SUPPLY CHAIN MANAGEMENT

BARILLA SpA

Group – 02
Nishant Yadav – 18PGP135
Rahul Roshan – 18PGP143
Sarthak Navalakha – 18PGP169
Sarvasuddi Akhila – 18PGP170
Sharath R - 18PGP175
Shubham Raj - 18PGP184

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1. Diagnose the underlying cause of the difficulties that the JITD program
was created to solve. What are the benefits and drawbacks of this
program?

Demand-fluctuations imposed problems on manufacturing and distribution system. Orders from

Barilla’s dry product varied from week to week, for instance, weekly demand for Barilla Dry Products
from Cortese’s Northeast Distribution Centre to the Pedrignano CDC in 1989 had standard deviation
of 227 (mean = 300) quintals. It was, therefore, very difficult to predict the demand.

To dampen the fluctuation, distributors and retailers were asked to carry additional inventory. But,
at their current inventory levels, service levels of distributors (despite holding a couple of weeks
inventory) to retailers were unacceptable. Also, most retailers didn’t have the shelf space to carry
increasing number of SKUs.

All this lead to diminishing margins for both – manufacturers and retailers.

BENEFITS

With Just in Time Distribution, Barilla will be able to meet the customer’s need more effectively and
distribution of workload will even. It’ll enable Barilla to improve its visibility among its trade
partners. The control will become more centralized as it’ll manage orders for all the distributors
under it. This will reduce the volatile demand pattern and reduce the distribution cost, service level
and ultimately reduce the manufacturing costs. Further, the data collected can also be used to
improve its own planning system. With better planning and forecasting, inventories can be reduced
and improve the fill rate for both customers and Barilla.

DRAWBACKS

JITD need more effort of examining the data, analysing it and preparing an order schedule. This
system relies on data from distributors (and not retailers) that may not be accurate to determine the
actual consumption pattern. JITD relies heavily on IT infrastructure for data collection, transfer and
forecasting. Also, requires huge initial investment to setup this IT infrastructure. JITD doesn’t work
well when there is a disruption in demand pattern and leads to opportunity cost. Further, the
distributors as well as the sales and marketing team were reluctant as they saw JITD system
infeasible. Empty shelf spaces might be a disadvantage for the company as the competitors may
capitalize this to push their products.

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2. What conflicts or barriers internal to Barilla does the JITD program create?
What causes these conflicts? As Giorgio Maggiali, how would u deal with
these?

The sales and marketing department of Barilla was particularly opposed and resistant to
implementation of JITD program. The following statements illustrate the conflicting viewpoints of
Sales Department with respect to JITD:

1. Replenishment through JITD would not be flexible enough for quick reaction to selling patterns
and increase in promotions.

2. A major part of the distribution system comprising of numerous DO s, GD s and supermarkets

were not familiar with the system.

3. Use of JITD would lead to better forecasts leading to decrease the excess inventory of Barilla
stacked in distributors’ warehouses. This would free up distributors’ shelf space that might be
captured by competitors.

4. They believed that the risk of stock outs at distributor’s end would increase due to JITD if there
are glitches in supply chain.

5. Costs reduction may not happen as inventory holding cost may just shift from DO s to the CDC

In addition, JITD program created the following barriers within Barilla:

1. Inefficient forecasting system: Forecasting system was not robust at Barilla and they needed to
improve it to efficiently use the inventory data received through JITD program.

2. Lack of decision rules : The management needed to develop a set of decision rules to determine
the type and quantity of SKUs to be supplied after receiving demand data.

These conflicts were caused because of following factors –

1. The sales and marketing staff at Barilla feared that their significance and responsibility would
reduce considerably as JITD would do away with the need to regularly engage with distributors and
stores.

2. The frequency of trade promotions, which was a major source of boosting sales, would decrease
because of JITD as the production flexibility of Barilla’s plants was limited and production was highly
sequenced.

As Giorgio Maggiali, I would take the following steps –

1. Reduce the sales target of the sales representatives and assure them that implementation of JITD
would not affect their wages.

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2. Impart appropriate knowledge and training to the sales and marketing staff so that they are better
able to appreciate the benefits of JITD such as reduction in their workload.

3. Directing sales and marketing team to work with DO s and try to convince them for a trial run of
the JITD.

3. As one of the Barilla’s customers, what would your response to JITD be?
Why?
As one of Barilla’s customers (Distributors), I would oppose to the JITD program but not fully. I will
open to trial to understand the cost benefit analysis and if Barilla is sharing its profits with me in
terms of providing free delivery and other incentives.

The reasons for opposing are based on my personal incentives. Firstly, lack of knowledge about Just
in Time Distribution (JITD). I am not much aware how this process will work and thus have less faith.

As a distributor, I wouldn’t want Barilla SpA to control my inventory. It would give them the
authority to push their products into my warehouses in order to reduce its costs and I’m not sure if it
will reduce my overall costs. I am into Old-fashioned distribution system and a bit reluctant to
change as there will be lot of modifications in the existing system which will require investment.

I am reluctant to share my warehouse and sales data/figures as I am sceptical about confidentiality

and this will also affect my bargaining power. Also, I don’t trust their forecasting methods and I feel
I’m doing in a better way already. The risk of stock out will also arise as I will not be holding any
excess inventory which will result in opportunity cost. Lastly, I won’t be getting any trade
promotions, and this will have an overall impact in my profit generation

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4. In the environment in which Barilla operated in 1990, do you believe JITD
(or a similar kind of program) would be feasible? effective? If so, which
customers would you target next? How would you convince them that
JITD program was worth trying? If not, what alternatives would you
suggest to combat some of the difficulties that Barilla's operating system
faces?

Yes, Just-in-time delivery would be feasible and effective with some changes to the supply chain
environment of Barilla. The changes required to be done would be :

1) Improve IT systems – for data collection from distributors and forecasting

2) Alleviate the fears and concerns of the sales and marketing team
3) Educate the distributors about the JITD, and the advantages about it
4) Manufacturing improvements to bring about a quick shift in the production of different
varieties of pasta and other products
5) Improve supplier relations which could hamper the JIT system
6) Hedge the risks which could be supplier risks, transportation risks, natural disasters etc
which could hamper the system

The customers whom I would target would be small independent shops which were serviced
through Barilla’s internally owned warehouses. This would help the independent shops to reduce
inventory levels and keep more variety of products and increase margins and convincing them would
be easier rather than convincing the supermarket and supermarket chains. Next customers to be
targeted would be the DOs who could see a good improvement in their margins and also don’t have
the bargaining power as much as the GDs which serviced the supermarket chains.

Convincing them to try JITD program

1) Educating them about what JITD is and how it helps them and doesn’t undermine their
bargaining power, nor will it be a tool for inventory dumping in case of low demand since
the distributors still had the power to reject if they feel the demand was low
2) Reduction in inventory holding cost leading to proper space utilisation and carrying of
different varieties of products leading to more retailers and independent supermarkets
buying from them
3) Reduction in lead time since Barilla could start manufacturing even before the expected time
of order (which used to happen in the traditional system)
4) IT improvements to their system too
5) Sharing of profits which is obtained by the economies of scale got from the manufacturing
systems, reduction in inventory levels at the central distribution centre and regional
warehouses
6) Sharing of profit can be through additional services like free transportation, or reduction in
price of the pasta sold to them etc , so that they can also increase their profit margins with
better space utilisation

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