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The main incentive behind the proposal of Just-in-Time Distribution (JITD) program is to correct the fluctuation in demand from Barilla¶s immediate distributors. The variation in demand, known as the Bullwhip Effect, makes it hard for Barilla to meet the actual demand of the endconsumers, resulted in higher inventory levels and carrying costs. In addition, limited demand visibility within the supply chain meant that any significant demand fluctuations could result in stock outs. The purpose of the JITD program was to predict actual demand so that Barilla could attempt to match its supply of products to meet customer¶s demands. a) Barilla and its distributors suffer a high cost in distribution channels caused also by the lack of forecasting and poor inventory management. Barilla¶s vertically integrated distribution
system is susceptible to amplification of orders placed on suppliers, Each level in the supply chain periodically reviews its inventory and places orders with the preceding channel. Distributors receive orders from supermarkets and grocery stores and in turn place orders to Barilla central distribution centers, which then put the order forward to the factory. The unawareness of the real demand causes
distributors to sometimes run out of products or overstock their inventory, and that raises the cost of distribution. this is also called the Bull Whip effect. The matter is further complicated by the long lead times that it takes for Barilla to fulfill an order from the distributor, which was usually between 8 and 14 days from when the order is received. Poor communication and cooperation amongst the supply chain participants also contributed to the limited visibility of demand within the supply chain. Because the supply chain participants were not actively sharing information with other members of the supply chain, the participants were unable to react quickly to peaks in demand. As a result, higher levels of safety stock were maintained by all parties in the supply chain to avoid potential stock-outs. b) The fluctuations in demand are also caused by the vast amount of stock keeping units (SKU¶s), which leads to a much more complex system than just trying to gauge how much one type of pasta is sold. Being able to anticipate the demand for all of Barilla¶s 800 different ³dry´ good SKU¶s is absolutely impossible without a robust forecasting system.
Due to the nature of the tunnel kiln in the pasta-making process, it is impossible for Barilla to change the order of the pasta production to quickly fill an order of sold out pasta. products were produced in precise conditions (temperature and humidity) to ensure the quality of the product. The manufacturing process used by Barilla focused on producing large quantities of individual products since adjusting the manufacturing conditions to suite a new product was a time-consuming process. Because Barilla¶s manufacturing operations could not switch quickly between products, Barilla was forced to maintain overall higher inventory. Last but not least, heavy use of promotions and discounts contributed to the variability of demand. As a result of promotions, was not stable throughout the year, peaking when promotions were offered and dropping significantly when the promotions expired. The central distributors expected frequent trade promotions and stocked up on inventory during the promotional periods to benefit from the favorable pricing. As a result, higher inventory levels were maintained both by Barilla and the distributors as the distributors purchased sufficient pasta to meet both current and future needs.
Moreover. distributors will no longer be able to take advantage of volume discounts and . There are several internal departments that are affected by switching to JITD. First and foremost. Barilla also needs to convince non-technology-savvy individuals to adopt this program. In addition. Not only does the sales staff have to worry about diminished responsibility and compensation. Barilla¶s sales and marketing department would be greatly affected by the move. which are shared by all members (Barilla. Barilla may be able to reduce the average price of their product or offer an incentive to adopt the JITD program. Also. distributors would not stock their inventory with Barilla products that exceed the real demand. If the JITD system is implemented. the JITD program will not be implemented without costs to Barilla. Much of Barilla¶s sales come as a result of trade promotions and discounts given to distributors as an incentive to purchase larger amounts of Barilla¶s products. JITD would take customer demand into consideration. It might not be possible for some retailers to report daily sales because their stores are not equipped with point-of-sale technology that captures sales data.What are the benefits and drawbacks of this program? Just-In-Time-Distribution program (JITD) would be an efficient forecasting tool to predict the real demand of the end-consumer. Barilla has developed a program that pulls relevant shipping information from their downstream partners to anticipate future demand. thus reducing distribution costs. Sales representatives argue that the JITD system would eliminate most of the sales representatives¶ responsibilities. the sales representatives are most likely receiving much of their compensation through commission on their sales. It needs to prove that the implementation of JITD will lessen the current problems that have resulted in high costs of carrying inventory and lost sales. and retailer) of the supply chain. Also. The marketing of promotions is also part of Barilla that would be affected by this new process. Barilla¶s sales representatives spend significant amounts of time working with distributors and helping them place weekly orders and incorporating promotions and discounts into their selling strategies. Barilla would be responsible to provide its distributers with the technology needed to report daily sales. The project also might help improve Barilla¶s relationship with its partners. distributors might need to hire new employees to be able to prepare sales reports. but a JITD system may result in job cuts for the sales staff. On the other hand. In order to increase visibility downstream. Barilla also needs to reassure distributors that it is not the intent of Barilla to bypass them in the supply chain. The JITD system would put a great strain on commission because the sales representatives will but unable to push Barilla¶s products to the distributors. distributor. Due to the benefits that Barilla extracts from the JITD program. 2. What conflicts/barriers internal to Barilla does the JITD program create? Before Barilla can implement JITD it must first garner acceptance from the different internal bodies that make up its distribution framework. JITD will also minimize the lead-time as manufacturing would be only one step behind the end-customer¶s demand. as Barilla won¶t exert pressure on distributors to hold more finished products than necessary. and needs to establish trust between itself and the retailer/distributor. resulting in an improved matching of supply and demand. arrange production schedule and make replenishment decisions for each distributor.
