Executive summary

The aim of this study is to provide an in-depth analysis of Barilla Spa. The report aims to look at the companys performance and then propose an improved logistics strategy. The methods employed in the study were to analyse the internal measures of performance and future logistics challenges and mitigate the effect of logistics and supply chain risk. The results of the study showed that there were several areas with room for improvement in Barillas logistics activities. Barilla shows significant fluctuations on demand creating a bullwhip effect. To conclude, Barilla must take into consideration various changes to ensure it maintains its place as a market leader, and to achieve just in time distribution.

Key words: inventory management, logistics, information technology management, performance, strategy.

Contents
Executive summary ............................................................................................................... 1 Table of Figures .................................................................................................................... 3 Introduction ........................................................................................................................... 4 Analysis of current situation .................................................................................................. 4 Plant network..................................................................................................................... 4 Channel of Distribution ...................................................................................................... 5 Sales and Marketing .......................................................................................................... 5 Distribution ........................................................................................................................ 5 Barillas performance ............................................................................................................ 5 Recommendations ................................................................................................................ 6 Barillas logistics strategy................................................................................................... 6 Strategic analysis .............................................................................................................. 7 Strategic choice and implementation ................................................................................. 7 Strategic control ................................................................................................................ 7 Logistics strategy proposal ................................................................................................ 8 Logistics and supply chain risk .......................................................................................... 8 Conclusion ............................................................................................................................ 8 References ........................................................................................................................... 9

Table of Figures
Figure 1-Expected differences in organizational structure forms (Gregory N. Stock, 1998) ... 4 Figure 2 - Elements of strategic planning (Grant, 2012, p. 244) ............................................ 6 Figure 3 - The Ansoff market-product portfolio matrix (Grant, 2012, p. 246) .......................... 7

Introduction
This report covers Barilla Spas growing burden caused by the fluctuations on demand. This burden impacts on the companys manufacturing and distribution system. The objectives of this report are to examine the companys performance and recommend a new logistics strategy. Barilla is a multinational Italian company founded in 1877 with more than one thousand products, which are exported to more than one hundred countries. The company owns thirty production facilities in different countries where more than 1.7 million tons of food is produced every year. The group employs more than 8,000 people. (Barilla Group, 2014) Considering the five primary logistics activities described by David B. Grant (Grant, 2012), inventory management and information technology management are the activities that will be considered to analyse the companys logistics strategy.

Analysis of current situation

In order to define Barillas current situation some parts of the supply chain have to be described. These include: plant network; channels of distribution; sales and marketing; and distribution. Plant network Analysing the companys structure network using the three dimensions: vertical integration, flexibility and relationships, described by Stock et al. (Gregory N. Stock, 1998), Barilla has plants strategically located in different parts of Italy to supply its production line. This is characteristic of high hierarchy, at vertical integration. Figure 1 shows the summarised network structure, which is considered the ideal explanation used by Stock et al. (Gregory N. Stock, 1998)

Figure 1-Expected differences in organizational structure forms (Gregory N. Stock, 1998)

Channel of Distribution Barilla has two central distribution centres (CDCs), one in Pedrignano and the other in Naples. The dry products1 move through the distribution system via the CDCs. Some fresh products2 do not flow through the CDCs. To supply the final customers with Barillas products, the company utilises three different types of retailers to distribute the products: small independent grocers, supermarket chains and independent supermarkets. To deliver the products to these retailers, Barilla uses 70 regional warehouses3, 18 Barilla-owned depots (small warehouses), large distributors (GDs)4 and organised distributors (DOs)5. Sales and Marketing Barilla positioned the brand as a high quality product, making a commodity product, pasta, a sophisticated item. The company uses athletes and celebrities on adverts to promote the brand, directing the campaign towards developing and strengthening the connection with the consumers. The companys sales strategy focuses on trade promotions to push inventories into the retails. Volume discounts are offered by Barilla to the retailers. Sales are generated by sales representatives. Distribution The distributor ordering procedures are computed once per week, taking an average of 10 calendar days as lead-time. The sales volumes vary per distributor. Inventory systems utilised by most distributors use simple periodic-review.

