SCM 800Barilla SpA Case

Team 2

Michael Pashos: MLP316@psu.edu

Mimi Ragsdale: MZH211@psu.edu

Jake Simmons: AJS627@psu.edu

James Weber: JDW340@psu.edu

10/21/2013

Barilla Case Study - Background• The company was founded in 1875 by Pietro Barilla.

• By 1990 Barilla is the world’s largest pasta manufacturer, capturing 35% of Italian pasta sales and 22% of all European pasta sales. They also hold a 29% share of the Italian bakery-products market.

• Sales are divided by product lines: dry 75% and fresh 25%. The majority of the dry sales are distributed through the two company owned central distribution centers, one in Pedrignano and the other in Naples.

• Increasingly throughout the 1980’s, the company suffered from volatile demand with wild weekly fluctuations in orders for dry products straining Barilla’s manufacturing and logistics operations.

• In 1987 Brando Vitali, then Barilla’s director of logistics proposed a JITD program as a resolution to the demand volatility. This proposition has met with both internal and external opposition.

Barilla Case Study - Objective and Goals

• Analysis of the Bullwhip Effect on Barilla SpA’s supply chain

• Specifying risks and costing issues

• Demonstrating supply issues with concepts learned from the class readings

• Summarizing implementation challenges and solutions

Agenda• Q1 – Barilla SpA’s Supply Chain Diagram

• Q2 – Demand Fluctuations vs. Consumer Demand Pattern

• Q3 – Underlying Causes of the Ordering Pattern

• Q4 – Principle Cost Categories Impacted by the Order Pattern

• Q5 – JITD as a Mechanism to Reduce Supply Chain Costs

• Q6 – Underlying Causes of Internal Resistance to JITD

• Q7 – Distributor Response to JITD

• Q8 – Recommendations to mitigate Internal and External JITD

resistance

Barilla SpA Supply Chain

Raw Materials Suppliers

Flour Mill

Barilla SpA Operations

Pasta Plants

Bread Plants

Specialty Plants

Northern CDC

Southern CDC

Manufacturing Distribution

Independent Agents (Concessionari)

70 warehouses throughout Italy

Durum Wheat

Tender Wheat

Eggs

Spinach MealDepot

35% all dry inventory

Supermarkets Chains

45.5% of dry products

~10 – 12 days of inventory

Small Independent Grocers

35% of dry products

2 weeks inventory

Retail Outlets

Independent Supermarkets 19.5% of dry

products~10 – 12 days of

inventory

GD~150 SKUs, ~2 Weeks

dry inventory

DO~150 SKUs, ~2 Weeks

dry inventory

Distributors

65% all dry inventory2 wks dry inventory

10 day lead time to GD/DO

800 Dry SKUsDry 18 – 24 Months/10 – 12 weeks

Fresh 21 days/1 day bread

Dry

Fresh

Demand Fluctuations vs Consumer Demand Pattern

• The attached chart shows the pattern of weekly orders received over the course of a year for Barilla dry products from the Cortese Northeast DC to the Pedrignano CDC. The average weekly order is 300 Quintals with a Std Dev of 227 Quintals. This represents a high 76% coefficient of variation.

A Cause for Concern – Wild Demand Fluctuations Put a Strain on the Supply Chain

Demand Fluctuations vs. Consumer Demand Pattern

• A Large Degree of Variance can be seen between the weekly orders placed from the DC’s to the CDC and the actual weekly sales from the same DO’s to the supermarkets.

• (Blue) Orders from Cortese DC to Pedrignano CDC. (Red) Weekly sales from the Cortese DC to supermarkets. The severity of the distortion between actual consumer demand and the signals being transmitted are large.

Variance in orders placed to the CDC and sales from the DC Demand fluctuations Vs. Consumer demand pattern

Underlying Causes of Ordering Pattern

• Lack of information sharing and poor communication between Barilla and the downstream members of their supply chain

• Price fluctuations / Forward buying

• Shortage Gaming

• Long lead times

• Transportation discounts

• No min/Max order limits

• Barilla compensation structure for sales

• Push versus Pull Supply

Underlying Causes of Ordering Pattern

There is high volatility in the demand signals received at the central distribution centers . This is evidenced by the wide fluctuations in weekly orders from the downstream distributors documented in previous slides. This inefficient order pattern has a negative cost impact over the entire supply chain.

•Manufacturing Costs-Increase

•Inventory Holding Costs-Increase

•Transportation Costs-Increase

Principle Cost Categories Impacted by Order Pattern

Additional areas and costs affected by the fluctuating order pattern:

•Replenishment lead time-Increases

•Shipping and Receiving Costs- Increase

•Level of Product Availability- Decrease

•Profitability-Decrease

Principle Cost Categories Impacted by Order Pattern

• As evidenced in the previous slides, high demand variation is adversely affecting Barilla’s supply chain costs.

• Bruno Maggiali , director of logistics for Barilla has proposed a version of VMI dubbed JITD ( just in time distribution) as a possible mechanism for reducing these costs.

