The increase in variability in Barillas supply chain

The increase in variability in the supply chain is one of the serious issues that the
company was dealing with. It is obvious that the increase in variability in the supply
chain is referred to the bullwhip effect. Actually, the demand for pasta is quite
small; orders placed by the distributors have a huge variability.

Noticed from the figure 4.3, case Barilla A, while the mean of weekly demand is
300 quintals per week, the standard deviation of demand is 227 quintals. In the
other word, there difference of each week from the average order is 227 quintals.
In the Barilla supply chain, chain supermarkets, independent supermarkets, and
shops act as the retailers, who contact with customers demand and usually place
order higher for their suppliers (GD, DO) to satisfy customers demand. The
wholesalers receive orders from the retailers and places orders to the Barilla CDCs.
And finally, Barilla CDCs place orders at the Barilla factory. However, unlike the
retailers can access to the real customer demand, wholesalers must forecast the
retailers demand and that forces them to carry more safety stock than the retailers,
and place order higher to Barilla CDCs. This circumstance is similar to that of the
companys factory. Barilla factory must carry over the distributor that led to
increase the Barillas inventory levels and holding costs. Under the bullwhip effect,
all stages in the Barillas supply chain tend to order higher than the real demand.
One of major reasons contributing to the increase in variability in Barillas supply
chain is the forecasted demand. Namely, most distributors used simple period
review inventory systems, this technique can reduce the time, distributors spend
analyzing inventory counts, however, it may not provide accurate inventory counts
for distributors that cause to the bullwhip effect. Besides, price fluctuation is also a
factor affects the increase in variability. Barilla has various seasonal promotions like
discount to increase customer demand for the products. The buyers will buy more
than necessary and higher than the variation in the consumption rate. These
promotions result in some form of price fluctuations, which force the customer to
buy more than required or to wait for a favorable price. These temporary benefits
can create Bullwhip Effect.
Recommendation
To solve this phenomenon, Barilla could apply centralized information and vendor
managed inventory (VMI) strategy. When each stage in the supply chain can use the
actual customer demand data to create more accurate forecast instead of base on the
forecast of previous stages.
As stages in supply chain decide to work together, the result of this collaboration is
usually a better exchange of information, coordination processes and activities are
also improved. After Barilla receives the agreement on sharing the demand
information and let Barilla control distributors inventory, the VMI can solve the
operational problems faced by Barilla. Through the VMI, Barilla has a chance to
know the real customer demand, which help the company improve the demand
forecast. Barilla can regularly make decisions about the sales orders, how and when
to order. In other word, Barilla can monitor how much stock the buyer has, and then
the supplier determines how much stock to send the customer, when it will be
shipped, and what type of stock. As a result, instead of waiting for the retailer to
order, the supplier manually regulates the supply deals. VMI is an efficient supply
chain that helps suppliers meet their needs without being hampered by purchasing
decisions in the retail chain (the bullwhip effect). Furthermore, VMI integrates the
production, manufacturing, sales, and marketing departments, enabling in close
working and information sharing, which improves performance of the whole supply
chain. VMI strategy also creates a win- win relationship between both sides. When
the products are not sold by the retailer, for example, they can get back to the
supplier (Murray, 2017).

References
Murray, M. (2017). Vendor Managed Inventory (VMI). Retrieved from
https://www.thebalance.com/vendor-managed-inventory-vmi-2221061