Barilla Case Study
Barilla SpA is the world’s largest pasta manufacturer The company sells to a wide range of Italian retailers, primarily through third party distributors During the late 1980s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its distributors’ order patterns
Exhibit 12 Weekly Demand for Barilla Dry Products from Cortese’s Northeast Distribution Center to the Pedrignano CDC, 1989.
What exactly is causing the distributor’s order pattern to look this way? What are the underlying drivers of the fluctuations?
Causes of Demand Fluctuations
Transportation discounts Volume discount Promotional activity No minimum or maximum order quantities Product proliferation Long order lead times Poor customer service rates Poor communication
The extreme fluctuation is truly remarkable when one considers the underlying aggregate demand for pasta in Italy. What does the underlying consumer demand pattern for pasta look like in Italy?
Pasta Demand Pattern in Italy The underlying pasta demand pattern in Italy is relatively flat. The pasta demand pattern at the distribution centers (DCs) shows a rather large fluctuation. This appears to be because of the channel policies and dynamics.
Impact of the Order Pattern
Q: What is the impact of the fluctuation? Q: How much does it cost to have order pattern like this? (What line items would be affected?
Implications of the Order Pattern
Inefficient production Excess finished good inventory Low utilization of central distribution Higher transportation costs Excess storage stage at the distributors
What are the differences and similarities between the Barilla channel and the beer distribution channel?
What is the impact of demand fluctuation? Because the plant has high product change over costs, Barilla has either inefficient production or excess...