To:| Vincenzo Battistini, JITD Implementations Manager|
From:| CDDM Consulting|
CC:| Giorgio Maggiali, Director of LogisticsManfredo Manfredi, Chief Executive Officer| Date:| March 15, 1990|
Re:| Improving Distribution Network Efficiency to Reduce Costs and Recapture Lost Revenue.|
Tasked with analyzing implementation of a “Just In Time Distribution” (JITD) inventory system, CCDM Consulting (CDDM) confirms the feasibility of JITD for Barilla if actions modifying existing division processes and partnering with Barilla’s Grande Distributors are undertaken. Barilla’s Market Share Success and New Challenges to Profit Growth Since Pietro Barilla’s repurchase of Barilla SpA from W.R. Grace in 1979, Barilla has enjoyed a growth rate over 20%, achieving market shares of 35% and 22% in Italy and Europe, respectively. Additionally, overseas exportation is now growing close to 25% each year. Barilla celebrated its one hundred year anniversary by becoming the largest pasta manufacturer in the world, producing three brands of dry pasta goods as well as fresh bakery products, fresh breads, catering products, and international exports. Barilla’s vertically integrated distribution network can be a key driver of profitability. Thirty-five percent of Barilla’s pasta goods are delivered through its own depots, whereas 65% flows to independent distributors of which Grande Distributors for chain supermarkets receive 90% and independent grocers through a coop of Organized Distributors get 10% of the bulk dry pasta goods produced. Clearly, Barilla does not control the majority of its distribution costs. CDDM concluded that further profit and growth is and will continue to be hindered by Barilla’s * Lack of efficient distribution cost control,
* Failure to incorporate inventory management innovations, * Improper demand forecasting, and
* Inability to control its manufacturing rate and corresponding resource levels. Moreover, gains from advertising campaigns, celebrity endorsements and brand positioning will be diminished without realigning goals of the Sales and Marketing Divisions and adding a more efficient supply chain management method. CDDM will help Barilla gain great efficiencies in the Dry Pasta Division by implementing JITD, thereby increasing profits. As we will discuss in the following pages, a fluctuating demand problem caused by distributor orders and trend promotions is mostly due to incomplete or lacking information and a lack of coordination along the supply chain. CDDM, as a neutral third party, proposes to * Analyze past sales data,
* Negotiate with distributors,
* Teach Barilla’s Sales & Marketing Divisions to forecast future demand, and * Implement “Just In Time Delivery” inventory management technology.
After discussing the problems inhibiting Barilla’s adoption of new supply chain management (SCM) techniques, CDDM will present our recommended actions to eliminate these causes.
Factors Preventing Distribution Network Efficiencies
1. Bullwhip Effect Caused by Lack of Information
Knowledge is power. Unfortunately, Barilla is suffering from a lack of knowledge and, thus, power to act. The failure to collect consumer data at the retailers’ point of sale is contributing to inaccurate forecasts, relying on distributors’ desired order schedule rather than real consumer demands. Lack of communication and coordination creates wildly swinging demand fluctuations, like the snap of a bullwhip. In this Bullwhip Effect, each stage of the distribution network reacts to what they believe demand is. The distributor, attempting to meet an uncertain demand, reacts in a disproportionate and inconsistent manner. Coupled with the effects of frequent trade promotions, which we will discuss next, the distributors’ orders are unpredictable and uneven. Thus, Barilla is unable to develop a constant, manufacturing cost minimizing production schedule....