Overview of Barilla
Barilla appears to be in a commodity industry, suggesting flat demand. Barilla positions themselves as the branded, premium, dry pasta. Their order qualifiers are consistency and quality, and their order winners are brand recognition and variety in shapes. In fact their product line is extensive – 800 products. However, Barilla faces demand fluctuations that strain their supply chain operations and making it difficult to anticipate product demand. Barilla proposes a Just in Time Delivery system to help improve margins. Our overall recommendation is that a JITD delivery system is premature, and instead we recommend building a new information management system to resolve the information bottleneck between customer and the manufacturer and align incentives at each stage in the supply chain to reduce inventories. Only then can a JITD delivery system be properly evaluated. The Impact of Fluctuating Demand on Operations
Fluctuating customer demand results in higher inventory for distributors who carry a cross-section of product lines, as demand among product lines fluctuates in unpredictable ways. Certain lines will stock out, while other inventory will merely sit. Thus the sitting inventory creates higher carrying costs. Unanticipated demand will result in higher stock without sufficient information to forecast demand. This is a mismatch in inventory allocation, and a information-transmission issue. Since the manufacturer cannot anticipate which lines will be in greatest demand, lead time is increased, as the manufacturer cannot tailor production to the increased demand until determining which line to produce. These lead times essentially result in a whip-lash effect, in which the factories over-react to stock outs. This results in higher inventory and higher costs. These higher inventory costs contribute to the...