• We feel that this new supply chain strategy is definitely a viable mechanism for reducing costs across the Barilla supply chain.

• Implementation of JITD would positively affect the cost structure by addressing some of the underlying supply chain inefficiencies contributing to the current bullwhip effect evidenced by the demand volatility.

JITD as a Mechanism to Reduce

Supply Chain Costs

Adoption of the new JITD strategy would incorporate fundamental changes in the current supply chain allowing for improved overall efficiency.

•Convert from a push to a pull strategy

•Reduce Costs

•Improves Customer Service

•Optimize logistics across the supply chain.

JITD as a Mechanism to Reduce

Supply Chain Costs

Brando Vitali’s proposed J ITD program did not receive universal acceptance within Barilla. It met with significant resistance specifically from the from two different groups internally

•Manufacturing and Logistics personnel

•Sales & Marketing personnel

INTERNAL RESISTANCE TO THE JITD PROGRAM

Distributor Response to JITD

Barilla would like to introduce the JILD concept to it’s distributors of dry goods. The Grande Distribuziones and the Distribuzione Organizattas are the supply chain members best situated to benefit from this implementation. As one of these distributors what would my response be to this proposal.•What Are the Advantages to My Organization

•Will JITD Reduce My Costs, If So How

•How Will Reduced Inventory Affect Stock Outs

•How Much Input Will I Have In Order Size and Mix

•What Will Happen To Price Discounts and Promotions

•How Will My Information Be Used and By Whom

Recommendations to Mitigate External Resistance JITDResistance to change is not surprising when trying to coordinate between two unrelated entities in a supply chain. Since this an unproven strategy in the eyes of the external stakeholders , Barilla is asking for a leap of faith on the part of their distributors to buy into the JITD process. In order to get their external partners to make this leap of faith Barilla has to design an implementation process that is based on cooperation and trust and that emphasizes the mutual benefits attainable through cooperation. Some specific points to address would be:

•Assess and Stress the Value of JITD to Both Partners •More Competitive Pricing Structure•Clear Identification of Individual Operational Roles and Decision Rights•Effective Contracts•Well Defined Conflict Resolution Mechanisms.

Recommendations to Mitigate External Resistance JITD Slide 2

•Pilot Project Results

•Data Security

Recommendations to Mitigate Internal JITD

Internally Maggiali has encountered resistance to his plan to implement JITD as a solution to the distribution challenges facing Barilla. It is essential that he mitigate the internal resistance before attempting to convince the distributors of JITD’s value as a supply chain strategy

•Formulate a Well Defined and Documented Proposal

•Get Top Management on Board

•Internal Implementation Plan

•Collaborate with Sales & Marketing

Summary and Recommendation

Barilla, Italy’s largest pasta manufacturer is experiencing supply chain inefficiencies evidenced by a high incidence of stock outs and highly variable order patters from their distributors. This distortion in demand signals is mainly a result of price promotions/discounts and the inflexibility of their production process. We recommend Barilla take the following actions to address these challenges.

•Implement the JILD supply chain strategy

•Implement an EDLP (every day low price ) pricing policy

•Optimize Transportation costs for the Barilla run depots

Bibliography:1)Hammond, Janice H. "Barilla SpA (A)." Harvard Business School Case 694-046, May 1994. (Revised March 2008.)

2)Chopra, Sunll, and Peter Melndl. "Coordination in the Supply Chain“, Chap. 17 in Supply Chain Management: Strategy, Planning and Operation. 4th ed. N.p.: Prentice Hall, 2010. 465-84. Print.

3)The Bwe in Supply Chains Hau Lee, V Padmanabhan, Seungjin Whang “The Bullwhip Effect in Supply Chains” Sloan management review sping 1997; vol 38 issue 3

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6)Mentzer, John, “Allign Your Supply Chain Strategies and Your Reward Structures”, Chap.13 in Fundamentals of Supply Chain Management, 2004, pp. 235-246

7)Min, Soonhong. “Inter-Functional Coordination in Supply Chain Management” Chap. 14 in Supply Chain Management (not the text).

8)The collaborate question Andrew Reese 30 april 2001 p1

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10)Inter-Corporate Cooperation in Supply Chain Management; Supply Chain Management, John Mentzer, Ed. Sage 2001 pp391-409

11)Holweg, Matthias, et. al., “Supply Chain Collaboration: Making Sense of the Strategy Continuum,” European Management Journal, Vol. 23, No. 2, pp. 170-181, April 2005

12)Nelson, E. & Zimmerman, A. "Minding the Store, How Kimberly-Clark Keeps Client-Costco in Diapers" Wall Street Journal, Sept. 7, 2000.

13)Chopra, Sunil, “Vendor Managed Inventories,” Kellogg Case Collection No. 7-403-750, July 8, 2000 Waller, M. "Vendor-Managed Inventory in the Retail Supply Chain” Journal of Business Logistics, vol. 20 no. 1, 1999, pp. 183-203

Domanda?

La pasta del buon appetito