Supply Chain Management

Homework 1

Name : Reynaldi Tejakesuma

Student ID : M11105815

Barilla Sp. Case Study

Questions :

1. Diagnose the underlying causes of the difficulties that the JITD program was created to solve.
What are the benefits and drawbacks of this program?
2. What conflicts or barriers internal to Barilla does the JITD program create? What causes these
conflicts?
3. Can the VMI strategy solve the operational problems faced by Barilla?

Answers :

1. Fluctuating demand in customer orders cause an unprecedented strain in Barilla

manufacturing and logistics operations that lead to high supply chain costs and stockouts.
Barilla didn’t have sufficient customer demand data to properly forecast future demands so
every single Barilla supply chain network (Retailers, Wholesalers, Distributors, Suppliers) place
orders based on their own forecast. This increased the inventory level Barilla side and caused
a severe demand variability. In order to increase orders Barilla also gave volume discounts for
retailers if they order Full Truck Load (FTL). This incentivizes the retailers to order more
products than they can sell leading to increase in their inventory levels. Sales incentives for
representative also lead to problems, since the incentives for sales representative based on
meeting the sales target for each canvass period. So, sales representatives are encouraged to
boost their sales number before the canvass period is over, this led to unsustainable level of
inventory. Barilla tried to respond to demand swings (Causing Bullwhip effect), which proved
to be impossible.
- Benefits of JITD Application in Barilla Case
a. More accurate demand forecast since Barilla would be able to aggregate information
for forecasting purpose.
b. It will decrease inventory level at distributor end. It means more space for other Barilla
products.
c. Service level would be considerably higher since Barilla can develop better forecasts
which lead to optimal product availability.
d. With accurate forecasting the inventory level in Barilla’s Central Distribution Centre
(CDC) will be lowered which will decrease the inventory holding costs.
e. With proper forecast data the manufacturing side of Barilla won’t have to be strained
so hard in order to fulfil the volatile demand thus reducing the manufacturing costs.
- Drawbacks of JITD Application in Barilla Case
a. Every retailer must be willing to share their sales data to Barilla in order for JTID
system to work. However not all retailers will be willing to share their data because
they consider it to be confidential data.
 b. If the forecasts are wrong this can lead to stockouts which means a loss of revenue. If
such problem persists then retailer will be forced to find other alternatives from
another brand. This will lead to loss of shelf space to the competition.
c. JITD will not be an easy endeavour, the system itself is complex and expensive. Every
supply chain level must work in tandem in order to make JITD works properly. Data
gathering and forecasting are important aspects of JITD so, Barilla will have to invest
well on those part.
d. Since the inventory level will be lowered, Barilla won’t be able to respond quickly if
there is a fluctuation in demands. The whole system will be less resistance to demand
shocks.
e. With this system sales representative will be less incentivized to push sales. This led
to flat sales number.
2. The biggest resistance to the implementation of JITD came from sales and marketing
department. This is quite understandable since the sales and marketing department hold an
important role in the company. JITD application will undermine the role of those two
departments. On the sales department the JITD application means the sales representative
can no longer push volume in order to increase their incentives, this will disincentivize the
sales representative thus leading to lower sales level. On the marketing level it will be hard to
run trade promotions with JITD. From the customers side, not every customer is comfortable
with sharing their sales data to Barilla. Since JITD application is quite complicated the
coordination between Barilla and the customer must be spot on in order for JITD to work
properly.
3. Vendor Management Inventory (VMI) can solve the operational problems faced by Barilla.
VMI can only work if the retailer is willing and able to share the demand data and willing let
the supplier (in this case Barilla) to control its inventory. With the VMI, all levels of the supply
chain's inventory are held by the supplier, Barilla. As a result, the company has the chance to
learn information about their products as well as the actual client demand for the numerous
things they make, which allows them to considerably enhance their forecasting of product
demand. It can boost its planning and production efficiency, as well as the quality of its client
service, with the knowledge of the real-time customer demand. VMI integrates the
production, planning, manufacturing, sales, and marketing divisions, allowing for tight
collaboration and information sharing, which will improve the whole supply chain
performance. VMI implementation will also reduce lead time because Barilla won’t make
many wasteful goods, it will also remove uncertainties in demand thus removing the needs
for excessive safety stock level. VMI application also open the possibility for Barilla to
negotiate risk sharing agreement with their customer (i.e., Buyback Contract agreement, etc).
With such openness and transparency of data the relationship between Barilla and its
customer will therefore improve (Leads to higher trust and mutual respect).