Barilla SpA

COMPANY BACKGROUND•Founded in 1875 by Pietro Barilla.•Products Range – Pasta & Bread.•Vertically Integrated corporation with Flour mills,

Pasta Plants and bakery Products factories located throughout Italy.

• Differentiated themselves with high quality product and innovative marketing strategies.

•By 1990, Barilla was organised into 7 divisions :–3 pasta divisions (Barina, Voiello,Braibanti)–The bakery products division–The fresh bread division–The catering division–The international division

INDUSTRY BACKGROUND

• Per capita consumption :

18 kilos per year

• Limited seasonality

• Semolina pasta and fresh

pasta: the only growth

segments of the Italian

pasta market

• Eastern Europe: excellent

export opportunity

Barilla Sales(lire in billions)

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Barilla Sales(lire inbillions)

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PASTA MANUFACTURING• Similar to paper-making.

• Water + Flour Dough Continuous Sheet Shape from Die Cut to Length Dried in Dryers

• The temperature and humidity in the kiln were precisely specified for each size and shape of pasta

• To keep changeover costs low and high product quality, it follows a carefully chosen production sequence that minimized incremental changes in kiln temperature and humidity between pasta shapes

• Barilla’s pasta plants were specialized by the type of pasta produced in the plant

Sales & Marketing

Advertising :- • Positioned as the highest quality/Most

Sophisticated product available.• Support from well-known athletes and celebrities.• “Where there is Barilla there is a home”

Trade Promotion :-• To push its product into grocery distribution

network.• “Canvass periods”

Distribution system

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Weekly Inventory check

Weekly Inventory check

ORDER ORDER

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•Mostly Computer supported ordering system•Few had Forecasting system or sophisticated analytical tools

CHANGE PROPOSED - JITD

• JITD System

– Service allowing distributors to operate with low stocks

while maintaining optimal service standards

– Decision-making authority for determining shipments

from Barilla to a distributor would transfer from the

distributor to Barilla

– Rather than simply filling orders specified by the

distributor, Barilla would monitor the flow of its

product through the distributor’s warehouse, and then

decide what to ship to the distributor and when to ship

it.

CHANNELS OF DISTRIBUTIONDivided entire product line into:

FRESH Products DRY Products

Includes: Pasta products (21-day shelf life),Fresh bread (one-day shelf life)

Includes:Dry Pasta, Dried toasts(75% of sales)(18-24 months)Cookies, Biscuits(10-12 weeks)

-‘Dry’ products were offered in 800 different packaged SKUs-Pasta was made in 200 different shapes and sizes

-Pasta was offered in more than 470 different packaged SKUs

Fresh Product Distribution

Fresh Products

Northern CDC Southern CDC

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Agents Agents Agents AgentsAgents Agents

DISTRIBUTION PATTERNS

Shipped from plants to 2 CDCs

Fresh product inventory held for 3 days in CDC

Dry products inventory for 1 month

Separate distribution systems for fresh and dry products

Fresh products purchased by Independent Agents from CDCs,And then channeled through 70 regional warehouses

Dry products (65%) purchased by Distributors, who shipped the product to supermarkets

Remaining (35%) distributed through 18 small Barillaowned warehouses mostly to small shops

RETAIL OUTLETSSMALL INDEPENDENT SHOPS (35% of Dry product sales)-Small grocers (Signora Maria)-Supply from Barilla run depots-Two weeks inventory at the store level

SUPERMARKETS (65%)-70% distributed to supermarket chains, 30% to independentsupermarkets-Typical 10 – 12 days inventory held by supermarkets-Most Retailers carry a product in only one packaging option-Chain supermarkets got products from ‘Grand Distributors’ (GD)-Independent supermarkets got products from ‘Organized Distributors’ (DO)-Most distributors maintained inventory of 2 weeks in their own -Supermarkets placed daily orders with the distributors- Orders received at the store 24 – 48 hours after the purchase order

PROBLEMS• What are the reasons for the increase in

variability in Barilla’s Supply Chain?

• How can the firm cope with the increase in variability?

• Can the VMI strategy solve the operational problems faced by Barilla?

• Why the Logistics Manager failed to Implement the JITD System?

• How can the supply chain meet the conflicting goals of the different partners and facilities?

Increasing Variability of Orders up the Supply Chain

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Causes of Demand Fluctuations

• Demand Forecasting• Long order lead times• Batch Ordering

– Transportation discounts– Volume discount– No minimum or maximum order quantities

• Price Fluctuations– Promotional activity

• Product proliferation• Poor customer service rates• Poor communication

Coping Variability in Demand

• Reducing Uncertainty – Centralized demand Information

• Effective Forecasting - CPFR • Reducing Variability – EDLP Strategy &

Eliminating Price Promotions

• Lead time Reduction - Use of Cross Docking & EDI

• Strategic Partnerships – e.g. VMI

The VMI Partnership• The supplier—usually the manufacturer but

sometimes a reseller or distributor—makes the main inventory replenishment decisions for the consuming organization

• The supplier monitors the buyer’s inventory levels (physically or via electronic messaging) and makes periodic re-supply decisions regarding order quantities, shipping, and timing

• Transactions customarily initiated by the buyer (like purchase orders) are initiated by the supplier instead

ADVANTAGES OF VMI• Resolving the dilemma of conflicting

performance measures• Having the potential to decrease variation

– Less buffers of capacity– Less inventory for suppliers– Smoother workloads– Reduced lead-time variability– Lower safety stock levels– Thus, reduced capital tied up in inventory

• Reduction in Transportation cost because of efficient truck loading and route planning

JITD - IMPLEMENTATION ISSUES

• Resistance from the Distributors– Operational Independence– Manufacturer mainly responsible for delay– JITD to help Manufacturer only

• Resistance from Sales & Marketing– Sales may Flatten– Difficulty in pushing Barilla Products without

Sales Promotions & Incentives– Competitor’s products pushed into the “freed

space”– Sophisticated Relationship– Grocers not properly equipped to record point

of Sale data– Uncertainty about actual reduction in costs

SOLUTION• Demonstrate that JITD benefits the distributors

(lowering inventory, improving their service levels and increasing their returns on assets); Run experiment at one or more of Barilla’s 18 depots

• Get top management closely involved - Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort

• Improvement of existing forecasting systems so as to make better use of data received

• Trust

THANK YOU

Jayshree Routray – 19

Tapan Mishra – 21

Pankaj Bagheria – 29

P.Seeta Lakshmi – 30

Prashant Kumar – 31

Gaurav Pattnaik – 33