Barilla: Supply Chain Analysis

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Introduction:
Barilla SpA is the largest manufacturer of pasta in the world. Since the 1980s, demands for Barilla’s products have become highly volatile making it hard to predict. In turn, this creates a bullwhip effect which magnifies as it goes up the supply chain causing stock outs and high inventory levels. Pressure has been placed on the new director of logistics to find solutions to these issues and to decide whether or not the Just In Time Distribution, suggested by the previous director, is feasible. This write up is a summary of the analysis, issues, recommendations, and incentives along with the case. Analysis:

At each stage in the supply chain, at the current situation, everybody makes their own forecast. This causes them to estimate the average demand and demand variability which changes the safety stock and order up to level which consequently affects the order quantities and increases variability. We can see this from the variance placed by retailer to manufacturer compared to variance of customer demand seen by retailer: Var (Qk)Var (D)≥i=1k[1+2Lip+2Li2p2]=[1+217+21272]*[1+2107+210272]= 10.531 With the centralized information, the variance reduces to:

Var (Qk)Var (D)≥1+2i=1kLip+ 2(i=1kLi)2p2=[1+2117+211272]= 9.08163 Issues:
There are several issues that contribute to Barilla’s demand fluctuation and variability. The variability in demand rates is extremely high. One reason that demand fluctuates is that promotions and sales occur every 4-5 weeks. There are apparent spikes and drastic declines in demand in correlation to the promotional periods. Another problem is the volume discounts; there are no limits to minimum or maximum orders. The only requirement to receive a discount, based on the case study, was to have a truck load. There are no clear requirements on quantities or batch sizes; it is really up to the distributor or retailer. Because of the large demand variability, Barilla has had trouble...
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