Barilla Case Study: Operational Ineffeciencies

Case Presentation Barilla SpA Introduction phoner & Industry background Worlds largest pasta producer in 1990 Pasta Share 35% in Italy and 22% in europium Channels of Distribution Products divided in 2 categories Fresh and run dry Fresh Products had 21 sidereal day Shelf Lives Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives Retail Outlets Sm any(prenominal) self-reliant The Issue During the late 1980s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its electrical electrical distributors order patterns Distribution Procedure Original flow of goods and study PLANT CDCs Barilla run depots GDs set up supermarkets DOs Independent supermarkets Signora Maria Shops Customers Customers Customers *CDC = Central Distribution totality GD = Grand distributers DO = Organized Distributors Sales and Marketing announce Heavy, Brand Positioned as the Highest Quality T rade promotions Frequent Canvass period, 10 to 12 in a year, typical duration of 4 to 5 weeks Distributor could buy as much intersection as desired to meet present and future needs at the offered discount garishness Discounts also given Sales representatives used much at DOs than GDs Merchandise Barilla Products Set up In-Store Promotion Take note of competitors prices, depotouts, stark naked product launches Work out ordering strategies for the seller etc penury Fluctuations Just in Time Distribution Variability in take in Reasons Transportation discounts quite a little discount Promotional activity No minimum or maximum order quantities Product proliferation Long order drop dead times need of forecasting brasss or sophisticated analytical tools at Distributers end Exhibit 12 Demand Fluctuations Variability in Demand Methods employed to counter variability safekeeping buffer FGs to meet Distributor requirements Asking Distributors/retailers to car ry additional store Impact Strained Manufacturing and Logistics operations* Poor Product delivery focusing Thinning retailer/distributor margins Increased blood Holding costs Impossible to anticipate Demand swings Changing customers due to lack of storage space Bullwhip effect Amplified re wiseal in convey as one moves up the Supply arrange (away from the order order customer) order Factory Distributor social unitsaler Retailer Order Variation The Causes of Bullwhip Effect Demand Forecast Long lead times Order Batching Price fluctuation (Promotional sales) Inflated orders in luxuriously estimated demand scenarios Counteracting the Bullwhip Effect knock down Uncertainty POS Sharing development centralise demand information Reduce Variability Year round or Everyday low pricing Reduce Lead Times breeding lead times EDI Order lead times Cross come in Strategic Partner institutionalizes Quick Response straight Replenishment Advanced Continuous Repl enishment Vendor managed Inventory (VMI)Just-In-Time Distribution (JITD) Vendor-Managed Inventory Concept Treats end-customer as the Input Aims at managing the Input filter that Produces the Orders Decision-making authority for determining shipments in hands of Barilla SpA Barilla would monitor the flow of its products through with(predicate) the distributors storage warehouse, and then decide what to ship to the distributor and when to ship it Distributor provides Data on the shipment and current stock levels forexpect Benefits of JITD Manufacturer Reduced manufacturing costs Better Relationship with Distributors Increased make out chain visibility Increase Distributors dependence on Barilla Improvement in manufacturing planning using objective info Reduced inventory levels Distributors Improved fill rates to Retail stores extra service without any extra cost Reduced Inventory Holding costs JITD Internal protection Sales Representatives feared reduction in r esponsibilities shape sales levels Risk of Inability to adjust shipments quickly to stock-outs Lack of basis to handle JITD Increased competitor shelf space at distributor Inability to run Trade promotions Unsure about the cost benefits JITD outside(a) Resistance Unconvinced Distributors Not willing to share warehouse information Perceived power transfer to Barilla Lack of faith in Barillas inventory managementPossible methods to counter Resistance Demonstrate that JITD benefits the distributors Run sampleation at one or more of the distributor sites Maggiali needs to whole step at JITD not as a logistics program, but as a company-wide effort Get Top management closely composite Experiments at Dryproduct depots Barilla spa ran first JITD experiment at its Florence depot During the very first month of the program Inventory dropped from 10. 1 days to 3. 6 days Service level to retail stores add-ond from 98. 9% to 99. % memory boards staff was not comforta ble working with such low inventory levels Inventory levels finally allowed to increase to 5 days One of the arguments against JITD was that it will lead to waste asinine spaces in the ware houses Experiments at Dryproduct depots In Florence case Barilla maturement at rapid rate in the region Plans to expand warehouse Existing warehouse able to accommodate the increased requirement important investment on expansion was avoided JITD next tried at Milan Depot Similar action improvement as Florence These experiments established the credibility of JITD systemImplementation at D. O. Cortese The decision to implement JITD in Marchese DC of Cortese involved Barilla Director of Logistics, Executive vice president of sales and managing director in charge of JITD implementation Cortese Nine double-deckers including Managing director, new services manager, logistics manager and logistics, purchasing, marketing and sales personnel from Corteses Marchese DC Consultant Claudio Ferrozzi was roped in Neutral party trusted by both the groupsImplementation at D. O. Cortese For six months, Barilla team analyzed daily shipment information of the DC Created the data base of DCs historical demand pattern Simulated shipments with JITD in place The implementation yielded phenomenal results foregoing to JITD Stock out rate 2 to 5% ( Occasionally as high as 10 to 13%) After JITD Negligible stock out rate of less than. 25%(Never exceeded 1%) Average inventory level also dropped Adaptation to various distributors With new confidence they approached former(a) customers Customers apprehensive about JITD repeating the same success as Cortese for them as they had varied systems Barillas team developed capacity to furnish customers standards into internal standards Adaptation to different distributors Developed a protocol which could be used to communicate with all customers Each SKU identified with three different product codes Barillas code Customers code EAN (European article anatomying system) barcode nigh common barcode standard in Europe Advantages of the coding system Information can be received through any code Reduce impact of internal changes in product or code on clients system Communication with consumers Customer each day sent following information to Barilla via EDI1. Customer code number to identify itself 2. Inventory for each SKU carried by DC 3. Previous days sell through-All shipments of Barilla products out of DC to consumers on the previous day 4. Stock outs on previous day for every Barilla SKU carried by DC 5. An advance order for any promotions that the customer planned to run in the future 6. Preferred delivery carton size Lessons learnt One needs to prove credibility of any new performance initiative for others to buy his/her idea Best place to experiment with an idea is within the organization To succeed in a new initiative, involvement of top management is imperative Market is ever growing. If performance measures seem to create spare time/capacity instead of chucking them, look out for ways to increase the Barrilla could finally succeed in implementing JITD with Cortese. Whole of top management from both sides was involved in the decision making. Which never happened earlier Sometimes roping a consultant helps THANK YOU