Barilla Case Study

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Barilla SpA
* The spaghetti incident -

Maastricht University
School of Business and Economics
International Executive Master of Finance and Control
20 April 2012

Course – Logistics
Prof. Dr. Allard van Riel

Pauline Henselmans
Jetse van de Kamp
Ze Zhu
Thiago Barros de Oliveira
Rene Lorrier
Contents

1.Reasons for the increase in variability in demand in Barilla’s supply chain3
1.1Distributed inventories, local optimization3
1.2Lack of inventory information and sales forecast information3
1.3Promotions and quantity discounts4
1.4Lack of sophistication at the retailer and distributor level4
1.5Barilla’s large number of SKU’s4
1.6Barilla’s production process4
2. Solutions5
2.1Promotions and quantity discounts5
2.2Lack of sophistication at the retailer and distributor level5
2.3Large number of SKU’s5
2.4Production process5
3.Proposed Strategy for decreasing bullwhip effect6
3.1 Step 1 - Involve top management to realize changes within the company6
3.2 Step 2 – Run a pilot with JITD at a GD7
3.3 Step 3 – Run a pilot with JITD at a DO7
3.4Step 4 – Implementing JITD across the supply chain, using best practices7
3.5 Changes to the sales organization8
3.6 Improvements at the retailers and distributor level8
3.7 Upgrading Barilla’s production process8
4. Final considerations9
Reference List10

1.
Reasons for the increase in variability in demand in Barilla’s supply chain The root cause of the increasing variability in Barilla’s supply chain is the demand fluctuation. In fact, Barilla is suffering from what is known as the bullwhip effect: demand fluctuations increase as one moves up the supply chain from retailer to manufacturer (Boute and Lambrecht, 2009). The large impact of the bullwhip effect at Barilla has a number of causes, which will be explored in this section.

In the paragraphs that follow, the following main underlying causes of the variability in the demand fluctuation at Barilla will be discussed: * Distributed inventories, local optimization
* Lack of inventory information and sales forecast information * Promotions and quantity discounts
* Lack of sophistication at the retailer and distributor level * Barilla’s high number of SKU’s
* Barilla’s production process
1.1Distributed inventories, local optimization
Regarding its dry products, which represent 75% of Barilla’s total sales, Barilla uses two central distribution centers (CDCs), one in the north and one in the south to channel 65% of its dry products. After storage at one of the CDCs, 90% of the dry products are distributed to grande distribuzione (GD) or distribuzione organizzata (DO), where GDs are part of Barilla’s and DOs are independent/external distributors that act as central buying organizations for a large number of independent supermarkets. The remaining 10% of the dry products is distributed to Barilla-run depots (18 in total) which in turn distribute mainly to small grocery stores and partly to both chain supermarkets and independent supermarkets. All distribution centers, supermarkets and small grocery stores keep a safety stock to avoid stock outs.

This increase in safety stock from retailer to distributor and from distributor to factory is a well-known effect of the previously mentioned bullwhip effect. The isolated way in which Barilla’s distribution channel is currently organized implies that each partner in the channel is organizing its own information gathering and uses the information gathered only internally. 1.2Lack of inventory information and sales forecast information In the current situation, Barilla clearly lacks vital inventory information as Barilla does not know what the safety stock levels and base stock levels of each individual warehouse are (from retailer to distributor). Moreover, Barilla does not have insight into the actual stock levels on a day to day basis....
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