011. Web. 30
Sept. 2014.
Fisher, Marshall. "What Is the Right Supply Chain for Your Product?" Harvard Business Review
March (1997): 112-13. Print.

Appendix