IQRA UNIVERSITY (Gulshan campus)

“Barilla SpA” Case Analysis

SUBMITTED BY:

MUHAMMAD FURQAN HUSSAIN KHAN

IBTEHAJ ABBAS KHAN
MOHAMMAD RAZA JAFRI
AFSAAR BIN SAGHEER

COURSE: STRATEGIC SUPPLY CHAIN MANAGEMENT

SUBMITTED TO: SIR SOHAIL MAJEED
DATE: 16TH-NOVEMBER-2010
Answer #1

There were four key issues that JITD was designed to solve

1. Distribution System
2. Demand Fluctuations
3. Operational Inefficiencies
4. Organizational deficiencies

Distribution System

Barilla was dealing with two types of products

a. Fresh Products: it included fresh pasta products that had 21 days shelf lives and
bread, which had only 1-day shelf life.
b. Dry Products: dry products were longer shelf life products included dry pasta,
cookies biscuits, flours, brad sticks and, dry toasts. The life of dry products varied
from 10 weeks to 24 months.

Total 10% of the production of dry products went to company’s run depots and the
remaining 90% goes through Grand Distributors (GD) and Organized Distributors (DO).
The GD entertained all the super markets and it is integrated into Barilla while OD is a
separate entity, which represents independent super markets and the remaining products,
goes to Barilla Run Depots. The Run Depots of Barilla delivers half-empty trucks or
partial truck loads to Chain Markets, Independent Markets and, Small Grocers.

The main problem in the distribution was the information flow, which takes 10 days lead-
time because of the dependency on the communication of two separate firms or two units
of same firm.
Demand Fluctuations

Demand fluctuations occurred due to lack of proper demand forecasting, no order

batching, sales discount, promotional discounts, and transportation discounts that caused
more variability in demand and we have already discussed that the lead-time was 10 days
that ultimately resulted bullwhip effect and the whole supply chain of Barilla started
experiencing low profits

Operational Inefficiencies

After the Barilla suffered variability in demand, they suggested their distributors to keep
high inventory levels. The Barilla carried 1-month inventory in both of their CDCs and to
maintain this inventory level they required more pasta production and suffering holding
cost of the inventory, which was almost 12% of the product cost. Any reduction in the
inventory will save a huge amount of the company.
On the other hand, Barilla suffered 7% stock outs in their stores, which resulted in
backorders, less sales and lost customers. The stock outs occurred because of no proper
inventory management at distributor and store level.

Organizational Deficiencies

The bargaining power of the distributors was higher than Barilla so they did not indulge
barilla in their matters, they order different quantities in different periods, or in other
words, the distributors, and super markets were enjoying autonomy. They were not
interested to give Barilla authority to push products in their warehouses and they blame
Barilla for backorders.
Barilla’s sales strategy was based on highly promotional activities, which give discounts
to its customers from 1.4% to 10%, and its sales representatives were more rewarded as
they sell more products to the customers.
Implementation of JITD

After the implementation of JITD Barilla was able to forecast demand accurately for
promotional and seasonal items with better technology and would be able to plan its
production and distribution efficiently, this will result reduction in inventory and stock
outs cases because of proper forecasting system. The better production and distribution
program enabled Barilla to shorten the lead-time from 10 days to just 3 days.
They also developed centralization on the sales data of the distributors and program their
production accordingly and this resulted low cost production and distribution but its sales
force stated feeling in secure because previously they handle and manage the inventory
and order processing to customers, they also thought that the JITD system is more
complex and it will not support trade promotions. Similarly the JITD was new to the
distributors they thought they are losing their autonomy and they showed least trust in
JITD. JITD program failed to bring all stakeholders trust and it did not mention the new
incentive system because the old incentive system would no longer be feasible.
Answer # 2

Internal conflicts or barriers in creating JITD program are Increase Distributor’s

dependence on Barilla (shift in power towards Barilla) thus distributors unwilling to share
warehouse data, Distributor to push competitor products with increased shelf space, SKU
complexity leading to difficulty in proper forecasting, Inability to run Trade promotions,
Sales and Marketing feared loss of responsibilities.

The causes of these conflicts are transportation discounts, volume discount, promotional
activities, no minimum or maximum order quantities, product proliferation, long order
lead times and lack of forecasting systems or sophisticated analytical tools at
Distributor’s end.

As Giorgio Maggiali we would deal with these issues in such a way like sell the idea as a
collaborative method of working (both the parties are equal partners), Arranging pilot
runs at one or two distributor sites, Clearly specify the cost-benefit analysis for each
distributor, Explain the importance of marketing efforts in the new JITD model, Get top
management support in evaluating and implementation of JITD.

Answer # 3

Barilla’s customers were so resistant to the JITD idea because they were unconvinced
and they were not willing to share warehouse data, they might perceive that power would
be transfer to Barilla. They had lack of faith in Barilla’s inventory management system,

Maggiali might be more successful in persuading customer to at least try the JITD
program by first making their customers addicted to their JITD idea and then try to built
the type of relationship he were looking for, he should try to give more benefits to their
distributors if he wanted a desired relationship. he should also try to convince other
distributors as well.
Answer # 4

Yes, it would be feasible to implement JITD because the Pasta Market of Italy is price
driven and JITD enables Barilla to save its production, and distribution cost and by
implementing JITD they would be able to solve their major key problems like high
demand fluctuations, high level of inventory and stock outs. Savings from these issues
will enable Barilla to be the market leader in the cost driven market and as well as
maintain healthy relationships with its customers for longer time. The Barilla would
convince its customers to implement JITD by showing them cost benefit analysis of the
JITD and ensure them that they are paying for the increased services. However, Barilla
would need high investment to implement the JITD to its customers and it requires
intensive trainings to the workforce that requires time but once it is done the whole
distribution of the Barilla would be beneficial to implement JITD.
Answer #5

Inventory replenishment cannot be done effectively by a single party because it involves

channels of distribution and crucial information regarding inventory replenishment is
provided by the distribution channels.
However, if one party is to make inventory replenishment decision so it must be the
manufacturer providing that it has current and updated inventory information and data as
well as the demand fluctuations in the market.
In this case, Barilla is making the decision because it is the manufacturer. Manufacturer
has the authority to change its production plans accordingly, for example, if one product
is short in the market as well as in warehouses so the manufacturer may run the
production plan accordingly.
Barilla does not pass the information to the distributor because it is not really needed in
this case. Information should be generated from distributor to support the inventory
replenishment decision.