bringing its retailers with it. independent supermarkets are forced to carry more inventory of promotional products. This may obviously lead to certain problems. including being overstocked or under-stocked at times. With 800 dry-product SKU¶s. the primary challenge being faced by independent supermarkets is the over and/or under stocking of Barilla Products during any given period. 3. reducing their own costs. Within Barilla there are worries that if a distributor is overstocked with a competitor¶s product. then the distributor will push the competition¶s product to markets and supermarkets in order to alleviate its inventory. However. Instead of keeping a two-week supply of pasta products retailers could reduce their inventory overhead quite significantly. While being overstocked is merely a question of the cost of unnecessary storage. resulting in an overall store inventory reduction.other promotions because Barilla will dictate the amount of product purchased by the distributors. thus. it can also be argued that Barilla is the only company that could correctly and accountably be able to create a robust forecasting system that would include it¶s wide variety of SKU¶s and pasta. because more frequent deliveries from their distributor outweigh the risk of being under-stocked. With a JITD program in place more frequent deliveries from the distributer are possible. with JITD in place. First off. what would your response to JITD be? Why? From an independent supermarket¶s perspective. thus alleviating the stress of being overstocked. Currently it takes 8-14 days for Barilla to complete an order. it¶s a very complicated adjustment to change the distribution protocol. the JITD proposal offers both advantages and disadvantages. one of the biggest concerns would be allowing Barilla to control all forecasting and supplying of its products. Under the current system. As one of Barilla¶s customers. Couple this perfectly normal concern with Italy¶s pension for labor strikes and the JITD system could come crashing down. Ideally. The sheer number of SKU¶s that Barilla deals with is also a contributing factor. which will eliminate the need for tedious forecasting. the advantages outweigh the disadvantages for an independent supermarket. Another advantage that JITD provides is the management of product promotions. Overall. Using JITD will help these retailers understand their selling patterns as it offloads some of the demand estimation up the supply chain. One of the managers of Barilla¶s largest distributor stated in retaliation to the JITD system that Barilla could get their orders out to the distributors faster ± within 3 days. . Most independents do not use any tracking such as RFID1 and rely on hand counting of inventory and shelf space. All of Barilla¶s customers would need to disregard all previous forecasting measures and blindly put faith in Barilla¶s ability to keep the stores stocked at a proper level. a retailer being under-stocked can lead to losing customers to its competition. The last advantage that JITD provides for independent supermarkets is based on inventory tracking. The internal distribution process is extremely time consuming as it is and adding the JITD system might only prolong the process with little to show to the distributors. Barilla would determine how much promotional products the independent supermarkets would carry. Another concern within Barilla was that a JITD system would leave empty space at distributors¶ warehouses that could be filled with products from Barilla¶s competitors. As a customer of Barilla.
For Barilla¶s JITD system to be implemented. If independent supermarkets can get over the fact that this new system will inherently mitigate their responsibilities. then JITD could be advantageous for both Barilla and its independent supermarket customers. . independent supermarkets must make the decision to trust Barilla and Barilla¶s new distribution structure.