BARRILA CASE REPORT

Logistics & Supply Chain Management

Q1. What are the reasons for the increase in variability in Barillas
supply chain?
Variability in supply chain arises due to variability in demand which can be attributed to
the following:
1. Volume and Transportation discounts: A full truckload entitled the distributor to a
2-3% discount by Barilla. In addition, the sales reps could offer 4% discount on a
purchase of minimum 3 truckloads. This may have wrongly incentivized the
distributors to wait for longer durations and in turn reduced inventory which led
to stock-outs.
2. Promotional activities: 10-12 canvas periods (on different product categories)
each lasting for 4-5 weeks made it convenient for the distributor to stock as
much as he could during these periods which led to highly variable distributor
order quantities.
3. Product Proliferation: Barilla offered 800 dry products in thousands of SKUs which
led to an overburdened manufacturing operation. Also, space constraints at the
distributor level deterred them from stocking new items that they currently did
not carry. Thinning margins made it difficult to invest in storage space.
4. Long order lead times: Order fulfilment took 8-14 days (average: 10 days) thus
creating a time lag between the placement and receipt of order.
5. No cap on order quantities: Lack of volume constraints on distributors enabled
them to order quantities that helped them maximize their margins while putting
undue pressure on the production process.
6. Lack of sophisticated forecasting systems and analytical tools: Most distributors
used simple periodic review inventory system (computer based) and ordered
when inventory fell below the reorder level but did not use forecasting to predict
demand.
Stock-outs: Pasta production involved a sequence of specific steps making it difficult to
produce during periods of unexpected high demand. Holding inventory was expensive
due to high demand fluctuation thus leading to stock-outs.

Q2. What is the impact of the highly variable order pattern?

Q3. Can the JITD strategy solve the operational problems faced by
Barilla?
Just-In-Time Distribution (JITD)
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VMI - 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
Barilla would monitor the flow of its products through the distributors
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 SKU

Issues Resolved by JITD

1. High Inventory Levels
o With more sophisticated technology and application of forecasting
techniques, Barilla will be able to better forecast demand fluctuations
o Accurately predict demand for promotional and seasonal items
o Better production planning, packaging and distribution of their pasta
o By dictating what the stores required to stock, Barilla would be able to
reduce the number of SKUs in an effort to maximise the effectiveness of
advertising and reduce production complexity
o Inventory levels at both CDCs and DCs will reduce for various products
2. Stock Outs
o JITD would reduce the number of stock-outs because of the improved
forecasting techniques
3. Demand Variability
o Network of supply chain instead of traditional view of an extended supply
chain
o Developing better 3rd Party Logistics relations with DCs will allow better
communication
o Current system is very Push supply chain oriented, transition must be
made towards a more Pull oriented system
o Bullwhip effect can be mitigated by increasing centralized information on
the product flow
o JITD is form of logistics postponement, thereby increasing the flexibility of
the distribution system
4. Organizational Deficiencies
o Centralization benefits everyone. Centralization based on the sales data of
the distributors. This leads to elimination of the unwanted costs
o Elimination of fixed ordering costs for the distributors
o Customized production schedule for Barilla
o Cheaper production and distribution costs for Barilla
5. Information Systems

Issues Unaddressed by JITD

1. SKU complexity can be solved by applying the 80/20 Pareto rule to keep
complexity down in the SC system
2. No cost benefit analysis This analysis would help convince others to support
the new model
3. Failure to bring all stakeholders on board
4. Incentive system may no longer be appropriate

Q4. Discuss the implementation issues of the JITD strategy.

1. Internal Issues
Job Loss JITD does not require as many sales reps to market/ promote
products, since a portion of their current duties include inventory
management and order processing for Barillas customers.
o Incentive based pay changes The sales force fear that they would lose
control over their compensation methods because the system would move
towards a pull based supply chain.
o Lack of Belief Information was not presented to demonstrate the actual
benefits of JITD implementation. Hard facts and figures would help to sell the
concept. They felt that JITD was too complex, and that trade promotions
cannot be run with JITD
2. External Issues
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o Lack of Trust
o Fear of Change
o Loss of Autonomy
3. Organizational Issues
Changes need to be made to the organization of Barilla to better align the
sales and logistics departments. Information needs to flow freely between the
two for JITD to succeed.
o Barillas fresh products add complexity to the structure of the company.
4. Logistics Issues
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JITD requires a high level of technological sophistication in order to provide

the proper information to the producers. This is a large investment that would
reside with Barilla
Resistance by traditional business owners
Training would be required to implement internally and at the various sites.
The scale of this training would be very large initially