Barilla Case Study

Case Write-Up Barilla

Problem Statement Definition:

The greatest issue that is facing Barilla is whether or not to utilize just in time distribution in their current sales environment for more effective control of their inventory distribution among their customers. This has been an issue within the company's current distribution because there have been inefficiencies delivering their products during extreme demand fluctuations, pressures to manufacture with a shorter lead-time, higher carrying costs for inventory, an inability to keep up with demand resulting in a lack of products, and a lack of efficient communication between distributors and the manufacturer. The combination of these issues is resulting in missed opportunities for Barilla to grow more profitable because of how inefficient their distribution is.

Situation Analysis:

Barilla is struggling to identify the most efficient way of distributing their products in a demand environment that is rapidly fluctuating. This is most likely due to their lack of restrictions in order quantities from distributors, volume discounts of 2%-3% on orders with specified truckloads, other promotional activities, rapidly growing product orders, and a lack of the ability to forecast future demand. Barilla initially tried to control these fluctuations by allowing their distributors to have excess inventory at the distributor's warehouses, and giving them the capability to request excess inventory, but this had negative implications on the company. Not only did it increase the inventory carrying cost, but it caused unanticipated demand, overburdened the manufacturing process, and caused a ‘bullwhip effect'. The bullwhip effect, or the exaggerated variation in orders, was felt from the retailers to the distributors and upwards to the manufacturing plant. It caused long lead times, which made the price of Barilla's pasta fluctuate, and all demand forecasting became inaccurate. It also caused customers to ‘forward' purchase their products due to promotional activities to receive the benefits of the cheaper products. The most feasible way of countering this issue is to implement just in time distribution, which will allow Barilla to take charge of their inventory and control distribution better.

Recommendation:

Barilla needs to implement just in time distribution in order to better anticipate future demand and be able to keep up with product while keeping their costs at a minimum keeping profit high. Just in time distribution will help to eliminate some of the variance in the company's demand environment by allowing Barilla to manage their own inventory by controlling their distribution before their distributors request product. It does this by treating their customer's