Barillas performance
To analyse Barillas performance, this report uses the internal measures of performance6 in Gregory Stock et al. framework (Gregory N. Stock, 1998), which include: cost, delivery speed and reliability, quality, flexibility, customer service, and distribution. Unfortunately, there is insufficient data to analyse the external measures of performance. The results presented by the Barilla strategy7 show a significant fluctuation on demand. This scenario results in stock-out or too much inventory on distributors and retailers, demonstrating a characteristic of bullwhip effect, defined by Lee et al. as: Distorted information from one end of supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. (Hau L. Lee, Sring 1997, p. 93)

1 2 3

Dry products have a long shelf-life, as long as 24 months, and represent 75% of the Barillas sales Fresh products have a shelf-life as short as 21 days, and represent 25% of the Barillas sales Independent agents called concessionari 4 Grande Distribuzione were the supermarket chains own distribution organisation 5 Distribuizone Organizzata were independent supermarket centralised buying organisation for other independent supermarkets 6 Internal measures of performance relate to the efficiency and effectiveness of the internal manufacturing and logistics process within the firm (Gregory N. Stock, 1998, p. 47) 7 Sales were strongly based on promotions; distributors were responsible for product orders; high mix range, for example, 200 pasta shapes and sizes sold in over 470 different packaged SKU's

Using the bullwhip effect definition to understand the effect caused by the fluctuation on demand, the internal measures of performance become clear on Barilla Spa when analysing the current situation. These measures are described as: Cost high cost, as Barilla focuses on high quality ingredients and products. Delivery speed and reliability low speed to deliver, taking more than one week to receive the delivery of dry products. Quality high product quality, as sales and marketing have positioned the product in the market Flexibility low flexibility, as the production process takes a considerable time to change the setup, being difficult to quickly produce a particular pasta Customer service low customer service, as stock-out leaves the customers with no products to buy, causing them to purchase other products or to not purchase at all. Distribution low distribution, presenting inefficient inventory systems as they use simple periodic-review.

Recommendations
The internal measures of performance show that the logistics strategy needs to be reformulated to improve the five primary logistics activities described by David B. Grant (Grant, 2012). Inventory management and information technology management are the activities that will be considered to develop the companys logistics strategy. Barillas logistics strategy Alan Harrison defined logistics strategy as, the set of guiding principles, driving forces and ingrained attitudes that help to communicate goals, plans and policies, and which are reinforced through conscious and subconscious behaviour within and between partners across a network. (Alan Harrison, 2008, p. 31) Barillas vision is to help people live better by bringing wellbeing and the joy of eating into their everyday lives. (Barilla group, 2014) Considering Barillas inventory management and information technology management to create the logistics strategy as a strategy business unit using the strategic plannings model showed on the Figure 2 - Elements of strategic planning.

Figure 2 - Elements of strategic planning (Grant, 2012, p. 244)

Strategic analysis Considering Barillas current situation and its external environment, for this report the SWOT8 analysis was preferable then others tools such as PEST9 analysis. Strengths Strong market position Strong research and development Weakness High dependence on the European market Inefficient inventory systems on the supply chain Poor communication, taking orders once per week

Opportunities Just-in-Time distribution

Threats Intense competition Stringent regulations Stock-out in some distributors and retailers

Strategic choice and implementation Using the information obtained in strategic analysis, the logistics strategy should focus on converting weaknesses into strengths and threats into opportunities. For this report, the model adopted for strategic growth that companies can use to produce practical strategic options is the Ansoff market-product portfolio matrix10. (Ansoff, 1957)

Figure 3 - The Ansoff market-product portfolio matrix (Grant, 2012, p. 246)

Barilla enters an existing market with its new service (JITD), using product development strategy. Therefore, the suggested logistics strategy is to develop additional services for these markets. In this case, implement JITD. Strategic control The company should include performance measures to control the goals and strategies it has created. It is advisable to use key performance indicators (KPIs) to monitor any deviation from the goals and strategies. The KPIs are: cost, speed, dependability, flexibility and quality.
8 9

