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Question 1: What are the underlying causes of the difficulties that the

JITD program was created to solve?
1A. What are the underlying drivers of the fluctuations in Exhibit 12?
The fluctuations in weekly demand from Cortese Northeast DC are caused by
many factors.
Firstly the demand from customers can vary due to seasonality (e.g. more
lasagna is sold around Easter). This is largely predictable fluctuation.
Secondly, demand from distributors varies due to a number of factors, namely
promotions, transportation and volume discounts, long lead times (10 days), the
large variety of products and pack sizes and designs, and no minimum or
maximum order quantities. The distributors do not have forecasting tools or
systems. They will take advantage of a volume or transportation discount or
“canvass” promotional period to order stocks for weeks in advance and then
order less or nothing in the following weeks while they use up inventory.
Poor communication between retailers, distributors, sales, marketing and
manufacturing may be one other driver for the fluctuations, as well as a lack of a
forecasting system.
The supply chain is very complex. Distributors have different types of customer
(supermarkets vs small independent shops) and various different strategies.
There are many stages between the factory and the end-customer (large or
organized distributors with their own warehouses and brokers). This demand is
unpredictable (or at least it is at the moment, with no way to monitor real sell-out
in stores and with distributors and stores holding inventory). The fluctuating
demand causes the “bullwhip effect”, amplified variation in demand the more
steps in the supply chain (away from the end-customer) there are. This is most
noticeable in Exhibit 12 where we see 4-6 spikes in orders, followed by an
incredibly low order volume soon after.
1B. What is the impact of such fluctuation? What are the costs of
having an order pattern like this?
The impact of the fluctuations puts Barilla in a situation where its production is
insufficient or Barilla produces excess finished goods. These results imply that
either Barilla has stock outs or is holding excess inventory (or both). The costs
are related to direct revenue loss due to competition and inventory holding cost
respectively.
Due to fluctuations, the manufacturing and logistics operations are put under
pressure. At the distributors’ end, the impact of such fluctuation may cause them
to establish additional capacity to hold Barilla’s excess production (which is
expensive) or to buy any type of promotion.
Stockouts are also costly because they mean a loss of sales (customers will
presumably buy a competitor product) and we can see from Exhibit 13 that the

According to Vitale’s proposal. because the implementation of JITD needs to be company-wide. Company-wide. Inventory and stockouts should also be reduced at Barilla and at the retailer and distributor sides. 1C. Another concern was that if the shelves in the distributors’ warehouses were not full of Barilla products. They also thought that sales figures would be reduced (due flattened demand) and that the new system would not be flexible enough to respond to changes. a partnership. If he is right and the workload is distributed more evenly. What internal conflicts or barriers internal to Barilla does the JITD program create? What are the causes of these conflicts? As Giorgio Maggiali. It means production will operate more smoothly. the view should be adopted that the relationship with distributors is a long-term one. and should be managed accordingly i. their competitors will move in and fill the space and then the distributors will push sales of competitor products instead of Barilla products. only producing what is requested. information gathered from distributors will help Barilla to estimate its production and inventory levels. The flat sales structure will take away the bonus for sales people and it will be hard to maintain trade promotions under JITD. The CEO and top management should make clear to everyone that this is in the best interests of the company and give them some time to get used to the new situation. They were concerned that if there were a strike or other interruption in production. Since margins are reducing. The causes of these conflicts are the lack of sufficient flexibility in production. The large buffers of inventory cost money and may conceal other problems in the process. Vitale aims to strengthen its competitive advantage in the market by reducing cycle time to manage the bullwhip effect at the same time.level of stockouts is still at or over 5%. Also salespeople are worried that they will lose “power” because the functioning areas of marketing and sales will be narrowed. Maggiali should convince his own boss and the CEO of the value of the proposal. is designed to meet end-customer needs more effectively and also distribute the workload of the factory and logistic departments more evenly. cost reduction on the operations side would be beneficial to the company as a whole. joint . To which extent is Brando Vitale’s JITD proposal a mechanism for reducing these costs? Vitale’s proposition to supply distributors with quantities chosen by Barilla. 2. instead of according to distributor orders. the risk of stockouts would increase. how would you deal with these? Internal resistance comes from the sales and marketing departments. the manufacturing and logistics operations will not be under so much pressure.e. and that sales promotions would no longer be possible. Through forward integration to the first tier customers (distributors). and the reward structure for sales representatives.

