Executive Summary…………………………………………………………………Page 3
Issue Identification…………………………………………………………………..Page 4
Environmental and Root Cause Analysis..........................................................Page 4
Alternative and Options…………………………………………………………… Page 6
Recommendations…………………………………………………………………..Page 6
Implementation……………………………………………………………………... Page 6
Monitor and Control…………………………………………………………………Page 7
Executive Summary
Barilla SpA, an Italy based company, is the world’s largest Pasta manufacturer. It has a 35% market share in Italy and a 22% market share in Europe. In addition to the family of pastas (macaroni, spaghetti, fusilli, etc.) they also manufactures bread, cookies, biscuits, sauces, breadsticks, etc. Barilla has a very complex distribution network consisting of Grand Distributors (owned by large Supermarket chains), Organized Distributors (independent third party distributors) in addition to its own depots. Barilla is experiencing inventory, distribution inefficiencies and fluctuating demands which are resulting in operational inefficiency and increased manufacturing, inventory and distribution costs.
Brando Vitali, Barilla’s ex-Director of Logistics, had proposed a Just-In-Time Distribution (JITD) system to resolve this demand variation. This system required the distributors to share their sales data with Barilla, who would then forecast and deliver appropriate amounts of products to the distributors at the right time in order to effectively meet demand. This system is a totally different concept than they presently have. This was a total change from the current and more traditional supply-chain setup where the distributors were not sharing any data and could place orders at will. The proposal came under severe criticism from not only the distributors but also Barilla’s own Sales and Marketing department for many of reasons.
Giorgio Magialli, Barilla’s current Director of Logistics, is trying to implement this idea for some years but has not made much progress. Our objective in this report is to study the problems and come up with recommendations to resolve them.
Issue Identification
I will break down the main concern. First we take in to consideration the bullwhip effect, large swings in inventory in response to changes in demand that they are experiencing. The high cost for productions, from high maintenance cost for trying to catch up or produce product as fast as possible. Slow deliveries leading to stock outages and shortages. No data to properly forecast for production. In all Barilla seems to have no control over their production or inventory. Some of these could be explained by some of the following practices.
Environmental or Root Cause Analysis
Barilla’s sales strategy relies heavy on promotion, such as price, transportation and volume. They usually have a monthly promotion which range 1.4% to 10%.Their volume discount were usually by the cartons and shipping would also offered as free. The sales reps were recognized for the amount of sales they made. The sales reps would push the new promotional product of the month achieving high bonuses for themselves. Unfortunately they could not continue keep their sales up that level. This also contributed to the bull whip effect in the demand and supply, this making forecasting difficult.
Barilla has a large number SKU numbers especially when we look at the dry pasta line which is where they are trying to implement the JITD system. They have approximately 800 stock packages and another 8 different options. All these numbers lead to very complex chain of inventory SKU numbers.
The distributors have full control of their ordering. They would order different quantities at varying times making it impossible for Barilla to forecast or implement JITD. With no minimum and maximum orders in place this also made it difficult to
