What Are The Reasons For The Increase In Variability In Barilla's Supply Chain?
Reasons for increase in variability of demand in barilla's supply chain: * Weekly variation in customers demand for the pasta products. * Lack of access to customers demand data at each level of supply chain made retailers, wholesalers, distributors and suppliers to make their own demand forecasts and place the orders which considerably increased the inventory levels in the two facilities of the barilla. This is bull-whip effect. * Each level in the supply chain maintained their own inventory levels and placed their orders with barilla once a week. Also most distributors used a periodic inventory model to control their inventory and ordered when the inventory level is below the reorder point, but this model is beneficial only for small scale industries but not for a huge company like barilla. Also even though this model has track of number of merchandize sold it does not give any information regarding the kind of item sold. * Barilla offered volume discounts for the retailers ordering full truck load quantities which made retailers to order more than necessary thereby increasing their inventory levels. * Barilla thought that orders were an unchangeable input and responding to these unstable orders were their priority but it has to realize that recognizing the customer demand data and placing orders in view of demand data is an important factor. * No use of better forecasting methods to analyze customers demand. * Reluctance of the retailers to share customer demand data of the fear that Barilla would decrease its inventory and the sales. * The maximum number of orders placed by the distributor to satisfy the customer and future needs is not restricted. * And the incentives to the sales representatives.
How Can The Firm Cope With The Increase In Variability?
The firm can cope with increase in variability by: * Adopting a strategic relationship between the buyers and the suppliers which can have major effect on the supply chain performance. Vendor Management Inventory is one of the techniques used. In this the supplier will predict the demand in all the levels in the supply chain and will deliver the amount of products accordingly thereby reducing the inventory and also reduces the probability of out of stock in the business. One of the key factor to adopt VMI work is its risk shared i.e., even if the product is not sold by the retailer it does not sit with retailer anymore the supplier will repurchase them all which is quite beneficial for a large supplying company such as Barilla. * The Barilla manufactures products depending on the demand from its CDS's; instead it should start relying on the centralized actual demand data of the customer from the retailer. This reduces the variability in whole supply chain. Also this enables the Barilla not only to know what the real demand for the product is and supply accordingly but also helps in eliminating the inventory at all levels in the supply chain. * It can reduce the variability in customers demand by adopting cross-docking in which goods are directly shipped to stores without sitting in the inventory making possible to offer everyday low prices to customers. * The distributors use the periodic Inventory review policy by which the order quantities are not matching from the true demand causing large variability in order pattern. So in a case where the retailers are not willing to share the customer demand data then Barilla should incite its distributors DO's and GD's to adopt better forecasting tools and analytical tools to calculate the order quantities. * And finally by controlling lead time it can cope with increasing variability. Lead time can be of two types the Order Lead Time and the Information Lead time. The order lead time is the time to produce and ship which can be reduced by having better production,