Barilla Spa - Italian Pasta Manufacturer

Barilla SpA, an Italian pasta manufacturer, is experiencing high levels of inefficiencies and rising costs due to fluctuation and uncertainty in demand from its distributors. Giorgio Magialli, the Director of Logistics at Barilla wants to implement a Just-In-Time Distribution (JITD) system that was proposed by his predecessor Brando Vitali. This system is entirely different from the existing setup and is being opposed by both the distributors and Barilla’s Sales and Marketing Department.

One of the approach that Barilla takes is to offer discount on big quantity orders. In this case distributers tend to order in big quantity (to favor from discount) and so they order less frequent. It’ one of the reasons that Barilla experience demand fluctuation.

The other approach they take is that they offer discount in certain period of times (canvas). This cause forward buying and impose more fluctuation in demand.

Barilla start to ship products out on average 10 days after orders were received. This long order lead time caused distributors to order more products than they really need. When lead time increases then more demand uncertainty and fluctuation will impose to system.

Currently, Barilla do not follow any forecasting model. they just do replenishment ordering without minimum/maximum quantity. Because they have no visibility on actual data, their basis of production is per distributors’ information per week and this causes pressure on manufacturing and distribution team of Barilla.

The other Problem is about large number of SKU’s. On dry products alone (the focus of the JITD proposal), Barilla offers 800 SKU (200 different shapes and sizes and more than 470 packaged SKUs). This high level of various products will lead to greater complexity. The total uncertainty in demand will increase when there are more types of products as each of them has its own demand fluctuation and uncertainty.

In order to absorb all these uncertainties in demand, Barilla is carrying a large number of inventory which costs a lot for the company and still cannot solve the problem and distributors report stock out on some products.

Implementing JITD, contrary to current system, will eliminate Bullwhip effect and stock outs by having centralized information process which increase data transparency between Barilla and distributors. Distributors will provide actual sales data which will be the basis of forecasting and production thus increasing efficiency in operation and alleviating stock out among distributors. Employment of precise information is the only way that JITD can be implemented successfully and support strategic goal of company which is to balance between efficiently and responsiveness in the supply chain. The advantages of JITD is listed in bullet points below:

• Reduce forecasting errors
• Resolve the demand fluctuation that often lead to the bullwhip effect.
• Decrease both finished and raw material inventory, thus making the system efficient and reducing the overall cost.
• Increase supply chain visibility and thereby fewer stock outs
• Lower cost of capital tied up in inventory
• Improve customer service
• Offer additional service to the customer at no extra cost
• Improve the information flow
• Reduce the lead time and increase responsiveness
• Improve supplier-customer relationship

Although heavy Investment in information technology needed for implementation of the JITD program is one of the big steps that the company should take but the main problem is internal resistance to the JITD system, comes from the production, sales and marketing divisions and the top management. The production division is concerned about the lack of a sophisticated forecasting system in order to properly use the data received from the distributors in an efficient way. The sales representatives are concerned about their compensation, they will lose their incentives, because the sale will be predictable or flat.