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Barilla SpA

Introduction
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Started in 1875 as a small shop in Parma, Italy By 1990, Barilla SPA - World’s largest pasta producer Pasta Share - 35% in Italy and 22% in Europe 2 Product Categories – 75% Dry and 25% Fresh Fresh Products had 21 day Shelf Lives Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives 800 SKUs of Dry Products Retail Outlets – Small independent shops and Supermarkets (Chain and Independent)

Distribution System
CDC = Central Distribution Centre GD = Grand Distributors DO = Organized Distributors
35%

PLANT
65%

CDC’s

Flow of Information

Barilla run depots GD’s DO’s

Chain supermarkets

Independent supermarkets

“Signora Maria” Shops

Customers

Customers

Customers

Sales & Marketing
 

Heavy Advertising, Brand positioning
Steffi Graf, Stefan Edberg promoted the “Barilla” brand

Frequent Trade Promotion to push product into distribution network Volume Discount


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Use of Sales Representative
Merchandise Barilla Product Set up In-Store promotion Took note of Competitor’s price, stockouts, new product introductions Worked out ordering strategies for retailer

Issues Faced

Extreme demand fluctuations (Since 1980)- week to week variation in distributors’ order patterns Pressures to manufacturing in terms of production lead-time and perishability of product High Inventory Carrying Cost & manufacturing cost due operational inefficiencies Unacceptable Cycle Service Levels (CSL) – inadequate product availability Distributors’ inability to carry large number of SKUs

Demand Fluctuation
Reasons

Excessive Promotional activities
Volume Discount

No limit in order quantities from distributors
Product proliferations

Lack of sophisticated forecasting techniques.

Demand Fluctuation
Exhibit 12

Demand Fluctuation
Methods adopted to curb fluctuation

Excess FG inventory to meet Distributors’ demand Additional inventory at Distributors warehouses

Impact
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Overburdened Manufacturing and Logistic operation Poor product delivery Thinning of retailers/distributors margin Increased inventory carrying cost Unanticipated demand Bullwhip effect

Bullwhip Effect
Variation in Demand caused Bullwhip effect in the entire supply chain

Order Transfer

Order Transfer

Plant

Distributor

Retailer

Magnified Variation in Order

Bullwhip Effect
Causes of Bullwhip Effect

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Inaccuracies in Demand Forecasting Long Lead Times Price fluctuation due to Promotional activities Order batching

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To reduce ordering Cost To take advantage of Transportation economics such as full truck load Sales incentive Forward buying due to promotional activities to get benefit from lower price

Just-In-Time-Distribution (JITD)

Vendor Managed Inventory Concept Treats end customer data as the input Final authority to determine shipments is Barilla SpA Barilla would decide what to ship to distributors and when to ship it Distributors will provide POS data of different SKUs.

Why JITD ?
Expected benefits for Manufacturer
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Reduced Manufacturing Cost Increased Supply Chain visibility High bargaining power over Distributors Reduced inventory cycle A planned production planning is possible

Expected benefits for Distributors

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Improved fill rates to Retail store- Quick response High service level – additional services to retailers without extra cost Reduced inventory carrying cost

JITD- Resistance
Internal
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Sales representative feared reduction in responsibilities Inability to quick shipment may lead to Stock-out Inability to run Trade Promotion Lack of sophisticated infrastructure to handle JITD Skepticism about cost reduction

External

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Unconvinced distributors Perceived power transfer to Barilla Distributors were skeptical about the effectiveness of the system

Experiments at Dry Product depots

Barilla spa ran first JITD experiment at its Florence depot


Top management was actively involved
During the very first month of the program
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Inventory dropped from 10.1 days to 3.6 days Service level to retail stores increased from 98.9% to 99.8%

Depot’s staff was not comfortable working with such low inventory levels

Inventory levels finally allowed to increase to 5 days

JITD next tried at Milan Depot

Similar performance improvement as Florence

These experiments established the credibility of JITD system

Implementation Result

Implementation Result

Implementation at D.O Cortese
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Barilla decided to implement JITD in Marchese DC of Cortese It involved

Director of Logistics, EVP of Sales and Manager responsible for JITD implementation from Barilla  Nine managers including MD, Logistic manager for Marchese DC of Cortese.  Consultant Ferozzi- a neutral party trusted by both groups

For six months, Barilla team analyzed daily shipment data of the DC

Created the data base of DC’s historical demand pattern

Finally implementation brought phenomenal result 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

Implementation at D.O Cortese

Implementation at D.O Cortese

Implementation at D.O Cortese

Adaptation with other Distributors

Barilla approached other customers with confidence.

Developed a protocol which could be used to communicate with all customers
Each SKU identified with three different product codes
Barilla’s code  Customer’s code  EAN (European article numbering system) barcode – Most common barcode standard in Europe

Advantages of the coding system
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Information can be received through any code Improved data sharing

By 1993, all customers were linked electronically with the Barilla Headquarter.

Communication with Customers
Distributors each day sent following information to Barilla Electronically
1. 2.

Customer code number to identify customer Inventory for each SKU carried by DC

3.

Previous day’s “sell through”-All shipments of Barilla products out of DC to consumers on the previous day
Stock outs on previous day for every Barilla SKU carried by DC An advance order for any promotions that the customer planned to run in the future Preferred delivery carton size

4.

5.

6.

Group reflections/Takeaway

Better demand forecasting using sophisticated tools ensures a robust supply chain Excessive fluctuation(SD) leads to increased Average Inventory Level, poor USL and frequent stock-out. Information centralization reduces Bullwhip Effect and enhances inventory management system Decision needs to be taken amongst “Pull based” and “Push based” systems To succeed in a new initiative, involvement of Top management is important Credibility needs to be gained before enforcing any idea to others Customers need to be convinced with the win-win concept

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Thank You

Pasta is Delicious !