Barilla Spa

Company Overview

Barilla Spa is a large vertically integrated family owned largest pasta producer in Italy. Its operations are divided into seven divisions: three Pasta divisions, the bakery products division, the Fresh Bread division, the Catering division and the International division. Barilla products were sold through three types of retail outlet: small independent grocers, supermarket chains, and independent supermarkets. Products were sold through CDCs and through intermediate distribution channels. Fresh products were sold through a network of brokers.

Inventory levels in the supply were high with larger levels of stock held for dry pasta since its shelf life was high as compared to wet pasta. Barilla enjoyed a strong brand image in Italy. Its marketing and sales strategy was based upon a combination of advertising and promotions. Also distributors can buy as much product as they want to for meeting their demand at the discount offered by the company.

Barilla produced two major kinds of products:-

a) Dry Products- These include dry pasta, cookies, biscuits, flour, bread sticks and dry toasts. These make 75% of the Barilla sales. They had long shelf lives of 18-24 months or medium shelf lives of 10-12 weeks depending on the product type.

b) Fresh products- These include fresh pasta products with 21 day shelf life and bread with 1 day shelf life.

Issues Faced

The company was suffering from the following problems:

1. Variability in demand- This lead to operational inefficiencies on the part of the company.

2. Inventory Management- The company produced over 800 SKUs, most of which had long or medium shelf lives, thus could be easily stored up at the company warehouse or with the distributors. During periods of low demand, high inventory holding costs had to be incurred.

3. Stock outs- This was one of the major problems which Barilla faced. Many of the distributors were not able to cater to the demands of the retailers during times of high demand. This time Barilla lost on those sales as well as gave the customers an open invitation to use competitor’s products.

4. Operational issues- These inconsistent demands caused stress on manufacturing and logistics.

5. Bullwhip Effect problem i.e. higher levels of inventory stored at each level of supply chain.

Demand Fluctuation:

Reasons

1. Transportation discounts

2. Volume discounts

3. No minimum and maximum order quantities

4. Product proliferation

5. Lack