Barilla Spa Case Study Report

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The customers, distributors and Barilla’s internal organizations (sales and marketing) are resistant to change to JITD, they are not willing to give up that authority on their orders and some were not willing to provide detailed sales data upon which Barilla could make decisions and improve its demand forecast. Distributors were more interested in sales promotions and volume discounts which give them great margins. Barilla’s internal organizations (sales and marketing) feel that if the JITD is implemented, it will limit their responsibilities within the company.

The existing distribution processes at Barilla represent the pull system, where Distribution centers pull the demand. If JITD is implemented, the delivery system will be changed to push system, where company would control the distribution based on Barilla’s own logistics organization specifying the necessary delivery quantities. This would give Barilla more hierarchical control, as there will be more visibility in regards to demand, which will increase the efficiently in forecasting and internal delivery planning processes. To solve the problem related to anticipation of limited responsibility of marketing, sales and distribution, the management should introduce collaborative sales planning approach, where all the multiple business functions including sales, marketing, finance and operations will be involved to reach a consensus on demand quantities.

The distributors are having high inventory stock-out rates despite their holding a couple of weeks of inventory. The stock-out rates fluctuated from 5% to 9% (see Exhibit 13), due to inefficient distributions organizations internal planning and forecasting. The Barilla would need to review distributor’s shipment data and send only what is needed to the stores according to the JITD schedule. This will enable shipping products only as they are needed instead of building big stocks in warehouses.

Most of the distributors used simple periodic-review system; they simply placed orders with Barilla once a week and use the simple periodic-review inventory system by counting the products on the shelves. Most of all the distributors had computer-supported ordering systems but few had sophisticated forecasting system or analytical tools for determining order quantities. The distributors should be providing Barilla with the data on shipped products and the current stock level for each Barilla SKU on a daily basis. This will help Barilla to look at all the data from all the distribution organizations and make replenishment decisions based on its own forecasts. The requirement for JITD will be the appropriate equipment to support bar-code scanning processes and integrated software system linkage throughout retail sites.

Lack of space in retail outlets (stores/warehouses). Barilla warehouses currently carry very large inventories according to manufacturers’ request, since manufacturers are continuously introducing new products and they want retailers to display each product on the fronts of their shelves. The same goes for distributors – they are increasing inventory levels of items already stocked and adding new items to their product offerings. If JITD is implemented the retail outlets space increase will not be necessary, as Barilla will be reducing volume of shipments, but will ship more often, and only what is needed at the stores. To optimize inventory, Barilla will have to create a single platform and view inventory levels all across the warehouses, and ship to replenish the supply not to have it reduced.

Poor forecasting and lack of planning: Barilla is having difficulties forecasting the demand and matching the supply quantities accordingly. In order to shape the demand, Barilla operations will have to transform volumes of consumption data into powerful insights about market trends and customer demand. To make forecasting robust Barilla will have to generate demand driven sales and forecast based on the sales outcome for all products (dry products and fresh products), including new and end-of-cycle products.

The difficulty to produce particular pasta that had been sold out due to unexpectedly high demand is an issue, which is linked to lack of good forecasting and planning. To resolve this issue, Barilla operations will have to follow the path of improved forecasting based on sensing and shaping the demand according to sales results..

Alternatives or options

The reason why the JITD proposal has not been applied is because of the structure of Barilla’s distribution channel and the fact that most grocers in Italy aren’t equipped yet with the necessary bar-code scanners and computer linkages. The other reason and the major one is because their distributors, sales and marketing organizations were opposed to the plan. The distributors were unwilling to give up their authority to place orders as they pleased. For internal resistance, sales representatives felt that their many responsibilities would be reduced and that they ran the risk of being unable to adjust their shipments sufficiently. They also would not have the ability to run trade promotions, which in the long-term would be better for Barilla anyway since trade promotions are a reason of demand fluctuation. Finally, they were skeptical about cost reductions and the effectiveness of the system in general.

ALTERNATIVE/OPTION 1

The first alternative/option open to Barilla is not to implement the JITD which means they should maintain and continue with the old traditional way of allowing distributors to determine the quantities needed and place order for them even when they don’t need the order in order to earn the sale discounts:

PROS:

1). Barilla’s marketing and sales strategy relied mostly on advertising and promotions that helps to drive sales since most distributors place orders not necessarily needed by them just to get the trade promotions. .

2). Distributors will continue to place orders for full load-truck and large volume of products due volume discount offered by Barilla.

3) Barilla’s distribution process makes their products available in many retail outlets, small independent grocers, supermarkets chains and independent supermarkets hence making the products a strong brand name in every household in Italy,

4). Barilla was able to offer many different packaged products SKUs due to regional preferences and differences in retail requirements based on order request from distributors.

CONS:

1). The growing burden of demand fluctuations imposed on the company’s