Barilla SpA is an Italian manufacturer that sells its products through retailers and third-party distributors. Sometime in the '80s, the demand patterns are not constant and Barilla SpA saw the need to address this problem. The company seeks to execute a replenishment program where it is the company that determines shipment quantities to the distributors. This case study discusses the advantages and disadvantages of the proposed program.
Janice H. Hammond
Harvard Business Review (694046-PDF-ENG)
May 17, 1994
Case questions answered:
- Provide a concise case background.
- What is the problem that the JITD program was created to solve? Diagnose the underlying causes of this problem. What are the impacts of this problem on the supply chain?
- What do you think of Vitale’s JITD proposal as a mechanism to mitigate the problem?
- What internal conflicts or barriers at Barilla SpA might the JITD program create? What causes these conflicts? If you were Giorgio Magglia, how would you deal with these?
- In the environment in which Barilla SpA operated, do you believe JITD would be feasible and effective? If so, which customers would you target? How would you convince them that the JITD program was worth trying? If not, what alternatives would you suggest to combat some of the difficulties that Barilla’s operating system faces?
Case study questions answered in the second solution:
- Should they do JITD?
- What underlying problem is JITD trying to solve? And what are the causes of that problem?
- Are there internal barriers to JITD that would need to be dismantled?
- As a direct customer of Barilla, what would your response to JITD be?
- Does JITD address the entire supply chain (internal or external) or just manufacturing and distribution at Barilla?
- Is JITD the solution to Barillas SpA’s problem(s) or is there a better way to solve the problem(s) you identified?
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Case answers for Barilla SpA (A)
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Introduction – Barilla SpA
Barilla SpA is an Italian largest manufacturer of pasta founded in 1875. It started as a small company but grew into a large enterprise operating a network of plants all over Italy. The company has built a reliable brand name and image through its innovations and differentiation of high- quality products.
However, Barilla has been experiencing high variations in product demand since the 1980s. Giorgio Maggiali, the logistics director for Barilla SpA, is concerned about the company’s reluctance to utilize Just in time distribution technique (JITD) to reduce the fluctuations and to improve the efficiency of the distribution system.
Key Problem(s) and the Causes
The primary problem for Barilla involves increasing fluctuations in demand that has strained manufacturing and logistics operations. One secondary problem includes internal resistance of the JITD program by Barilla’s sales and marketing organizations. Another problem is reduced profits for both manufacturers and retailers due to high distribution costs. Also, customers were unwilling to allow Barilla to place orders on their behalf. Some of the causes of demand variations are:
- Lead time issues due to delays in shipping and manufacturing. The case states that it takes ten days for Barilla SpA to deliver orders to distributors. There are also delays in production due to specific steps followed to produce a particular type of pasta, thus increasing lead time.
- Distributors place orders weekly, creating variations in demand. As mentioned in the case, large distributors order five truckloads in a week to take advantage of transportation economies, such as full truckload quantities, and small distributors placed orders in small amounts per week. This may result in unexpected high or low orders.
- There are inaccurate forecasts due to the use of a periodic-review inventory system or manually counting inventory. The case notes that retailers review the list for a specific product every Tuesday, and if inventory is low, then an order is placed. This makes it challenging to know the optimum level of inventory and leads to errors in stock replenishment and forecasts.
- Barilla offers promotional and large volumes discounts to increase demand for its products. Consumers take advantage of these discounts provided during a short period resulting in irregular production and disturb regular buying patterns.
- Barilla sometimes over or under-react to demand expectations producing too much or less inventory. The case highlighted that Barilla faced an unexpected high demand for special types of pasta while their quantities were low. Also, Barilla’s manufacturing and logistics personnel often ask distributors to carry more of their inventory for fear of lockouts.
- Finally, there is limited coordination and communication between the sales personnel and the Grand distributors warehouse, unlike the Organized distributors. So, salespeople may not supply the information regarding the current market conditions and consumer requirements leading to inappropriate levels of inventory.
With the continuous shifts in demands, there is no doubt that Barilla’s supply chain has been negatively affected. Some of the effects of demand variations are:
- There are excess or insufficient inventories. Barilla SpA’s distributors and retailers are forced to carry too much inventory taking up their storage spaces. Lack of enough inventory results in unfulfilled orders causing customer dissatisfaction.
- There are increased inventory holding costs. The case states that supermarkets carried an average of 4,800 dry- product SKUs and held the products for 10-12 days. Keeping inventory for a long time leads to obsolescence of stock, and distributors or retailers may be forced to offer deep discounts to clear up space leading to lost revenues.
- Poor product planning and scheduling also occur. It is hard for Barilla to fulfill different orders efficiently without interruptions or delays in manufacturing.
Mr. Giorgio must make a critical analysis of both the traditional system of distribution and Vitale’s Just in time distribution proposal to provide a long-lasting solution.
a) Remain with the traditional system of distribution.
The advantages of this system are…