Barilla SpA Case Study Report

TABLE OF CONTENTS Executive Summary Issue Identi ication Environmental " Root Cause Analysis Alternatives " Options Recommendations Implementation (onitor " Control 3 ! # $ % &' &'

E)EC*TI+E S*((AR,Barilla.s /i0/ stoc12out rates3 lar0e inventory and t/e ina4ility to react to spi1es in demand are t/e main reasons 5/y t/ey 5is/ to pursue t/e 6IT7 system t/rou0/out its distri4ution c/annel8 (any c/allen0es a5ait Barilla includin0 T/is 5ill pose a

tremendous resistance rom 4ot/ retailers and distri4utors8

tremendous c/allen0e or Barilla 4ecause i t/is is not done care ully and 5it/ a sense o con idence amon0 t/e ield3 it could spell disaster or Barilla.s reputation alon0 5it/ t/e reputation o t/e distri4ution c/annels all t/e 5ay do5n to t/e retailers competin0 5it/ ot/er retailers in t/eir o5n to5ns8 T/ere is no one 4est ans5er or t/is pro4lem 9 instead it.s a complex pro4lem t/at 5ill demand t/e 4est rom Barilla and it.s distri4ution net5or18 It.s more t/an ma1in0 a c/an0e to t/eir production system 9 5it/out 1no5in0 t/e real2time demands o t/eir retailers3 Barilla 5ill 4e orced to stru00le 5it/ sur0es in demand and a lac1 o vie5 to uture orders8 Barilla must communicate clearly 5it/ all parties3

implement t/e 6IT7 system to a e5 select prospects as a test2run3 as 5ell as reduce promotions across t/e ield 9 eit/er under t/e 6IT7 pro0ram or not3 to level t/e playin0 ield and pull in t/e rei0ns on t/e varia4les t/at o ten contri4ute to t/e sur0es in demand8

ISS*ES I7ENTIFICATION Barilla is /avin0 tremendous di iculty respondin0 to demand luctuations rom distri4ution centers :7C.s; and retail customers8 Fe5 distri4utors /ad sop/isticated orecastin0 systems or analytical tools or determinin0 order <uantities3 and retailers /ad minimal i any orm o system8 T/e distri4utors and Barilla.s o5n sales " mar1etin0 are s/o5in0 tremendous resistance to t/e idea o 6ust2In2Time 7istri4ution3 an idea t/at Barilla 5ants to implement to 4etter mana0e demand8 Barilla produces and 5are/ouse more inventory t/an t/ey s/ould to compensate or un1no5n variations in demand8 T/e 4ull5/ip e ect occurs 5/en spi1es in demand rom t/e retailer tri00ers a spi1e in orders rom t/e distri4ution centre t/at tri00er spi1es in production at Barilla8 T/is reaction ripples t/rou0/ t/e supply c/ain and produces a tremendous amount o reaction3 o ten resultin0 in stoc12outs8 Stoc1outs are /i0/ and re<uent and are a result o demand luctuations and an ina4ility to react8 Retailers do not /ave enou0/ room in t/eir stores and 5are/ouses to carry t/e very lar0e inventories manu acturers 5ould li1e t/em to carry8 It is costly to 5are/ouse additional inventory or unexpected orders8 Current manu acturin0 process is len0t/y and 4ottlenec1s in t/e dryin0 process ma1e it di icult to <uic1ly produce particular pasta8

Lon0 order lead time o ten orced retailers to order more stoc1 at once to avoid stoc1in0 out i t/ey ound t/emselves lo5 and a <uic1 supply 5as needed8

T/e entire system is very orced and sporadic invo1in0 a sense o panic and rus/ or all involved8

Lac1 o a proper orecastin0 system limits Barillas a4ility to plan or uture demand8

=o5 does Barilla convince distri4utors to adapt to t/e 6IT7 idea>

EN+IRON(ENTAL " ROOT CA*SE ANAL,SISFounded in &?$#3 Barilla /as 4ecome t/e lar0est producer o pasta in t/e 5orld3 ma1in0 3#@ o t/e pasta sold in Italy3 and AA@ o t/e pasta sold in Europe8 As a vertically inte0rated company3 it o5ns and operates an extensive net5or1 o plants includin0 lourmills3 pasta plants and res/ 4read plants8 Barilla.s pasta plants 5ere specialiBed 4y t/e type o pasta produced in t/e plant 9 4ased on t/e composition o t/e pasta3 or example 5/et/er it 5as made 5it/ e00s or spinac/3 and 5/et/er it 5as sold dry or res/8 Croduction 5as also split 4ased on t/e siBe and s/ape o t/e pasta3 eit/er s/ort or lon08 Barilla.s operations reside in Italy 9 a country 5/ere pasta is a staple item8 Customers 1no5 t/e price o pasta3 and i a particular 4rand is on sale3 typically it is on sale else5/ere as retailers s/are t/e discounts and promotions 5it/ t/eir customers8 T/ere ore3 discounts and promotions are an extremely important part o t/e overall sale and promotion o t/e 4rand8 It 5as important or t/e retailers

