Barilla Spa – Case Study
[Type the company name]| Barilla Sp(A) Case Study| | | | | Barilla JITD Case Study Just in time distribution (JITD) was designed to address the fluctuating demand of products that created additional costs in production, scheduling, and transportation. Barilla was to blame for several of these underlying problems. For example, Barilla offered transportation discounts, volume discounts, 10-12 promotions throughout the year, as well as no maximum or minimum constraints on orders. Collectively, these offers influenced how salespeople pushed items and how customers bought items.As demand increased, this flux in ordering caused longer lead times and poor customer service.
To make the situation worse, a major communication barrier existed between Barilla and customers, creating a bullwhip effect. As processing occurred at each level of distribution, the demand information became distorted as it traveled upstream (Lee, Padmanabhan, Whang, 1997). Barilla’s weekly demand for Barilla dry products from Cortese’s Northeast center to the Pedrignana CDC in 1989 shows significant fluctuation in orders from one week to the next (Hammond, 2008).Consequently, Barilla was either operating in excess of demand or inefficiently at all times. Labor and equipment usage spiked on high demand weeks and was wasted in low demand weeks.
Because of Barilla’s 800 skus, changeover costs added up quickly and created further inefficiencies as demand fluctuated. Furthermore, transportation expenses soared as some weeks only partial truckloads got delivered. From the distributor’s perspective, customers were encouraged to buy inventory based on promotions and incentives.This buying pattern lead to excess capacity and high holding costs for distributors (Hammond, 2008). The benefits of JITD addressed most of the issues troubling Barilla.
JITD is a concept closely related to Toyota’s Production System. This strategy strives to improve a business’s return on investment by reducing in-process inventory and respective carrying costs. In regards to distribution, the manufacturer performs their own forecasting and determines the shipment type and quantity that is sent to distributors (Anand & Kodali, 2010).Benefits of JITD include lower costs, stronger relationships with distributors, and improved quality (Belinski, Geguzys, Reiter, Cox & Rudomin, 2009). Lower costs are achieved by evenly spreading the labor hours and truck loads, while increasing lead time (Douglass, 2005).
Instead of waiting seven to eight days for shipments, new shipments are consistently sent out to satisfy demand. Distributors hold smaller amounts of inventory, allowing for greater efficiency downstream. As efficiency improves, the cost of the product is reduced.As shipments become more consistent, lead times improve, ensuring fresher products to the end consumer. Because Barilla isn’t scrambling to keep up with fluctuating orders with various skus, they are better equipped to handle special requests Another benefit is the holding cost of highly perishable items decreases with JITD as inventory is forecasted, made as needed, and immediately shipped to the distributor. Despite the obvious benefits of JITD for Barilla, the strategy has several drawbacks that make it a hard sell to distributors.
The first issue is trust (Douglass, 2005). To get JITD to work for Barilla, they must convince their distributors to trust them to properly forecast demand. Distribution managers may feel their jobs are being threatened or that their company is going to be taken advantage of. As the risk of rip-offs is high in the conventional Just in time (JIT)-supplier relationships, distributors fear the same fate (Douglass, 2005). Internal Issues also arise with the implementation of JITD (Douglas, 2005). For example, the sales staff expressed several fears about using JITD.
Some sales associates felt that sales would flatten or that distributors would push competing products over theirs (Hammond, 2008). Others felt that the distribution system wasn’t sophisticated enough to make the leap into JITD (Hammond, 2008). For the system to work, all parties must be on board and understand how the system will benefit them personally and the organization as a whole (Douglass, 2005). Not only must everyone be on board, but everyone must be willing to withstand the interruption of production as the new strategy is launched. Giorgi Maggiali should address the issue internally first.Every department within the company must be in line with JITD or the system will fail.
The sales team needs to be informed of how JITD works and how it benefits the company, the distributors, and the sales team. The promotions and incentives need to stop or be restructured since they were part of the underlying problem. Sales people need to be retrained to communicate more effectively with distributors and effectively express how JITD benefits both parties. This effort will likely require a different pay structure and responsibilities for the sales staff.The last thing Maggiali wants is for the logistics department to promote JITD to distributors, while Barilla salespeople are telling distributors it won’t work.
If I were a Barilla customer, I would initially be livid at the suggestion of JITD by Barilla. I would feel threatened and insulted. No one wants to be told someone else can do their job better. However, after researching the strategy, I see the benefits of JITD. Maggiali must carefully approach the subject with his distributors.
Credible sources and successful examples must be provided.Failed examples also demonstrate what organizations did wrong, so as not to repeat their mistakes. The benefit to the distributer and the customer must be the central focus. I would suggest management teams of both Barilla and distributors meet before logistics or sales teams become involved in any negotiations so nothing gets lost in translation. In the environment in 1990, I think JITD would be feasible but not without struggle.
The popularity of supplier-partnerships and JIT planning was still fairly new and evolving. Italy was a traditional culture that was reluctant to adopt new business strategies that involved such high risk.The risk involved trusting the manufacturer to make shipment orders without the distributors input. This would be a terrifying leap of faith for any company. Should Barilla fail to find a company to comply, Barilla could use their own warehouses to test the strategy.
Once Barilla could supply viable results and instill formality within their own organization, distributors might become more responsive to JITD. However, compromises have to be made along the way. Perhaps distributors and Barilla could try mock runs were shipments were sent based on information the distributors supplied by fax or email.Another option is to have a team of both Barilla managers and distributors work together on forecasting and shipments, so distributors feel their input is valued. The sku technology was not as advanced in 1990, making the offer of JITD less appealing to distributors. As technology and communication methods improve, so do the chances of JITD effectiveness.
Transportation means also are more sophisticated, allowing Barilla to target new European markets and pursue globalization. New manufacturing plants or better utilization of transportation by rails, plane, or ship could effectively accommodate newer markets.However, to pursue growth, Barilla must achieve efficiency first. Local distributors can drive growth by committing to JITD which allows Barilla to lower costs and expand globally. In the event that local distributors refuse the offer, Barilla can shift their focus outside of Italy where distributors are more open to JITD.
This move would still lower costs for Barilla and provide Italian distributors with an effective example of JITD. As Barilla lowers costs, they can also decrease price. Lower prices can then be used to gain greater market share in Italy as well as new markets. References Anand, G. G.
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, Geguzys, R. , Reiter, D. , Cox, T. , ; Rudomin, M. (2009). The ups and downs of lean, Six Sigma.
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, Padmanabhan, V. , ; Whang, S. (1997). The bullwhip effect in supply chains. Sloan Management Review, 38(3), 93-102.