In Barillas supply chain (as shown in figure), Barillas CDCs( centre distribution centre) and the

production factory locate at the positions with the most variability in the supply chain. The
distributors such as GD(grand distributor, DO(organized distributor) and BD (i.e. Barilla-run
Depots) receives orders from the supermarkets and shops, and places orders to Barilla CDCs
who then forward production orders to the factory. GD, DO and BD must forecast the
supermarket and shops demand. But they used only simple periodic review inventory systems,
which may inaccurately determining order quantities. With limited information of customers
demand data, they must use orders placed by the supermarkets and shops to perform their
forecasting that fluctuated so widely. The same effect applies to the Barillia CDCs, plus the CDCs
are forced to carry more safety stock than their distributors to maintain a higher level of
capacity in order to meet the service level to the distributors. These become pressures to the
factory in manufacturing in terms of its production lead-time and perish ability of product. The
orders lead time (weekly orders) as well as delivery lead time (average of 10 days) is also
important factor that contributes to the increase variability in Barillas supply chain.

It is the way the system is managed that creates the bullwhip effect - it is a result of the
structure of information flows and of communication in the supply chain.

The main problem in this case is the fluctuating demand and some of the causes of this
fluctuating demand are:

Promotions: Barillas sales strategy relied heavily on the use of promotions, in the form
of price, transportation and volume discounts. They divided the year into 10 to 12
promotional periods, during which different products were offered at discounts with
prices ranged from 1.4% to 10%.

Sales Representatives: The compensation system for the sales representatives was that
they were rewarded based on the amount of the products that they sold to the
distributors. This was causing problems as the sales reps would try and push more
products during the promotional period to get a bonus and were not able to sell as
much during non-promotional periods. This led to wide variation in demand and made
forecasting very difficult.

Large number of SKUs: Barillas dry products (the focus of the JITD proposal) were
offered in 800 different packaged stock keeping units (SKUs). These large numbers led
to greater complexity.

Bad forecasting by Distributors: The distributors did not have forecasting systems or
sophisticated analytical tools for determining order quantities and this resulted in bad
forecasts.

Long Lead Times: Barilla supplied its distributors between 8 and 14 days after it received
their orders, the average lead-time being 10 days. This was slightly long and a lot could
change in the supply chain during this period, causing rise in variability.

This leads to many problems for Barilla. Some of them are:

Production Costs: These costs increased drastically as the demand variation increased.
As Barilla struggled to cope up with the fluctuating demand, the production costs rose
as changeover was costly.

Scheduling Difficulties: It was difficult for Barilla to schedule its resources and facilities
like Labor, Machinery and Trucks due to demand variations. This was resulting in
increased costs of Labor and maintenance.

Transportation Costs: As a result of uneven demand, Barilla had to transport more

products to its distributors in periods of high demand in lesser time than when
compared to periods of low demand. The greater number of trucks, etc that it required
in periods of high demand increased its Transportation costs.

Recommendations
After listing out the problems and studying them in detail, we have come up with our
recommendations to reduce uncertainty in demand. In order to do this, the distributors as well
as Barillas Sales and Marketing have to be convinced that this proposal do more good to them
than bad.

How will JITD work?: The JITD system will work using the following innovative techniques:

Collaborative Planning: Barilla and the distributors can work as a team and plan on
different issues to smoothen out the creases in the supply chain.

Demand Management: Barilla should not only forecast demand but also should try to
shape and influence it. This can be done using market surveys to determine the needs
and expectations of the consumers and designing products to satisfy them. Forecasting
would become much easier and reliable if the demand can be managed and if
techniques were put in place to reduce uncertainty.

Aggregate Demand: As Barilla is going to decide order quantities for all distributors, it
can aggregate the demand and thus ensure better forecasts and reduced costs. This is
due to the fact that even if some of the distributors demand more than what was
forecasted, the slack in demand from others would offset this increase.

Overcoming Internal Resistance: Before trying to convince the distributors, one has to convince
everyone at Barilla that the JITD system will be a success. If everyone within the company is
convinced and they provide a single front to the distributors, Barilla has a better chance of
convincing the distributors. Some of the steps that Barilla will have to take in this regard are:

Convince and use the Upper Level Management: if they are convinced of its feasibility,
they will offer full support in trying to convince the Sales department. It will make a lot
of difference if the Upper management talk to the Sales people than if just their
Logistics peers talk to them.

Involve the Sales Department in all stages: To make the Sales people feel important and
wanted, Barilla should involve them in all stages of the JITD proposal. They should be
made to feel that they would have lots to do even after the system comes into effect.

New Compensation System: The Sales department should be informed that they would
still be rewarded for good performance, except that in this case it was the performance
of the entire company as a whole and not just they individually. The new system would
award a percentage of Barillas profits to the employees as a bonus. They should be
shown that the reduction in costs due to the JITD system would ensure greater margins
for Barilla that would then be passed on to the employees.

Convincing Barillas Distributors: Barilla has to convince them that the plan will work and not
only benefit Barilla but also the distributors participating in it. Some recommendations to
convince the distributors are:

Show them the money: This, as always, is the foremost issue on any business
enterprises mind. If an enterprise can be convinced that it will make more money, it will
be ready to change its current practices. The distributors should be shown that the costs
of the system would reduce so much that everyone in the supply chain would save
considerable sums of money.

Address Trust Issues: This is a major issue between Barilla and its distributors and to
solve this Barilla should work out some confidence building measures which would
prove to the distributors that Barilla was worth trusting and that they were making the
right decision. Some of the steps that could be taken to increase trust are:
-

Barilla should have a transparent policy and should not hide any of its plans
from the distributors.

Instead of sending the Logistics personnel to talk to the distributors, Barilla

should send the Upper Management. This would make the distributors feel
important and would help in convincing them better.

Barilla should make compromises in its business in order to help its distributors.

Barilla should initiate joint decision-making and planning with its distributors to
show them that it cared for each one of them and wanted them to be involved
in the process.

Other Recommendations: We have some other recommendations that we believe will help to
reduce demand uncertainty and eventually improve overall supply chain performance. They are:

JITD in Exports: Barilla has a 22% market share in Europe and this share is expected to
rise as the growth in the export market increases by 20-25% each year. Barilla could try
and implement the JITD system with its distributors, both current and future, outside
Italy. If implemented and successful, this idea would result in savings for Barilla in its
export supply chain.

Reduce SKUs: Currently, Barillas dry products are offered in 800 different SKUs. This
large amount leads to a lot of complexity in the order process, distribution as well as
inventory and thus increases costs and variability.

Conclusion
Barilla can look forward to a much more efficient and profitable future as a result of
implementing these recommendations concerning the JITD system: their demand would
become more steady and easier to produce and transport, their operating costs will reduce and
these savings would result in better margins and the cycle times would decrease and the cash
flow would become even.