Barilla Spa Case Study

kali SpA ( kelpwort), is an Italian largest pasta producer in the world manufacturer that sells pasta to retailers largely through third-party allocators. Barilla has been facing huge variability in need which is straining the manufacturing and distribution network of the company. This magnetic variation in demand, be forcing the CDCs to maintain a higher(prenominal) level of arsenal. The proposed new system, Just-In-Time Distribution (JITD), is the solution fireed to resolve the demand pas seul issues and lower costs.This new transit would move forecasting and shipment tryst responsibilities to Barilla rather than eitherowing each distributor/retailer place the modulate amounts separately. This approach has both inner and external complications as there is much(prenominal) resistance from both at bottom the company and from the suppliers and distributors. Implementing the JITD is a good supposition for a number of reasons.This pull up stakes streamline the in take i nation flow, sign on suspicion in demand , reduce the lead judgment of conviction, and decrease both faultless and raw material document, thus make the system streamlined and minify the boilersuit cost. A good invent would be for Barilla to drink d accept by running a fly streamlet within its own depot then with 1 or 2 distributors anduse the resolving powers of the test regarding the cost savings and improvement in supply chain skill to lead other distributors around how beneficiary entrust be to all by implementing JITD.ISSUE IDENTIFICATIONImmediate issueThe main issue in this case is the displace demand imposed on Barillas manufacturing and distribution system. one time this is brought under operate on, many other problems will be solved. These following are some of the causes of this fluctuating demand that must be addressed expect variances (Bullwhip effect) terms of having to hold high inventory in golf-club to take in distributors inn Transportation c ostBarillas trades strategy relied hard on the use of promotions Long Lead timeCustomer table service.Higher oerall warehouse and exaltation costsSales Representatives Incentives based on the amount of the products that they sold to the distributorsISSUE IDENTIFICATION & ROOT suffer Demand fluctuations (Bullwhip effect)As the 1980s progressed, Barilla has been facing huge variability in demand essentially affecting dry products, such extreme demand fluctuation strained the manufacturing and distribution network of the company (see Exhibit 12) Cost of having to hold high inventoryThis fluctuation in demand and the difficulty of the manufacturing process to deal with fast-track orders are forcing the CDCs to maintain a higher level of inventory in order to meet distributors order. A distributor warehouse held a two- week supply of Barilla dry products in inventory. (see Exhibit 13) Reduce the number of SkusTransportation costThe greater number of trucks that it needful in eff ects of high demand increased its Transportation costs. Barillas sales strategy relied heavily on the use of promotions In the form of price, transportation and volume discountsLong Lead timeBarilla supplied its distributors between 8 and 14 years after it received their orders, the average lead-time being 10 days. Customer service Barilla has no visibleness when it comes to plan and forecast in order to meet the customer demand. Higher overall warehouse and transportation costsThe fluctuation demand may lead to overtime shifts in order to meet the demand, higher inventory of raw materials and frequent capacity adjustments, as sound as higher transportation costs which all increase the overall cost of the product. Sales Representatives Incentives based on the amount of the products that they sold to the distributors. This was make problems as the sales reps would try and push more products during the promotional period to get a bonus and were not able to sell as much during non- promotional periods.ALTERNATIVES AND OPTIONThe proposed new system, Just-In-Time Distribution (JITD), is one solution I suggest to resolve the demand fluctuation issues and lower costs. PROS1- Resolve the demand fluctuation that often lead to the bullwhip effect. 2- Offer additional service to the customer at no extra cost 3- Increase supply chain visibility and there by fewer stock outs 4- Reduce forecasting errors5- get off cost of capital tied up in inventory 6- meliorate customer service 7- Improve the information flow, 8- Reduce the lead time 9- Decrease both finished and raw material inventory, thus making the system efficient and reducing the overall cost. CONS1- Heavy Investment in information technology in order to implement the JITD program 2- The internal resistance to the JITD system, comes from theproduction, sales and marketing divisions and the top management. The production division is relate about the lack of a sophisticated forecasting system in order to properl y use the data received from the distributors in an efficient way. The sales representatives are concerned about their compensation, they will lose their incentives, because the sale will be predictable or flat and their responsibilities will be minimized under the new mode of operation.The top management will be concerned about the added responsibility of predicting demand on Barilla without any guarantee of cost reduction. 3- The external resistance comes from the distributors and retailers. They will be concerned about the loss of control in deciding their inventory levels. The JITD system gives more causality to Barilla which may be looked on with doubt by some distributors who are not sure about the long term intentions of Barilla.These distributors expressed concerns about becoming too skew-whiff to Barilla and fearful of losing control by giving Barilla the power to push products into their warehouse just so they Barilla can reduce its costs. 4- Difficulty to run trade prom otions with JITD which may push the customer to turn over to another brand. 5- Customer need to improve their equipment ( computer, bar-code, scanner..) 6- Customer will open to share their sales data with Barilla on a fooling basis in order to insure replenishment 7- Loss of control in deciding their inventory levelsRECOMMENDATIONS1- Eliminate or reduce the promotional discounts to customers because it leads to demand accumulation and a release during the promotion period. 2- Volume discounts to distributors should be reduced or eliminated for the same reasons highlighted above. 3- Barilla should also move to a new compensation for sales representatives, they should be rewarded on company mathematical process not on their own. Their responsibilities and relationships should be closer to distributors and retailer in order to improve and insure Barillas customers satisfaction. 4- The distributors will look at to be offered collaboration incentives in order to keep them on board 5- maintain the assessment period the same but stagger the end dates for these periods over sales representatives to smooth out demand fluctuations.IMPLEMENTATIONHow to effectively implement JITD at Barilla? And When?1- Start by running a test pilot within its own depot then with few distributors and use the results to convince the internal and external resistance on how the new program will reduce dramatically their cost. and improve supply chain efficiency. 1- Collaborative readying Barilla and the distributors can work as a team and plan on different issues. 2- Manage the demand Barilla should not whole forecast demand but also should try to shape and make for it by marketing using surveys to determine the needs and expectations of the consumers and designing products to encounter them.3- Gather information from point of sale This model has been successfully utilise in Wal-Marts distribution system. However Barilla will have to improve its relationship with retailer and tha t will involve a expensive investment as the retailer doesnt have the computer to overstep the information to Barilla.MONITOR AND CONTROLThe JITD system has the potential to substantial reduce costs if it is implemented correctly. In order to do so Barilla should begin implementing JITD within its own Depots and expand with pilot projects with the Distributors. Therefore mentioned analysis discussed a anatomy of methods by which to make such implementation more viable than it was in the past. However, such a total is in no way conclusive. Ideas such as reducing the number of SKUs and rearranging distribution channels should also be explored in the long term as they can also result in substantial cost savings. Barilla should be able to varan and control the partnership with its distributors by measuring their performance, these are the following list of inclusions that may be used for this purpose