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2014

Case: Barilla SpA (A)


Submitted By:
SUPPLY CHAIN MANAGEMENT 6210
PROFESSOR ALLAN BARR

Dhyey Desai
Palash Shah
Yuvraj Singh Patil

NORTHEASTERN UNIVERSITY

Background:
Barilla SpA, is an Italy based company which is the largest manufacturer of pasta in the world. Headquartered
in the city of Parma, the company also produces bakery products such as cookies, cakes, pastries, biscuits, etc.
Barilla is a vertically integrated company, which operates flour mills as well as distribution warehousing
services. The products are classified as fresh and dry based on their composition. The fresh products have a
shelf life of three days compared to the thirty day shelf life of the dry products.
To manage the distribution of various types of products, Barilla maintains a complex distribution system
comprising of distribution centers, distributors and agents. Due to fluctuating demand patterns, longer lead
times and order based production was making it hard for the company to optimize its supply chain. In order to
overcome these obstacles, Barillas director of logistics, Giorgio Maggiali decided to implement JITD (Just-inTime Distribution) model. However, this model was resisted internally (sales and marketing) as well as
externally (customers, distributors and retailers).

Analysis:
In 1990, Barilla had manifold products which were classified in seven categories (three pasta divisions, bakery
products division, fresh breads division, catering division and international divisions). An organization with
these many products to offer, faces challenges in the areas of manufacturing and distribution. To implement a
successful JITD system, it would be essential for Barilla to reduce the variety of products being offered and opt
the path of standardization. But, this approach is contradictory to the business model of the company which
aims at providing manifold products which have great quality.
Distribution is carried out by shipping products to the CDC (Centralized Distribution Centers), which is further
distributed to the GDs (Large Distributors) or DOs (Organized Distributors). Through them the products go to
independent supermarkets and chained supermarkets. 10% of the total products are delivered to small shops by
local agents. The dry products had a long shelf life compared to the fresh ones which had a small shelf life. To
make a supply chain efficient, the number of nodes should minimum. In this case, the supply chain has multiple
nodes which makes the system complex and increases lead times. Barillas lead time ranged from 8 to 14 days
from when the order was received.
The long tunnel kilns used by the company in their manufacturing required precise temperature and humidity
conditions for different products. It focused on large quantities of individual products as it was hard to change
manufacturing equipment for new products every time. This caused the inventory levels to increase.
The companys production was based on orders from the lower ends of the vertically integrated system
(retailers and distributors). Unfamiliarity of real demand made it hard for retailers and distributors to make
accurate predictions which lead to overstocking/understocking situations. This gives a rise to the Bull-whip
effect which can create complications and it needs to be reduced.
Barilla Frequent trade promotions and discounts also attributed to fluctuating demands. The company paid for
transportation to distributors and offered 2% to 3% for FTL(Full truck load) ordered. During these promotional
periods, both Barilla and distributors had high inventory levels to manage the demand. The demand was high
during promotional period and dropped otherwise.
One of the major problems faced by the organization was to integrate the key members of the supply chain to
get involved in the JITD approach. The marketing and sales personnel of the company opposed the new
approach as they felt that if there were interruptions in production it would lead to out-stocking. They were also
concerned that if there isnt enough stocks of Barilla products on shelves in markets, then other companies
would take over that sales. A concern was expressed on chances of losing commission opportunities. The

distributors were also hesitant in sharing their data with the company, as they felt Barilla would push their
products in their warehouses.
Maggialis first step should be to bring his organization on the same page. He should convince the top
management that the implementation of JITD is for the best interests of the company and that he should be
given some time for achieving the desired goal. He should implement a collaborative planning system between
the company and its distributors to ensure the sales distribution is relayed to them in a regular manner.
Incentives and bonuses can be provided to the sales and marketing executives for achieving monthly targets and
gathering sales information from markets. Benefits of JITD can be visible after a certain amount of time.
Maggialli should aim at maintaining long term partnerships with suppliers to gain trust and data sharing
opportunities.
Placing ones self in the shoes of a Barilla customer, there would be a need to get more information regarding
JITD approach. There would be a concern on how there would be helpful in preventing stock outs, enhancing
sales, reducing inventory levels, availability of discounts, reducing costs, reducing the lead time, provision of
variety of products, methods and reliability of forecasting approach, and benefits of sharing the data with
Barilla. It would be more convincing if barilla would show another successful implementation of the JITD
approach. There is a hesitation among customers as they feel that implementing JITD would make them more
dependent on Barilla and the new approach would make them loose business with other companies.

