Barilla SpA was founded in 1875 and today is the world's largest pasta manufacturer. They produce 35% of all the pasta sold in Italy and 22% percent of what is sold in Europe. Barilla has revolutionized the pasta industry's marketing practices by creating a recognizable brand name and strong image. However, their traditional business practices are becoming increasingly inefficient and costly.
Operating within a environment of large scale demand variations which have grossly inflated manufacturing, inventory, and transportation costs Giorgio Maggiali, director of Barilla's logistics department is proposing an innovative idea created by his predecessor Brando Vitali called Just-in-Time Distribution (JITD). This is a significant change from their traditional methods of distributors ordering freely and independently from Barilla. JITD requires that all members of the distribution channel share sales information and allow Barilla to order and dispense the amount of products to each distributor that they deem appropriate. This would ideally more accurately match supply with demand decreasing operational inefficiencies within the entire supply chain.
The following report outlines the current issues facing Barilla and how the JITD system should improve their incumbent deficiencies.
Extreme fluctuations in demand causing operational inefficiencies has Barilla looking for new options to improve. Maggiali is trying to convince the parties involved to implement JITD but resistance from distributors and internal personnel is rampant.
1. The lack of trust in the potential success of JITD from the distributors and Barilla's sales team is delaying any progression towards the new vendor-managed inventory model.
2. Due to demand fluctuations Barilla was experiencing incremental increases in production costs. To change production from one type of pasta to the next was time consuming and expensive.
3. Conflicting goals between Barilla's employees and distributors make changes from traditional inventory management to JITD scary for both parties. Relinquishing control and working together is challenging or non-existent.
4. With varying demand it was becoming increasingly ambitious for Barilla to manage their resources with regards to transportation and production facilities. Scheduling what resources they needed when was nearly impossible without accurate forecasts and they were frequently transporting goods to off-set any shortages to distributors. The more trucks they had on the road the more costly for Barilla.
5. Large variations in demand was making it necessary for Barilla's to hold hefty amounts of inventory thus creating sizable carrying costs.
Environmental and Root Cause Analysis
Barilla has an expansive and complex distribution network. Based in Italy, they operate through their own central distribution centres (CDCs) as well as a chain of distributors including Grand Distributors (GDs) which are owned by large supermarket chains, and Organized Distributors (DOs) which are third-party independent suppliers. History has dictated the level of personal contact between Barilla and it distributors ranging from very hands-on at the DO level to extremely limited when concerning the GDs. Traditionally most all distributors within the network have limited analytical tools and low-tech forecasting systems which are ineffective in predicting demand resulting in inaccurate forecasts and faulty order quantity requirements for Barilla. Customers are left with inadequate supply and distributors are left with unhappy customers.
Barilla's brands are heavily advertised with an emphasis on high quality and sophistication. Furthermore to advertising, Barilla's sales strategy is to frequently offer promotions. Throughout the year they have ten to twelve periods in which distributors can save anywhere from 1.4% to 10% from