Supply Chain Management

Case: Barilla SpA (A)

Presented by:
Luu Quoc Dat (Peter) Olvin Bireswar Tony D9801801 B9501012 M9821809 D9801002

Outline
Introduction Plant Network

Channels of Distribution Problem Facing JITD(Just-in-Time Distribution) Question & discussion Conclusion

Case overview (the value of information)

Giorgio Maggiali,1990, Presently director of logistic,

Barilla SpA (worlds largest pasta producer)

Brando Vitali,1988,Previos director of logistic, Barilla

SpA
Introduced Just-in-Time-Distribution(JITD) was modelled

after the popular just-in-Time manufacturing concept

Maggiali, strong supporter of JITD, but how to implement

it

Introduction

Company Background
Pietros son Ricardo led the company in 1940.1971 Mr. Barilla build up the largest In pasta plant Italy 1971 Mr. Barilla in debt sold the company to the U.S, multinational firm W.R. Grace, Inc

Barilla SpA was founded in 1875, Italy, Parma Mr. Pietro Barilla,(laboratory)

Introduction (cont.)

Grace brought additional capital investment and professional Management and launched an important new Mulino Bian co (White Mill)line of bakery product

1979 Grace sold the company back to Pierto Berlia .During the 1980 Berlia enjoyed an annual growth rate of over 21%

1990s Barilla is the largest pasta Manufacturer in the world, making 35% of the pasta sold in Italy, and 22% of the pasta sold in Europe

Industry Background
Some believe it originated in China and brought it to Italy by Marco

Polo in the 13th century

Using a bas relief on a third century tomb (near Rome) try to prove

it originated in Italy
Per capital pasta consumption is highest in Italy (nearly 18 kilos)

than other western European country

In the late 1980 Italian pasta market was relatively flat, growing less

than 1% per year

In 1990 the Italian pasta market was estimated at 3.5 trillion lire. Export market was growing up at the same time In 1990 it was expected to rise 20-25% 2/3rd of this increase would be attributed to eastern European

country(low priced basic food products)

Plant Network

25 Plants, including large flour milks, pasta plants and fresh bread plant

P P P

P P

P P

P P

P P P

Plant Network (cont.)

Northern & Southern Central Distribution Center

P P P

P
P P P P P P

P P P

Plant Network (cont.)

25 Plants Maintaining state-of -the-art research and development (R&D) and a pilot production plant in Pedrignanao
Company headquarters

P P P

P
P P P P P P

P P P

Product (Fresh &Dry)

Products: Fresh pasta, Fresh bread, Pasta, Breadsticks, Flour mill, Noodles, Cakes, . Fresh products sales 25% Dry products sales -75%

P P P

P
P P P P P P

P P P

Channels of Distributions
Product Categories

Barilla divided its entire production line into two

categories
Dry: Made of little more than semolina flour, water,

and salt, dried pasta can be stored at room 75% of temperature almost indefinitely.

Sales

Fresh: It contains eggs and additional water, fresh

pasta is more tender than dried and takes about half 25% of the time to cook.

Sales

Barilla distribution patterns

Barilla dry product factories
65% TL 35% TL Barilla CDCs TL

Inventory Dry = 1 month Fresh = 3 days

TL

18 Barilla-run depots Distribuzione organizzata

Grande distribuzione

LTL
LTL LTL

Chain Supermarket

Independent Supermarket

Signora Maria Shops

TL = Delivery in truckload quantities. LTL = Delivery in less-than-truckload quantities

Barilla distribution patterns (cont.)

Barilla dry product factories
65% TL 10% 35% TL Barilla CDCs 90% TL

Inventory Dry = 2 weeks

TL

18 Barilla-run depots Distribuzione organizzata

Grande distribuzione

LTL
LTL LTL

Chain Supermarket

Independent Supermarket

Signora Maria Shops

TL = Delivery in truckload quantities. LTL = Delivery in less-than-truckload quantities

Barilla distribution patterns (cont.)

Barilla dry product factories
65% TL 10% 35% TL Barilla CDCs 90% TL

Inventory Dry = 2 weeks

TL

18 Barilla-run depots Distribuzione organizzata

Grande distribuzione

LTL
LTL LTL

Chain Supermarket

Independent Supermarket

Signora Maria Shops

TL = Delivery in truckload quantities. LTL = Delivery in less-than-truckload quantities

Barilla distribution patterns (cont.)

