Table Of Contents: Barilla Case Report And Executive Summary

Table Of Contents: Barilla Case Report And Executive Summary

BARILLA CASE REPORT Table of Contents Executive Summary Part 1 Executive Summary Issue Identification Part 2 Fundamental Issues Part 3 Systematic Issues Environmental & Root Cause Analysis Part 4 Qualitative and Quantitative Analysis Alternatives and or Options Part 5 Alternatives Recommendations Part 6 Recommendations Implementation Part 7 Recommendations and Implementation plan Monitor & Control Part 8 Monitor & Control Part 9 Conclusion Part 1 Executive Summary

I realized that Barilla is confronting with huge fluctuation on its production because of the unsteady orders from distributor. This variation leads to expand production prices as well as piled up inventory at distributor’s depots, meanwhile, there was also stock out recorded at retails. After careful analysis of the whole situation, my decision is: I have recommended the implementation and execution of the JITD system because production under this system is driven by the consumer demand and controlled by Barilla instead of being controlled by the distributor’s orders.

It’s possible to do this based on Barilla’s own logistics; the variation of manufacturing would make distribution work well. Furthermore, JITD will avoid either the accumulation of the inventory at the distributer’s warehouse or running out of stock for retailers. As Barilla is a vertical integration corporation, the rise and fall in demand would affect not only the pasta plant but also the raw material supply such as flour, transportation, etc. Above all, it’s necessary to implement the new way to a supply chain management.

However, as the long time traditional operation for the supply, there are some difficulties need to be solved and conquered, such as customers don’t want to lose their control over the placing of orders at their willingness, and our own sales reps feel their position to be threaten if this project will be implemented.

Implementing of JITD policy is inevitably, it’s relative to the corporation’s growth and sales increase, so it’s necessary to well solve existing problems and stunting,well control the implementation, I have the confidence that this policy will fulfill the great profit for corporation.

Part 2 Fundamental The fundamental issue that was Barilla lacked of promote and accurate sells date information that was necessary to support inventory quantities according to the actual market demand, which resulted in the large week to week variation in demand and brought the operational inefficiencies and cost increase. This major issue was caused by the following systematic issues: Part 3 Systematic Issues 1. Transportation Incentive Nature: Tactical Timing: Short term

In order to reduce transportation cost, Barilla encourage full truck loads of shipment and provided 2-3% discounts to its distributors and customers to by more inventories, so that distributors and customers can save money by ordering large quantity of goods. 2.

Large Quantity Incentive Nature: Tactical Timing: Short term In order to increase the sales, Barilla encourage distributors and customers to order large quantity, and provide 4% discount for 3 full trucks egg pastas, it’s the same as transportation incentive, which both can’t reflect the actual demand of actual market. . Lack of Efficent Forecasting: Nature: Strategic Timing: Short term and long term There is no effective modern technology to make sales forecast, as sales reps just calculated inventory manually, which lower the accurate rate and the information provided is hysteretic. The unavailable actual EDI technique and lack of profession sales forecasting hinder the accuracy of sales data. 4.

Promotional activities: Nature: Tactical Timing: Short term Barilla ran periodic promotional activates which caused fluctuations in prices which brought a major impact in demand variations.

Distributor order much more to satisfy the current and future demand, and Barilla had to suffer the high inventory level and push extra inventory to distributor at discount price. 5. No minimum or maximum quantities: Nature: Strategic Timing: Long term and Short term There is no restrictions on customers’ order quantity, which may has caused price fluctuations among distributors and as well as Barilla over produced unnecessary inventory only to satisfy some distributors who wants to have lower price by ordering more quantities at a discount. 6. Long order lead times:

Nature: Strategic Timing: Long term and Short term Most distributors placed orders with Barilla once per week, Barilla started to ship products out after average 10 days orders were received.

This long order lead time caused distributors to order more products than they really need. Part 4: ENVIROMENTAL AND ROOT CAUSE ANALYSIS Barilla has a market share of 35% in Italy and about 22% in Europe and is considered by consumers to be a high quality manufacture of pasta and other pasta related products. Barilla manufactures two product categories: fresh products represent 25% of production and 75% for dry products.

Barilla owns its transportation system so after orders are received and production is complete, nearly two-third of Barilla’s dry products were destined for supermarkets; these products were first shipped to one of Barilla’s CDCs, from which they were purchased by distributors. The distributors in turn shipped the product to supermarkets. The remainder of the dry products was distributed through Barillea-owned”depots”, mostly to small shops.

please see Exhibit 8 for Barilla Distribution Patterns for Dry Products.