getting accurate data from stores about sales. for example some of their KPI’s could be related to reduction in inventory. The incentive for cooperation is a clear win for all parties involved (Barilla and its customers. The root of all things good in managing a supply chain is cooperation. A characteristic of this independence is that the distributor manages the stock by itself. How might Maggiali be more successful in persuading customers to at least try the JITD program? Barilla’s customers (third level SCM) that would be affected by the JITD program are its customers of the ‘dry’ products:  The distributors of supermarket chains. As one of Barilla’s customers. As Barilla’s customer my response to the JIDT program would therefore be to ask: . Only if there is cooperation can all parties in the supply chain benefit from the innovations in distribution that are achieved through cooperation. Why? c. what would your response to JITD be? Why? How might Maggiali be more successful in persuading customers to at least try the JITD program? a.  The distributors of independent distributors. Distributzione Organizzata.learning. what would your response to JITD be? b. and having multiple points of contact through formal and informal channels. empowerment and team-working. 2. As one of Barilla’s customers. job enrichment (greater autonomy). This is where things start to get difficult. Grande Distributzione. sharing and aligning long term expectations. From the case description there seem to be two aspects that are important to distributors: 1. a win-win situation). Fulfilling the role of distributor independent from Barilla. 3. The reward structure for salespeople could be reorganized. sharing successes. ideas to design satisfaction into the job could include job enlargement (larger number of tasks and more variety). so the sales team needs to be persuaded of the value of this selling tool. job rotation. The supermarkets themselves or the Signora Maria shops are not part of the JITD program. The optimizing of inventory – increased fill rates to retail outlets but also reduced inventory holding costs and improved service by having enough variety and receiving orders fast. 3a. Vitali sees JITD as a selling tool. The jobs of the salespeople could be redesigned to introduce more job commitment from sales.

Therefore. If results are positive. Maggiali could propose a joint venture with Barilla and the distributors as shareholders that control the sales data from the distributors. Maggiali could indicate that the JITD program helps this distributor to improve his dependability by having the right type of pasta in stock most of the time. i.e. but approach the problem from different sides. As a distributor I would like to know how I can improve my performance measures without losing my independence from Barilla and obtain some of the cost savings that is thought to go to Barilla. because it results in ‘getting too closely linked to Barilla’ and ‘would be giving Barilla the power to push product into our warehouses just so Barilla can reduce its costs’ (p. 4. By becoming joint owner of this data both parties can benefit without the distributors losing some of their independence. Maggiali could ask an objective consultant trusted by both Barilla and the customer to give their opinion. The question is to what extent the JITD program and the need for faster delivery are different. Giorgio Maggiali must address the concerns of loss of independence and sharing some of the cost saving. . Maggiali could implement the JITD first in Barilla’s own depots. This seems to be a choice where there is no win-win situation possible. There are a number of alternatives possible: 1. Giorgio Maggiali should ask the distributors about their strategic objectives and try to gear the JITD program in such a way that it helps the distributors to meet these objectives. The independence issue is a valid argument.10) made a counter proposal when asked to participate in the JIDT program: Barilla would have to deliver within 36 hours. 2. since Brando Vitali of Barilla said that the JITD makes distributors more dependent on Barilla. As a sign of goodwill Maggiali could offer a guaranteed delivery time of 36 hours for distributors willing to participate in the JITD program. 3. 3b. 5. apparently there is another way to improve the supply chain. they can be used to convince other distributors. Perhaps both Barilla and the distributors want the same. and then present the findings to the customers. In order to create a win-win situation. 3c. For example: if a distributor ranks dependability as top performance measure. the distributor quoted in the case (p.9: ‘… it should improve the relationships … rather than harm them’). However. whereas a distributor regarded the JITD program negatively. how the program lets me fulfill my role as independent distributor.1. reduce delivery time (speed) at the lowest costs (costs) 2. The interesting thing is that this dependency is viewed by Barilla as positive and a way to improve relationships (Vitali p.10). increase variety (flexibility). how the program helps me improving on my performance measures: prevent stock outs (dependability). let me manage my own stock.