to 4e a4le to purc/ase as muc/ as t/ey 5anted a0ainst t/e promotions as t/ey arose8 Retailers 5ould o ten stoc1 up on promoted items in order to o er

discounted pricin0 to t/eir customers3 and ot/er retailers 1ne5 5/en t/eir competition 5as ta1in0 advanta0e o a promotion8 It 5as important or eac/ retailer to 4e a4le to control t/e amount o product t/ey purc/ase8 T/ey did not 5ant to /ave someone else dictate t/e siBe o t/e order t/at 5ould land on t/eir doorsteps8 Barilla pasta is sold t/rou0/ t/ree di erent retail c/annels 9 t/e small independent s/ops :3#@ o sales; sold t/rou0/ 4ro1ers t/rou0/ Barilla.s internally o5ned re0ional 5are/ouses and typically carried over A25ee1s o stoc18 Supermar1et c/ains :$'@ o t/e 4alance;3 and independent supermar1ets :3'@ o t/e 4alance; made up t/e remainin0 sales and sold t/rou0/ outside distri4utors8 T/ese supermar1ets typically /eld A25ee1s o inventory8 One o t/e lar0est issues is t/e ina4ility to meet demand 5/en spi1es occur8 Croducin0 out o reaction rat/er t/an plannin0 can result in /i0/er production costs 9 overtime could increase3 lines could 4e tied up producin0 a sin0le item and ot/er products could 4e /eld o 3 resultin0 in a reduction o inis/ed 0oods o t/at item3 5/ic/ could result in stoc12outs i t/at item t/en spi1es in sales8 Dit/ 4ottle2nec1s in t/e dryin0 process3 production could 4e expedited until t/at point 5/ere it /ad to 5ait until t/e dryin0 5as completed 4e ore anot/er 4atc/ 5ent into t/e 1iln8 (ost distri4utors revie5ed t/eir Barilla inventory and su4mitted orders once per 5ee18 T/ey 5ere notorious or poor customer service and re<uently resulted in

stoc12outs even 5/en carryin0 A25ee1s or more o inventory8 Dit/ limited or nonexistent orecastin0 systems3 it is a monumental c/allen0e3 4ut one t/at needs to 4e done 5it/ care ul precision and a vie5 o t/e entire supply c/ain and distri4ution c/annel as a 5/ole8

ALTERNATI+ES " OCTIONSAlternative E& 9 7o not implement 6IT73 4ut instead invest in a second or t/ird 1iln line and continue receivin0 orders and reactin0 as usual8 CROS- 2 distri4utors and retailers 5ould not see any c/an0e in t/e process3 5/ic/ means less or t/em to 5orry a4out8 Business 5ould remain as usual3 retailers can ta1e advanta0e o promotions and order as necessary3 and distri4utors can ul ill customers. orders as usual8 Barilla may ind it easier to react to in luxes in demand as t/ey can continue to produce as usual3 and i t/e demand increases3 t/ey can operate t/e second 1iln line 9 t/is allo5s t/em to increase production and t/en t/e dryin0 process t/at is t/e 4ottlenec1 can increase capacity8 7ependin0 on t/e duration o a typical pre21iln production run3 CONS- 2 not necessarily ixin0 t/e pro4lem3 and Barilla is still reactin0 to spi1es in demand8 Addin0 an additional 1iln:s; 5ould 4e a costly endeavor and t/e intent 5ould 4e to reduce costs3 not increase it8 A 4rea1even analysis 5ould need to 4e conducted to determine its easi4ility and 5/en t/e investment 5ould pay o 8 Alternative EA 9 Improve t/e communication 4et5een sales and retailers3 and 4etter communication 4et5een t/e sales sta and Barilla8 Esta4lis/ trust