Due to the fierce competition in the products and distribution of pasta products in current market in Europe especially in Italy, Barilla has about 2000 competitors in Europe all of whom fighting for shelf space in supermarket, small shops. So inventory support played the major role in this fierce competition. But Barilla has not had the advantage in well organizing to get the first hand sales information and data based on the current marketing distribution policy, which prevents them from gaining access in directly dealing with their end customers.

In order to occupy the shelf space needs high lever inventory to support. Success in the market place is dependent on few key success factors such as pricing, brand image, product availability and customer service.

Despite having excellent brand image, Barilla lacked being in control of their prices most of the time and that is due to the fluctuating demand which their system had created. Barilla’s production decisions were driven by the distributors’ varying weekly orders. Exhibit 12 shows you a clear illustration of how the weekly demand for Barilla dry products in their Northeast distribution center was fluctuating.

As shown in the illustration, weekly demand started at 200 in week one and came down to 100 in week 2 and then rose rapidly in weeks 5 and 6. Again, in week 9 the demand was extremely low at less than a 100 and in two weeks the demand skyrocketed to almost 900 and this trend continues.

This extreme fluctuation put high strain on both the manufacturing and inventory and raw material control. As the unsteady orders from distributors also has impact on the resourcing and management of raw material that Barilla needs for production. So Barilla may have to carry higher safety stock in their inventory in order to cover unforeseen demand.

Carrying this high level of raw material will result in higher inventory management cost due to increased labour, transportation. Barilla will be running at the risk of losing their market share to competition if distributors decide to push other brands instead of barilla’s brand. Barilla, as the world’s biggest supplier of pasta products had no relationships with their customer’s customers.

This missing link in the supply chain will negatively affect their performance? Part 5:Alternatives Alternative 1: Based on present policy to focus on managing production and endeavor on fixing production fluctuation due to the weekly demand variability.

Therefore, Barilla has to make sales forecast based on its own historical sales figures and think about other factors such as promotion and safety stock. Get all sales information and data to produce own forecast based on weekly order from distributors is urgent. Pros. 1. Eliminate the weekly production variability.

2. Reduces the frustration and anxiety of the production department. 3. Barilla can control their inventory level. 4.

Decrease in materials, transportation, labor cost based on reasonable inventory control. Cons. 1. Market demand may exceed the planned production. 2.

New production forecasting equation still miss the first hand data.

3. This action plan can’t come to the aim of improving customer service and increase sales. 4. It’s not flexible because it doesn’t respond fast to market needs. Alternative 2: Implement Just In Time Distribution System (JITD) to fulfill not only production management and fix production and demand fluctuation, but also can improve customer service, decrease cost and increase sales,.

Pros. 1. Immediate reduction in lead-time due to the 48 hours response time for delivery. 2. manufacturing and logistics operations are smoothly 3.

Barilla can arrange their production due to the actual demand. 4. Sharing of information among all parties involved in the supply chain, from the customer’s customer to the supplier’s supplier. 6. Less inventory carrying cost and more profit margins for both, Barilla and the distributors. Cons.

1. Need to invest new EDI system to support JITD 2. Barilla need to take more responsibility for implementing JITD 3. It’s different from the traditional operation, persons need to be trained and explore cooperation way with contributor, which brings potential risks. 4.

No back up of stock is available.

In case of breakdown in manufacturing or other factors then Barilla will be in bad position to compensate its customers. Part 6: Recommendation and Implementation. Based on the above analysis and the given facts of the case, I strongly recommend alternative 2 to be implemented and carefully executed by Barilla. The reason I recommend is because JITD system can allow Barilla to produce based on what really need in the market, and also can provide the first hand sales date for forecasting of the future demand and reduce inventory level.

Furthermore, it can help to reduce the cost for transportation and labor, source raw materials accordingly and provides good customer service. Finally,JITD will help to increase sales and profit margins.

Part 7: Recommendations and Implementation plan In order to implement JITD, Barilla needs to convince each department and employees to accept this idea, need to let them know the advantage of this project and why Barilla need to take it into process.

Then Barilla needs to make sure distributors and retailers to would like to accept it and have a try, which needs the new EDI system to be completed and well-connected between customers and Barilla. Furthermore, decrease frequent price promotion activities to reduce the demand fluctuation. Reduce lead-time by setting other distribution centers and transmitting system between distribution, improving information system and transmit process, reduce order-processing time. Finally, decrease the package types to make distributors increase inventory for certain products.

Part 8:Monitor & Control 1. Set up schedule to evalue the inventory level and customer service satisfication. 2. Compare the sales to stock out to make sure products supply can support sales. 3. Set up other objects that can be improved compare to the data before implement JITD.

Part 9 :Conclusion It’s obvious that JITD will contribute to the efficient and profitable future to Barilla and production demand will be steady and smoothly, which will reduce the inventory level and decrease the cost for labor and transportation.