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Introduction
Barilla SpA, an Italy based company, is the world’s largest Pasta manufacturer. ... Barilla has a very complex distribution network consisting of Grand Distributors (owned by large Supermarket chains), Organized Distributors (independent third party distributors) in addition to its own depots. Due to such a complex and multi-echelon network, Barilla has been experiencing large amounts of variability in demand which are resulting in operational inefficiency and increased manufacturing, inventory and distribution costs.
Brando Vitali, Barilla’s ex-Director of Logistics, had proposed a Just-In-Time Distribution (JITD) system to counter this demand variation. This system required the distributors to share their sales data with Barilla, who would then forecast and deliver appropriate amounts of products to the distributors at the right time in order to effectively meet demand. ... Vitali’s proposal came under severe criticism from not only the distributors but also Barilla’s own Sales and Marketing department for an array of reasons.
Giorgio Magialli, Barilla’s current Director of Logistics, is trying to implement this idea since two years but has not made much progress. ...
Problem Description
We will attempt to first list all the problems that are faced by Barilla and the distributors so that we can better understand them in order to make recommendations that will eliminate them. ... Some of the causes of this fluctuating demand are:
· Promotions: Barilla’s sales strategy relied heavily on the use of promotions, in the form of price, transportation and volume discounts. ... Barilla’s volume discounts consisted of carton discounts offered by sales representatives and the transportation discounts consisted of free shipping to the distributors. ...
· Large number of SKU’s: Barilla’s dry products (the focus of the JITD proposal) were offered in 800 different packaged stock keeping units (SKUs). ...
· Gaming Behavior: The distributors were used to having full control of their orders to Barilla and indulged in gaming by ordering different quantities in different periods. ...
· Absence of Maximum or Minimum order quantities: Barilla does not require its distributors to order any minimum quantities every time it places an order. This causes the distributors to order fewer quantities more often and increases variability and Barilla’s production costs. ...
· Long Lead Times: Barilla supplied its distributors between 8 and 14 days after it received their orders, the average lead-time being 10 days. ...
This fluctuating demand had many adverse implications for Barilla. ... This was because pasta production was a very delicate process and the drying of different types of pasta required precise levels of temperature and humidity that could not be changed fast enough to produce different types of pasta in demand. As Barilla struggled to cope up with the fluctuating demand, the production costs rose as changeover was costly and lead times as well as backorders increased.
· Scheduling Difficulties: It was difficult for Barilla to schedule its resources and facilities like Labor, Machinery and Trucks due to demand variations. ...
· Transportation Costs: As a result of uneven demand, Barilla had to transport more products to its distributors in periods of high demand in lesser time than when compared to periods of low demand. ...
· Cash Flow: The cash flow to Barilla was very uneven due to fluctuations as well as promotions. ... But this led to great uproar and opposition among the distributors and even Barilla’s own Sales and Marketing Department. ... It entailed disclosure of sales data by the distributors to Barilla who would then forecast for the entire supply chain and provide products in the right quantity and at the right time to meet demand. ...
· Loss of Control: The distributors felt that by allowing Barilla to access their sales data and order for them, they would be giving control of their business to Barilla who would push their products and cut their own costs. ...
· Lack of Trust: There were major trust issues that needed to be resolved between the distributors and Barilla. The distributors did not trust Barilla enough to let them in their own business and reveal proprietary data. This was because the distributors typically handled products from around 200 different suppliers and they felt that by disclosing their sales data to Barilla, their relations with other suppliers would be adversely affected.
· Fear of Disintermediation: The distributors felt that if they allowed Barilla to control the order process, they would be of no use in the supply chain and would eventually be disintermediated (removed).
Approximate Word count = 3507
Approximate Pages = 14
(250 words per page double spaced)
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