Barilla SpA (A)
SUBMITTED BY: Section A Group 9
C. Narayana Reddy
Barilla SpA, an Italian pasta manufacturer is experiencing problems in manufacturing and distribution systems caused by fluctuations in demand. To eliminate these difficulties, Giorgio Maggiali, the Chief of Barilla’s Logistics Department, has been trying to implement the Just-In-Time-Distribution, further referred as JITD, system proposed by his predecessor Brando Vitali. JITD can be called a remake of popular “Just-In-Time” manufacturing concept. Although Maggiali has been trying to convince his consumers that the JITD would definitely work, he has not made much progress. The program was met with significant resistance by the distributors and Barilla’s own Sales and Marketing organizations. The short term objective of Maggiali is to be able to overcome the resistance and implement the JITD solution while the long term orientation is to increase the profitability of the corporation. Maggiali is looking for possible solutions of the problem. Overview of business (Case facts):
Barilla Product Range included Pasta, Bakery Products, Fresh Bread and Catering Products and as of 1990, it was the world’s largest pasta producer with 35% market share in Italy out of which 32% came from the traditional brand. It also occupied a 22% market share in Europe. It operated an extensive network of plants located throughout Italy including flour mills, pasta plants, and fresh bread plants, as well as plants producing speciality products. Barilla enjoyed a strong brand image in Italy. Its marketing and sales strategy was based upon a combination of advertising and promotions which can be grouped together under the two heads: Advertising
* Barilla positioned the brand as the highest quality, most sophisticated pasta product available as “Barilla: a great collection of premium Italian pasta.” * It avoided images of tradition and preferred modern, sophisticated settings in major Italian cities. * Sponsorship of well known athletes and celebrities supported advertising themes like Steffi graph. * It focused on developing and strengthening loyal relationship with Italian families
* Great emphasis was laid on discounting and it was offered at the frequency of once in a month every year with the incentive to the sales reps to maximize sales during these periods * Customers could buy for current and the future periods * Bearing the transportation costs based on volume discount. Incentives of about 2 to 3% to distributors ordering full truck loads were provided. Distribution:
Most of the distributors placed their orders as per their requirements and the inventory stock level. The product would then be shipped to the distributor over the course of the week, which resulted in an average lead time of around 10 days. Most of these used simple periodic review inventory systems. The order would be placed only if the inventory level falls below a specified reorder level.
Channels of distribution:
The product line was divided into Dry( 75%) and fresh( 25%) product categories. Most of these products were shipped to either of the two Central distribution centres( CDCs): Northern CDC in Pedrigano, or the southern CDC in Naples. Only 3 days worth of fresh product inventory and a month’s worth of dry product stock was held. Fresh products like bread did not flow through CDC as their shelf life was of a day. The JITD focused solely on the dry products moving through the distributor network. The distribution network was hierarchical and could be portrayed as under:
* Extreme demand fluctuations (Since 1980)- week to week variation in distributors’ order patterns: The demands swung wildly from week to...