4et5een retailers3 distri4ution and t/e manu acturer and test2pilot t/e system 5it/ a select e5 retailers8 CROSBetter communication 5ill 4e 0ood or all parties8 Test2pilotin0 t/e

pro0ram to a select e5 5ill allo5 Barilla to test t/e system3 and modi y it to improve its e ectiveness8 CONS- Test pilotin0 only a select e5 may run into issues 5/ere t/e system can s/o5 it.s s/ortcomin0s very <uic1ly8 Could result in competitive issues 4et5een retailers8

Alternative E3 9 Implement 6IT7 and reduce t/e num4er o promotions and esta4lis/ some min2max orderin0 parameters or all parties8 CROS- Limitin0 promotions allo5s 4etter control o t/em as t/ere 5on.t 4e as many t/rou0/ t/e year to spi1e sales8 CONS- Retailers and distri4utors 5ill not li1e /avin0 limits on 5/at t/ey can order3 and e5er promotions t/rou0/ t/e year may impact sales8

Alternative E! 9 Invest in a supply2c/ain 5ide E7I 4ased inventory system includin0 /and2/eld scanners and 4ar codin0 or all retailers and distri4utors8 CROSAllo5s a complete visual o all in2system inventory includin0 in

5are/ouse3 in transit3 in pendin0 sales orders3 and pendin0 production orders8 A plannin0 system could 4e 4uilt o o t/at or production purposes8 Crovidin0

/and2/eld scanners to retailers and distri4utors ta1es t/e inancial 4urden o o t/em and puts it on Barilla8 T/is 5ould s/o5 0ood ait/ to t/e retailers and

distri4utors3 5/ic/ may result in more 4uy2in to Foin t/e pro0ram8 CONS- 2 A0ain3 very costly and time consumin0 to implement8 T/is 5ould only 5or1 once t/e system /as 4een tested in certain areas3 and it 5ould 4e imperative t/at t/e retailers and distri4utors use t/e system and don.t revert 4ac1 to t/e traditional orderin0 met/ods8

RECO((EN7ATIONSAt t/is sta0e o t/e 0ame3 5it/ t/e amount o in ormation provided3 I 5ould recommend a com4ination o Alternative EA3 E3 and E!8 Communication

de initely needs to improve 4et5een all parties3 and doin0 so and openin0 up t/e lo5 o in ormation 5ill ma1e it easier or all parties to plan e ectively8 Ideally in ormation 5ill lo5 in daily3 allo5in0 Barilla to vie5 5/at t/e demand 5as t/e day prior8 T/is can ena4le Barilla to modi y production on t/e ly8 I also eel t/at promotions need to 4e limited not only to 6IT7 participants3 4ut to t/e rest o t/e non2participants as 5ell8 Reducin0 t/ese promotions 5ill ma1e demand more predicta4le and sta4iliBe t/e demand curve8 Cromotions could 4e increased

once t/e system /as proven itsel mana0ea4le8 Limitin0 t/e promotions to 4ot/ participants and non2participants o t/e 6IT7 pro0ram maintains a level playin0 ield8 (inimum G maximum order <uantities needs to 4e esta4lis/ed as 5ell 9 could 4e set to a certain percenta0e o avera0e sales to prevent stoc12pilin08 Once t/is proves itsel 3 Barilla could loo1 at esta4lis/in0 a standardiBed 4ar2 codin0 and scannin0 system lin1ed to an E7I system to allo5 or 4uildin0 o a ully unctionin0 orecastin0 and plannin0 system8

I(CLE(ENTATIONImplementin0 t/e a4ove recommendations 5ill ta1e proper plannin0 and support rom all parties 9 retailers3 distri4utors and Barilla8 Con idence must 4e instilled in all parties 4e ore t/is 5ill 4e success ul8 Retailers are very protective o t/eir in ormation3 yet t/ey provide it to t/e distri4utors on a 5ee1ly 4asis3 so t/is needs to 4e done in a 5ay t/at t/e retailer 5ill eel con ident t/at t/eir 4est interests are at sta1e8 T/is s/ould 4e tested irst 5it/ one or t5o distri4utors 5/o are 5illin0 to 5or1 5it/ Barilla8

(ONITOR " CONTROL (onitorin0 5ill consist o revie5in0 stoc12out reports and determinin0 i t/e 6IT7 system /as reduced stoc1outs or increased t/em8 Inventory values 5ould need to 4e revie5ed as 5ell as num4er o s/ipments to t/e distri4utors and retailers8 Clearly more deliveries 5ill result in /i0/er transportation costs to Barilla3 so t/is needs to 4e monitored8 Dit/ a properly unctionin0 system3 decisions can 4e made on t/e ly to adFust production3 deliveries and orders e ectively and e iciently8

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