Barilla Spa Case Report

Executive Summary As per our conversation last week I would like to revisit the idea originally brought to life by Brando Vitali before he was promoted to head one of our company’s new divisions overseas.

In order to address the issue which will be a direct result of introduction of JIT Distribution system, I would like to present the issues and my recommendations to you before our meeting with Marconi’s executives to discuss JITD proposal.

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As the meeting is scheduled for the of November I would like to hear your thoughts on JITD before the end of this month so I can make appropriate changes to address any issues you might foresee as a direct result of our proposal. The decision to adopt the Just-in-Time Distribution will most likely be met with our sales and marketing team’s resistance to change. Our old-fashioned distribution system has been nurtured since the early development of our channels of distribution.

Promotions and advertising were key to our success of achieving a certain level of trust within our Supply Chain both internally and externally. I recommend a staged implementation of the JITD to allow our staff to adapt to our new philosophy.

Our distribution networks could become more efficient rather than being all about relationships based on pushing the product out of our facilities. It appears that our Supply Chain executives are not looking for ways to reduce waste within our distribution channels as we are not even clear on how we measure our success.

Applying Lean principles to our Supply Chain is misleading to our staff as they think their job security is on the line. This is met with internal resistance that needs to be addressed before we can communicate the advantages and benefits of JITD to our external distribution networks. I believe that Vitali’s approach will fit our new Supply Chain management strategy of Just-in-Time Distribution which will allow us to ship products as needed, rather than building enormous stock to deal with volatile demand patterns.

We need to break down the silos and secrecy of our distribution processes to our customers to allow for more efficient channels of distribution. A more transparent approach with fewer layers along the way will allow for a much more efficient Supply Chain. Working closely with our distributors will allow us to reduce our own inventory and manufacturing costs along the way. We also need to consider our own forecasting systems to built the trust within our channels of distribution.

Scheduled monthly meeting will allow for an open dialogue between various groups that might be affected by this implementation. I believe that open lines of communication both internally and externally will contribute to the ultimate success of JITD implementation.

We will have to address issues as they come up to ensure the peace of mind of those who will be affected the most. We need to be more flexible to address problems and bottle necks of our distributors as that would be crucial to success of JITD.

The main idea we need to communicate across our Supply Chain is that JITD would allow us to eliminate waste and get rid of extra layers which our in the way of addressing our issue of volatile demand patters which result in stockouts. Giorgio Maggali, MBA, SCMP Director of Materials Management Barilla Fresh Products Group October 16, 2012 Barilla Spa Case Study Issue Identification As the decision maker in this case I believe that the main issue presented in this case study is resistance to change.

To be more specific, DO’s (Organized Distributors) resistance to adopt a new Just-in-Time distribution (JITD) system which would replace the old-fashioned distribution system used by Barilla’s Supply Chain traditionally.

This traditional distribution system has always been viewed as a successful one, as it worked for everyone within the channels of distribution supplying dry products to supermarket chains and independent supermarkets. There was a certain level of trust achieved between the marketing group, sales reps and buyers who are a part of the Supply Chain built around trade promotions.

DO’s expectations of frequent trade promotions were considered the only means to cost reduction during the “canvass” periods where distributors were able to buy as much product as desired to meet current and future needs. This is a well nurtured traditional system which took a lot of years to develop. Environmental and Root Cause Analysis Approximately 65% of Barilla’s dry products were supplied through outside distributors to supermarket chains and independent supermarkets who would eventually get the product into the hands of the ultimate user.

Distributors would receive their product from one of the two Barilla’s central distribution centers (CDCs) where movement of product would be assessed based on its category which would be either “dry” or “fresh”.

Barilla maintained different distribution systems for its dry and fresh products due to their differences in perishability and retail service requirements. Brando Vitali’s JITD proposal focused solely on dry products sold through Barilla’s distributors who I am going to examine. There is an industry culture around the supply and demand of Barilla products.

Internal and external politics are at the root cause of the resistance to change around the distribution channels. There are issues that Barilla needs to address internally before the idea of JITD can come to life externally.

Barilla’s sales and marketing personnel have expressed a range of concerns because this new philosophy could potentially cost some staff and executives their jobs from the bottom to the top of the sales organization as it is developed further. Sales executives are clinging to the idea of promotion based strategy which the old-fashioned distribution system is based around.

