Case Study: Barilla SpA (A) Case Study
The action recommended is to purchase a new POS system to support integration of all levels of the business from manufacturing to the customer. Because of Zara’s current solid financial position and leader in the marketplace, Zara will withstand the initial interruption of business to allow implementation of new technology due to their current solid financial position and leadership. KPIs are implemented to provide efficiencies within manufacturing, the DCs and sales to enhance the successful unique business model.
The following are a list of issues/problems that must be addressed: Distribution system is complex and highly integrated.
Information flow is important to the successful management of demand in the supply chain and it is currently unidirectional. Information must flow from retailer to the supplier. Demand fluctuation – large number of SKUs (dry products 800 and 200 pasta) Promotions with price discount, volume discount, and transportation discount cause more variable demand and inventory at distribution centres. Absence of proper forecasting systems and only following replenishment ordering causing stock outs and back orders. Current operational efficiencies of the Barilla dry pasta manufacturing are driving costs upwards. Inventory levels are high at all levels of the supply chain which is creating two months of inventory in the system at any given time. Organizational issues are caused around Barilla’s culture and attitude, strong brand name creating market share, push strategy and incentive competition.
ENVIRONMENTAL AND ROOT CAUSE ANALYSIS
1. Barilla’s distribution system consists of 65% of dry products (pasta/cookies) and are routed through the CDC. The shelf life of dry products varies from 2.5 to 24 months. 10% of the products want to company run depots. The remaining pasta goes through either the GD or DO. The GD handles all the chain supermarket orders (38.5% of total) and is integrated into Barilla. The DO is a separate distributor that represents the independent supermarkets (16.5% of total). The independent supermarkets sourced from a single DO. The remaining 45% is routed to 18 Barilla run depots. 78% arrives direct from factory while 22% arrives from the CDC. The depots deliver partial truck loads to both types of supermarkets and small independent grocers. The problems with Barilla’s distribution are centered around the DO. 2. Information flow is important to the successful management of the demand in the supply chain. Currently it is unidirectional and information must flow from the retailer to the supplier through the supply chain. This currently is resulting in a 10 day lead time from order to delivery. With a JITD information flow and the ability to observe orders directly from the distributor, Barilla is able to effectively remove one of the inter-firm barrier and by-pass the other. This could reduce a lead time to three days. 3. Demand fluctuations are caused by large number of SKUs. Dry products represent 800 different packaged SKUs and pasta represents 200 different shapes and sizes and 470 different packages. 4. The absence of proper forecasting systems and just following a replenishment ordering system has caused a miscalculation of ROP and safety stocks. Order batching has no minimum or maximum quantities resulting in stock outs and back orders. 5. Irregular demand in pasta is caused by no sophisticated forecasting models despite computerized ordering systems. The past market in Italy is price driven and discounts are noted immediately by the customer which translates to irregular orders varying in size. Order lead time is 10 days from the receipt of order, orders are typically placed on a weekly basis by the distribution centers by various methods and inconsistent amounts possibly throwing the supply chain out of control. The north and south distribution allows faster service...
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