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Assignment in Supply Chain Management Submitted by C Muthamil Selvan Roll No 3 PGPMX RAK Based on Case Study Barilla SpA

(B)&(D)

Case summary: Barilla SpA is an Italy based pasta manufacturer. It has got 35% market share in Italy and 22% in European pasta sales. Barilla has got a complex distribution network.( Plant to CDC, CDC to GD, OD and own depots and from there to supermarket chains , independent supermarkets and grocery stores).It follows the traditional method of distribution that is when a store need pasta it will order to GD or OD and they in turn places order to CDC which in turn orders to the plant. Due to fluctuation in the demand a small variation in the end customer demand will affect the plant operational efficiency in a big way due to Bull whip effect. To nullify the bullwhip effect , Barillas logistics director Brando vitally proposed an innovative concept Just in time delivery( JITD), a move in which barilla will decide how much to deliver to a customer based on his past sale data and future demand forecast. This case is all about the challenges that Barilla faced during the JITD concepts implementation.

1. Is the implementation discussed in Barilla SpA (B) a real representative of the success? Discuss why or why not? What problems do you envisage while implementing is in a mass scale?

I feel the implementation (JITD) discussed in Barilla SpA (B) is a real representative of success. Implementation of JITD is a strategic move, and any strategic move should involve the top management. For any strategic move to be a success, there should be a fit between the various departments of the organization. A successful strategy should be positioned well among the customers by making the necessary trade off. In the first two initiatives the decision was taken by previous logistics director Brando Vitali and the present director Giorgio Maggialli was trying to implement along with his assistant Vincenzo Battistini by presenting the benefits of this process to various DOs. There was absence of the involvement of top management. Also the sales department was not kept in confidence about this program. They should have addressed all the sales representatives concern before taking this program to customers and should represent as one voice from the Barilla.

Also to position the JITD concept among the customers and to have the credibility to sell the JITD idea to their customer they should have a proven record. All these problems were addressed successfully in case B. The logistics director got the support of top management before taking the initiate to the customer. The sales vice president was convinced about the merits of this program and was kept in the loop. Regarding positioning the JITD concept, the logistics director realized the importance of proven track record and instead of implementing the concept with a customers DO, now they started with their own Depots ( regional warehouses for small shops). They started the trial in their Florence depot. The concept was well accepted since it reduced the inventory from 10.1 days to 3.6 days but at the same time service level to customers increased from 98.8% to 99.8%. Also they are flexible enough to accept the end users opinion by increasing the inventory level from 3.6 days to 5 days. They are not happy about the success in one depot and had one more trial in their Milan depot as well.It was proved that in Milan also the service level increased from 98.5% to 99.8% at reduced inventory ( from 14 days to 6 days). So now Barillas logistics director has got the involvement of top management which is essential for a strategic move to be success and proven record with the success example from their own depots and now there is more fit between the logistics and sales by keeping the sales vice president also in the loop. So I believe this JITD program will be a great success when it will be presented to the customers.

Q 1B. What problems do you envisage while implementing is in a mass scale? Customers (DOs) used to get some discount of 2-3% if they order as full truck load quantities. They used to get an additional 1000 lire/carton discount ( 4% discount) if they buy minimum three truck loads of egg pasta. There is a possibility for the customers to increase their requirement to three truck load to get the 4% discount which is not addressed in the JITD system. Also During canvas period , a DO can buy as much product as he desired to meet his current and future demands . But JITD doesnt have an answer for this issue. So far , Barilla has followed a push method of marketing strategy. Sales is achieved by giving incentives to sales people to achieve the target . Sales team in turn offer discounts if the off take is of more volume. Thus both sales team and DOs are mutually benefited by the push strategy. JITD doesnt offer a solution for both the sales team and DOs on this issue. The JITD system reduced the inventory at the DO drastically. For example inventory reduced from 10 days to 5 days in Florence depot. In case if there is any strike by the transporters which will last three or more days then Depots will run without material since their inventory stock will last only few days.

If there is any manual error in the inputs given by DOs to Barilla then the whole JITD will collapse. Same is the case of system breakdown from both the end, networking error and so on. These are all some of the possible problems which may occur during the mass implementation of JITD .

Q 2 Problems listed in Barilla SpA D during implementation of JITD program and the cascading problems associated with it, root cause analysis of the issue and measures to curb the issue. Problem 1: Barillas sales representatives complained that JITD program prevented them from receiving their incentive bonuses. Cascading problems: Sales team will get de motivated. Their output will be low. Some people may leave the job. Root cause analysis: The sales peoples incentive system to be redefined. The present system is based on the push strategy. The JITD program is mostly like a pull strategy so existing incentive system will not work and need to be revised. Measures to Curb: The sales people are working directly with the retail stores and the DO. They can be used to get the better forecast from stores to DO and from DOs to CDC. Their incentive can be linked with the compliance of the DO for the JITD. They should use their relationship to influence the DO to comply with JITD. Also they can be measured with the error in their forecasting. Problem 2.Excess Shipment of Pastina Quadretti a slow moving product to Corteses cash and carry customer. Cascading problem: The real problem is a communication problem between Barilla and Cortese and between Cortese and cash and carry customer. This may create mistrust between all concerned parties. Root cause Analysis: Barilla has shipped one pallet of Pastina Quadretti to Cortese to keep this in their assortment. Since this is a new product for Cortese , Barilla should have been communicated this shipment to Cortese. In the same way when Corteses staff saw a new product which is not in their assortment they should have checked with Barilla about this product. Instead they sent it to the cash and carry customer by assuming that it is for them.

