Barilla Case Study

Executive Summary

The organization has seen rapid growth in sales in recent years and is continuing to trend upwards as it dominates as the market leader in the pasta industry. Barilla is experiencing difficulty matching demand to supply hence due to rapid fluctuations within the entire supply chain. They struggled to manage the weekly variable demand from its distributors as they dictated and controlled the inventory productions and distributions. To manage the fluctuation of demand, Barilla was required to overproduce, carry excess inventory, and manage excess buffer of finished goods to manage the uncertainty. The director of logistics at Barilla (Giorgio Magialli) wants to implement a Just-in-Time (JITD) system that was initially proposed by his predecessor Brando Vitali.  

Currently, the variability in demand has caused Barilla over produce, hold additional buffer for finished goods to meet the demands of distributors. In order to manage uncertainty, fluctuations, and minimize the bull-whip effect of the supply chain, I have identified a number of potential alternatives within the supply chain to reduce potential supply chain risks. The implementation of the proposed solution will assist with production and inventory variability and provide overall supply chain visibility. The two alternatives are to:

1.  Implement the JITD system to centralize the supply chain and to increase overall supply chain visibility.
2. Do not implement the JITD system and manage production by creating a database of its own historical sales with other factors as safety stock considerations, promotions, growth, and potential trends.

As Barilla continued to expand its operations, there needs to be change within the current supply chain process to manage demand fluctuations, uncertainty and variability. The selected recommendation is to implement a JITD solution to centralize the supply chain. This is because if JITD is implemented it creates a forecast using consumer demand and is controlled by Barilla. In contrast, if JITD system is not implemented the sale data is controlled by the distributors orders. The implementation of JIT will assist with the management of demand fluctuations, production lead times, storage constraints, and to optimize inventory levels throughout the product lines.

Because there is some resistance that exists internally and externally within Barilla, implementation will need to be piloted for this project among a few selected distribution centers to exemplify the benefits of the JITD program. Through the initial successful pilot implementations, this will create a transparent process for influencing other distributors and sales personnel to implement the entire JITD in full sale.

Issues Identified

Internal:

1. Barilla is primarily focused with sales which has resulted in rapid growth within the organization. The sales growth primarily is a result of the promotion through price, transportation, and volume discounts. Because of promotions, products were pushed out sporadically, demand was difficult to asses due to fluctuation
   
2. The sales team within Barilla were not aligned with the JITD system, which created resistance internally. They feared that job cuts would occur if Barilla would determine the orders for distributors. This would result in a change in their compensation system because the sales team were compensated on the quantity sold to distributors. The sales team did not have trust that the JITD solution would work as the relationship was too sophisticated and only purchased from Barilla because of frequent promotions

1. Barilla could not forecast appropriately as there were no historical sales data was provided by the distributors. This creates a difficult situation for Barilla to track inventory to manage demand. As stock outs were as high as 5.5%. This resulted in greater backorders, lower fulfillment rates, and lack of trust between distributors.
   
2. Barilla’s lead time is between 8 and 14 days after the order is received. As the distribution industry varies, this decreases flexibility within the supply chain or to adapt to potential charges.
   
3. Barilla does not set minimum order quantities and it is under the discretion of the supplier to decide quantities when ordering. This enables supplier to order more frequently with lower quantities which decreases overall economies of scale. When there are promotions, distributors are allowed to order as much as they want at lower prices. This will affect forecasting as it creates false demand and provides poor visibility with historical usage.
   
4. Production scheduling was difficult to forecast as there were constant fluctuations within demand which prevented Barilla to adapt to change. As pasta required precise levels of temperature and humidity it could not cope with production requirements which mean it leaves idle production lines or requires rapid change and changeovers.
   
5. Barilla experienced difficulties mapping out demand which resulted in poor resource planning for production. Resource allocation was difficult as it would often over or under plan raw material, machinery, labor, and trucks are required for manufacturing. This led to increased overall variable expenditures for production.
   

External:

1. Distributors have full control of the orders to Barilla and controlled the quantities and frequency of orders.
   
2. The distributors did not have any sort of forecasting tools to make analytical forecasting decisions for order quantities. The distributors placed orders on their best estimate guess to determine forecasted needs for inventory.
   
3. Distributions currently held the buying power in the supply chain relationship as they dictated what, when, and how many products were purchased. They are in complete control of their business and distributions.
   
4. Distributions did not trust Barilla enough to provide sales data as this was primarily proprietary data. Distributions were not accustomed to the idea of being transparent to Barilla and this created an issue because without this, Barilla does not have historical usage for forecasting. As sales data for each distributor was proprietary and would mean they would reveal to Barilla important proprietary information.
   

Environmental and Root Cause Analysis

Barilla Holding is a leading international pasta company which has diversified into bakery along with fresh and dry divisions. To enable flexibility for such a vast production requirement, Barilla manages 25 production facilities. The organization manufacturers 35% of all pasta sold in Italy, and 22% of all pasta sold in Europe. Since 1980, the revenue earned each year has been on a constant increase, an annual growth rate of 21% and have been recognized as a brand leader within this industry as a premium and high quality provider.