Dependability . defined as the most important KPI in the operation strategy. The operation strategy should identify the order of importance of the five KPIs. 4. the Barilla management team should define their operation strategy for the near future that covers both domestic and international markets in alignment of Barilla’s market vision. o Involve sales team in inventory / distribution management.Quality In terms of cost.Cost . Barilla’s management team should order the KPIs as follows (most important to least). clearly show that focusing on inventory and distribution chain management can result in major cost savings. but at the same time records figures of how they would replenish the same customer differently in the “new” way. Maggiali has. and then compare the inventory and frequency of stockouts at the end of the period. inter-department) issues in distribution.Flexibility .6. in which Barilla would continue to replenish the distributor stocks in the “old” way.  Reward for less average SKU in the CDCs and Depots. What would you do? (What would be your strategy and what would your implementation plan be?) First of all. the management team should listen to the concerns of Mr.Speed . From our perspective. .Involve top level management and look for their buy-in that the high inventory and demand fluctuation is not an operational issue but a company-wide (First Level[1]) and even distribution chain-wide (Third Level[1]) problem. although the case focuses on domestic (Italy) distribution-related operational issues. Some changes in bonus calculation of sales teams can help. and explain management’s expectations clearly from operations. With all the issues. But all the concerns Mr. Based on the given information in the case. Short term: . and management team’s operational strategy in mind. we are not able to come up with exact financial numbers for the curse of inventory. . Replace yourself in the position of Barilla’s management. Maggiali and ask for more details and expected numeric and financial results on the curse of inventory. Maggiali could propose a simulation which could be carried out over a fixed time frame. we came up with the action items below. - Focus on First Level (company internal. This should prove the benefits of the JIDP.

etc. - To create awareness on the inventory and distribution chain issues in organizations.e. competitor analysis. if distributor agrees to order twice a week for the coming 12 months. Barilla could propose a joint venture with Barilla and the distributors as shareholders that control the sales data from the distributors. However this information bypasses DOs and GDs and does not provide any indication on GD and DO inventory or orders. it should be integrated into order forecasting for Barilla’s operations management and can be used as a powerful indicator of actual demand. By becoming joint owner of this data both parties can benefit without the distributors losing some of their independence. - Create a Third Level[1]. (Distribution Chain Level) information network to better focus and analyse the demand. If the lead-time can be shortened. finance to participate Mid-term: . currently the average lead time is 10 days and varying from 8 to 14 days. o Discontinue periodic trade credits o Discontinue canvass periods o Discontinue volume discounts o Arrange long term distributor agreements covering:  Fixed pricing year-long (Every Day Low Pricing practice)  Order limits (min-max order levels)  Encourage periodical orders (i. - Change sales practices which cause demand fluctuations. then the fixed price on the contract can be arranged at a lower rate) - Run JITD experiment with one of the Barilla owned depots. and the orders fulfilled quicker.The ultimate goal of Barilla to realize JITD should be leaning towards Vendor Managed Inventory for all channels. batch orders at discounted prices. DOs and GDs will start keeping less inventory and probably start ordering more often.Look at ways to speed up delivery. as much as possible. promotions. and introduce periodic orders at agreed prices. This information flow is used for new products. o Barilla could ask an objective consultant trusted by both Barilla and the customer to give their opinion. organize workshops (maybe on an academic level) and invite other departments like sales. marketing. o To gain trust and convince distributors that their independence is not in jeopardy. but not integrated into inventory and production management. . Cut bonuses for fluctuations (if standard deviation > X) - Currently a very accurate and up-to-date market analysis flow from stores by Barilla sales representatives into CDCs exists. Move away from large. Long term: . pricing.

Jack A. both Barilla and the distributor will benefit from better forecasted orders and decreased inventory.o Convince DOs and GDs that the information sharing results in a winwin case by proposing a simulation that could be carried out over a fixed time frame. However this will still not fulfill all the required information for Barilla to flatten the demand. Week 5. Slide #7 . but at the same time records figures of how they would replenish the same customer differently in the “new” way. Explore how Barilla can help its distributors to meet their strategic objectives.A. offer a closely working Barilla representative to be present at DO or GD premises who monitors the inventory and sales figures and advises on the ordering (similar practice is currently performed in supermarkets) - For really skeptical distributors on information sharing. o Build trust by looking for strategically aligned relationships with individual DOs and GDs. in which Barilla would continue to replenish the distributor stocks in the “old” way. Van der Veen. - If the DOs or GDs do not want to share data. and then compare the inventory and frequency of stockouts at the end of the period. develop and roll out a “Barilla Demand Forecasting System” where DOs and GDs can order based on the outcomes of the forecasts. This should prove the benefits of the JIDP. Operations & Supply Chain Management Course slides. References [1] Prof. dr.