Barilla SpA

Siddhartha Mitra
Soumendra Dalai
Ruchira Panigrahy
Saurav Pattanaik
About Barilla

Started in 1875 as a small shop in Parma, Italy. By 1990, Barilla SPA - World’s largest
pasta producer

Pasta Share - 35% in Italy and 22% in Europe

2 Product Categories – 75% Dry and 25% Fresh

Fresh Products had 21 day Shelf Lives and Fresh Bread with 1 day shelf life

Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf

Lives

Pasta was made in 200 different shapes and sizes , 470 different SKUs

Retail Outlets – Small independent shops and Supermarkets (Chain and

Independent)
Pasta Industry in Italy

Debatable Limited
origin seasonality
Italy had a per
capita pasts
consumption of
Flat growth
18 Kilos per year
rate of less
than 1% per
year during late
Italian pasta 1980s
market
Italian pasta
estimated at
exports to other
3.5 trillion lire
European
by 1990
countries to grow
at 20 to 25% per
year
Barilla plant network
What's the problem?

Maggiali was
acutely aware
of the growing
Internal
burden that Unsupportive
He could not resistance
demand fluctu customers for
implement the from Barilla’s
ations improving
Just-in-time own sales and
imposed on demand
distribution marketing orga
the company’s forecasting
nizations
manufacturing
and distributio
n system.
Sales and Marketing

• Heavily advertised
• Advertising themes were supported by sponsorships of well known athletes and
Advertising celebrities

• Used Trade Promotions to push its products to grocery distribution network

• Each year was divided to 10 to 12 canvass periods
• Distributors could buy as many products as desired
• Different product categories were offered during different canvass period
Trade • Barilla offered volume discounts for the retailers ordering full truck load quantities
Promotions
which made retailers to order more than necessary thereby increasing their inventory
levels.

• Barilla Sales representatives serving DOs spent an estimated 90% of their time
working at store levels. Promptly participated in discussing new products and prices,
covered problems concerning the previous week’s delivery, settled dispute about
different discounts and deal structures
Sales
Representatives • A very small sales force served the GDs who rarely visited the GD warehouses and
sent their orders to Barilla through fax
Q1. What are the reasons for the increase
in variability in Barilla’s supply chain?
 Driving Factors
• CDCs : Northern CDC in Pedrignano & Southern CDC in Naple’s outskirts
Distribution • Maintained separate distribution channels for fresh and dry products
• Distributed through 3 types of retail outlets :
Structure • Small independent grocers, Supermarkets chains & Independent
supermarkets

• GD small salesforce rarely visited GD warehouse

• Sales representative feared reduction in responsibilities
Organizational • Poor communication between Sales staff and Barilla
Deficiencies • Used price promotions as a method to push the product.
• Sales Incentives to the Sales representative

• High number of dry packaged SKUs

• Distributors and Retailers carried too much inventories
Operational • Stock-outs occurrences, longer lead times
Inefficiencies • Lack of infrastructure to handle JITD
• No Information sharing across channels

• Lack of sophisticated forecasting techniques

• Excessive promotional activities and Volume discount
Demand • No limit in order quantities from distributors and Transportation discounts
Fluctuations • Poor customer services rates and communication
• No minimum and maximum order quantities and Expanding products
Bullwhip effect

Bullwhip Effect

• Increasing fluctuations in orders that often occurs as orders move through the
supply chain
• Occurs as orders are relayed from retailers to distributors , to wholesalers, to
manufacturers
• Lack of access to customers demand data at each level of supply chain made
retailers, wholesalers, distributors and suppliers to make their own demand
forecasts and place the orders which considerably increased the inventory levels in
the two facilities of the barilla.