This is not a good sign as efforts to reduce costs should be made from all aspects of the Supply Chain Management. Executives should be concerned with efficiency of their supply chains from different tiers of suppliers all the way thru different tiers of their customers until the product reaches its ultimate user. Barilla executives are not looking for ways to reduce waste within their distribution channels as it’s not even clear how they measure success of their sales force.

Barillas distribution network is only based around relationships, not necessarily around efficiency of their supply chain.

They should be looking at ways to eliminate waste, even if it means “leaning out” their sales force and only keeping those who truly perform well. Staff will always resist change as it is uncertainty that scares everyone when new ideas are introduced within an organization, especially if it might put their job security on the line. Once the internal issues are addressed and the new philosophy starts taking precedence they can effectively communicate JITD to their DO channels. Sales reps would be successful at communicating the ideas and benefits of JITD system to the buyers of the Organized Distributors.

Those buyers would then facilitate the flow of this information from the bottom to the top of the organization before a meeting can take place with Marconi and other DOs.

Alternatives and/or Options Giver the current situation, I believe there are only two options to consider here. First one is to remain status quo and run the risk of stockouts as the effect of fluctuating demand which due to variation in demand leads to cost increases. The other option would be to embrace the new philosophy of JITD internally and communicate it further down the supply chain to the DOs.

Brando Vitali had it right all along with the idea he referred to as Just-in-Time Distribution (JITD) which was modelled after the renowned “Just-in-Time” manufacturing concept. His philosophy was to consider JITD as a selling tool rather that a threat to sales.

Vitali’s view was that as a supply chain we should focus on demand from end user as that is the supply we trying to address at the time it’s required. In order to effectively address the issues of fluctuating demand we need to be able to respond to unexpectedly high demand from the end-consumer and the quickest way to do that would be to eliminate as many layers as possible.

Additional inventories to dampen fluctuations costs money, costs of maintaining certain service levels should also be taken into consideration. Rather than filling distributors demand, according to their planning department, we should be looking at distributors data directly and only send what is needed rather than supply distributors with inventory they can hold to anticipate demand swings. By doing so, we would be able to improve operations for ourselves and our customers if we were responsible for determining the quantities and delivery schedules.

This will allow us to further reduce costs as transportation could be handled by our CDCs based on sales volume variations. Recommendation and Implementation I recommend the JITD system as it will address the stockouts issues we’re currently experiencing as the effect of fluctuating demand. Our distributors already carry too much inventory (see Exhibit 13) which doesn’t resolve the stockouts issues we’re seeing despite the fact that they are holding a couple of weeks inventory.

We should be able to improve operations for our distributors if we were allowed to be responsible for determining quantities and delivery schedules based on end users demand. This would allow us to ship product as per demand required rather than trying to manufacture stock large enough to supply both of our facilities.

Furthermore we would be able to reduce our own distribution, inventory and manufacturing costs and pass those savings onto our customers if we didn’t have to worry about volatile demand patterns.

Ultimately this will work the same way it does with Barilla sales representatives assisting with setting up in-store promotions analyzing competitive information including competitor’s prices, stockouts and new product additions. This would be effective because no one knows our product better than we do. If our sales reps are allowed at distribution facilities, they would be able to assist, gather and exchange a lot of valuable information about our needs and those of our DOs. The more we know about each other’s business the better off our Supply Chain will be.

The fewer layers we have, the quicker we can get our product to our ultimate customers; reducing our own inventory and manufacturing costs along the way. We’ll have to improve our own forecasting systems of course as it is imperative to our business that our distributors have that extra confidence in our abilities. Monitor and Control This sort of an idea would require a lot of back and forth communication both internally and externally. Cross functional teams would be required to address issues and concerns which might arise from this sort of implementation.

The whole process should be done in stages to allow staff to adapt to the changes gradually.

Keeping everyone informed would be key as the only way to reassure staff and address uncertainty would be to educate them on pros on cons of the system being brought to life. Regularly scheduled monthly meetings are an absolute must to address issues as they arise. New KPI’s should be clearly communicated to the sale reps. Our reps should be clear on all of the aspects of JITD implementation as they would play an important role of facilitating the flow of information down the Supply Chain.

Once DOs are up to speed on JITD, a simulation should be considered with external distributors to demonstrate the benefits of the new distribution system once it is implemented. Inviting DO representatives to see our manufacturing facilities and addressing their concerns with solutions would go along way on establishing rapport and strengthening relationships.

Probing and addressing bottle necks of our distributors with JITD would also be beneficial to everyone as our ability to eliminate wastes and get rid of extra layers would reduce costs across the Supply Chain.