Barilla Case Study: Operational Ineffeciencies

Case Presentation Barilla SpA Introduction Company & Industry orbit Worlds largest pasta producer in 1990 Pasta Share 35% in Italy and 22% in Europe Channels of diffusion Products change integrity in 2 categories Fresh and Dry Fresh Products had 21 day ledge Lives Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives Retail Outlets Small 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 allocators order patterns Distribution Procedure overlord flow of goods and information PLANT CDCs Barilla run depots GDs Chain supermarkets DOs Independent supermarkets Signora Maria Shops Customers Customers Customers *CDC = Central Distribution Centre GD = Grand Distributors DO = Organized Distributors Sales and Marketing Advertising Heavy, Brand Positioned as the Highest Quality Trade promotions Frequent Canvass period, 10 to 12 in a year, typical duration of 4 to 5 weeks Distributor could buy as much product as desired to decorous present and future needs at the offered discount Volume Discounts also given Sales representatives used more at DOs than GDs Merchandise Barilla Products Set up In-Store Promotion Take note of competitors prices, stockouts, new product launches Work out ordination strategies for the retailer etc Demand Fluctuations Just in Time Distribution 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 Exhibit 12 Demand Fluctuations Variability in Demand Methods employed to reverberation variability Holding buffer FGs to extend to Distributor requirements Asking Distributors/Retailers to carry additional broth Impact Strained Manufacturing and Logistics operations* P oor 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 summercater in demand as one moves up the Supply Chain (away from the order order customer) order Factory Distributor Wholesaler 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 edit out Uncertainty POS Sharing Information Centralizing demand information undertake Variability Year round or Everyday low pricing Reduce Lead Times Information lead times EDI Order lead times Cross Docking Strategic Partner ventures Quick Response Continuous substitute Advanced Continuous Replenishment Vendor managed Inventory (VMI)Just-In-Time Distribution (JITD) Vendor-Managed Inventory Co ncept Treats end-customer as the Input Aims at managing the Input filter that Produces the Orders Decision-making authority for find shipments in hands of Barilla SpA Barilla would monitor the flow of its products by dint of 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 forExpected Benefits of JITD Manufacturer Reduced manufacturing costs Better Relationship with Distributors Increased supply filament 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 vindication Sales Representatives feared reduction in responsibilities Flattened sales levels Risk of Inability to adjust shipments quickly to stock-outs Lack of infrastructu re 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 administer warehouse data Perceived power transfer to Barilla Lack of faith in Barillas inventory managementPossible methods to counter Resistance Demonstrate that JITD benefits the distributors Run experiment at one or more of the distributor sites Maggiali needs to sapidity at JITD not as a logistics program, but as a company-wide effort Get Top management closely involved Experiments at Dryproduct 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. % Depots staff was not comfortable working with such low inventory levels Inventory levels finally allowed to increase to 5 days whizz of the arguments again st JITD was that it will lead to waste empty spaces in the ware houses Experiments at Dryproduct 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 essay at Milan Depot Similar performance improvement as Florence These experiments established the credibility of JITD systemImplementation 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 autobuss 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 groupsImplementation at D. O. Cortese For half dozen months, Barilla team analyzed daily shipment data of the DC Created the data base of DCs historical demand pattern fake 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 diverse 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 certain capacity to translate customers standards into internal standards Adaptation to different distributors Developed a protocol which could be used to overhaul with all customers Each SKU identified with three different product codes Barillas code Customers code EAN (European article numbering system) barcode nigh common barcode standard in Europe Advantages of the coding system Information can be received t hrough any code Reduce move of internal changes in product or code on clients system Communication with consumers Customer each day sent sideline information to Barilla via EDI1. Customer code number to identify itself 2. Inventory for each SKU carried by DC 3. Previous days sell through-All shipments of Barilla products out of DC to consumers on the previous day 4. Stock outs on previous day for every Barilla SKU carried by DC 5. An prove order for any promotions that the customer planned to run in the future 6. Preferred delivery carton size 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 Market is ever growing. If performance measures seem to create spare time/capacity instead of chucking them, look out for ways to increase the Barrilla could finally succeed in implementi ng JITD with Cortese. Whole of top management from both sides was involved in the decision making. Which never happened earliest Sometimes roping a consultant helps THANK YOU