Measures to curb: Improvement in communication between all parties concerned. Instead of assuming , better they could have checked this by a phone call or e mail so that second and third delivery of the same product to the same customer would not have happened. Also to improve communication between Barilla staff and DO, may be a social get together can be organized by Barilla. Problem 3:Dispirited sales force. Job insecurity. Cascading problems:Attrition, low productivity. Root cause Analysis: Sales people feels that logistics takes over their job. In earlier system sales people used to push the product by offering volume discounts to achieve their target. In JITD, this push is not allowed. When the DOs inventory falls down , based on the forecast they will get the replenishment. So sales people fears that their job is taken over by logistics. Measures to curb: Sales people can be utilized to generate demand for Barilla. Since Barillas market share is only 35% in Italy and 22% in Europe, they can be used to generate new market for Barilla by convincing more retail stores to buy Barilla, they can be used to find out the competitors tactics to reach the customer and rewarded based on this. By this Barilla can engage the sales people and keep them motivated. Problem 4. First JITD stock out experienced by Cortese ( DO) Cascading problems: DOs may loose confidence on JITD. They may think that they lost the sale just because of the reduced inventory due to JITD. Their interest on JITD program will be reduced and if the news spreads to other DOs then they also may reconsider the JITD implementation. Root cause analysis: This is due to the forecasting error. A big festival like Easter will consume a special seasonal product like egg pasta more and supply should have been geared to meet this demand. Measures to curb: A forecast will not be 100% correct always. More attention to be given for forecast accuracy. Take this incident as a lesson and avoid repetition of this type of problems. Utilize the sales people to get more accurate demand details since they are very close to the customers and reward them as well.

Problem 5 Empty Shelf space can be utilized to display competitors product:

Cascading problems: Allowing the competitor to grow by capturing the market finally will reduce Barillas market share and sales. Root cause Analysis: This has resulted due to the implementation of JITD since JITD reduced the inventory level by half . But the storage area of the DO was designed to carry more inventory and the DO should utilize this empty space to get additional business. So there is a possibility that he may buy material from a competitor. Measures to curb: Utilize the sales people effectively here. Though Barilla has 800 SKUs most of the DOs buys only around 150 SKUs only. Now since the DOs has got more space they can be forced and convinced to buy more SKUs . The sales people also feels lesser workload due to JITD and so easily they can be utilized convince the Dos to keep more SKUs of Barilla on the additional space generated due to JITD. Problem 6&7: Forward buy during promotion and during rising price is not allowed by JITD program. Cascading problems: Customer disappointment is not good for any company. This generates mistrust about the JITD among customers .At the same time compromising on JITD will dilute the concept of JITD. Root cause analysis: This is an ongoing issue with JITD which is yet to be solved by Barilla. Barilla should have forecasted such issues and be ready with solutions before implementing the JITD. Measures to curb: Since Barilla is yet to find a solution as per the case study, I suggest to compensate the customer by the amount the customer would have been benefited if he does a forward buy by issuing a credit note. If Barilla overrides the JITD recommendation as per the customer request then it will be a bad precedent and dilute the concept of JITD. Problem 8: Difference in Barilla pastas retail price from JITD DO and non JITD DO in the same town. Cascading problems: DOs who adapted to JITD will discontinue from JITD. Will lead to failure of JITD if the news spread among the DOs.

Root cause analysis: A DO who is not subscribed to JITD is allowed to buy as much as he can during promotion period that is about 5% lesser price. Where as such type of forward buy is not permitted in case of a JITD DO. That is he is buying the pasta for the normal price. When both of them were allowed to operate in the same city , then the non JITD DO will sell at lesser price than a JITD DO which is was happened to Armado Porcini when he adapted to JITD. Measure to curb: Do not allow a non JITD DO to operate in the same town of JITD DO. Problem 9: Error in information from DO to Barilla for JITD planning Cascading problems: If the inputs are having errors then obviously outputs also will be of error. Ultimately will lead to inventory accumulation or stock out at DO. This will result mistrust about JITD among the customers (DO) since they are the one affected mostly by stock outs or excess inventories. Root cause analysis: This is the error from the customer side. But ultimately it will lead to the failure of JITD. Lack of data verification procedure is the possible cause of this issue. Measures to curb: Barilla should have forecasted this issue and should install a data verification procedure to avoid recurrence of such issues. Problem 10: The lost pallet issue from Cortese DO Cascading problem: Mistrust about the JITD program . Negative word of mouth between the customers will lead to the failure of JITD initiative. Root cause analysis: A standard truck type of a particular size was being used for delivery by Barilla to Cortese. One day when this standard truck was not available they loaded the goods in a similar but slightly smaller truck so they were unable to load one last pallet. But this was not communicated to Cortese and the delivery note was not corrected and this leads to all confusion. Measures to curb:

Again a communication problem, this time from the Barillas side. Inform the consequences such mistakes to all concerned people. Verification procedure to be implemented from barilla side as well to ensure the match between delivery note and actual destbatch. Problem 11: Computer Crash from customers side: Cascading problems: Forecast and previous day sale detail not available to Barilla. Will lead to wrong destbatch to customers. JITD will get affected. Root cause analysis: This is a problem from customer side and out of Barillas control. But Barilla should have forecasted such type of problems and possible solutions before implementing the program. Measures to curb: Advise the customer to have a bake up system in case a system breakdown. Use other means like fax or telephone to address the issue.