Presented by- APURBA ROHIT SANTOSH SOURAV BISWAS SOURAV DUTTA

Introduction
Company & Industry background Worlds largest pasta producer in 1990 Pasta Share - 35% in Italy and 22% in Europe Products divided in 2 categories Fresh and Dry

Channels of Distribution

Fresh Products had 21 day Shelf Lives

Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives

Retail Outlets Small independent shops and Supermarkets (Chain and Independent)

The Issue
During the late 1980s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its distributors order patterns

Distribution Procedure
Original flow of goods and information

PLANT

CDCs

GDs

DOs

Barilla run depots Signora Maria Shops

Chain supermarket s Customers

Independent supermarket s Customers

Customers

*CDC = Central Distribution Centre GD = Grand Distributors DO = Organized Distributors

Variability in Demand
Reasons

Transportation discounts Volume discount Promotional activity No minimum or maximum order quantities Product proliferation Long order lead times Lack of forecasting systems or sophisticated analytical tools at Distributers end

Variability in Demand
Methods employed to counter variability
Holding buffer FGs to meet Distributor requirements Asking Distributors/Retailers to carry additional inventory

Impact
Strained Manufacturing and Logistics operations* Poor Product delivery management Thinning retailer/distributor margins Increased Inventory Holding costs

Impossible to anticipate Demand swings

Changing customers due to lack of storage space

Bullwhip effect
Amplified Variation in demand as one moves up the Supply Chain (away from the customer)

order
Factory

order
Distributor Wholesaler

order
Retailer

Order Variation

The Causes of Bullwhip Effect

Demand Forecast
Long lead times Order Batching Price fluctuation (Promotional sales) Inflated orders in high estimated demand scenarios

Counteracting the Bullwhip Effect

Reduce Uncertainty - POS - Sharing Information - Centralizing demand information Year round or Everyday low pricing

Reduce Variability

Reduce Lead Times

- Information lead times: EDI - Order lead times: Cross Docking Quick Response Continuous Replenishment Advanced Continuous Replenishment

Strategic Partnerships

Vendor managed Inventory (VMI)

Just-In-Time Distribution (JITD)

Vendor-Managed Inventory Concept Treats end-customer as the Input

Aims at managing the Input filter that Produces the Orders Decision-making authority for determining shipments in hands of Barilla SpA Barilla would monitor the flow of its products through the distributors warehouse, and then decide what to ship to the distributor and when to ship it Distributor provides Data on the shipment and current stock levels for each Barilla SKU Sell-through Info one step behind POS Data

Expected Benefits of JITD

Manufacturer
Reduced manufacturing costs Better Relationship with Distributors
Increased supply chain visibility Increase Distributors dependence on Barilla

Improvement in manufacturing planning using objective data

Reduced inventory levels

Distributors
Improved fill rates to Retail stores
Additional service without any extra cost Reduced Inventory Holding costs

JITD - Internal Resistance

Sales Representatives feared reduction in responsibilities Flattened sales levels Risk of Inability to adjust shipments quickly to stock-outs Lack of infrastructure to handle JITD Increased competitor shelf space at distributor Inability to run Trade promotions Unsure about the cost benefits

JITD External Resistance

Unconvinced Distributors
Not willing to share warehouse data Perceived power transfer to Barilla

Lack of faith in Barillas inventory management

Experiments at Dry-product depots

Barilla spa ran first JITD experiment at its Florence depot During the very first month of the program Inventory dropped from 10.1 days to 3.6 days Service level to retail stores increased from 98.9% to 99.8% Depots staff was not comfortable working with such low inventory levels Inventory levels finally allowed to increase to 5 days One of the arguments against JITD was that it will lead to waste empty spaces in the ware houses

Experiments at Dry-product depots

In Florence case Barilla growing at rapid rate in the region Plans to expand warehouse Existing warehouse able to accommodate the increased requirement Substantial investment on expansion was avoided JITD next tried at Milan Depot Similar performance improvement as Florence

These experiments established the credibility of JITD system

Implementation at D. O. Cortese
The decision to implement JITD in Marchese DC of Cortese involved Barilla: Director of Logistics, Executive vice president of sales and Manager in charge of JITD implementation Cortese: Nine managers including Managing director, new services manager, logistics manager and logistics, purchasing, marketing and sales personnel from Corteses Marchese DC Consultant Claudio Ferrozzi was roped in

Neutral party trusted by both the groups

Implementation at D. O. Cortese
For six months, Barilla team analyzed daily shipment data of the DC Created the data base of DCs historical demand pattern Simulated shipments with JITD in place The implementation yielded phenomenal results 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

Adaptation to different distributors

With new confidence they approached other customers Customers apprehensive about JITD repeating the same success as Cortese for them as they had varied systems Barillas team developed capacity to translate customers standards into internal standards

Adaptation to different distributors

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

Advantages of the coding system

Information can be received through any code Reduce impact of internal changes in product or code on clients system

Lessons learnt
One needs to prove credibility of any new performance initiative for others to buy his/her idea Best place to experiment with an idea is within the organization To succeed in a new initiative, involvement of top management is imperative
Barrilla could finally succeed in implementing JITD with Cortese. Whole of top management from both sides was involved in the decision making. Which never happened earlier
Sometimes roping a consultant helps Market is ever growing. If performance measures seem to create spare time/capacity instead of chucking them, look out for ways to increase the market.(Like in Florence depot warehouse case)

THANK YOU