Barilla Spa Study

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Barilla SpA

Executive Summary
In 1990, Barilla SpA, an Italian pasta manufacturer was experiencing problems in manufacturing and distribution systems caused by seasonal fluctuations in demand. To eliminate these difficulties Giorgio Maggiali, the Chief of Barilla’s Logistics Department, had been trying to implement the Just-In-Time-Distribution (JITD), system proposed by his predecessor Brando Vitali. JITD can be called a remake of popular “Just-In-Time” manufacturing concept. Although Maggiali had been trying to convince his consumers that the JITD would definitely work, he had not made much progress. The program was met with significant resistance by the distributors and Barilla’s own Sales and Marketing organizations. Maggiali was looking for possible solutions of the problem. In the following analysis we will provide recommendations, which will help Barilla to successfully implement the JITD system and thus decrease its costs, increase efficiencies and its profits. Company Background

* Barilla SpA, founded in 1875 as a small family owned pasta and bread “laboratory” gradually grew into a large, vertically integrated corporation with flour mills, pasta plants and bakery product factories located throughout Italy * To compete with over 2000-odd manufacturers, the owners constructed a 1.25 million Sq. Ft. State-of-the-art pasta plant due to which the owners ran into debt and sold the family owned business to an American firm W.R. Grace, Inc. in 1971, which brought capital investment and professional management practices to the company * In 1979, the original owner, Pietro Barilla bought back his company and due to the improving market conditions attained 21% annual growth rate in 1980s by expanding the existing businesses to other European countries * In 1990, Barilla was the largest pasta manufacturer on the world: 35% in Italy and 22% in Europe. In addition to this it held 29% share if the Italian bakery-products market * During the same time Barilla was organized into seven divisions:

1. Barilla Pasta
2. Voiella Pasta
3. Braibanti Pasta
4. Bakery Products (medium to long shelf-life bakery products) 5. Fresh Bread (very short shelf-life bakery products)
6. Catering (Cakes and frozen croissants to bars and pastry shops) 7. International

* Per capita pasta consumption in Italy was nearly 18 kilos/year. By 1990, the Italian pasta market was estimated to be around 3.5 trillion lire and the expected growth rate was 20-25% /year

Distribution Network
Barilla products were divided into 2 categories:
Dry| Fresh|
* 75%| * 25%|
* Shelf-life of 18-24 months| * Shelf-life of 21 days| * CDCs held 1 month worth if inventory| * CDCs held 3 days worth of inventory| Barilla’s products were distributed through 3 types of total 100,000 retail outlets in the following distribution procedure: Since, Barilla is involved in bakery products which are essentially consumer non-durables; the company paid a lot of attention to efficient distribution networks. Moreover, since all products had limited shelf life, speed and frequency with which products could be replaced, also demanded attention. Barilla produced two types of products namely:-

1) Dry Products - consisting of long shelf life (10-12 weeks) and medium shelf life (10-12 weeks) 2) Fresh Products – consisting of products with short shelf life (21 days) The various points of the distribution network through which the products move and get stored are:- a) Central Distribution Networks (CDCs) – Northern and Southern CDCs b) Independent Agents (Concessionaries)

c) Warehouses (Regional) – Seventy in number
d) Barilla Depots – 18 in number
e) Large Distributors (Grande Distribuzione) – Chain’s own distribution Centre f) Organised Distributors (Distribuzione Organizzata) – Centralised Buying Organisation which typically carry 7,000 to 10,000 SKUs of about 200...
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