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Barilla SpA Case Solution
Barilla SpA Case Solution
Introduction
Company & Industry background Worlds 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 CDCs Barilla run depots GDs DOs
Chain supermarkets
Independent supermarkets
Customers
Customers
Customers
*CDC = Central Distribution Centre GD = Grand Distributors DO = Organized Distributors
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 Distributers end
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
Factory
order
Distributor Wholesaler
order
Retailer
Order Variation
Reduce Variability
Year round or Everyday low pricing
Strategic Partnerships
Quick Response Continuous Replenishment Advanced Continuous Replenishment Vendor managed Inventory (VMI)
Distributors
Improved fill rates to Retail stores Additional service without any extra cost Reduced Inventory Holding costs
Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort
Get Top management closely involved
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 Corteses 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 DCs 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
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)
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