Barilla Spa Case Study

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SWOT Analysis:

STRENGHTS:

- Established brand name since 1875.

- Strong brand image

- Highly vertically integrated company – Diverse distribution channel

- Large manufacturing operations

- Large variety of products

- Trade promotion utilized together with volume & transportation discount

- Good sales & marketing strategy

- World’s largest pasta manufacturer with more than 35 % market share in Italy & 23 % share in Europe

WEAKNESSES:

- Unfair distribution of resources for the sales

- Entirely dependent on distribution channel for demands

- Absence of proper forecasting system

- Different opinions regarding logistics between management & sales personnel

- Fluctuating pasta demand

OPPORTUNITIES:

- Implementation of Just In Time delivery

- Export market (both Europe and globally)

- Geographic diversification

- Product diversification

- Barilla’s visibility with JITD makes distributors more dependent

- Improved relations with distributors

THREATS:

- Italian pasta market is relatively flat

- Inability to adopt new logistics method

- Extensive competition

- Government regulations

- Pasta are not considered as “hygienic” food option

Qualitative Analysis:

- Demand Fluctuation: The way Barilla is currently operating, it is almost impossible to anticipate demand swings

- Just In Time Distribution: JITD system was seen as threat by both internal & external personnel. No. of sales representatives felt that their responsibilities will diminish if JITD is implemented.

- Stock Outs: Barilla is constantly facing the increasing effects of fluctuating demand and due to that orders for dry products were swung far from week to week sales.

- Distribution Structure: Barilla has lengthy distribution process. Moreover. It follows two separate channels for its dry products and fresh products which put extra burden on organisation as whole. Products have to move from plant to CDCs to DO to sometimes even to brokers before it reaches to retailers.

- Bullwhip Effect: Barilla saw bullwhip effect due to inaccuracies with demand forecasting, long lead times, price fluctuations due to several promotions & multiple order batching.

- Communication : There was big lag in communication from downward stream to upward stream which led to inability to run trade shows, inability to stop stock out

- Operational Inefficiencies : Due to long distribution channels which forced distributors & CDCs to carry more inventory which caused more carrying cost

- Lead Time: Barilla lacked for proper infrastructure with forecasting which in turn creates more lead time for all the stores to put the order. Average lead time for store was 10 days.

- Large No. of SKUs: Barilla plants were offering products with large variety of SKUs for both dry & fresh products. Dry products were offered in about 800 different packaged SKUs and they were made in 200 different shapes which again come in different size of packages.

- Promotions: Barilla heavily relied on the use of promotions to push its products in market. Barilla divided each year unto 10 to 12 “canvas” periods, which created lots of new products in market for very short durations to sell before new promotion starts.

- Absence of Proper Forecasting System: Before JIDT there was no any sophisticated forecasting system and Barilla had to rely on the data submitted by distributors which sometimes lead to stock out in stores at the time of heavy demand.

- High Inventory Levels: Due to poor forecasting technique, all the CDCs and Dos had to carry high inventory levels to meet the highly fluctuating demands which also led to throwing out perishable food frequently.

Quantitative Analysis:

Financial Situation:

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JIDT: Barilla SpA must implement JIDT as a result of increasing effect of fluctuating demand. Orders for Barilla dry products often swung widely from week to week. (Exhibit 12) This extreme demand variability jeopardise Barilla’s control over both manufacturing & logistics operations. On the other hand it was quite a bit difficult for production plants to meet the increased demand from retailers which in turn result in stock out at DC. (Exhibit 13)

Not just that but at the same time, DCs have to carry high amount of inventory to meet the highly fluctuating demand which results into more carrying cost for them.

Alternatives & Options:

Decision Criteria:

1. Strategic Fit

The alternatives have to be selected based on the Strategic Fit with Barilla SpA’s business strategy.

2. Build upon the existing expertise

The alternatives should be selected based on the existing expertise of Barilla SpA’s personnel.

3. Financial Feasibility

The alternatives should not create a financial strain on Barilla SpA. JIDT program should become financially independent in maximum 5 years.

4. Barilla’s Synergies

The alternative should be in rhythm with Barilla’s whole distribution channel as Barilla is highly vertically integrated company it controls everything from manufacturing to storage to distribution.

ALTERNATIVES:

A1: