Barilla Spa Case

Barilla SpA Case Table of Contents Executive Summary2 Issues Identification3 Environmental and Root Cause Analysis3 Alternatives or Options4 Recommendation and Implementation5 Monitor and Control6 Conclusion6 Executive Summary Barilla’s high stock out rates along with large average inventory numbers are the main reasons why Maggiali is looking to continue on with Vitali’s dream of implementing the Just In Time Distribution system. However, faced with great external resistance to its introduction, Magialli must look to top management to hop on board and facilitate its acceptance among all partners in the supply chain. Using internal distributors as experiments will allow Barilla to showcase better stock out and inventory results. By doing so, Barilla can gain the acceptance and approval of other distributors. With everyone participating in the JITD, Barilla will be better able to forecast demand and not over react to movements at the consumer level. Issues Identification Giorgio Maggiali, the current director of logistics for Barilla SpA, faces much resistance when he tries to implement a new manufacturing concept called Just-in-Time Distribution (JITD). Initially, this idea was proposed by the prior director, Brando Vitali, but is heavily supported by Maggiali as well. Because of the existing structure in the organization, fluctuations in demand at the end-user/customer level cause the whole system to react adversely. The result is an excess â€Å"safety stock† at all levels of the supply chain, leading to extra costs. This is commonly referred to as the â€Å"bullwhip effect. † Due to the resistance Maggiali faces, he must make a decision on whether or not the JITD is feasible for Barilla SpA and how to implement it with the unsupportive partners in the supply chain. Environmental and Root Cause Analysis The first concept we must understand is how significant pasta is in Italy. â€Å"Per capita pasta consumption in Italy averaged nearly 18 kilos per year, greatly exceeding that of other western European contries. † (pg. 2, Barilla SpA case study) Due to its dominance in the food market, consumers are very aware of price fluctuations and which pastas are â€Å"on sale. † Because of this, forecasting consumer demands is a vital component of the JITD. Without it, the traditional way of order-filling leads to common stock outs and excess inventory throughout the year. Because of the process pasta is made, Barilla cannot simply change its production on a whim. Its production plant must keep the kiln’s humidity and temperature at precise specifications for different types of pasta. As a result, sequential production is optimal to keep downtime and costs low for pasta manufacturing. The JITD was developed to address issues such as stock outs and to make inventory levels more manageable due to better forecasting. It will also allow Barilla to make the production and inventory decisions from a top down perspective rather than bottom to top reactionary chain (bullwhip effect). As shown in the Sales and Stock outs Chart at the Cortese Northease Distribution Centre (Exhibit 13, Barilla SpA Case study), stock outs are a regular occurrence due to the fluctuations in sales throughout the year. The main resistance from Barilla comes from sales and advertising. â€Å"Barilla’s sales strategy relied on the use of trade promotions to push product into the grocery distribution network. (pg. 6, Barilla SpA case study) It is with these sales that enable sales representatives to meet their target goals. If Barilla decides to implement the JITD, the need to push sales for the Distributors would cease to exist. Essentially, Barilla will be replacing sales by deciding how much inventory to stock each distribution centre with. It is quite clear that the sales department fears this system due to job secu rity issues. The external resistance plays a large factor in why Maggiali is unable to introduce the JITD. There are many unconvinced distributors that are unwilling to share their warehouse data. Also, they perceive that Barilla is trying to take power away from them (DC purchasers), and since they do not know too much about the JITD, they have a lack of faith in Barilla’s inventory management. Alternatives or Options Barilla can choose to forgo implementing the JITD and avert any risk in inter-department conflicts. By doing so, they save on any related costs to introduce the system. However, as Barilla expands, so does their manufacturing and distribution. The problem will continue to escalate as more inventory is pushed through the supply chain. Barilla’s other option is to continue pursuing the JITD which can benefit both the manufacturing and distribution process by reducing stock out rates and lowering inventory levels for the DCs. By lowering inventory levels, the DCs will be able to focus on obtaining more retailers so that they can increase the amount of inventory to be stored in the extra warehouse space. Barilla Pro and Con Comparison Table |Pro |Con | |Forgo JITD |Maintain relationships |Previous costs to develop JITD are lost | | |Save initial setup costs |Inventory problem is not fixed | | |Stick with what Barilla knows |Inventory costs continue to rise | |Implement JITD |Better forecasting |Major resistance/lack of cooperation | | |Lower stock outs | | | |Increased inventory space for DCs | | Recommendation and Implementation It is recommended that Maggiali continue pursuing the JITD due to the fact that the inventory management problem will only worsen as the company’s sales increases as well. However, Maggiali must find other ways of implementing the system rather than force distributors to adhere. Firstly, Maggiali must demonstrate that JITD benefits the distributors. Running an experiment of the system at one or more of the distributor’s sites gives other distributors an example to compare to. Once other distributors see what the system can do for them, they may be more willing to participate. A proposed idea would be to run this experiment through an internal distributor. Doing so will prompt less or no resistance and can be monitored closely. Secondly, Maggiali needs to involve top management so that JITD is not just a logistics issue. Having a company wide effort allows all members to participate and as a resuly, less resistance will be observed. Thirdly, since the distributors may think that Maggiali is trying to obtain power over them, Barilla can bring in a third party consultant trusted by both groups to perform an analysis to determine if in fact, the JITD is beneficial for all participants. Monitor and Control In order to determine if the JITD is advantageous over the old system, Barilla will be monitoring stock out rates and average inventory levels hroughout the year. If the results show positive results over previous data, a move should be made to communicate the benefits of the JITD to more distributors. Stock out rates and inventory levels for those distributors should also be collected to increase and confirm the effectiveness of the system. Conclusion By using an internal distributor to as an example, involv ing top level management, and recruiting a third party consultant, Barilla will be able to introduce the JITD system with very little resistance. The top down approach for Barilla’s supply chain will benefit all levels due to increased efficiency in inventory management. As a result, savings will be realized and passed down from manufacturer to consumers. In order to monitor success and build upon it, stock out rates and inventory levels will continue to be observed to determine optimal production and distribution of Barilla’s products. With this system in place, the bull-whip effect that is currently experienced, will be countered by the JITD’s ability to forecast consumer demand.