CASE ANALYSIS

Barilla SpA (A)

MARKETING-II DATE OF SUBMISSION-17.12.2012

SUBMITTED BY:SECTION-C, GROUP 13: Abhijit Das- 2012PGP005 Ashwin Vijayan- 2012PGP073 Kumar Abhishek- 2012PGP178 Payal Anand- 2012FPM10 Rajat- 2012PGP292 Sumit Bapuji Gedam- 2012PGP382 Vikash Kumar- 2012PGP438

SWOT Analysis

Criteria examples

Strengths Market Leader and established brand name Strong brand equity

Weaknesses Completely dependent on distribution channel for demands. Distributors were unable to satisfy retailer demands and there were frequent stock outs.

Criteria examples Orders for Barilla dry products often swung wildly from week to week (Exhibit 2 in case) In exhibit 13, minimum stock out rate is 5% per week.

In 1990, Barilla was the largest pasta manufacturer in the world, making 35% of all pasta sold in Italy and 22% of all pasta sold in Europe.

Criteria examples

Opportunities

Threats Major threat was from distributors as they gave less emphasis on brands than their own profits. Italian pasta market was relatively flat.

Criteria examples Distributors on an average held only 150 SKU out of 800 dry product SKUs. Big brewers sustain distribution and support advertising in the ways in which they cant Italian pasta market was growing at a rate of less than 1% per year.

Pasta exports from Italy to other European countries were expected to rise as much as 2025% per year in the early 1990s. Barillas director of logistics had opinion that JITD would take costs out of distribution channel without compromising service.

Export market was experiencing a record growth and there were tremendous opportunities. There was opportunity in implementing JITD as margins were thinning.

5 Cs-

Company: Barilla was founded in 1875 in Parma, Italy. By 1990, Barilla Spa was world's largest pasta manufacturer in world with 35% of all pasta sold in Italy and 22% of all pasta sold in Europe. In Italy, Barilla offered pasta in 3 brands. In 1990, Barilla was organized into 7 divisions, 3pasta divisions, the bakery products division, the fresh bread division, the catering division and the international division.

Customers-

Small Independent Shops Small shops were prevalent in Italy than in other Western European countries. Through the late 1980s, the Italian government had supported small grocers (often referred to as Signora Maria shops in Italy) by restricting the number of licenses provided to operate large supermarkets. Supermarkets In the early 1990s, the number of supermarkets began to grow as governmental restrictions abated. A supermarket typically held from ten to twelve days of dry-grocery inventory within the stores, and on average carried a total of 4,800 dry-product SKUs. Although Barilla offered many pasta products in multiple package types, most retailers would carry the product in only one (and at most two) packaging options.

CompetitorsIn the 1960s, competing in a crowded field of over 2,000 Italian pasta

manufacturers,Pietro and Gianni Barilla differentiated their company using a high quality produc tsupported by innovative marketing programs.

ContextIn the late 1980s, the Italian pasta market as a whole was relatively flat, growing less than 1% per year. By 1990, the Italian pasta market was estimated at 3.5 trillion lire. Semolina pasta and fresh pasta were the only growth segments of the Italian pasta market. In contrast, the export market was experiencing record growth; pasta exports from Italy to other European countries were expected to rise as much as 20-25% per year in the early 1990s. Regarding internal customers ,even more organizations, disconcerting was the internal resistance from Barillas own sales and marketing which saw the concept as infeasible or dangerous, or both.

Problem Statement: There was fluctuating demand and variation of orders which strained Barillas manufacturing and logistics operations. The distribution lead time averaged ten days. It was not possible to manufacture unexpected high demand in short notice due to production constraints. The holding of finished goods inventory was becoming costly due to high weekly fluctuation of distributors orders. The distributors experienced stock outs and hence their service level to the retailers was below acceptable limits despite holding two weeks of inventory. The Manufacturer and retailers suffered from reducing margins. There was a need to reduce costs of the distribution channel without compromising quality.

Possible Alternatives: 1. Brando Vitali had proposed Just-inTime Distribution which was based on the following principles: 1. Analyse the distributors shipment data and current stock level. 2. Determine the appropriate quantities and delivery schedules based on own forecasting system. 3. Reduce inventory levels by shipping products when needed. 2. Barilla followed a Push Strategy and used trade promotions to push product into the grocery distribution network. This strategy can be coordinated with a well executed Pull Strategy that activates consumer demand. The company can learn from the sales information and improve its forecasting methods. Evaluation of Alternatives: The proposal Just in Time Distribution faced resistance from the sales and marketing departments of Barilla who raised concerns of diminished responsibilities when the program would be put in place. The distributors also opposed the program as they felt they were better equipped to improve their own inventory and service levels themselves and not by management of inventories by Barilla. Barilla had to improve their own forecasting systems so that they could analyse data to make better forecasts. Hence, Barilla should try to train the salesperson and change their mentality that order were not an unchangeable input but demand from end consumers is the input. It should involve the salesperson in the collection of data and its analysis in-order to portray them the benefits like reduction of inventory levels, distribution costs and manufacturing costs. It should increase awareness among them of the other benefits of the program like increasing visibility with the trade and improving relationship between Barilla and the distributor. The distributors were reluctant to give the control of the management of inventory to Barilla and believed it was giving Barilla the power to push products and reduce its own costs. The program should be tried on a limited basis by indentifying innovators or early adopters in-order to

establish the reduction in cost and diffuse the risk anticipated by the distributors. The advantages of decrease of costs due to reduced inventory and improved fill rate can then be established. The company can run the program in its own CDC or depots or identify large distributor(GD) or Organized distributor(DO). The implantation of the program in own depot would help in improving the forecasting system and establishing benefits. Then the Early adopters or innovators among the DOs can be identified. This would enhance the credibility of the new program and hence will lead to adoption.

Proposition and our Stand: The demand fluctuation were increasing the logistics and manufacturing costs and also increasing stock out rates. As it was hard to get the retail sell-through data, Just In Time Distribution which used sell through data one step behind the retailer was the best possible alternative to mitigate the problems. Barilla should try to establish the advantages and improve its own systems like forecasting system before going on a full rollout. It can do this by implementing the program on a limited basis in its own depots or identifying the innovators or early adopter among its DOs. The data and information flow can help the company to improve its own planning procedures.