Barilla SpA started as a small shop in 1875 and became the world's largest pasta producer by 1990, holding 35% of the Italian market and 22% of the European market. It faced issues with extreme demand fluctuations that led to high inventory costs and stockouts. Barilla implemented a Just-In-Time Distribution system where it took over inventory management from distributors, using point-of-sale data to determine shipments. Pilot programs showed reduced inventory levels and improved fill rates. While distributors resisted initially, implementation with other customers led to electronic data sharing and negligible stockouts.
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Barilla SpA started as a small shop in 1875 and became the world's largest pasta producer by 1990, holding 35% of the Italian market and 22% of the European market. It faced issues with extreme demand fluctuations that led to high inventory costs and stockouts. Barilla implemented a Just-In-Time Distribution system where it took over inventory management from distributors, using point-of-sale data to determine shipments. Pilot programs showed reduced inventory levels and improved fill rates. While distributors resisted initially, implementation with other customers led to electronic data sharing and negligible stockouts.
Barilla SpA started as a small shop in 1875 and became the world's largest pasta producer by 1990, holding 35% of the Italian market and 22% of the European market. It faced issues with extreme demand fluctuations that led to high inventory costs and stockouts. Barilla implemented a Just-In-Time Distribution system where it took over inventory management from distributors, using point-of-sale data to determine shipments. Pilot programs showed reduced inventory levels and improved fill rates. While distributors resisted initially, implementation with other customers led to electronic data sharing and negligible stockouts.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online from Scribd
Barilla SpA started as a small shop in 1875 and became the world's largest pasta producer by 1990, holding 35% of the Italian market and 22% of the European market. It faced issues with extreme demand fluctuations that led to high inventory costs and stockouts. Barilla implemented a Just-In-Time Distribution system where it took over inventory management from distributors, using point-of-sale data to determine shipments. Pilot programs showed reduced inventory levels and improved fill rates. While distributors resisted initially, implementation with other customers led to electronic data sharing and negligible stockouts.
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Barilla SpA
Introduction
Started in 1875 as a small shop in Parma, Italy By 1990, Barilla SPA - Worlds largest pasta producer Pasta Share - 35% in Italy and 22% in Europe 2 Product Categories 75% Dry and 25% Fresh Fresh Products had 21 day Shelf Lives Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives 800 SKUs of Dry Products Retail Outlets Small independent shops and Supermarkets (Chain and Independent)
Distribution System CDC = Central Distribution Centre GD = Grand Distributors DO = Organized Distributors 35%
PLANT 65%
CDCs
Flow of Information
Barilla run depots GDs DOs
Chain supermarkets
Independent supermarkets
Signora Maria Shops
Customers
Customers
Customers
Sales & Marketing
Heavy Advertising, Brand positioning
Steffi Graf, Stefan Edberg promoted the Barilla brand
Frequent Trade Promotion to push product into distribution network Volume Discount
Use of Sales Representative
Merchandise Barilla Product Set up In-Store promotion Took note of Competitors price, stockouts, new product introductions Worked out ordering strategies for retailer
Issues Faced
Extreme demand fluctuations (Since 1980)- week to week variation in distributors order patterns Pressures to manufacturing in terms of production lead-time and perishability of product High Inventory Carrying Cost & manufacturing cost due operational inefficiencies Unacceptable Cycle Service Levels (CSL) inadequate product availability Distributors inability to carry large number of SKUs
Demand Fluctuation Reasons
Excessive Promotional activities
Volume Discount
No limit in order quantities from distributors
Product proliferations
Lack of sophisticated forecasting techniques.
Demand Fluctuation Exhibit 12
Demand Fluctuation Methods adopted to curb fluctuation
Excess FG inventory to meet Distributors demand Additional inventory at Distributors warehouses
Impact
Overburdened Manufacturing and Logistic operation Poor product delivery Thinning of retailers/distributors margin Increased inventory carrying cost Unanticipated demand Bullwhip effect
Bullwhip Effect Variation in Demand caused Bullwhip effect in the entire supply chain
Order Transfer
Order Transfer
Plant
Distributor
Retailer
Magnified Variation in Order
Bullwhip Effect Causes of Bullwhip Effect
Inaccuracies in Demand Forecasting Long Lead Times Price fluctuation due to Promotional activities Order batching
To reduce ordering Cost To take advantage of Transportation economics such as full truck load Sales incentive Forward buying due to promotional activities to get benefit from lower price
Just-In-Time-Distribution (JITD)
Vendor Managed Inventory Concept Treats end customer data as the input Final authority to determine shipments is Barilla SpA Barilla would decide what to ship to distributors and when to ship it Distributors will provide POS data of different SKUs.
Why JITD ? Expected benefits for Manufacturer
Reduced Manufacturing Cost Increased Supply Chain visibility High bargaining power over Distributors Reduced inventory cycle A planned production planning is possible
Expected benefits for Distributors
Improved fill rates to Retail store- Quick response High service level additional services to retailers without extra cost Reduced inventory carrying cost
JITD- Resistance Internal
Sales representative feared reduction in responsibilities Inability to quick shipment may lead to Stock-out Inability to run Trade Promotion Lack of sophisticated infrastructure to handle JITD Skepticism about cost reduction
External
Unconvinced distributors Perceived power transfer to Barilla Distributors were skeptical about the effectiveness of the system
Experiments at Dry Product depots
Barilla spa ran first JITD experiment at its Florence depot
Top management was actively involved
During the very first month of the program
Inventory dropped from 10.1 days to 3.6 days Service level to retail stores increased from 98.9% to 99.8%
Depots staff was not comfortable working with such low inventory levels
Inventory levels finally allowed to increase to 5 days
JITD next tried at Milan Depot
Similar performance improvement as Florence
These experiments established the credibility of JITD system
Implementation Result
Implementation Result
Implementation at D.O Cortese
Barilla decided to implement JITD in Marchese DC of Cortese It involved
Director of Logistics, EVP of Sales and Manager responsible for JITD implementation from Barilla Nine managers including MD, Logistic manager for Marchese DC of Cortese. Consultant Ferozzi- a neutral party trusted by both groups
For six months, Barilla team analyzed daily shipment data of the DC
Created the data base of DCs historical demand pattern
Finally implementation brought phenomenal result Prior 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
Implementation at D.O Cortese
Implementation at D.O Cortese
Implementation at D.O Cortese
Adaptation with other Distributors
Barilla approached other customers with confidence.
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 numbering system) barcode Most common barcode standard in Europe
Advantages of the coding system
Information can be received through any code Improved data sharing
By 1993, all customers were linked electronically with the Barilla Headquarter.
Communication with Customers
Distributors each day sent following information to Barilla Electronically 1. 2.
Customer code number to identify customer 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 Stock outs on previous day for every Barilla SKU carried by DC An advance order for any promotions that the customer planned to run in the future Preferred delivery carton size
4.
5.
6.
Group reflections/Takeaway
Better demand forecasting using sophisticated tools ensures a robust supply chain Excessive fluctuation(SD) leads to increased Average Inventory Level, poor USL and frequent stock-out. Information centralization reduces Bullwhip Effect and enhances inventory management system Decision needs to be taken amongst Pull based and Push based systems To succeed in a new initiative, involvement of Top management is important Credibility needs to be gained before enforcing any idea to others Customers need to be convinced with the win-win concept
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