SWOT analysis are Strengths, Weakness, Opportunities and Threats. PEST analysis are Political, environmental and legal factors; Economic and market factors; Social and demographic factors; and Technological and change factors. 10 The Ansoff matrix was created by Igor Ansoff (Ansoff, 1957)

Logistics strategy proposal In the short term, the management team should promote to the other teams directly involved in supply chain, that the high inventory and demand fluctuation is not an operational issue but a company-wide distribution chain problem. This is in order to reduce the opposition of the sales and marketing teams to the implementation of JITD and raise awareness that it would not impact on their level of responsibility. Focusing on middle term strategies, Barilla should modify the sales practices that cause demand fluctuations. Introducing periodical orders at agreed prices instead of large batch at discounted price would be one way to combat this problem. Finding ways to improve the delivery times (order fulfilled) is also important, and can be addressed by focusing on reducing the lead-times. This proposal could stimulate the DOs and GDs to keep less inventory and improve the number of orders. Initiating a trial of JITD with one of the Barilla owned depots would be encouraged. For their long-term strategy, Barilla should be focus on Vendor Managed Inventory, emphasising the information network, inventory levels and appropriate information system to control the business interactions. These actions have the objective of realising the JITD. This logistics strategy proposal aims to create: better design of the logistics network; better production planning; better forecasting; and improved replenishment coordination of the production and order cycle. Logistics and supply chain risk Using the four discrete levels of analysis11 described by Helen Peck (Peck, 2005), and focusing on levels one and two, the risks that relate to value stream and processes are mainly the nancial or commercial consequences of inefciencies or sub-optimal supply chain performance. This means the inability to react quickly to unpredictability in demand and the fluctuating needs of the market place. At level two, when considering the risks related to assets and infrastructure dependencies, the flexibility of the network should be considered in terms of the effects of the loss of links, nodes and other essential operating assets, including skilled workers. (Peck, 2005) Considering the logistics strategy proposal above, the logistics and supply chain risks relate to level two, if Barillas distributors refuse to adhere the companys long-term strategy. The loss of skilled workers is another risk here, for example if the head of the logistics department is replaced.

Conclusion
This report analysed the performance of Barilla Spa and proposed a new logistics strategy for the company. This report uses internal measures of performance12 in the Gregory Stock et al. framework as well as elements of strategic planning defined by David B. Grant. To summarise, it is important for Barilla to revaluate its logistics strategy as the company presented a poorly internal performance in most measures. The logistics strategy proposed in this report shows that is realistic to apply JITD for Barilla. Some recommendations proposed in this report present the company with truthful opportunities for change, to make a positive impact on logistics activities.

11

Level one: Value stream and processes; Level two: Asset and infrastructure dependencies; level three: Organisations and inter-organisational networks; and level four: the wider environment (Peck, 2005) 12 Internal measures of performance relate to the efficiency and effectiveness of the internal manufacturing and logistics process within the firm (Gregory N. Stock, 1998, p. 47)

References
Alan Harrison, R. I. v. H., 2008. Logistics strategy. In: Logistics Management and Strategy: Competing Through the Supply Chain. Harlow: Pearson Education Limited, p. 31. Ansoff, I., 1957. Strategies for Diversification. Harvard Business Review, 35(5), pp. 113-124 . Barilla Group, 2014. Barilla overview. [Online] Available at: http://www.barillagroup.com/corporate/en/home/chisiamo/introductiontobarilla.html [Accessed 13 February 2014]. Barilla group, 2014. Vision. [Online] Available at: http://www.barillagroup.com/corporate/en/home/chisiamo/vision.html [Accessed 10 February 2014]. Grant, D. B., 2012. Logistics Management. 1st ed. Harlow: Pearson Education Limited. Gregory N. Stock, N. P. G. J. D. K., 1998. Logistics, strategy and structure - A conceptual framework. International Journal of Operations & Production Management, 18(1), pp. 37-52. Hau L. Lee, V. P. S. W., Sring 1997. The bullwhip effect in supply chains. MIT Sloan Management Review, 38(3), p. 93. Peck, H., 2005. Drivers of supply chain vulnerability: an integrated framework. International Journal of Physical Distribution & Logistics Management, 35(4), pp. 210-232.