Barilla Case Study: Production Is Based On Demand Prediction

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EXECUTIVE SUMMARY
My decision is to implement the Just-in-Time Distribution (JITD) to improve the supply chain effectiveness especially the order fulfillment of Barilla SpA.
Production has to be based on demand prediction and not only on orders. Sales and Marketing has to provide this information since they are always in contact with the distributors and customers.
Information demand should be collected and used in order to manage inventory properly. This will eliminate stock outs and shorten production and delivery lead time. If my distributors will discard this JITD approach, I will have to recruit support from my internal organizations like the Sales & Marketing, Finance, Production, Logistics, Purchasing, Quality Assurance and Product Development.

KEY ASSUMPTIONS
It is anticipated that it would take a lot of time and effort before I could implement JITD to my supply chain. I need to convince all the supply chain players that this new approach will benefit everyone. • New computer system will be purchased by the company. Bar code system will be linked to the supply chain system in order to get accurate inventory movements in and out of the company. •Distributors may not agree to the idea of having a vendor-managed inventory.

STATEMENT OF ISSUES
As a background, Barilla, the world’s largest Italian pasta manufacturer was founded in 1875 by Pietro Barilla, as a small shop in Parma, Italy. Barilla is making 35% of all pasta sold in Italy and 22% of all pasta sold in Europe. In Italy, Barilla offered pasta products under three brands: Barilla brand, Voiello brand and its Braibanti brand. About half of Barilla’s pasta was sold in northern Italy and half in the south, where Barilla held a smaller share of the market. In addition, Barilla held a 29% share of the Italian bakery-products market. Since 1960, the company is competing to 2,000 Italian manufacturers. Barilla SpA is experiencing amplified levels of inefficiencies and rising costs due to variability in demand from its distributors. The main problem addressed in this case is how to effectively implement JITD system suggested by Giorgio Magialli, the Director of Logistics by resolving the issue of gaining control over the fluctuating demand. Barilla has a very complex distribution network including independent third party distributors. Barilla has been experiencing large amounts of variability in demand which are resulting in operational inefficiency and increased manufacturing, inventory and distribution costs. Barilla’s marketing and sales strategy was based upon a combination of advertising and promotions. One of the issues which the company is facing is that Barilla’s customers were unwilling to give up their authority to place orders as they pleased. Some were even reluctant to provide detailed sales data upon which Barilla could make delivery decisions and improve its demand forecast. In addition, I noticed that there is a long lead time from the time of order was placed up to the delivery of the product to the distributor – average of 10 days. One of the reasons is that there is too much variety of pasta being manufactured. Most distributors checked their inventory levels on weekly basis. This is why there is a large inventory at the central distribution centers (CDC), large distributors (GD) and organized distributors (DO). I should say that inventory status should be monitored on a daily basis. This problem will also increase inventory costs. The main problem is that distributors are having inventory stock outs that would lead to loss of income. There is unmanaged supply chain which resulted to miscommunication and wild variations in upstream operations.

CRITERIA
In order to succeed in my marketing task, there should be proper forecasting system which has to be done by the Sales and Marketing. This should be communicated to the Logistics department for the acquisition of raw materials and perform...
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