Barilla Case
Homework 2 Barilla Case Reading
1.Is there any evidence that Barilla faces the bullwhip effect? If so, what causes of the bullwhip effect are present?
Yes, there are some evidences that Barilla is facing the bullwhip effect. The following causes are presented as below.
1) Demanding forecast. Since safety stock, as well as the base-stock level, strongly depends on these estimates, the user is forced to change order quantities, thus increasing variability.
Lead-time. It is easy to see that the increase in variability is magnified with the increasing lead-time. The variabilities will be magnified by every stage, and become larger and larger.
To reduce the average fixed cost, they use batch ordering. Besides, retailers tend to order more to get the transportation discount. As a result, the order is magnified to a larger one.
Price fluctuation also can lead to the bullwhip effect. If prices fluctuate, retailers often attempt to stock up when price is lower.
Inflated orders. Inflated orders placed by retailers during shortage periods tend to magnify the bullwhip effect.
For Barilla, they have many kinds of products. Large numbers of SKUs make it much more difficult to forecast the demand. Besides, they have different levels of distribution patterns. From the product factories to many CDCs, then to different GDs and DOs, and finally reach the increasing number of supermarkets. Each stage will set the order based on their own need, not the final customers’. Thus, from the perspective of Barilla, the demand is much larger than actual demand of customers.
2. Diagnose the underlying causes of the difficulties that the JITD program (also commonly known as Vendor Managed Inventory program) was created to solve. What are the benefits and drawbacks of this program?
The JITD program is to solve the problem that the manufactories, distributors and the retailers tend to keep a high safety inventory level. As a result, the variance is
1.Is there any evidence that Barilla faces the bullwhip effect? If so, what causes of the bullwhip effect are present?
Yes, there are some evidences that Barilla is facing the bullwhip effect. The following causes are presented as below.
1) Demanding forecast. Since safety stock, as well as the base-stock level, strongly depends on these estimates, the user is forced to change order quantities, thus increasing variability.
Lead-time. It is easy to see that the increase in variability is magnified with the increasing lead-time. The variabilities will be magnified by every stage, and become larger and larger.
To reduce the average fixed cost, they use batch ordering. Besides, retailers tend to order more to get the transportation discount. As a result, the order is magnified to a larger one.
Price fluctuation also can lead to the bullwhip effect. If prices fluctuate, retailers often attempt to stock up when price is lower.
Inflated orders. Inflated orders placed by retailers during shortage periods tend to magnify the bullwhip effect.
For Barilla, they have many kinds of products. Large numbers of SKUs make it much more difficult to forecast the demand. Besides, they have different levels of distribution patterns. From the product factories to many CDCs, then to different GDs and DOs, and finally reach the increasing number of supermarkets. Each stage will set the order based on their own need, not the final customers’. Thus, from the perspective of Barilla, the demand is much larger than actual demand of customers.
2. Diagnose the underlying causes of the difficulties that the JITD program (also commonly known as Vendor Managed Inventory program) was created to solve. What are the benefits and drawbacks of this program?
The JITD program is to solve the problem that the manufactories, distributors and the retailers tend to keep a high safety inventory level. As a result, the variance is