Barilla dry product factories
65% TL 10% 35% TL Barilla CDCs 90% TL

TL

18 Barilla-run depots Distribuzione organizzata

Grande distribuzione

LTL
LTL LTL

Chain Supermarket

70%

Independent Supermarket

30%

Signora Maria Shops

TL = Delivery in truckload quantities. LTL = Delivery in less-than-truckload quantities

Inventory Dry = 10~12 days

Just-In-Time-Distribution Program
Problem Facing (Barilla): increasingly felt the effects of

fluctuating demand; weekly demand swung so much and was

so difficult to predict (see figure).
The specific sequence of pasta production made it difficult to

quickly produce a particular pasta that had been sold out.

Holding plenty finished goods inventories to meet distributors

order requirements was extremely expensive.

Fluctuating Demand

Figure 5-3: Weekly demand for Barilla dry product from Corteses Northeast Distribution Center to the Pedrignano CDC, 1989

Just-In-Time-Distribution Program (cont.)

Problem Facing (distributors):

Carrying too much inventory;

Service levels to the retailers were unacceptable; A lack of forecasting systems or sophisticated analytical

tools for determining order quantities.

Inventory Level

mean

Service Level

Just-In-Time-Distribution Program (cont.)

The director of logistics suggests: Implementation of Just-in-

Time Distribution (JITD) with Barillas distributors.

Key concept:

look at all of the distributors shipment data and send only what

is needed at the stores (rather than send product to the distributors according to their internal planning processes); Barilla is responsible for creating the delivery schedules.
How would this work?

every day each distributor provided Barilla shipment and stock

level data;
then Barilla could look at all of the data and make

replenishment decisions based on Barillas forecasts.

Resistance from the Distributors

Managing stock is my job; I dont need you to see my warehouse or my

figures.
I could improve my inventory and service level myself if you would deliver

my orders more quickly

We would be giving Barilla the power to push products into our warehouse

just so that Barilla can reduce its costs.

Our sales levels would flatten if we put this program in place. How can we get the trade to push Barilla product to retailers if we dont

offer some sort of incentive?

If space is freed up in our distributors warehousesthe distributors would

then push our competitors product more than ours.

the distribution organization is not yet ready to handle such a

sophisticated relationship.

How Can Maggiali Solve the Implementation Problems?

Demonstrate that JITD benefits the distributors (lowering

inventory, improving their service levels; decrease their

inventories, improve their fill rate to their store and increasing their returns on assets)
Maggiali needs to look at JITD not as a logistics program, but

as a company-wide effort.

Question & Discussion

Question 1: What are the reasons for the increase in variability in Barillas supply chain?

Answer1
Transportation Discounts
Barilla paid for transportation Providing incentives of 2 3% Discount for orders in full

truckload quantities

Full Truckload 2-3% Discount

Not-Full Truckload No Discount

Answer1
Volume Discounts
1,000 lire per cartoon discount (4 % discount) for minimum

purchase of 3 truckloads of Barilla egg pasta.

Promotional Activity
Divided each year 10 or 12canvassperiods, four to five weeks

in length;
During this time Bailla distributor could buy as many as product; Sales representatives gets incentatives based on achieving sales

target;
Promotional discounts are different on different product.

Answer1 Order Quantities

Distributor could buy as many as products as desired to

meet current and future demand

No Minimum or Maximum

Answer1
Long Order Lead Time
Distributors placed order once per week Barilla send product in 8-14 days

Answer1
Poor Communication

Product Flow

Information Flow

Question2 How can the firm cope with the increase in

variability?

Eliminating Constrain Decrease EDI JITD

Discount & Promotion

the order quantity by stocks SKUs of products

(Electronic Data Interchange )

(Just-In-Time-Distribution)

 Question 3: What are the impacts of transferring demand

information across the supply chain?

Delivery decisions and improve demand forecasts are the greatest impacts of this information sharing.
Question 4: Can the vendor managed inventory strategy solve

the operational problems faced by Barilla?

Yes

Conclusion
Variations in distributors order patterns have caused severe

operational inefficiencies and cost penalties for Barilla.

In JITD, Barrillas own logistics organization would specify the

appropriate delivery quantities-those that would more effectively meet the end consumers needs yet would also more evenly distribute the workload on Barillas manufacturing and

logistics systems.

THANK YOU FOR YOUR ATTENTION