Causes of Bullwhip Effect

• Inaccuracies in demand forecasting

• Weekly variation in customers demand for the pasta products
• Long order Lead times
• Order batching
• Price fluctuation due to promotional sales, used price promotions as a method to
push the product.
• Inflated orders in high estimated demand scenarios
Q2. How can the firm cope with the
increase in variability?
Steps that can adopted
Adopt VMI : Improve strategic relationship between buyers & suppliers

• Vendor Management Inventory is one of the techniques in which the supplier will predict the
demand in all the levels in the supply chain and will deliver the amount of products accordingly
thereby reducing the inventory. It also reduces the probability of out of stock in the business.
• One of the key factor to adopt VMI work is its risk shared . Even if the product is not sold by the
retailer it does not sit with retailer anymore the supplier will repurchase them all which is quite
beneficial for a large supplying company such as Barilla.

Use better forecasting tools

• Centralized information repositories that provide internal (within the firm) and external (among
supply-chain partners) information visibility.

Reduction in the number of SKUs and price Promotions

• Too many SKUs couple with lack of demand information makes it virtually impossible for
production planning team to allocate optimal resources to maintain the required supply-demand.
• Reduce the price promotions as a method to push the product. (Everyday low pricing.)

Control the lead time

• Order lead time is the time to produce and ship which can be reduced by having better production,
planning and transportation mechanisms. Information lead time is the time to process an order can
be reduced by exchanging information within the supply chain.
• Cross docking can help in reducing the lead-time
Q3. What is the impact of transferring the
demand information across the supply
chain?
Benefits of sharing the demand information
• Produce and deliver the appropriate order quantities to the end customer
• Partners can reduce inventory and its holding costs of the whole supply chain to a
Increase great extent
Profitability • Manufacturers can plan the production better and thereby reducing manufacturing
costs.
• Overall profit in the supply chain will increase when bull-whip effect is reduced

• Warehouses can respond quickly to the needs of the retailers.

Forecasting
demand to • Distributors no longer would need to maintain excess capacity than needed
improve • Barilla can help create the demand forecast for distributors who in turn can help
relationship retailers. This will help improve service levels to the end customers.
• Barilla can collaboratively work with warehouses to help shape the demand.

• Improve production efficiency and Reduce wastage

Improve • The demand that is forecasted will be uniform across different levels in the
efficiency supply chain. This will help reduce stock outs at retailers
• Forecasting demand will reduce safety stock, it will reduce inventory holding
costs for all the stake holders in the supply chain
 Q4. Can the VMI strategy solve the
operational problem faced by Barilla?
VMI Strategy
VMI can help create a collaborative planning
• Firms in the VMI partnership share data and transfer the responsibility of
forecasting and/or replenishment to the supplier. This will help Barilla to better
plan the production.
• Company has the opportunity of knowing information about their products and
also the real customer demand of various products. This can help improve the
demand forecast of products significantly

Increase profitability
• Distributors can also have shorter lead times and will face fewer stock-out
situation.
• Uncertainties in supply and demand will be reduced, therefore no more safety
stock levels and no increase in inventory, which helps increase in sales and
profits

Improves strategic relationships and performance

• VMI integrates the production, planning, manufacturing, sales and marketing
departments
• VMI allows risk sharing i.e., if the products are not sold by the retailer they get
back to supplier. This also increases mutual trust between the buyer and the
supplier.
 Q5. How can the supply chain meet the
conflicting goals of different partners and
facilities?
Meet the conflicting goals
Conflicting goals in the supply chain can’t be eliminated completely.
However with the advancements in the supply chain, they can be minimized.

Sharing information among all facilities

• Improve Organizational communication : Between Barilla and Sales Team, between Sales Team
and Distributors/Retailers, Establish two trust between Barilla and Distributors

Co-ordination among all facilities

• Convert CDCs to pass through facilities

• Communicate JITD benefits to distributors

Working towards Global Supply Chain

• The company is vertically integrated, instead of JITD approach, try JIT (lean production) approach
for its manufacturing that Barilla has control and can be done within the company.

Better forecasting

• Reduce the varieties of products or SKU numbers provided to the customers, the easiest way is to
drop the least value-added products.
• Setup time reduction, Kanban are geared towards reducing inventories and improving system
responsiveness. This will minimize the lot-size inventory tradeoff
• Computer simulation of long term cost reduction