My decision is to implement the Just-in-Time Delivery system. JITD will resolve the increasing operational inefficiencies and cost penalties that have resulted from large week-to-week variations in Barilla’s distributors order patterns. In order to reduce the Bullwhip effect being experienced by Barilla, their supply chain would have to be Centralized. This solution allows Barilla to see end customer demand and eliminate costs involved with inventory, manufacturing, and transportation. JITD would allow Barilla to work directly with its distributors and create a flexible manufacturing process. By following the suggestions made in the plan of action, Barilla will succeed in influencing its distributors and Sales personnel to work together and implement the JITD program, which will produce better performance in terms of time and money but will also promote trust and good relations among all the associates in the supply chain.
The main problem addressed in this case is how to effectively implement the JITD system suggested by Giorgio Magialli, the Director of Logistics. Barilla has a very complex distribution network. Barilla has been experiencing large amounts of variability in demand which are resulting in operational inefficiencies and increased manufacturing, inventory and distribution costs. The proposed JITD system requires the distributors to share their sales data with Barilla, who would then forecast and deliver appropriate amounts of products to the distributors at the right time in order to effectively meet demand. The system is received with resisitance from unconvinced and leery distributors as well as internally with the sales reps who fear, among other things, reduction in responsibilities.
In this case, a successful decision would result in the reduction of the Bullwhip effect, which Barilla is experiencing. It would also reduce the variable demand that is causing inefficiencies and increasing costs. The decision should bring positive results to the entire supply chain and ensure that all concerns brought up both internally and externally are met.
Barilla SpA, an Italian pasta manufacturer, is experiencing levels of inefficiencies higher than ever before. They are also occurring rising costs due to variability in demand from its distributors. The distribution system at Barilla SpA is excessively complex. That complexity is causing them to be unresponsive to their widely variable customer demand and consequentially operational inefficiencies and increased manufacturing, inventory and distribution costs are caused. Their customers and distributors are required to possess high levels of inventories while at the same time maintaining stock outs on average of 7%. The central reasons for fluctuating demand include the use of promotions (price, transportation, and volume discounts), the compensation system in place for Sales reps (they push more products into the channel during promotional periods and not able to sell sufficient quantities during non promotional periods), the large range of SKU's in each product line, and incorrect forecasting practices. The fluctuating demand has had adverse cost implications for Barilla. The production costs were rising heavily due to frequent changeover for offering wide range of SKU's, and backorders. It also led to production scheduling difficulties and high labor and transportation costs to satisfy the high ordering during promotional periods. The fluctuations in demand have several negative impacts to the pasta business. Neither the distributors nor Barilla had the ability to precisely predict future demand. For Barilla and its distributors, holding inventory is a costly. Without proper demand information the distributors did not know how much stock to hold and Barilla did not know how much pasta should be produced. The climax of the inventory trouble is when a stock out occurs because it is felt on both ends. A second impact of incorrectly predicted demand relates...
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