BARRILA CASE REPORT

Logistics & Supply Chain Management

Group A04

SUBMITTED BY:
AYUSH BOHRA (87/51)
DEVASHI KESARIA (122/51)
PUNEET AGGARWAL (280/51)
SAMMYAK JAIN (315/51)
SHAVIR BANSAL (337/51)
VAIBHAV KALANI (385/51)
MAYANK VERMA (4021/21)

Q1. What are the reasons for the increase in variability in Barillas supply chain?
Variability in supply chain arises due to variability in demand which can be attributed to the following:
1. Volume and Transportation discounts: A full truckload entitled the distributor to a 2-3% discount by
Barilla. In addition, the sales reps could offer 4% discount on a purchase of minimum 3 truckloads.
This may have wrongly incentivized the distributors to wait for longer durations and in turn reduced
inventory which led to stock-outs.
2. Promotional activities: 10-12 canvas periods (on different product categories) each lasting for 4-5
weeks made it convenient for the distributor to stock as much as he could during these periods
which led to highly variable distributor order quantities.
3. Product Proliferation: Barilla offered 800 dry products in thousands of SKUs which led to an
overburdened manufacturing operation. Also, space constraints at the distributor level deterred
them from stocking new items that they currently did not carry. Thinning margins made it difficult to
invest in storage space.
4. Long order lead times: Order fulfilment took 8-14 days (average: 10 days) thus creating a time lag
between the placement and receipt of order.
5. No cap on order quantities: Lack of volume constraints on distributors enabled them to order
quantities that helped them maximize their margins while putting undue pressure on the production
process.
6. Lack of sophisticated forecasting systems and analytical tools: Most distributors used simple periodic
review inventory system (computer based) and ordered when inventory fell below the reorder level
but did not use forecasting to predict demand.
Stock-outs: Pasta production involved a sequence of specific steps making it difficult to produce during
periods of unexpected high demand. Holding inventory was expensive due to high demand fluctuation thus
leading to stock-outs.

Q2. What is the impact of the highly variable order pattern?

From exhibit 5-3 (Page 155), we see that mean demand is 300 quintals and standard deviation is 227
quintals. The standard deviation is almost equal to the mean. This shows that order pattern is highly variable
with approximately 76% coefficient of variation. Key impacts due to such a pattern are as follows:

Accumulation of inventory in the supply chain. Leads to high Inventory carrying cost and
manufacturing cost due to variability and operational inefficiencies
Inacceptable cycle service levels
Thinning of retailers and distributors margin
Poor product delivery
Bullwhip effect (increases cost and decreases fill rate)- variability amplified as we move up the
supply chain, manufacturers receive dramatic effects due to variability focus on fulfilling distributor
orders, not on customer demand
Forecasting inaccuracies
Higher promotional costs
Insufficient capacity to meet the demand. Results in Stock-outs (lost customer and lost sale
opportunities)
While meeting a spike in demand of one product, stock outs may happen for another product being
produced by the same plant
Overburdening of manufacturing and logistics operation- Entire system (the facility, suppliers,
logistics etc) have to work harder in an unorderly fashion. Leads to high costs

Q3. Can the JITD strategy solve the operational problems faced by Barilla?
Key features of JITD mentioned in the case are
o VMI - Vendor-Managed Inventory Concept
o Treats end-customer as the Input
o Aims at managing the Input filter that Produces the Orders
o Decision-making authority for determining shipments in hands of Barilla
o Barilla would monitor the flow of its products through the distributors warehouse, and then decide
what to ship to the distributor and when to ship it
o Distributor provides Data on the shipment and current stock levels for each SKU

Issues Resolved by JITD

1. High Inventory Levels
o With more sophisticated technology and application of forecasting techniques, Barilla will be
able to better forecast demand fluctuations
o Accurately predict demand for promotional and seasonal items
o Better production planning, packaging and distribution of their pasta
o By dictating what the stores required to stock, Barilla can to reduce the number of SKUs in
an effort to maximise the effectiveness of advertising and reduce production complexity
o Inventory levels at both CDCs and DCs will reduce for various products
2. Stock Outs
o It would reduce the number of stock-outs because of the improved forecasting techniques
3. Demand Variability
o Network of supply chain instead of traditional view of an extended supply chain
o Developing better 3rd Party Logistics relations with DCs will allow better communication
o Current system is very Push supply chain oriented, transition must be made towards a more
Pull oriented system
o Bullwhip effect can be mitigated by increasing centralized information on the product flow
o JITD is form of logistics postponement, thus increasing the flexibility of distribution system
4. Organizational Deficiencies
o Centralization benefits everyone. Centralization based on the sales data of the distributors.
This leads to elimination of the unwanted costs
o Elimination of fixed ordering costs for the distributors
o Customized production schedule for Barilla
o Cheaper production and distribution costs for Barilla
5. Information Systems

Issues Unresolved by JITD

1. SKU complexity can be solved by applying the 80/20 Pareto rule to keep complexity down in the
SC system
2. No cost benefit analysis This analysis would help convince others to support the new model
3. Failure to bring all stakeholders on board
4. Incentive system may no longer be appropriate

Q4. Discuss the implementation issues of the JITD strategy.

1. Internal Issues
o

Job Loss JITD does not require as many sales reps to market/ promote products, since a
portion of their current duties include inventory management and order processing for Barillas
customers.
o Incentive based pay changes The sales force fear that they would lose control over their
compensation methods because the system would move towards a pull based supply chain.
o Lack of Belief Information was not presented to demonstrate the actual benefits of JITD
implementation. Hard facts and figures would help to sell the concept. They felt that JITD was
too complex, and that trade promotions cannot be run with JITD
2. External Issues
o Lack of Trust
o Fear of Change
o Loss of Autonomy
3. Organizational Issues
o

Changes need to be made to the organization of Barilla to better align the sales and logistics
departments. Information needs to flow freely between the two for JITD to succeed.
o Barillas fresh products add complexity to the structure of the company.
4. Logistics Issues
o
o
o

JITD requires a high level of technological sophistication in order to provide the proper
information to the producers. This is a large investment that would reside with Barilla
Resistance by traditional business owners
Training would be required to implement internally and at the various sites. The scale of this
training would be very large initially