Barilla Spa Case Study

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Internal opposition instigated both from job security fear as well as more authentic concerns, such as the culture of promotions and fear of competitor infringement into distributor warehouse space. Outside opposition was most vocal from distributors' buyers, who were most directly threatened by the JITD system.

Availability of demand information, even at the store levels, also presented difficulties in implementing a system that would be completely dependent upon using this information to forecast.

Recommendation

Decrease Total Inventory

The JITD program would dramatically help reduce the inventory held at the distributors since it builds inventories at the central warehouses and then deliver only the products needed by the end-users. They can do this by doing more frequent checks of the distributor’s inventory. If the JITD system works – they can essentially save the entire supply chain money by reducing inventory costs and will also result in high service levels. The only downside to this is Barilla having to find the right grip onto which they can successfully launch a pilot program.

Improve Customer Relations

Reduced inventory costs, higher service levels, improved fill-rate and decreased distribution costs would all lead to improved customer relations.

JITD Feature Highlights would include:

-Vendor managed inventory

-No more promotional sales which will reduce demand and variability cause by batch ordering

-Frequent deliveries with mixed orders per full truck load

-Everyday low pricing – competitive advantage

Better Fill Rates and Decrease Cost of Distribution

For the distributors, the increase in flexibility and reaction speed leads to lower inventory levels improving the fill and stock-out rates. Since the inventory data and delivery patterns would be controlled by Barilla, it would be easier for their central factory and CDCs to schedule their production and deliveries to meet the customer demands. It will also help to improve scheduling of production and reducing lead-time, which will minimize the fluctuations.

Opportunity for a New Role for Sales Reps

Although the sales reps believe that their jobs will diminish once JITD comes into effect – the reality is that their roles will be redefined to enhance the customer relationship as well as the development of managers. They will still be selling Barilla products and they will also be providing services to improve the customer’s delivery program. They will act as a communication bridge between the company and the distributors.

A system would be installed in the representatives' portable computer by which more information at the distributor warehouse level could be collected. By doing so, the sales representatives will still play a vital role in the new system, while reducing the distributors' work in implementing the JITD program, allowing the sales reps to be more desirable and necessary within the company.

Target Market

It is our recommendation that Barilla focus the operation of the JITD program on the delivery of dry pasta to small retail shops. The Italian government supports the small shops rather than the larger supermarkets and therefore Barilla may benefit in future dealings with the government. Small shops have shown to have better growth rates than supermarkets, and this is the sector in which Barilla does not have a significant market share.

Small retail shops constantly struggle with providing product variety to its customers within the limited shelf space they operate by. This market would be the most willing of all segments to accept smaller order quantities to reduce the inventory they have on hand. This reduction would allow them to add greater variety of products.

Implementation

The cost savings that JITD will show will essentially solve all the issues that the sales reps, manufacturing plant, stores and distributors currently face. It would require very intense communication and would require all the parties involved to continually review their policies to ensure there is always proper inventory replenishment. Moving to a continuous review policy means smaller shipment lots. To minimize the potential increase in order and transportation costs, Barilla should include joint replenishment of its various SKUs when considering order quantities. This would require no extra shelf space. While this may be a little costly during the periodic review policy, the continuous review policy allows the constant flow of products that are selling. In this case the items that are not selling will only take up the current shelf space and nothing additional.

In the long term, it is recommended that Barilla move to a single distribution system for both fresh and dry pasta to increase the cost effectiveness of joint replenishment. This however cannot be done until the supply chain can reduce the delivery time to a level that suits both products.

Conclusion

Barilla became a market leader by taking a beloved traditional food like pasta and selling it very differently than the rest of the industry. Their product was put in sealed boxes and marketed as a higher end product. In doing this, the company was able to produce a greater profit margin than its competitors. The JITD program will give Barilla the opportunity to save money and also significantly diminishes any inconsistencies. Barilla will also significantly reduce the "Bullwhip" effect that plagues the industry.

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References

Barilla SpA (A) Case Analysis - Panmore Institute. (2015). Retrieved June 13, 2016, from http://panmore.com/barilla-spa-case-analysis

Barilla SpA (A) Case Study – JITD Problem Resolution (1995). Retrieved June 12, 2016, from Harvard Business Review by Hammond Janice H.

Barilla SpA (A) Case Study – Harvard Business School (Reading Provided by SCMA)