Barilla SpA (A)

Barilla SpA is the world’s largest pasta
Barilla SpA (A) Case Study
Phil Kaminsky
Global Supply Chain Management
kaminsky@ieor.berkeley.edu
MGT 690
June 5, 2010
Questions:

What exactly is causing the distributor’s
order pattern to look this way?

What are the underlying drivers of the
fluctuations?
manufacturer

The company sells to a wide range of Italian
retailers, primarily through third party distributors

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
Figure 5-3 Weekly Demand for Barilla Dry Products from Cortese’s Northeast Distribution Center to the
Pedrignano CDC, 1989. (see page 150)
Causes of Demand
Fluctuations

Transportation discounts

Volume discount

Promotional activity

No minimum or maximum order quantities

Product proliferation

Long order lead times

Poor customer service rates

Poor communication
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Demand Fluctuations

The extreme fluctuation in Figure 5-3 on
page 150 is truly remarkable when one
considers the underlying aggregate demand
for pasta in Italy.

What does the underlying consumer
demand pattern for pasta look like in Italy?
Demand Fluctuations

What are the differences and similarities between
the Barilla channel and the beer distribution
channel?
What is the impact of demand
fluctuation
seen in Figure 5-3? (cont.)

The distributor must build excess capacity to
hold goods bought on any type of
promotion, including quantity discounts,
truckload discounts and canvass period
discounts
– What if the distributor passes the discount along
to the retailers?
– What is the value of the promotion game?
Pasta Demand Pattern in
Italy

The underlying pasta demand
pattern in Italy is relatively flat.

The pasta demand pattern at the
distribution centers (DCs) shows a
rather large fluctuation.

This appears to be because of the
channel policies and dynamics.
What is the impact of demand
fluctuation
seen in Figure 5-3?

Because the plant has high product change
over costs, Barilla has either inefficient
production or excess finished goods
inventory

Utilization of central distribution is low
– Workers
– Equipment

Transportation costs are higher than
necessary
Addressing the Problem

To address this problem, the director of logistics
suggests:
– Implementation of Just-in-Time Distribution (JITD) with
Barilla’s distributors.

What is the JITD System?
– Decision-making authority for determining shipments
from Barilla to a distributor would transfer from the
distributor to Barilla
– Rather than simply filling orders specified by the
distributor, Barilla would monitor the flow of its product
through the distributor’s warehouse, and then decide
what to ship to the distributor and when to ship it.
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Key Elements of JITD

Replace the current delivery pattern with
one that it better suits the entire channel
(i.e., sequential myopic optimization vs joint
optimization).

JITD program eliminates a “false”
economics that drive traditional ordering
processes.
Two Key Concepts Behind
JITD

Replace sequential optimization with global
optimization
– Who will optimize?

Eliminate some of the ‘false’ economics that
drive traditional ordering processes
– What does this mean?
Implementation Issues
Resistance from Sales and
Marketing

“Our sales levels would flatten if we put this
program in place.”

“How can we get the trade to push Barilla product
to retailers if we don’t offer some sort of
incentive?”

“If space is freed up in our distributors’
warehousesHthe distributors would then push our
competitors’ product more than ours.”

“Hthe distribution organization is not yet ready to
handle such a sophisticated relationship.”

?
Evaluation of the JITD
Proposal

Clearly the variation in demand is imposing
additional costs on the channel. What do you think
of the JITD proposal as a mechanism for reducing
these costs?

Why should this work?

How does it work?

What makes Barilla think that it can do a better job
of determining a good product/delivery sequence
than its distributors?
Implementation Issues
Resistance from the Distributors

“Managing stock is my job; I don’t need you to see
my warehouse or my figures.”

“I could improve my inventory and service level
myself if you would deliver my orders more
quickly; I would place my order and you would
deliver within 36 hours.”

“We would be giving Barilla the power to push
products into our warehouse just so that Barilla
can reduce its costs.”

?
Evaluating the JITD
Proposal
Q: Can Barilla act in an unbiased manner?
Does Barilla have the right incentives to do
so?
Q: Does the JITD program eliminate the
forces that drive the worst of the
fluctuations?
Q: What is the impact of retailers being so
small?
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 Implementation Issues
External conflicts (the Distributor’s Perspective)
Q: Why are Barilla’s customers so resistant to
the JITD?
Q: Why should the customers accept JITD?
Q: How might Maggiali be more successful in
persuading customers to at least try the JITD
program?
Implementation Issues

Clearly, the implementation issues are
much broader than just a logistics
program.

Maggiali needs to view it as a company-
wide effort and get top management
closely involved in this.

Trust needs to be developed and
conditions created for people to change
Evaluation

How do you evaluate the implementation process
Barilla used with Cortese?
Implementation Issues
Internal Conflicts (the Sales Perspective)
Q: Why is there so much internal resistance to
what seems, in concept, to be an effective
idea for Barilla?
Q: What are these salespeople REALLY
saying?
How Can Maggiali
Solve the Implementation
Problems?

Demonstrate that JITD benefits the
distributors (lowering inventory, improving
their service levels and increasing their
returns on assets); Run experiment at one
or more of Barilla’s 18 depots

Maggiali needs to look at JITD not as a
logistics program, but as a company-wide
effort; Get top management closely involved

Develop Trust