Recommendations:
1. Partnership with 3PL services: In todays world companies have adopted an approach where they
focus on their core competencies, rather than getting involved in secondary operations. Barilla is a
company which specializes in producing superior quality pasta and bakery products, not in managing
distribution warehouses. If the company takes the 3PL approach, they would outsource their distribution
service needs to people who will specialize in network planning, warehousing and can also help them by
sharing key information which can help better forecasting. The company also produces fresh products
which have a very small shelf life and to get them out of the door first adds more complexity to the
network. Being a large company with substantial capital in hand, Barilla can opt for refrigerated services
option with the 3PLs (Reefers in trucking and cold storage warehousing). This shift can help them to
maintain inventory levels for both fresh and dry product.
2. Exemplify successful JITD models: It is clear from the case study that the sales and marketing
personnel as well as the customers (distributors and retailers) are new to the concept of JITD. Barilla
needs to come up with a way to educate suppliers about the JITD process. People have the tendency of
not adopting to new changes if the current system is fairly comfortable for them. Barilla should educate
the concerned people by making presentations which would talk about other successful implementations
of JIT approach.
3. Technological upgrade: EDI (Electronic Data Interchange) is a good upgrade for Barilla. This
technology will help Barilla reduce miscommunications, improve tracking of shipments, and help in
forecasting of demand. A company which successfully implemented JITD is Coca-Cola. The company
was able to reap multiple benefits from this upgrade like the process of report generation was reduced to
1-2 days from 4-6 weeks which helped in demand planning as well as sales improvement. Also, it
helped the company in understanding the latest trends in key areas and geographies.
4. Evaluation of JITD approach: Barilla should evaluate JITD approach before applying it on their
operations. The pros and cons should be analyzed and a cost estimate should be kept in mind. They
should also consider the costs associated with technological upgrades and the provision of such
technology to the retailers and distributors. Any concept without proper planning can never be executed
successfully. This can lead to higher costs and wastage of time.

5. Small scale implementation: JITD is a concept which requires significant change in operations,
partnerships and technology. If not planned and implemented properly, JITD can cause detrimental for
an organization. The planning team should apply the model on a small scale and implement it on a
testing basis. This will save time, costs and resources. If there are problems in the model, the key areas
for improvement can be identified and then a way to solve them can be deduced. If the model is tried
and tested the chances of failure is reduced and it can be implemented thereafter.
6. Dont reduce SKUs: The ideal scenario for an organization going on the path of lean systems is to
reduce the SKUs and achieve standardization. This can be an approach which Barilla might think of
following, but they should keep in mind that what makes them special is the wide range of quality
Italian food products. Their customer expect quality and variety from Barilla. If they compromise on the
variety, then they would disappoint the customers expectations and give an upper hand to their
competition.
7. Long term relations: Data sharing and collaboration is a difficult thing to achieve. Distributors in this
case have raised the issue of concern over Barilla pushing their products in their warehouses and losing
other business opportunities. Barilla should focus on building long term relationships with their
suppliers, so that trust can be gained. They should avoid changing suppliers on a regular bases and have
supplier benefit programs and discounts to keep their suppliers interested in doing business with the
company.
8. Supply Chain Agility: Erickson mobiles faced a loss of more than $1.68 billion in March 2000. The
company had Phillips as a sole supplier for microchips. Due to lightning bolts striking the Phillips plant
in New Mexico, there was a shortage in supply which caused a misbalance in the supply chain. Barilla
should keep their supply chain agile and have options to fall back upon in case of emergencies.

Conclusion:
Barilla has a great opportunity at hand. Overall the advantages of JITD are more than its disadvantages, because
there is an elimination of understocking/overstocking. The retailers must collaborate with Barilla and trust the
new distribution model. It will help them in boosting sales, availing discounts, and building a greater
relationship with a major player like Barilla. It will be a win-win situation for all the parties involved and make
it an efficient supply chain network.
Reference:
SUPPLY CHAIN MANAGEMENT, A LOGISTICS PERSPECTIVE, by Coyle, Langley, Novcak,
Gibson
http://www.cpgmatters.com/SupplyChain1111.html
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.ftpress.com%2Farticles%2Farticle.aspx%3F
p%3D1244469&h=MAQH0lGeG
www.barilla.com