Barilla Case Study
There are some issues currently faced by Barilla. One is that demand fluctuates extremely because distributors order weekly and it is hard to predict the demand on a weekly basis. Another is that there is a significant pressure to manufacture because lead-time and perishability of product vary so much. It’s very hard to speed up the process because each type of pasta requires specific heat and humidity level to dry them properly. In addition, Barilla has to make both dry and fresh pasta and fresh pasta cannot be kept too long as they are more perishable. Because of these issues and error in forecasting, Barilla either produces too much and distributors have to bear high inventory cost or produce too little and unable to meet the demand of the customers. This results in unacceptable quality of service as well.
There is quite a bit of evidence of bullwhip effect in the Barilla case. Bullwhip effect refers to a trend of larger and larger swings in inventory in response to changes in demand. Some causes of bullwhip effect in Barilla is lead time variability, potential forecast errors due to lack of sophisticated technology. Although many distributors had some sort of order system, they lacked forecasting system or tools to correctly predict the quantities. In addition, each distributor can determine how much they want based on their own methods and there is no limit in order quantities from distributors. Another cause of demand fluctuation is excessive promotional activities. Since Barilla has periodic promotional activities, the distributors will buy the products in bulk to take advantage of discounted price and this will result in irregular demand pattern. Further, Barilla had a lack of ways to communicate with the distributors and lack of current information. Thus, even if demand changed significantly in between the times when orders were placed, there was no way for Barilla to know and produce and distribute accordingly....
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