Barilla Case: Key Assumptions And The Statement Of Issues

Topics: Inventory, Marketing, Barilla Group Pages: 5 (1739 words) Published: November 16, 2010
Executive Summary
My decision is to implement Just in time distribution (JITD) to Barilla Distributors to reduce distribution costs, inventory levels and manufacturing costs. This would enable Barilla to improve relationships with their distributors and provide them with more objective data so that they can improve their own planning procedures. Barilla Operations will have more control on what is being shipped out so that shipments can be planned to optimize full loads. Manufacturing costs can be reduced if schedules are planned in order to enhance operations output….i.e. Reduce down times and ensure long runs of like products to reduce energy costs. They would also be able to achieve financial gains by reducing the large amounts of inventories currently being carried and optimizing manufacturing schedules.

Key Assumptions
It is anticipated that we can improve our own forecasting system to make productive use of the data received to be able to execute the JITD program. •Distributors will need to provide data on what has shipped out to retailers and current inventory levels on a daily basis as replenishment decisions would be made based on this data. •It must be anticipated that there will be significant amount of cost incurred as Barilla will need to support their customers in setting them up with bar-code scanners and computer linkages in order to gain information on their sales data. This will enable Barilla Operations to get the information that they require without resistance from their customers. •We will need to convince our own internal sales and marketing organizations of the benefits of the JITD program and enforce the financial benefits that can be achieved as we will need their support in order to proceed. •By implementing the JITD concept to our distributors, Barilla will be able to reduce the inventory levels significantly and reduce the percentage of stock outs to the retailers by holding inventory in the products that they will need only rather than stocking heavily on inventory that is not moving quickly.

Statement of Issues
The main problem is the high inventory levels and high manufacturing and distribution costs that Barilla Operations is experiencing. This is mainly due to no forward planning resulting from lack of forecasting information from Distributors and Customers. Barilla is constantly changing schedules in order to deal with fluctuations in demand. They are incurring huge costs with the manufacturing changeovers due to the large number of SKU’s that they manufacture and are causing customer stock outs as they are not able to deal with the unexpected fluctuations in demand. As a result, In order to predict their customers’ requirements, Barilla was increasing finished goods inventory so that they can deal with the weekly fluctuations which was becoming extremely expensive. Distributors were also carrying too much inventory to dampen fluctuations in distributors’ orders as they felt their current inventory levels were not sufficient to supply to the retailers. Despite this, Distributors are still not able to meet the demand of their retailers. Current stock out rates from DC to retailers ranged from 5% to a high of 8% while sales were on average 350 Quintals per week over a 1 year period while inventory levels at Cortese DC (Barilla’s largest customer) was on average between 1000 to 1200 quintals per week. This represents approximately 3.5 times the demand requirements of their retailers. In order to improve operations for Barilla and their customers, Barilla Operations need to take responsibility for determining the quantities and delivery schedules. It has been determined that alternatives to order fulfillment need to be established as distributors and retailers are suffering from thinning margins. They need to take costs out of distribution without compromising service. Another problem is that Barilla is currently selling to an old fashioned distribution system and sales...
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