LOGISTICS AND SUPPLY CHAIN MANAGEMENT

CASE STUDY REPORT

BARILLA SPA

SUBMITTED BY: GROUP 7

PRIYA BHATIA – 18PGDM189

AMAN

JAYATI
Introduction

The case revolves around issues faced by the world’s largest producer of pasta,
Barilla spA, due to high fluctuations in demand. This unstable demand caused
plethora of burden on the company’s manufacturing and distribution system.
Started in 1875 as a small pasta shop, Barilla eventually evolved into a large,
vertically integrated corporation with flour mills, pasta plants, and bakery-product
factories. Barilla owned and operated a vast network of plants located throughout
Italy. Its technologically advanced manufacturing plants had 120m long production
lines which produced around 9000 quintals of pastas each day. Based on the size
and shape of pasta, each individual product was assigned to a specific plant.

Distribution Network

Most of the Barilla products were shipped from the production plants to one of the
two Barilla central distribution centers (Northern CDC in Pedrignano and Southern
CDC in the outskirts of Naples). The company ensured that the distribution
systems for dry and fresh products remained separate due to their differences in
perishability and retail service requirements. There were three major retail outlets
which distributed Barilla products: small independent grocers, supermarket chains
and independent supermarkets

 Fresh products were purchased by independent agents from the two CDCs
and then channeled to 70 regional warehouses.
 Nearly two-third (65%) of the dry products were first shipped to the CDCs,
from where they were purchased by distributors. The distributors, thereafter,
shipped the products to supermarkets. Those products which were destined
for chain supermarkets were distributed through “Grande Distribuzione”
(GD) while those destined for independent supermarkets were distributed
through “Distribuzione Organizzata” (DO)
 GDs and DOs purchased products from CDCs, maintained their own
inventory and then fulfilled supermarkets orders from their warehouse
inventory
 The remaining dry products (35%) were distributed to small shops through
18 Barilla owned depots/warehouses
  Distributors used simple periodic review inventory systems where order was
only placed when inventory levels would fall below a specific reorder level.
 This kind of procedure made it difficult for the company to anticipate
demand swings and they ended up with lot of inventory along with creating
chaos in the manufacturing as well as distribution operations to meet
distributors demand.

Issues

The fundamental issue that Barilla was facing was the lack of sales data
information that was necessary to produce inventory quantities according to the
actual market demand. Due to extensive promotional activity, no limit in order
quantities from distributors, lack of sophisticated forecasting techniques and
volume discounts made Barilla to suffer from operational inefficiencies and cost
penalties. Holding enough finished goods inventories to meet distributors’ order
requirements became extremely expensive because of large week to week
variations in demand. Infact, prediction of demand also became an uphill task for
the company.

Solution

The company planned to implement JITD wherein rather than sending products to
distributors based on their internal planning processes, they would analyze the ship
data of distributors and send what is exactly needed at the stores. This would
reduce the distribution cost, inventory levels and ultimately manufacturing costs.

Previous day data from the distributor regarding products that are shipped out
from warehouse to retailer

Current stock levels from Barilla SKU

Replenishment decisions based on forecast.

JITD would in a way be beneficial to distributors as well because it would lead to a

substantial decrease in inventory carrying cost and aid in increasing service levels.

HOW TO IMPLEMENT?
• Define: Define the tangible goals of JITD and prepare for the test run in 10%
of the distribution network
• Measure: Measure the sales volume data and changes in the demand with
JITD implemented
• Analyse: Analyse the areas which are affected by implementation of JITD.
Highlight the benefits and try to scale up by bringing other distributors on
board
• Inspect: Closely monitor even the minute changes, use control charts to keep
in check the quality and effectiveness of the JITD System
• Control: Keep the JITD system flexible as per the requirements of the market
and the capability of the supply chain Network.