Supply Chain Management
Assignment 3: Supply Chain Coordination
Describe Barilla’s manufacturing and distribution operations.
Barilla has 25 plants, including large flour mills, pasta plants, and fresh bread, as well as plants producing specialty products. Raw materials, in the manufacturing process, were transformed to packaged pasta on fully-automated 120 meter long production lines. The plants were specialized by the type of pasta they would produce, with the primary distinction based on the composition of the pasta, e.g. dry or fresh pasta, pasta with or without eggs and spinach. Also, even within the same family of pasta products, individual products were assigned to plants based on the size and shape of the pasta. The manufacturing process at Barilla was very precise, and required tight heat and humidity specifications in the pasta dry process, so as to keep the changeover cost low and quality high.
Barilla divided its products into “dry” and “fresh” product categories and maintained a different distribution system for the two categories. The dry products category includes dry pasta and longer shelf-life bakery products, whereas, the fresh products category includes fresh pasta products (with 21-day shelf life) and fresh bread (with one-day shelf life). Barilla had two central distribution centers (CDC) to which the products shipped from the plants. The fresh products were then purchased from these CDC’s by independent agents who then channeled the products through 70 regional warehouses located throughout Italy.
From the CDC’s approximately 65% of the dry products went to the supermarkets, 70% of these (65% of dry products) went to super market chains, whereas, the remaining 30% went to independent super markets. The remaining 35% of dry products were distributed from the CDC’s to Barilla’s internally owned regional warehouses, which then distributed them to small independent shops – Signora Maria Shops.
Dry products destined for supermarket chains were distributed from the CDC to the chain’s own distribution organization, known as Grande Distribuzione (GD). While those destined for independent supermarkets were distributed from the CDC to a distributor known as Distribuzione Organizzata (DO), which acted as a centralized buying organization for a large number of independent supermarkets. The CDCs held a month’s inventory for dry products, and 3 days for fresh products. The GD, DO and the internally owned regional warehouses (for Signora Maria shops) held a two-week supply for Barilla’s dry products. The following figure (Figure 1) shows an illustration of Barilla’s distribution system for dry products:
Figure 1: Barillas Distribution Network for Dry Products
What is the problem faced by Barilla? What do you think are the factors causing this problem?
Barilla’s pasta supply chain suffers from classic bullwhip-effect problem. It has been experiencing large amounts of variability in demand resulting in operational inefficiency and increased manufacturing, inventory, and distribution costs. The underlying factors of the fluctuating demand include Barilla’s sales strategy relying heavily on the use of promotions in the form of price, transportation and volume discounts; sales representatives being rewarded based on the amount of product sold to distributors, which led to sales representatives trying to push product to the distributors during promotions, decreasing the ability to accurately forecast sales; the distributors having full control over their orders leading to gaming behaviors; and the lack of a computer forecasting system at the distributor level.
Describe the solution proposed by Brando Vitali. Why do you think this would help alleviate the problem?
Brando Vitali suggested the implementation of a Just-In-Time Distribution (JITD) strategy, which is essentially the Vendor Management Inventory (VMI) strategy. Barilla will be in charge of the...
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