Barilla Spa - Executive Summary 2

Three key issues contributed to the disappointing sales. First, internal organizational challenges prohibited the growth of the line. Rigid

Since Donna Dubinsky and Roy Weaver did not address Mr. Jobs questions regarding the 1985 Distribution Business Plan, he assigned Debi Coleman to develop a new Distribution Strategy Proposal based on the “just-in-time” concept. Ms. Dubinsky was not proactive in presenting her issues and concerns regarding the “just-in-time” concept. It is assumed that she considered the idea not feasible and that it would not gain momentum; however, the exact opposite occurred.

distributors would have to submit their Stock Keeping Unit (SKU) so that Barilla can control it.

Barilla, the leading pasta manufacturer in Italy, faces increasing problems related to demand fluctuation. Their distributors also suffer from high inventory holding costs and low service levels on the other hand. This report explains, why the company and their distributors are troubled with this situation and how Barilla intends to solve it. The problem Barilla experiences is called the “Bullwhip Effect”, i.e. that demand variability increases when moving up the supply chain. Several factors enforce this Bullwhip Effect, e.g. high lead times, poor demand forecasting, and batch ordering. In this report we will point out, that exactly those aspects can be identified as the underlying reasons for Barilla’s problems. In a

In order to increase visibility downstream, Barilla has developed a program that pulls relevant shipping information from their downstream partners. This allows Barilla to optimize production and transportation decisions given the information. Barilla¡¯s Just-In-Time-Distribution program (JITD) effectively looks at the daily shipping decisions made by distributors and warehouses, combines that information with each distributor¡¯s stock position by SKU and plans future production and replenishment decisions for each distributor.

In the effort of keeping with the extremely unpredictable demand the production cost may rise dramatically as a result of diseconomies of scale. In addition the set up cost for producing different products in the production line is heavy and Barilla has an enormous product line of different products. The production plant in Pedrignano is big and technologically advanced but at the same time the pasta production is a complicated process and especially the drying of different types of pasta required precision in temperature and humidity levels that could not be changed

“Reducing the quantities that a customer can order will increase ISOL costs because 98% of ISOL customers throughout the countries make orders for at least a full truckload, which are eight pallets” (Dornier, Ernst, and Fender, 1998). However, if ISOL implements Mr. Dupont’s recommendations, its customers will start ordering smaller sizes, and this will increase the logistics cost. With the idea of cutting the delivery time to 48 hours, this will increase its inventory cost because ISOL will need more inventory on hand. With the current delivery time between one or two weeks, allows the plant to not have

Moreover, the whole team didn’t do adequate forecasts which generated errors and costs for the company.

Barilla offers a diversified line of products/goods of more than 1,270 SKU’s. Adding to this complexity, distribution centers are limited in their ability to carry a large number of SKU’s at a given time.

Because of the way Barilla’s manufacturing process works, demand fluctuations have a significant impact on the company’s operations. Tight heat and humidity specifications in factory tunnel kilns require very specific sequences of pasta production, which means Barilla has limited flexibility in ramping up (or ramping down) the production of pastas experiencing unexpected demand levels. Furthermore, because of extremely high holding costs, it is simply not economically viable for Barilla to maintain substantial finished goods inventories to guarantee fulfilling distributors’ fluctuating order quantities.

They had a problem with regards to the seasonality of the demand on their products.

Also, a problem existed with trade promotion events due to the fact that the company did not negotiate or set a price with the trade on what to sale its products for when they were purchased during a trade promotion. By not having set promotional retail prices, the trade was allowed to stock up on inventory at reduced prices. They did not have to extend the savings to the consumer. This ultimately caused a loss in profit for RBS. To make matters worse, these trade promotions often overlapped with consumer promotions. Therefore, it is hard to tell what the actual real incremental profits for the promotions were.

The Modern Trade channel in Mexico reached a market share in value terms of 33.1% (Barilla, 2016c). The strategic position of the central American state enabled Barilla to reach one of the most potential countries: Brazil. In this territory Barilla reached a 5% market share, an increase of 1% from last year, and opted for a dedicated packaging layout catching the Brazilian growing interest in the “Made in Italy” food products, especially in Brazilian metropolis (i.e. San Paolo’s market share rose to 19%, a 3% increase from 2014) (Barilla, 2016c).

lack of time. This led to several problems related to order management and fulfillment, and orders from

Two Vice Presidents for the company Keene and Ryan come to the conclusion that a task force must be created to make sense of the final forecast and product demand forecast that the four marketing managers created. The task force found many problems some being systematic bias and that it seemed information was being withheld. In the end at the presentation it becomes obvious that the problems were poorly done incorrect forecasting and a collaboration to prevent people from becoming aware of it, by withholding information and